The Labour party plans to end charitable status for private schools, applying 20% VAT and business taxes to raise £1.7 billion and help improve social mobility via the state education system. Conservative Chancellor Jeremy Hunt showed only lukewarm opposition in his Autumn Statement, appearing substantially to accept Labour’s calculation (incidentally, HMT confirmed in response to a FoI inquiry that they had no supporting analysis regarding VAT and school fees). Meanwhile Darren Jones MP (Labour) says it’s a bad idea and won’t raise money anyway. What to make of this?
I wrote to Shadow Education Secretary Bridget Phillipson – personally and via my MP – asking for Labour’s business case, and have been looking forward to a reply for several months. So neither Labour nor the Treasury has actually published any assumptions or cost/benefit. I was excited when the Institute for Fiscal Studies published a review. According to one of the IFS founders, “never again should a government, regardless of its political colour and intentions, introduce far-reaching tax legislation without the benefit of deep and thorough analysis of second- and third-order effects”. That sounds sensible.
Disclosure – I’m a private school parent. But I’m also a taxpayer and an economist, of sorts, and I care very much about the state education that taxpayers buy for other children. I can also see the logic in robbing Peter to pay Paul, even when I oppose it. But when Labour wants to rob Peter to punch Paul in the kidneys, we’d all really rather they didn’t. Surely, I thought, the IFS will go into all the unintended consequences and provide us with the clarity that is missing?
Disappointingly, the IFS recites Labour’s lines. Its headline is Labour is basically right – the 20% effective fee increase will cause only a small migration to state schools, which won’t cost much, and everyone else will suck it up and pay, so that there is “net gain to public finances of £1.3 to £1.5 billion”, only just shy of Labour’s £1.7 billion. It only briefly mentions risks, but they are buried deep in the report and omitted from the press release, which is probably the only bit journalists will read. It certainly doesn’t quantify them as in “…and if we are wrong, the net tax impact could be neutral or strongly negative”, which is ironic given the power of the “worst-case scenario” in climate and lockdown politics.
I remain convinced this policy is crackers. It is more likely to lose billions than raise them and it will harm not help state schools (as well as harming or closing private schools). We should expect the departure of significant numbers of children from private schools and their (disgruntled) arrival in the state sector, demanding places that are not funded and that physically do not exist; the “second- and third-order effects” that I indicate here are strongly tax-negative and remain ignored.
I don’t know many people who think Labour can be dissuaded from their crackpot policy. I’m more optimistic. I believe (1) it’s a rich political vein for Conservative and Lib Dems; (2) there’s mileage in simply demanding Labour publish their working; and (3) the Treasury will, in time, conduct proper cost-benefit analysis and it will be published. I’ll keep asking. For now I’ve written to the IFS author, Luke Sibieta, raising my questions as an economist, and await his response.
Here are the highlights from my letter.
Elasticity of Demand (how demand responds to effective price changes)
Mr. Sibieta states his “best judgment” that VAT on school fees will lead to a 3-7% reduction in private school attendance. His justification is to assert that “the effects of fee rises are quite weak” based on observations since 2010. Essentially, the rich will pay, they always do. But an economist of Mr. Sibieta’s standing ought to recognise that:
- In general, we can’t predict the future based on the past. Specifically, predictive analysis can be quite accurate for markets with easy switching, frequent purchases, large but divisible quantities, and well-observed historical price shifts, such as groceries or forecourt petrol. It is “unusual” to rely on it where switching is costly, there are long-term relationships, decisions are binary, and where the main substitute is perceived (rightly or wrongly) as vastly inferior.
- The link between past and present is completely broken given changes in the macroeconomy. Mr. Sibieta makes no mention of house prices, interest rates, earnings, core inflation, aging relatives, pensions or the tax increases which all parties agree should “fall on the broadest shoulders”, as if private school affordability is unaffected by these tectonic shifts.
- Price elasticity is not (as Mr. Sibieta assumes) constant. Just because I accept a hike this time, doesn’t mean I will accept another hike next time. There is a risk of a ‘last straw’ effect.
- Disposable income, and its distribution, is of greater importance than Mr. Sibieta’s blanket observation that “15-20% of household income goes on private school fees”. It is not even clear if Mr. Sibieta is referring to post-tax income; he should certainly deduct core expenditure, mortgages and pensions, and should review the distribution – because it is the families “at the margin” that drive elasticity of demand, not the existence of a few billionaires at our more famous schools.
School Closures or Contractions
Mr. Sibieta appears to assume no schools will close following the loss of 3-7% of pupils (let alone, as I believe, many more); for those schools surviving under reduced demand, he does not consider they will be forced to cut costs. In either case, Mr. Sibieta does not consider any effect on:
- Lost VAT receipts and state school costs from pupils forced out of private schools not by affordability, but school closures.
- Income tax and NICs; benefit claims if redundant staff are unemployed.
- Payments to suppliers – and their income tax, NICs, corporation taxes, and benefit claims if they make redundancies that conclude with unemployment.
- Tertiary impact of a+b+c via multiplier – in other words, the loss of (taxable) economic activity that those various firms and employees no longer generate from their own expenditure.
Labour Supply
One cheer for Mr. Sibieta who does at least mention “potential reductions in labour supply” as a risk, albeit not in the press release. He doesn’t explore the issue further – and it’s a big one, potentially costing the taxman some billions of pounds via secondary and tertiary effects:
- People become high earners/wealthy mostly via some combination of hard work, personal sacrifice and ambition. “Top earners afford private school” is half-true, the other half being “people wanting private school become top-earners”.
- For those at the margin – earning, let’s say, £150k across both parents, which covers mortgage, bills, groceries and two average day-school fees, leaving about enough for one elderly car and one holiday a year – for such people, life is not luxurious. If they are doing it on two full-time jobs, it’s genuinely hard. It’s not the same ‘hard’ as struggling on benefits as a single parent – but it’s hard.
- If those families leave private school for the state sector, it’s like becoming £300,000-£500,000 richer (based on 10-13 years at a school for two kids, average fee estimates ranging from 15-17.5k, never mind more expensive schools at double that price or more), raising a significant chance they quit, work less, or retire earlier. Or, if you’re a younger family, making career choices to become a high earner and afford private school… well, perhaps you just won’t bother.
- The motivation to reduce work could also be associated with (a) childcare issues (state school hours being less than private school hours); (b) wanting to manage extracurricular activities no longer provided at school; and (c) wanting to provide parental tutoring to support what may be seen (rightly or wrongly) as inadequate academic provision.
- It doesn’t take many top taxpayers reducing or quitting work (or younger people choosing not to adopt high-paying career paths) before the consequences for NICs and income tax alone reach some £billions, and Labour’s policy is blown away…
- …and that’s before considering the tertiary losses. At the risk of sounding repetitive, it’s the lost (taxable) value-add to those higher-earners’ employees, employers and customers (doctors, anyone?); it’s the lost (taxable) employment of armies of cleaners and gardeners who serve the time-poor, and otherwise risk claiming benefits; it’s the multiplier effect of all those people’s reduced (taxable) economic activity downstream… etc. ad nauseam.
Mr. Chips is a pseudonym for an employee of a private school.
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Seems like the straw that broke the camel’s back will turn out to be how some allegations regarding one MP’s conduct were handled, on top of some work parties. Not the biggest folly and evil in UK peacetime history – the covid scam. Pathetic.
What’s really odd it around 550 to 600 MPs of all parties have consistently voted for or supported every one of his everyone of his disastrous policies: lockdowns, a terrible Brexit surrender, covid jabs, net zero, draconian attacks on freedom such as online censorship, police bill, unlimited immgration, trying to hand our sovereignty to the World Health Organisation. Massive borrowing and taxation. Spending our non existent money on Ukraine.
They are all his accomplices.
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If only he had the balls to admit that the reason he so vigorously ignored the lockdowns his own government imposed was that they were pointless.
Of course the invasion of France in Henry V was a hugely unrespectable matter, Olivier and Branagh, notwithstanding
https://www.ageofautism.com/2020/12/covid-and-shakespeare-the-dark-heart-of-the-national-epic.html
Also, at a military level Johnson is grotesque placing his own country in danger by pointlessly taunting Putin while equally pointlessly arranging to send tens of thousands of Ukrainians to certain death in a war which they can only lose (while pillaging our purses to give to the clown Zelensky to launder). A war criminal certainly. Falstaff turns seriously unfunny Henry IV Part II when he is sent to recruit a regiment and turns it into an extortion racket. The trouble is Johnson is only the most conspicuous member of a class who think like this, and we seemingly have not a single member of Parliament who dissents from this black farce.
I won’t be sorry to see him go – a deeply evil and disgusting individual.
Only to be replaced by someone equally – if not more so – evil and disgusting – which is good because the crazier the government gets, the more people might actually see what a farce the whole system is. Then we can lock the lot of them up and start again. I realise this might take about 50 years given the apathetic stupidity of most people in this country, but still.
(Go on Nadine, stand for PM, you know you want to!).
I can’t stand the bloke but I’d love it if he stayed on for another year or so just to piss the BBC off
That may be cutting your nose off to spite your face, but understandable all the same.
There’s a strong chance whoever replaces him will be worse with regards to Covid
A poseur, posing as a conviction politician but lacking any conviction; a weak, vacillating, wobbling jelly; by far and away the worst Prime Minister this country has ever had.
You know it is difficult to think of many who were not quite ghastly. Obviously Churchill had colossal vision and courage.
Churchill was one of the biggest traitors in our history.
He was utterly owned after Chartwell was saved for him.
I think it’s probably a tie between Bozo and Bliar.
There are many evils which Bliar set in motion – the Supreme Court, the forthcoming Human Rights Bill, the Orwellian “education, education, education”, and there will be many, many more that we and even historians might never learn of. The damage done to this country by this pitiable excuse for a human being is incontovertiably incalculable.
Bozo ties Bliar for his falling in with the Davos Deviants and all the miseries that have followed, too numerous to list here, and none that members are unaware of. However, his relentless push of the C1984 injections will ultimately see him listed amongst the likes of Hitler, Stalin, Mao, Pol Pot etc.
As this shit show brewed in early 2020 Bozo had the opportunity to aim for a Churchillian apprenticeship but he bottled it and sold himself like Judas. His place amongst the league table of the worst examples of our species ever to inhabit this planet was assured.
Yes if these injections turn out to be as bad as it is looking and if these excess deaths are as a result of lockdowns and jabs. Also if this 400 billion borrowed, wasted spent causes an economic UK disaster and I think that’s what he spent?
And the phoney war on Co2 and the zany net zero. Even if someone else is worse he is guilty as proven.
The coup against him was from the remainers, which started in earnest with C19, they could not believe Thor luck!! And used a perceived threat and their bitterness to sell the British people down the river just to destroy him, he was not astute enough to work it out and became a useful fool as they plotted with macabre glee behind their masks, dictating the covid lockdown guidance just to illustrate that GB can not survive Brexit and needs the EU.
Sadly he played into their hands and dragged the rest of us with him, disgrace.
Go.
Astute and to the point. It was hard to imagine that there would be a rival to the corporate Tony Bliar and then along came Boris.
Thank you.
…by far and away the worst Prime Minister this country has ever had.
And that takes some doing.
Doesn’t it just?
I enjoyed this first-hand account of BJ in his Oxford years. But I don’t believe, given the global and seismic nature of events that have taken place, that we can view what has happened in Britain in a vacuum, which this outlook seems to want to. Covid-19 was surely a coup (by whom is another matter) – Western lawmakers became Vichy governments overnight, and their very survival now seems to rest on their willingness to follow external orders. I do believe that Johnson was at least reluctant to follow these orders because they were antithetical to his ideology, but the harsh truth I believe is that he, like all other Western leaders, is a traitor who handed our wealth, our way of life, our culture and our future to an occupying power.
Uncanny.
I guess the first time I saw Johnson was on TV as President of the Oxford Union going on about his class entitlement and I thought he was a pompous ass. I guess he has a talent when he wants to of connecting with ordinary people for just a few seconds to make them feel important – that is where he trumps other politicians. He probably belonged on the stage.
Tonight’s headline on the BBC news website: “Johnson sacks Gove”.
Sweet. I despise Gove – government covidian in chief.
Yes I enjoyed that headline too. Awful, awful human being.
You can understand why his biological parents gave him away.
We are on a speeding train & we know the brakes don’t work !!…
Savage Jabbit!!.. What a piece of work !! God help us , I can sense that he may eventually land Boris,s job
Oh no please no. That would be too awful for words.
Well Toby, this must have been hard to write for you- kudos for that display of courage and integrity alone-
not least the references to the ever worse looking vaccine program and his rabid Ukraine support aka warmongering.
It’s also quite illuminating for us who have not met him in person, whether we ever fell for him or not. He does have a certain charisma and entertainment value, that is for sure, as otherwise, he would not have been written up by you and his other fellow chattering class members for neither London Mayor nor PM in the first place.
I’ll certainly forgive you for falling for this so visibly lazy narcissist nihilist, not just because his successor will likely be even worse and more authoritarian on Covid and because Brexit looks to be an ever better decision by the day to this Eurotrash Remainer, despite its many overpromises and, sadly now so typically British, totally botched mishandling, but also because you did far more for the country and its truly liberal people than he did and ever will do just by launching this site.
(Even more so before its latest revamp, but that’s a different story.)
Seconded.
Boris’s skills are probably in sussing out what people want to hear, and persuading them (on first impression) his heart is in the right place.
But he has no idea or intention of actually accomplishing anything real. Any sign of trouble, he caves in. He seems to be spineless, unfocused, and overawed by charlatans. No wonder he is Prime Minister.
I doubt he has much idea concept of lying or truth. But in the scale of ethics,
lying about drinks after work, and about being aware of plausible worrying rumours is nowhere near as bad as imposing pointless expensive broken dangerous and futile measures on millions of people, just because he couldn’t stand the heat.
Indeed. It would be interesting to hear him appearing in court as a witness. What would his declaration be? Some of the truth, but not all of it, and some other things as well? He could be a field day for a competent barrister who tried to examine him.
What is going on?
There must have been a fundamental parting of the ways. Sinak and Jabbit are indisputably followers of the Davos agenda, so do their resignations suggest that Bozo has fallen out with the Reset? Or have these two called for his resignation on the grounds that he is not following the Agenda closely enough and “at pace” – a squealy little public service term – and Bozo has rejected their request?
The Davos replacements will have to have sworn allegiance to Bozo and that suggests a virtual civil war in the Tory party.
Or perhaps a show of tory infighting is designed to act as cover for something very nasty on the horizon?
Whatever the answer, we the plebs will be the least of these actors’ considerations.
An enormously capable and likeable man in many ways, but one who always seems to have the opinions of the last person who spoke to him…
I too enjoyed the persona for years, but the reality of government by Stonewall, Greenpeace and the medico-pharma mafia has been nauseating. The sight of him yesterday in front of the committee wearing an AIDS lapel badge with some bloke with a rainbow lanyard prominent in camera right behind him is almost too apt to be true. Finally he was brought down by a gay groper in Pride Month. Someone up there has a sense of humour.
He could have had his Thatcher moment, and told the cabal to sling their hook.
He tried, initially, but folded pretty goddamn quickly.
Politics is not supposed to be a popularity contest. It’s about doing the right thing. And he messed up because he’s a vain crowd pleaser.
Bye Bye, Boris. Maybe you can lift the lid on this horrid scam and genocide in your memoirs. I’ll read them.
“He could have had his Thatcher moment.”
Indeed. He even potentially had an opportunity to look like a Churchillian apprentice but when the God’s came calling he turned them down. Now he will forever be remembered as this country’s biggest traitor and greatest mass murderer.
If he has upset the Davos Deviants his future might not be too bright.
There must be some right kompromat on him. I doubt he was in a position to hold up for long…
As Johnson has
been forceddecided to resign, I fervently hope that he sacks that rat Nadhim Zahawi from his recently acquired coveted post as Chancellor!Do it, prime minister, do it! Please.
I think it’s more our tragedy rather than his.
Possibly.
60mph on a motorway! If we continue on our current trajectory you’d be lucky to 20, and then only if you own a horse.