Labour's tax plans for private schools: what families need to know.

What are the new plans?

Labour has proposed to subject private school fees to VAT, presumably at the standard rate (currently 20%), and to remove the exemption from business rates on buildings occupied by private schools.

Labour has said that if they win the next general election, they will introduce the change within a year of their leadership.

What’s the impact of the proposal on school choice?

This proposed change will have a significant financial impact on families considering private education. A survey of parents by the Independent Schools Council (ISC) showed that 20% said they would “definitely” withdraw their children from private school if VAT was added. 

What is the likely impact of this change on fees, and the continuing affordability of independent education for parents?

Schools are unlikely to pass on the whole burden of the 20% VAT rate to parents, to prevent any sudden drop in enrolments. They will likely be able to claim some of the VAT back on goods and services supplied, for example utility bills, and school maintenance. They may also be able to recover VAT charged on capital expenditure, for example new buildings.  Therefore, it seems likely that an increase of 10-15% could be passed on to parents.

What kind of numbers are we talking about?

Even without the possible changes to VAT, independent school fees have already been increasing, with an average rise of 8% in the last academic year. This is due to several factors, including wage price inflation, increases to teacher pension scheme contributions and increased energy costs.

Go private or go public?

There isn’t a quick-fire answer to this question, as every family has different needs, and each private school will be dealing with the VAT situation in their own way.  This is why having a clear and cohesive education strategy for each child is important to ensure the balance of quality versus financial investment. 

In both the state and independent sectors, schools vary in scope, and factors like family engagement and home environment continue to significantly influence academic achievement. However, data from Ofqual, the regulator of qualifications examinations and assessments in England and Wales, consistently shows that students from independent schools achieve better A Level results, often earning twice as many A and A* grades. 

What hasn’t changed is the increasing competitiveness of entrance places to top schools, both primary and secondary, especially in London. For many prep schools, their reputation depends in part on their success in helping children transfer to the best independent senior schools. Likewise, for many independent senior schools, getting students into top universities remains a priority, enhancing career prospects.  Additionally, there is the matter of extracurricular opportunities between private and state schools, with private institutions typically far better funded to offer students robust facilities and activities.

Where does private tuition sit in all of this?

Labour’s proposed VAT charge on independent school fees is poised to impact significantly on the landscape of private tuition and homeschooling, potentially altering how families consider educational alternatives outside the conventional schooling system.

According to a report by The Sutton Trust, an educational charity in the UK, private tuition has been on the rise in recent years. In 2019, approximately 27% of secondary school students and 33% of primary school students received private tuition. Notably, a study in 2023 revealed that grammar school pupils were more likely to engage private tutors during their GCSE years compared to pupils attending other types of schools. Specifically, 23% of pupils at grammar schools had a private tutor in years 10 and 11, compared to 19% attending independent schools and 18% at comprehensive schools.

In the wake of the COVID-19 pandemic, there has been an observed uptick in the demand for private tuition, with some parents expressing concerns about the damage that lockdowns did to their children’s education and development. For many of our families, booking one-to-one sessions provides the most flexible and effective way either to reignite a child’s passion for learning, help them get back on track academically or close gaps in their learning. 

As families continue to explore educational options amidst policy changes and evolving circumstances, the role of private tuition is likely to become increasingly prominent in shaping the educational journey of students across the UK.