by Penny Hampden-Turner
Following a relatively light King’s Speech, many are naturally looking to Labour’s policies to see how they contrast. One potential pledge from Labour has pricked the ears of parents who have children in, or are planning to send children to, private school. This is Labour’s promise to end business tax rebates for private schools and make them liable for VAT.
While private schools do, by their nature, create a two-tier system and, in many people’s eyes, perpetuate elitism; forcing them to pay VAT will not help remedy this issue. In fact, it may make them even more elite. Private schools, many of which already see their numbers dwindling, may lose 20 per cent of pupils if fees rise. This is due to many families being priced out, according to a survey by the Independent Schools Council (ISC). This will make an already elite institution even more inaccessible, available only to an even narrower class of wealthy parents.
The EDSK states that fewer pupils in private schools would reduce tax revenues. This issue would be compounded by the added cost to taxpayers of these same families sending children to state schools if they are priced out of independent alternatives. The extra strain on state schools is estimated to increase the burden on taxpayers by roughly £600 million a year.
State education is already struggling. The Economic Policy Institute described the teacher shortage as ‘real, large and growing, and worse than we thought’ while a study of government figures by the Labour Party shows that just over 900,000 pupils are now in classrooms of more than thirty, an increase of 150,000 since 2010. An influx of pupils would make an already difficult situation worse.
This was well articulated by the Independent Schools Council, which explained that the ‘imposition of VAT would be self-defeating, as significant numbers of parents would withdraw their children from private schools, with consequent unmanageable increases in state school rolls and reductions in anticipated tax revenues.’ This increase in tax would hit marginal families the hardest, those who may only just have the funds to send their children to an independent school but still make investment in their children’s education a priority. If we think of education as an investment in human capital, then there is an argument for not adding VAT at the point of investment, but instead taxing the return on investment - higher wages later in life. This is a reliable way to spread the success of private schools without punishing those who choose private education over state.
The current debate around private schools raises the wider issue with VAT in this country. The UK tax code is the longest in the world at 21,000 pages, a clear indicator of its complexity. As a result, millions of pounds of taxpayers’ money is spent enforcing it and an endless number of hours spent debating it. For instance, it was recently reported that the HMRC has hired 3,000 more compliance officers to make sure the tax code is being enforced correctly.
We at the TaxPayers’ Alliance argue that the better way forward would be a simplification of the whole tax system with VAT being set at a 10 per cent standard rate. While there may be benefits to some items having a different level of tax, the potential revenue is not worth the time it takes to decide the rate and then to enforce it. A classic example of this is jaffa cakes, where an unjustifiable number of hours was spent deciding whether or not a jaffa cake can be classified as a biscuit or a cake. Convincing, unconvincing, (and hilarious) arguments aside, this is clearly a waste of time and money, and a great example of how loopholes are so often exploited and how VAT exemptions, no matter how well-meaning, cause complications and huge compliance costs.
Adding VAT to private schools, however well it may play with some voters, would not be a smart policy move. The issue as a whole is a microcosm of the flaws in the UK’s over-complicated tax system. The proposal should hopefully give policymakers a chance to consider how other complications in our labyrinthine tax system hold our economy back.