Independent Schools: VAT

Question for Short Debate

Asked by

To ask His Majesty’s Government what assessment they have made of the implications of levying VAT on independent schools with effect from 1 January 2025.

My Lords, I declare my interest as a former general secretary of the Independent Schools Council and the current president of the Independent Schools Association, one of the council’s constituent bodies. Its 670 members—which are generally small in size, with great strengths in special needs, bilingual teaching and the performing arts—are particularly at risk as a result of the Government’s VAT plans. The council acts on behalf of some 1,400 schools, which are educating around 80% of the 600,000 children in the independent education sector.

Surely, it ought to be the duty of each and every Government, regardless of political complexion, to value and to safeguard all children in our country’s schools. The education of the many thousands in independent schools ought never to be harmed by the actions of government. Can it be right to inflict on some—perhaps many—of these children the problems that the imposition of VAT, our country’s first ever education tax, will inevitably cause?

Nevertheless, this very short debate is not about whether VAT should be slapped on school fees. The die is cast: Labour’s election manifesto said explicitly that VAT would be extended to school fees, and the Government are proceeding at breakneck speed to get it introduced. This debate is about the great haste with which the Government are acting. Out of the blue, schools were told at the end of July that they would start paying VAT five months later, on 1 January next year—five months to alter plans and budgets that had been fixed for the academic year starting in September. Notice of those five months was received during the school summer holidays, during which the Treasury held a consultation exercise covering a whole host of technical details.

The Government say, blithely, that five months is quite sufficient to prepare for this unprecedented change. I ask the Minister: would the Government ever contemplate asking state schools to redo their plans for a new academic year at such short notice? Taxation apparently trumps the education and welfare of children in our country’s independent schools. The Treasury wants to start getting in cash as fast as it can. Last week in the Commons, a Treasury Minister said that

“we want to raise the money as soon as possible”,

adding, breezily yet again:

“There will have been five months for parents and schools to prepare”.—[Official Report, Commons, 8/10/24; col. 174.]

Glorious things are promised from the VAT receipts: 6,500 extra teachers, 3,000 new nurseries and breakfast clubs in all primary schools. All these benefits will come from money which, if the Government should manage to raise their levy target of £1.5 billion, will represent just over 1% of the total education budget. A degree of scepticism about these promises might be in order.

My Lords, I commend the noble Lord, Lord Lexden, whom I much respect, for giving us this debate on a subject that is, I know, close to his heart.

The question of VAT on independent school fees was widely circulated before the election, so nobody should be surprised by it. I accept that the January date will have come as a surprise to some but, having said that, if a school has decided that the imposition of VAT will mean it has to close, I cannot believe that the tax starting in January rather than September will be the deciding factor. Surely no school that values its students would close half way through an academic year.

The noble Lord, Lord Lexden, mentioned job losses and the National Education Union. It seems inconsequential to me because, given the issues around the retention and recruitment of teachers, any teacher unable to gain employment in the independent sector will have no difficulty in getting a job in the state sector.

My final point is that there seems to be a hypocrisy here. The Tories have characterised the proposed national insurance contribution rise as ignoring a Labour manifesto commitment. Here is a Labour manifesto commitment being delivered, yet there is more criticism. You cannot have it both ways—much as some would like to.

My Lords, I have four quick questions.

First, how many of the highly experienced educationalists on the Government Benches are in favour of making such a demanding change half way through the academic year? Will the Government consider deferring this damaging decision to September, which will give time for an impact assessment and cause far less disruption—although disruptive it will still be?

Secondly, on VAT, what action are the Government taking on the discrepancy that means that FE colleges are not liable for the VAT refund scheme in the way that schools and multi-academy trusts are? This takes well over £210 million out of FE funding every year. They do an amazing job on very limited resources and they really deserve parity.

Thirdly, how will the needs of children with special needs or special skills that cannot be met by the state sector be covered if the specialist schools cannot afford to continue? What provision is being made for this?

Fourthly, I come to my regular question on the children of military personnel. Will the education allowance be increased to cover the additional cost? Military children already suffer upheaval aplenty and military personnel may well not be able to afford the increase if the Government do not pay. I am happy for the Minister to write if she does not have time to reply.

We have 19 spare minutes in this debate; I apologise for taking up 17 seconds of it.

My Lords, during our previous debate, I referred to advice from my noble friend Lord Pannick on issues of compatibility with conventions that are relevant to the rights of children and their education. In the light of this proposal’s impact on schools catering for children with special needs, faith schools and specialist schools—as well as the disruptive consequences for children caused by the implementation date—several submissions have now been made by Members of this House to the Joint Committee on Human Rights, on which I serve, urging it to consider these issues of compatibility. There is also to be a legal challenge in the courts. It would be prudent and respectful of proper parliamentary scrutiny and consideration for the Government to wait for the outcome of such consideration and I urge them to do so. It is true that, when you legislate in haste, you repent at leisure.

My Lords, I strongly support VAT on tuition fees. If parents want to avoid it, there is a perfectly acceptable alternative: send children to boarding schools in the state sector, where VAT is likely to apply to boarding alone and not to tuition. For example, Keswick School, formerly a grammar school and now a comprehensive with a wide curriculum, in my former constituency, which three generations of my family have attended, provides day-pupil and boarding facilities in a beautiful environment in the heart of the Lake District, and attracts pupils worldwide.

Whereas public school fees average over £40,000 per year, state boarding schools such as Keswick School average at around £14,000. It is their wide social mix, in an atmosphere of local intake, parental aspiration and teacher commitment, that enable such schools to top state and private sector academic listings. Such schools are few and far between. I would like a huge expansion. Too many parents commit to public schools in the belief that a narrower social mix uniquely provides for the standards that they seek. They are mistaken. There are far too many casualties in the system that so often go unreported.

My Lords, independent schools add greatly to their wider communities. They take the strain from the state sector through the willingness of parents to fund their children’s education, often at great personal cost. In many cases they offer a haven for children who struggle in large classes.

However laudable the Government’s aim to provide more resources in the state sector, the means of funding this is questionable. This is not a theoretical debate. This affects real children and real choices. The changes to the system are bound to be complex, but enacting those changes in just five months and in the middle of the school year will have profound consequences for children in both the independent and the state sector. Philip Britton, the head of Bolton School, where I was educated and was a governor, has said:

“These changes need time and care … and it really is a moment to press pause and think harder”.

My Lords, the limited warning and the unworkable timings of a school holiday deadline mean that smaller schools without large accounts teams and in-house expertise will struggle to make the required changes in time, and it is unfair to give schools and parents such little time to digest this.

What about the child who has to leave a school where they were happy and thriving, and where that child has a supportive network of friends? The mental health crisis for young people resulting from the pandemic should be a reminder that young people are vulnerable to change. Each of the children leaving a school that they love is an individual, not a statistic, whose day-to-day life has been upended with virtually no warning. These children are the voiceless victims of the policy.

What plans do the Government have to support children going through this change? I would be very interested to know what the Minister has to say. The focus should be on bringing the whole education sector together. One suggestion put to me by a leading independent school was that, rather than VAT, why do the Government say that they expect independent schools to show that 20% of revenue goes into supporting means-tested bursaries and partnerships? If schools do not meet their target, tax them on the rest. As it stands, levying VAT is a pernicious move which will be disastrous on the whole of education.

My Lords, I have two points for my noble friend the Minister by way of background to this debate. Does she agree that it is not just those parents who pay for their children’s schooling who care about their children’s education? Also, we all must pay our fair share of taxation—some taxes on our incomes, some on our expenditure through VAT. We pay our taxes not as a fee for service but as part of our commitment to society as a whole.

Have the Government assessed the impact for Scotland? We have a different curriculum, exam structure, term dates, and pay and conditions for teachers. We also have different school starting ages, meaning that this policy could include nursery provision. Special needs are governed by the ASL Scotland Act. A diagnosis is not required to get help. We do not have EHCPs. A co-ordinated support plan is not a direct equivalent, as it is not required to attend a special school or receive additional support.

As education is devolved, the Government cannot reassure us that any income passed to the Scottish Government would be ring-fenced for education. At this moment, the Scottish Government are withholding £145 million from local authorities which is earmarked for education. Councils are making cuts. North Lanarkshire is reducing school bus services. Falkirk Council is considering cutting school hours. Inverclyde Council has said that if it does not receive the funding it will be forced to cut teacher numbers. Question 5 of the Treasury’s consultation asked:

“Does this approach achieve the intended policy aims across all four UK nations?”

Can the Minister tell us what responses to this question have revealed?