Labour's plan to impose VAT on private schools 'could raise no cash'

Labour’s plan to impose VAT on private schools ‘could raise no cash’ despite predictions it would raise £1.6 billion, think tank warns

• Researchers suggested Labour’s calculations for the new tax were flawed

Labour’s class war scheme to impose VAT on private school fees may end up raising no money at all, a think tank has warned.

Party officials had estimated their plan to levy another 20 per cent on top of parents’ current costs would raise £1.6 billion, which would go towards funding their extensive government spending plans.

But a report released today by the EDSK think tank – a non-partisan organisation focusing on education and skills for learners – has said the policy could raise zero additional revenue.

Researchers suggested that Labour’s calculations were flawed and based on erroneous numbers and methodology.

The original calculations behind the £1.6billion figure were wrong, they argued, as they include over 50,000 pupils in state-funded schools and nursery-aged children. The 628,000 assumed to be in the independent sector is more like 512,440, EDSK researchers said.

Party officials had estimated their plan to levy another 20 per cent on top of parents’ current costs would raise £1.6billion, which would go towards funding their extensive government spending plans

Research from the Independent Schools Council (ISC) in April showed 20 per cent of parents would ‘definitely’ withdraw their children from their private school if the levy is applied in future (Pictured: Eton College) 

It also includes boarding schools and their accommodation – which is exempt from VAT – and failed to account for those who will leave private education once the levy is applied.

The think tank found that under a ‘best case’ scenario, just £1billion will be raised, while a ‘worst case’ scenario – where 25 per cent of pupils leave private schools – will result in no additional money.

Research from the Independent Schools Council (ISC) in April showed 20 per cent of parents would ‘definitely’ withdraw their children from their private school if the levy is applied in future.

EDSK director and paper author Tom Richmond said: ‘Claims of £1.6billion a year being raised from adding VAT to private school fees look far too optimistic, particularly if any more than a small number of pupils end up leaving private schools and moving to the state sector instead.

‘What’s more, changing VAT rules with the sole aim of targeting private schools could lead to many unintended consequences that result in a government raising much less money than intended.

‘Adding VAT on fees is also likely to have the least impact on the most expensive private schools and the wealthiest parents. This could reduce the level of public support that any government can expect to gain from such a move.’

Lord Lucas, the publisher of the Good Schools Guide, said: ‘Its conclusions as to money raising sound about right.

‘But the objectives of the policy are political, not economic – to throw a bone to Labour’s left wing, and to sound off about inequality.

Lord Lucas, the publisher of the Good Schools Guide, said: ‘Its conclusions as to money raising sound about right. ‘But the objectives of the policy are political, not economic – to throw a bone to Labour’s left wing, and to sound off about inequality

‘To my mind, the policy does not hit its political objectives – it makes independent schools even more socially selective, and hurts thrifty middle classes who put their children first.’

A Labour source said: ‘Labour does not recognise the numbers cited in this report, which rest on flawed assumptions and leaves more questions than it answers.

‘We do not accept that the numbers of students leaving the sector would be anywhere near those cited this report, something which previous research from the respected Institute for Fiscal Studies has also been clear about.

‘The report also assumes that money not spent on private schools would not be spent on other VAT-able goods and services: that shows that this is simply not a serious piece of research.

‘Labour’s position, and our policy, remains clear – we will invest in our state schools by ending the tax breaks private schools enjoy.’

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