Labour VAT raid ‘could shut half of small prep schools within a year’

A group of students studying under a tree
A group of students studying under a tree

Half of small prep schools could close within a year of Labour taking office because of the party’s proposed VAT raid, the sector’s leader has warned.

Dominic Norrish, the chief executive of the Independent Association of Prep Schools (IAPS), said that vast numbers of traditional junior schools, many in rural settings, would become unviable “overnight” if faced with demands for the 20 per cent tax.

Approximately 500 prep schools in the UK cater for 200 or fewer pupils. Many of these operate on fine margins and it is suspected that a significant proportion are already operating at a loss.

Mr Norrish said that because independent schools were wary of revealing financial vulnerability for fear of putting off parents, Labour had “no idea” what damage their flagship election pledge could wreak.

Approximately 250 schools comprising a total of about 50,000 pupils are feared to be at immediate risk.

He called for the party to promise in its manifesto, which will be published on Thursday, to exempt schools of 200 or fewer pupils.

‘Won’t be sustainable’

“You have a tranche of schools that are currently running a deficit and they would collapse straight away – they would simply cease trading,” he said.

“Looking at schools with fewer than 200 children, I’d say about half of them are at risk of closure.

“They won’t be sustainable. If they’re going from, perhaps, a one or two per cent surplus each year to a 14 per cent deficit for example [assuming not all the 20 per cent is passed on to parents] they will close, there’s no two ways about it.”

Mr Norrish warned that where small schools did survive the immediate shock of the tax, even a small attrition of fee-paying parents would be enough to fatally undermine their sustainability.

The loosely defined concept of prep schools can be taken to include both the minority of more traditional establishments that educate children up to 13, or the larger number of so-called “11 plus” schools that mirror the state primary age categories.

While small and medium-sized schools across the independent sector are under threat from the proposed tax – as well as the scrapping of business rates relief – small prep schools are feared to be among the most vulnerable.

Significant numbers are located in rural settings, meaning the choice of state primaries would be limited for children who are forced to leave schools that are closing.

On Sunday, Emily Thornberry, the shadow attorney general, said that the policy risked swelling class sizes in state schools, before she was slapped down by Sir Keir Starmer.

Labour has promised that the policy will raise £1.7 billion in tax revenue to be spent on state schools.

Both the independent sector and the Conservatives dispute that it will raise anything like this sum, pointing to projections of an exodus out of private schools of pupils whose parents can no longer afford the fees.

‘Backswing of swipe at sector’

Mr Norrish said that IAPS analysis suggested that exempting smaller prep schools from the tax would cost £170 million at most.

He pointed to the current rules around the apprenticeship levy, whereby companies are exempt from paying if their annual pay bill is less than £3 million.

He also said that while Labour appeared to be targeting rich, larger private schools, particularly the better-known establishments, it was smaller ones that would pay the price.

“This is the backswing of Labour’s swipe at the sector,” he said.

“This [smaller schools] is not really who they’re aiming at, but it’s who they’re going to take out on their way through.”

Head teachers have been anxiously waiting for Labour’s manifesto to find out what exemptions may be made.

Labour has suggested that there will be some form of exemptions for children with special needs, but there is confusion as to how this would work.

It is estimated that about 100,000 pupils within the private sector who receive special needs provision do not have a formal educational and health plan certificate.

Labour has also suggested that children of military families may be exempt.

A Labour spokesman said: “Independent schools have raised fees above inflation for well over a decade and do not have to pass Labour’s proposed change on to parents.

“Labour will invest in delivering a brilliant state education for children in every state school by recruiting over 6,500 new teachers, funded by ending tax breaks for private schools.”