The Labour Party says it will remove “unfair tax breaks” on independent schools, raising £1.6bn in VAT and £0.1bn in business rates, which it will spend on improving state schools. It seems to be coy about sharing its fag-packet business case (I’ve asked, no answer); the only way to reach those numbers is by assuming (1) the schools pass virtually all the tax onto parents’ bills and (2) virtually no families present or future migrate towards the state sector despite a resulting fee hike. If many families do migrate, as some reports indicate they will, it rapidly becomes expensive for the taxman and blows a proverbial ill wind towards state schools and the public finances.
Keir Starmer has spoken on Radio 4 of “stress-tests” proving his business case. Interviewers should be all over this. What test? What method? Who did it? Who audited it? What are the risks if you’re wrong? And most importantly, why won’t you publish the whole lot? If only our journalists, and the Conservative Party, were more inquisitive.
Most recently he told LBC radio that:
We have obviously looked at reports on this and all the reports show that it’s unlikely that parents will take their children out of schools… I have looked at this question of will it lead to children leaving private schools and going to state schools and the answer to that, on all the evidence I’ve seen, is no that it won’t [emphasis mine, here and below].
There’s not much evidence. Neither we, nor any country in the world, has ever slapped a 20% tax on school for the excellent reasons that (1) education creates significant social benefit and (2) private education saves the taxpayer a heap of cash. Such “evidence” as exists is pretty speculative and all of it indicates that some parents will become unwilling or unable to keep paying independent school fees.
I’m not aware of a single report that justifies Sir Keir’s LBC remarks.
Baines Cutler report
I’d be surprised if nobody has shown him this Baines Cutler report. We know that Shadow Education Secretary Bridget Phillipson is aware of it. Either Sir Keir needs to read more widely, or he’s being economical with the truth. In the executive summary you can read the stern warning:
Changing this to make school fees liable to VAT would have a very considerable impact on the independent schools’ sector, ranging (on a school-by-school basis) from tough, to catastrophic.
The warnings continue of school closures, strains on the taxpayer-funded sector, operational challenges in the latter and the unpredictability of distribution of the demand switch (it will fall unevenly and nobody knows where). The headline ‘drop-off’ rate predicted is 25%.
EDSK
This EDSK report explores the fiscal consequence of pupil migration from private to state sector using both a 5% and 25% scenario. Quite reasonably, the authors do not commit to an unknowable migration forecast, but they do conclude (referring to Baines Cutler) at the 25% level the VAT measure raises zero net revenue (allowing for less VAT revenue than forecast and for extra state school expense). That’s extremely generous to Labour since it assumes no school closures or cost-cutting (which hit payroll taxes and supplier VAT) and assumes parents continue working and paying tax at the same level themselves, even as they start receiving their education for free at taxpayers’ expense.
The payroll taxes alone on what parents earn to pay school fees amount to around £10bn (assuming 40% taxpayers) so this is a major omission from the debate. 25% migration equates to £2.5bn at risk, plus the lost value-add to parents’ customers, employers and employees, most of which is taxable in some form. Taking that into account, my fag-packet suggests the policy raises zero net revenue somewhere between the 5% and 15% level – I’m making big guesses whether migrating families continue working hard for luxuries, or instead choose more leisure, but so is everyone else.
Experts?
A valid criticism is that Baines Cutler was funded by the Independent Schools Council and rested heavily on a ‘stated preferences’ survey of motivated parents and independent schools. We’d much rather rely on ‘observed behaviour’, but we’re talking entirely uncharted waters. So do we, or don’t we, rely on experts? Who is more expert on independent schools’ customer dynamics than the schools and their customers?
Perhaps we should ask Francis Green of the Private Education Policy Forum, author of Engines of Privilege, who wants private schools to be abolished. Without irony, Professor Green complains about independent schools’ institutional weight while calling to expand the state from his state-funded job and state-funded research budget. Professor Green, natch, took advantage of taxpayer funding to send his own children to grammar school, so no privilege there.
If we’re wary of bias from the ISC, we should treat Professor Green’s input with similar circumspection.
Before we look at Luke Sibieta’s Nuffield Foundation-funded IFS report on the expected effect of VAT, let’s note that Luke Sibieta has previous with Professor Green. They worked together on this previous Nuffield-funded Institute for Fiscal Studies report, to tell us plenty about inequality and rather less about quality in education.
Luke Sibieta studied at UCL. Professor Green’s at UCL. I’m sure it’s all perfectly objective.
The IFS report
Back to Keir Starmer and the likelihood of pupil withdrawals. The IFS ‘best judgement’ was that 3-7% of pupils could be expected to migrate to taxpayer-funded schools and that the net tax revenue raised would therefore be more like £1.3-1.5bn than the £1.6bn claimed by Labour. So again, either Sir Keir needs to read it or he’s being economical with the truth. And that’s his most supportive evidence.
I’ve explored the IFS report before on Daily Sceptic and here on my blog: it misrepresents some very thin and very old data; it extrapolates into the future ignoring macroeconomic changes and disposable income; it arbitrarily holds expenditure constant thus taking for granted tax receipts on families’ labour supply; and it assumes no schools will close or cut costs even facing 3-7% pupil withdrawals.
Most importantly, as I (and EDSK, and the originators of the IFS’s source material on price elasticity) have said, this stuff is tremendously hard to predict. The IFS buries uncertainty deep in the report and omits it entirely from its press releases and Paul Johnson’s tail-wagging 90-second video.
Nobody knows how today’s or tomorrow’s parents will react to a large and unprecedented price hike, amid a cost-of-living and housing affordability crisis, while being the ‘broad shoulders’ that already carry the increasing tax burden by cross-party consensus. Saying “here’s the one true scenario” for families’ reaction to an unprecedented hike doesn’t cut it.
We could call it a ‘reverse Ferguson’ by the IFS. Publish just one best-case scenario while burying the downside risks deep in the report. A responsible balance would be, for example, “here’s a worse/worst-case fiscal outcome if there’s more pupil migration than we expect”. Apparently the ‘plausible worst case’ is worth fixating on when it’s climate and Covid science, but we can don our rose-tinted spectacles when the state wants to rinse hard-working parents doing their best for children.
Can schools absorb the VAT?
Sir Keir goes on to say that schools can themselves absorb the VAT.
This is the VAT paid by schools, they don’t have to pass this onto the parents, they can do it in other ways.
I’ve covered this claim here and it’s not quite the pretty get-out he implies. I figured Labour ends up with about half the VAT expected, with significant risks to the downside. Unlike Labour, I shared my fag-packet.
Most obviously, if the VAT sits within, not on top of, the parental budget, it’s going to be smaller. Also obviously, the school’s going to have to make some savings on payroll and other expenditure, hitting income tax and NICs. Less obviously, there are downstream losses on taxation from those employees and suppliers’ reduced spending in the broader economy; at worst, they’re on benefits. There’s a risk families withdraw to the state sector anyway due to reduced quality (having lost, say, 15% of school workforce) – independent schools have to be much better than free taxpayer-funded schools. There’s also a risk schools become unable to cover or adjust their fixed costs and are therefore forced to close. There’s a near-certainty schools reduce their bursary provision and partnership activities (they might be under heavy pressure from parents to do so) both of which negatively affect the state sector.
Conclusions
We’re all poorly-placed to make firm predictions about an unprecedented tax hike. There’s not much evidence out there, and all the reports indicate some migration around 5-25%, which are the scenarios explored by EDSK. There’s not a single report that supports Keir Starmer’s position, and the more optimistic IFS coverage needs treating with much more caution.
Even if schools carry the VAT by cutting costs elsewhere, it’s still a drastic economic contraction resulting in far lower tax receipts than Labour claim. Voters, journalists and Conservatives must hold Labour accountable when it asserts what ain’t so.
Mr. Chips is a pseudonym for an employee of a private school. He writes on Substack.
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The super-wealthy will be unaffected should such a change go ahead however the point of being part of an ‘Elite’ group is there’s not many of you and you can get things everyone else cannot.
The quality of taxpayer-funded education has been degraded by fault or design, likely a combination, not because it has to be that way. There’s always time and money to engage in destruction but not education.
Deleted.
I agree and the hard-working moderately affluent are those whose children’s lives are upended.
Lest it be unclear, I’m strongly in favour of improving state schools. I recommend The Beautiful Tree by James Tooley for some ideas how to go about it.
As you conclude, destruction is easy, but taxing great schools does not help in any conceivable way.
State schools are beyond repair. The whole system is a well-past-sell-by-date experiment. People don’t learn in serried ranks, learning to repeat stuff which is “true” and that that “truth” is something which comes from authority. That way has led us to what we now see – herds of compliant, unthinking automatons. Those children who have an identity and want to think freely, imaginatively and innovatively and who learn empirically (the sort of people we need in this world) can’t wait to get out.
Throw the whole lot in the bin. But then we can’t, can we, because state schools (and private, as far as I see) are now no less than an economic necessity – child storage facilities while both parents slave to pay a huge mortgage and huge car-finance back to the banks.
Broken, the whole thing. Get out if you can.
It all broke the moment the state decided “education” must be a right (as opposed to a privilege) and the state therefore took responsibility for it all. What happens when the state takes responsibility for something, sceptics?!
We are focussing on investing in and providing for our children with real experiences. Living abroad, at the moment, learning French. In the real world. Not in a stupid classroom where no-one (not even the teacher) cares a damn. The school they do go to is classed as “alternative” – it costs, but only about 1/8 of the equivalent in the UK. There they focus on projects – real problems – and pull on all sorts of “subjects” to solve them. You know, how the real world works.
These people are already contributing to the school system through their taxes, by removing from the state the need to educate their children.
I was under the impression that the concept of double taxation was deprecated, and picking on children is particularly odious.
Many of the people I know who have paid for private education for their children have made lifestyle sacrifices to prioritise their offspring. This proposal is just socialist spite.
The politics of envy. Labour was always so.
thank you. exactly!
Exactly, spot on.
Starmer needs red meat for the Corbynistas. This is it. As usual with politicians, it’s all about them and not the voter.
I agree, however my point here is: this hard-left authoritarian policy is massively at-odds with his and Rachel Reeves’ alleged commitment to practical, non-ideological, growth-oriented government.
I want to expose this conflict. If they want to campaign and govern as socialists, let them do so and good luck with the voters (who have rejected Left Labour since the 1970s, see also Miliband and Corbyn).
https://youtu.be/02cxttcA02w?si=kPMV_qtnscPmbMFZ
Donald Tusk has arrested and locked up political opponents.
No surprise really.
The surprise to me is that the Poles, who had been doing so well, elected this man. It will be sad watching their rapid decline.
Especially now that they are once more hugely indebted to the US – for fighting the US’s battles for them! You couldn’t make it up.
https://www.youtube.com/live/abhmHqj7WCk?si=rJCR9lh1q_-27BfS
Kneel Starmer doesn’t know what his two children are.
From ‘Lola’ Ray Davies & The Kinks
“I met her in a club down in North Soho
Where you drink champagne and it tastes just like cherry cola
C-O-L-A cola
She walked up to me and she asked me to dance
I asked her name and in a dark brown voice she said, “Lola”
L-O-L-A Lola, lo lo lo lo Lola
Well, I’m not the world’s most physical guy
But when she squeezed me tight she nearly broke my spine
Oh my Lola, lo lo lo lo Lola
……..
Girls will be boys, and boys will be girls
It’s a mixed-up, muddled-up, shook-up world
Except for Lola, lo lo lo lo Lola”
My partner has an interesting perspective. She works as head of a department in a prep school, and most of her job is geared towards finding scholarships for her pupils in secondary schools, so she has good connections all over the country. The majority of the children she teaches are from non-affluent backgrounds, many from ethnic minority groups and there on assisted places.
In her view, only the giants (Eton, Harrow, Winchester etc.) will survive this, and mostly due to their high intake of foreign pupils with wealthy parents. Her school (along with many other private schools) has already had to drop their participation in the Teacher’s Pension Scheme due to dwindling funds in the current economic climate, meaning an additional blow to teacher’s finances on top of inflation.
Anti-car measures and a mounting pile of stealth taxes already represent death by a thousand cuts. VAT hikes would be the nail in the coffin for smaller independent schools. As the article suggests, closures would put huge but unpredictable pressure on state schools and potentially put thousands of teachers out of work. Many lack the official qualifications required for state school teaching, so would be reluctant to retrain. Because of the hugely different working conditions, many more independent school teachers would find a different career before entering the state sector, assuming jobs were even available where they lived.
I knew nothing of private education and its benefits before we met, and as a kid in the 80’s and 90’s attended (probably like most other commenters here) a series of crappy, low energy, low expectations state schools. The few enthusiastic and talented teachers I had never lasted long, and the only efforts made by the rest were in the direction of indoctrinating students into far-left politics. I didn’t learn a thing, or even realise that one could even enjoy learning until I left education. The thought of children having to endure the absolutely miserable waste of life I did, and missing out on a potentially good, prospect-building, soul-affirming education where the brightest might have a chance to shine rather than be uncomfortably shoved off into the reeds drives me to MP-punching levels of anger.
On top of the insane, corrupt Net Zero policies shared with the Tories, rarely has a party waited in the wings with such an overtly destructive manifesto. This is a purely political move, and any pretence of economic concern is laughable. The establishment across the West aim to create a generation of blank eyed, blank-minded, compliant ideological drones, and independent schools represent too much independent thought. The UK’s idiotic political classes have become enthusiastic enemies of their own country, while most others watch on passively chewing the cud. At this point I feel we’re going to end up with exactly the government we deserve.
Well said, sir.
I always thought that if many people are prepared to pay for their child’s education that this would remove some of the burden put on the taxpayer to educate them. It would be the same for Health. But leftist ideology in their determination to create some kind of “equality for all” think that what the state is prepared to offer us should be good enough for everyone. By this kind of thinking we should all be driving the same mediocre car. I have no problem with others having a Lexus if they buy it with their own money. But if we rely on the state all everyone can have would be a second hand Polo.
Kind of you and your other half to contribute. These are precisely my thoughts also. There will be a parents’ campaign launching in a couple of weeks and I very much hope you and your partner will be willing to share your stories.
Thanks Mr Chips, we’ll be looking out for it!
Labours front bench (and some of its MPs) demonstrate how socialist education theory pans out over time. Dumbing down education so that it gets easier to pass exams and making University education available to all, leads to people like the Labour front bench making childish policies up from kindergarten calculations. The IFS is also to be ignored as it is simply Labour’s academic lap dog.
Socialists theories are nearly always wrong. The last 7 Labour governments since the second world war have always wrecked our country in some way. This is another example of their derangement. Politics of envy writ large.
The tories have also shown over the past 13 years that adopting socialist policies leads to disaster. It is poison.
It is the politics of envy. To Labour Party supporters private school education is seen as why their kids do not have the same advantages as those who attend private schools and why ‘posh’ people end up running the country. So they think that attacking private education will end the inequality.
This is flawed thinking. As I have noted in an earlier post here, the reasons why ‘posh’ people end up in top jobs are many and varied. The most significant factor IMO is exposure to aspirations of family members and peer groups as well as knowing the ‘right’ people.
No amount of attacking private education will change that. The same people send their children to the top state schools too. They can afford to move to more expensive property, gain the capital appreciation and save on school fees.
Where I live are two state schools which achieve better results than two prestigious nearby private schools. They are comprehensives but run like grammar schools with streaming – an 8 form intake every year – but streamed. This also means kids get taught at a level they can handle – the top stream is the top 13% of ability and the bottom is the lowest 13% of ability.
Student-for-student by ability their exam results are better than the private schools.
So what this shows is that the state sector on £8000 per student can do as well or better than the private sector – so what we must ask Keir Starmer and his Labour Party is why has Labour failed to do anything about this every time they were in power?
And why does he and they think that attacking private education is going to make any difference? It won’t and it damages the UK’s education infrastucture.
In other words, its all about small minded Labour Party politics from small minded Labour Party politicians who cannot contain their envy. They should change from red as their party colour to green.
Well said,
If the projections in the Baines Cutler report regarding the numbers of children who would transfer from private education to the state system in the event of a VAT hike, the Labour Party will heap more cost on the education budget and not save a sou.
Over 5 years Baines Cutler say the numbers of pupils transferring to the State sector is 500,000. At an average cost to the education budget of £8000 per student, that is £4bn extra.
What is worse is the numbers transferring back to or staying in the state system in the first year will cost £800,000 at least so in the first year Labour’s £1.6bn figure of extra income has been slashed in half and in the second year it is swallowed in the extra costs.
After that it is all extra cost on the education budget every subsequent year topping out at an extra £4bn – forever.
The £1.6bn figure appears in the IFS report – so that is what Starmer relies on – but the fact he has not said where the figure comes from suggests he does not want anyone looking too closely:
What we all need to know is what is the policy of all parties regarding private education in the UK’s education system.
The Labour Party’s problem with private eduction is that the privately educated get substantially better grades in their GCSEs [or whatever they are called now] and go on to get better jobs and better pay. In addition, those from private schools end up in jobs like lawyers and judges.
The problem is the underlying driver, and I know this from direct experience, is the politics of envy. It is emotional before rational. The alleged unfairness and imbalance in the top jobs is the afterthought.
The Labour Party fails to appreciate that it is not the fact of a private school education which leads to the imbalance and alleged unfairness. Causation is assumed – they assume these people get into the jobs they have because of a private school education.
There are a great many factors in play however which are far more significant than just having a better education than the great unwashed.
The most significant factor is exposure to aspirations of family members and peer groups as well as knowing the ‘right’ people.
Private education is an important part of the UK’s education system and each of the partys should be asked for their policy on private education and its future in the UK.
Frankly, it is madness to beat private schools over the head when it is the parents the Labour Party is beating over the head.
And the ‘posh’ schools are in the minority. Many schools have relatively modest fees which are affordable to many blue collar and lower middle class families. It is not all about the ‘posh’ and ‘toffs’ running the country.
Oops – I forgot to mention the loss of VAT revenue from all the small independent schools which charge the least fees – about £15000 pa is about the lowest excluding nursery education.
When those schools close the claimed £1.6bn revenue will not be. It will be a lot less.
Say 10% of independent schools close – so:
1) £8000 extra per pupil on the state education budget
2) £160 million of the £1.6bn is lost in addition to the extra state expenditure on students transferring to the state sector and students who would otherwise have joined the private education system.
CORRECTION
“will cost £800,000 at least”
should be “will cost £800 million at least”
It’s kind of you to comment and I mostly agree, with the exception that you are being much too generous I’m an economist of sorts and the IFS, you, I and the Labour must all recognise the impact on parents’ labour supply, which I’ve written about before.
The payroll taxes associated with earning school fees are worth about £10bn, generously assuming everyone’s a marginal 40pc taxpayer. So every 1pc pupil withdrawal places at-risk £100m. Some parents will keep working and buy posh cars and holidays etc….some (like my family) would substantially prefer reading, walks, chess and listening to music which we don’t have time to do. I can continue on this theme….a lot.
And those parents (say…doctors) then stop delivering value to various customers (say, patients), employers and employees. And THAT value is mostly taxable in some degree.
etc. etc. basically, Labour need to account for ALL the unintended consequences, and the IFS have barely scratched the surface.
I would love you to follow my blog where I’m digging into this stuff. Link at the end of the article. thanks again for comments.
Politicians often say that they are in politics to ‘make a difference’.
Worse is definitely different……….
It is probably right to think that current pupils are unlikely to change schools, however it would be much more interesting to try and predict how many future pupils won’t start in the private system.
it is just another money grabbing exercise.
Hello, I don’t agree it’s a money-grabbing exercise although it’s presented as such.
I think it’s so obvious it won’t make money, it’s actually a “hurt-the-rich” exercise. Which is massively at odds with the image Starmer and Reeves are trying to cultivate.
Perhaps they would just board their children at private schools abroad. Is this even an option? Serious question from one who has no children and no knowledge.
Yes absolutely. There are boo-hiss profit-seeking businesses opening chains of private schools abroad modelled on the English system. They can benefit from lower costs and a much more favourable regulatory environment.
I was also wondering about more options for home schooling. Am aware that it’s not as much a ‘thing’ in this country as others but perhaps this will drive increased interest, if practicable?
Yes it is. The state educationists want to regulate, inspect and supervise home school, but it’s absolutely a thing and I’m very much in favour. There’s also models for micro-schools (just hire in a couple of tutors, group three families, and do it in your kitchen) or parent cooperatives (this Dad teaches French, this Mum does maths, in a group of families.
Economically, if people home-school then they aren’t an economic burden on taxpayer-funded schools. But also they DEFINITELY won’t be doing any paid, and taxed work, so there’s a huge impact there.
One of the misconceptions among teachers, of course, is that what they do isn’t rocket science. I should think the vast majority of higher-rate taxpayers are perfectly capable, if they want, of teaching and tutoring their own kids up to GCSE at least. I’d love it. But I’m too busy working and paying tax.
Thanks for the reply – most interesting. I used to microteach small groups of adults in my own kitchen many years ago!
A school that is paying VAT on its “product” will also be entitled to reclaim VAT on its inputs so government loses that money. Currently they cannot reclaim VAT.