UK to charge VAT on school fees by January as key infrastructure projects cancelled

Rachel Reeves announces major cuts to public spending in order to plug £22bn gap in public finances

Chancellor of the Exchequer Rachel Reeves makes a statement in the House of Commons on public finances following the audit of the spending inheritance left by the previous administration. PA

The UK government has announced it will apply VAT to private school fees from January 1 next year as it listed a string of infrastructure projects worth billions it will scrap to help the country's public finances.

The chancellor outlined how she intended to fill a £20 billion black hole in the public purse in her first major economic update since Labour won the election.

Parents hoping to pre-pay next year's fees to avoid the rise will still be charged.

Fees invoiced or paid on or after 29 July 2024 that relate to the school terms after 1 January 2025 would also be subject to the tax, a government release said.

Labour outlined its manifesto pledge to introduce a 20 per cent levy on school fees. It will pay for the training of thousands of new teachers across the public sector, it says.

However, the move will add thousands more to private school fees for parents. Fees are now more than £16,000 per annum on average at day schools, rising to more than £40,000 at boarding schools.

Rachel Reeves said that infrastructure projects worth billions would be cancelled in order plug a £22bn “hole” in public finances.

Ms Reeves was presenting to parliament an audit of spending which she had asked the finance ministry to provide following the Labour Party's July 4 election victory.

Speaking in parliament, Ms Reeves said “immediate action was needed in order to address the issues that had been “covered up” by the previous Conservative government.

She cancelled or postponed road and hospital building projects, restricted winter fuel payments to just the poorest pensioners and warned that “difficult decisions” on tax would be required in her first budget on October 30.

The Chancellor accused her Conservative predecessors of covering up the scale of immediate spending pressures on the public purse.

The squeeze on spending is aimed at finding £5.5 billion of savings this year and £8.1 billion next year.

But predecessor Jeremy Hunt claimed about half of the “black hole” in spending was due to her deciding to give above-inflation pay rises to millions of public sector workers.

In a hint that taxes may have to increase, Ms Reeves said: “I have to tell the House that the budget will involve taking difficult decisions to meet our fiscal rules across spending, welfare and tax.”

Road projects that will be cancelled included a £1.7bn tunnel under the Stonehenge monument and a major bypass near Arundel, West Sussex.

As part of her announcement, Ms Reeves said that she had agreed a pay deal with junior doctors following continuing strike action, with reports that the pay rise could be as much as 20 per cent over two years.

She also said that the projected overspend by the previous Tory government on the asylum system, including the “failed” Rwanda plan, was more than £6.4 billion for this year alone, she added.

A budget would be delivered on October 30. She said that this would will involve “difficult decisions” on spending, welfare and tax.