British private schools get imaginative to mitigate impact of VAT charge on fees

Labour leader Keir Starmer has promised to impose the tax if his party wins the next general election

Pupils at LVS Ascot, a day and boarding school in Berkshire, southern England. Photo: LVS Ascot
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Private schools in the UK have developed new strategies to mitigate the impact of Labour’s potential looming sales tax on fees, including recruiting more pupils from abroad.

Labour leader Keir Starmer has promised to impose VAT on independent fees if the party wins the next general election – likely to take place this year.

Mr Starmer said money raised will be used to address the “appalling state” of state schools.

Private schools say it is hard to plan for the change, because little detail has been released on how it will work.

But it has already got some thinking creatively about ways to raise more revenue in a sector which educates 600,000 children, around 6 per cent of UK pupils.

British schools are increasingly expanding abroad – a trend which has existed for more than a decade, with the UAE home to British brands Brighton College, Repton and Cranleigh School.

There are currently around 100 British satellite branches, with around half located in China followed by about a fifth in the Middle East. But more independent schools say they are now looking to expand overseas.

Dukes Education, which runs more than 30 schools in Britain and overseas, reportedly bought nine schools in the EU, where VAT is not charged on private school fees, to offset the impact of the tax in the UK.

School guardians

Meanwhile Stafford Grammar School, an independent school in Stafford, central England, is now doing something unusual for a day school – recruiting new pupils from overseas, having obtained a licence from the UK Visa and Immigration Services.

“It’s something we are looking to really develop over the next couple of years as a result of these developments,” head teacher Nick Pietrek told The National.

Stafford Grammar School charges £4,960 ($6,320) a term for pupils in senior school, years seven to 11.

The plan is to recruit children from markets such as China's mainland, Hong Kong, and possibly the Middle East, and have the pupils stay with guardians, either through a guardianship service, or with school families.

“That would then provide, potentially, for those parents in the school, another revenue that would pay the difference. It would be a win-win really, for everyone,” said Mr Pietrek.

The school, which operates thin margins in some years due to the high number of bursaries and scholarships it offers, is also thinking of offering some of its courses online, he added.

Recruitment drive

LVS Ascot, a day and boarding school in Berkshire, southern England, is also stepping up its efforts to recruit more pupils from abroad. It charges junior day pupils £4,915 a term and senior day pupils £6,985 a term. Boarding fees cost between £10,305 and £12,695 each term.

LVS Ascot head teacher Christine Cunniffe has just returned from China's mainland on a recruitment drive and will over the next few months visit Dubai, Hong Kong, Japan, South Korea, Mexico and Brazil.

“The message that we are getting when we travel all over the world is you can’t beat the British education system,” she told The National.

But head teachers of private schools argue the VAT policy will place that reputation at risk.

Fewer pupils is predicted to lead to the closure of a proportion of independent schools, while the UK will join a tiny handful of countries to charge VAT on school fees, making education in other countries more attractive.

“When we do something like this, others see it as an opportunity. Then we are going to have another problem,” said Ms Cunniffe.

The head teacher was educated in a state school in a deprived area and agrees the state sector needs more investment. However, Ms Cunniffe does not believe that imposing VAT on independent school fees is the way to achieving this.

A petition against the move, which has attracted more than 100,000 signatures, was organised by a parent with a child at the school who is hoping to meet Mr Starmer and Labour's shadow chancellor Rachel Reeves to express their concerns.

Schools say they do not yet know how many children will be withdrawn as a result of the policy.

Estimates vary. The London-based Institute for Fiscal Studies economic research institute predicts the policy will result in a reduction in schools rolls of just 3 to 7 per cent.

But other studies suggest it could be far higher. A recent survey commissioned by finance adviser Ashbridge Partners, which questioned 1,000 parents, suggested 39 per cent will “likely or definitely” have to withdraw their children as a result.

The IFS says private school fees have already risen by 20 per cent since 2010, which it says indicates “a potentially weak relationship between fees and the demand for private schooling”.

Private schools say this is not true, pointing out that the fee rises were measured and many parents are now at, or near, their limit of affordability.

“For a lot of families with children in private school both parents are working. They are not going on holidays. They are not living in large houses,” said Mr Pietrek.

“I have parents who are literally doing cleaning jobs in order to be that second income that makes the difference for them to be able to send their two children to the school, alongside having a full bursary.

“They are scrimping and saving every little bit they can along the way. And that just isn’t being taken into consideration.”

Mr Starmer said private schools do not have to pass on the cost, while schools say VAT is a tax on the consumer, not the business.

Critics claim the policy will have other implications, too – knock-on effects which will have an impact on the state sector, further worsening educational inequality.

If parents are no longer paying private fees, they will have more to spend on a mortgage to rent or buy a house closer to a good state school, or potentially spend on private tutors, to increase their child's chance of getting into a selective state school.

The two best state schools closest to LVS Ascot are “surrounded by mansions”, said Ms Cunniffe.

Critics also point out there are many different types of schools, including specialist ones to teach pupils with conditions such as autism, as well as others with a religious or foreign language focus.

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According to the Independent Schools Council, a lobby group for private schools, around 100,000 special needs children are educated in the independent sector at specialised schools.

Ms Cunniffe said many of those would struggle in the mainstream system with larger class sizes and less access to specialist support. “They will be a lost generation,” she said.

Diversity in the classroom

Rudolf Eliott Lockhart, chief executive of the Independent Schools Association, an organisation for private schools, told The National that independent schools reflect a “large and diverse” section of British society.

“The imposition of VAT on fees will force many parents into removing their children from schools in which they are happy and thriving and into schools that will not always be able to meet their needs,” he said.

The ISC says most of its 1,400 members are small schools with a few hundred pupils and the policy could lead to closures.

Fees vary widely. The annual average fee is around £17,000, but can reach £50,000 a year at the most exclusive independent schools, such as Eton, in Berkshire, southern England.

More than a quarter of independent school pupils receive some kind of discount or bursary.

But schools say the expected loss of revenue due to the drop in school rolls means they will be able to offer fewer funded places, making them even more exclusive.

“They [Labour] are going to make the social divide even bigger,” said Ms Cunniffe.

Critics of the proposal also say the policy will not even raise that much money.

The IFS cites figures of £1.3bn to £1.4bn – just 2 per cent of current school state spending.

And it may even end up costing the government in the long run, they claim.

Research commissioned by the ISC suggests the policy could result in a £400m loss in the fifth year due to the steady drop off of private pupils and increasing burden in the state sector.

ISC points out that the VAT charge is the only fundraiser that Labour Party is offering to state schools.

Julie Robinson, chief executive of ISC, told The National: “We understand the need to improve funding to state schools.

“But even if this achieves the top end of what IFS says it could raise, it's a tiny percentage of the overall education budget.

“What we are saying is, why don't you work with us? Why don't we agree we are one education sector. We are all in this for the children.”

That request has so far fallen on deaf ears, said Ms Robinson.

Updated: March 28, 2024, 9:47 AM