MPs row over timing, scope and principle of putting VAT on school fees

Opposition Day debate

The Conservatives used the first half of their second Opposition Day of the Parliament to debate a motion:

• regretting that the government has decided to impose VAT on independent school fees;
• regretting that the government is implementing the change part-way through an academic year;
• calling on the government to exempt various groups from the VAT charge;
• calling on the government to postpone imposition of the VAT charge for schools in areas where state schools are full;
• calling on the government to publish a full impact assessment for the policy ahead of the Budget.

The Shadow Education Secretary, Damian Hinds, began the debate by accusing the government of ‘rushing’ to implement this policy part-way through an academic year, saying: “Even those who do not necessarily object to this in principle are saying it cannot be pushed through this fast, from the Chartered Institute of Taxation to the NASUWT."

Several MPs intervened to make the point that some children who attend independent schools are not rich and their parents make financial sacrifices to pay for education that is right for their children. Hinds agreed. He argued that if the government want to tax wealthier people they should do it through the income tax system not through a choice that people make to send their children to private schools.

Another intervention was made by Mike Amesbury (Lab) who asked why independent schools should not pay tax when other private businesses, such as profitable pubs, do. The Shadow Education Secretary explained that these schools pay tax on supplies, saying: “The principle of no tax on learning is a fast one, and once we loosen it, we do not know where we will go. Where might the Treasury look next? Private nurseries … Private tutoring? What is the philosophical difference between independent school education and private tutoring?”

Hinds criticised the “sloppy drafting” of the policy, which he said came from the rushed nature of the legislation. It means, he claimed, “that children who are not of school age get dragged into this tax if they happen to be in the same room as children who are, and there are concerns about what might follow in other borderline cases”.

He highlighted the local economic contribution that private schools make, raising concern that by implementing the policy teachers could be ‘pushed out’ of the profession if redundancies are made mid-way through the school year.

The Shadow Education Secretary concluded his remarks by stating that “this destructive, disruptive and divisive education tax will interrupt learning” and called on the government to abandon the ‘unrealistic’ January implementation date.

Opening for the government, James Murray, the Exchequer Secretary to the Treasury, reiterated the government’s commitment to “break down barriers to opportunity”, saying that this ‘tough’ decision had been made in order to fund improvement to the state education system.

The Exchequer Secretary said that the government has ‘carefully’ considered the impact of this policy and has reviewed analysis published by third parties. He acknowledged that removing VAT exemptions could lead to increased costs for some parents, however, he claimed “most private schools will be able to absorb a significant portion of this new VAT charge” – making the fee increases ‘affordable’.

Responding to Hinds’s comment about the implementation date, Murray explained that the government would like to raise funds “as soon as possible”, arguing that parents will have had five months to prepare. He reported that HMRC is ready to help process applications and will put in place ‘bespoke’ guidance.

Munira Wilson, Liberal Democrat Spokesperson for Education, Children and Families, called on the government to drop the proposal, which she said undermined two vital principles: that education should not be taxed, and that parents have a right to choose the best education setting for their child.. She argued that increasing tax on social media firms or raising more by reforming capital gains tax would have been a ‘fairer’ choice to boost opportunity for every child rather than “taxing parents’ own investment in their children’s education”.

Wilson stated: “Labour’s rushed-through and ill thought-through plans will snatch opportunities away from thousands of children”. She added that if the government persist with the policy it must be delayed, and all children with special educational needs and disabilities (SEND) should be exempted (a point also made by Conservative MPs including Claire Coutinho).

A concern raised by some MPs including Richard Foord (Lib Dem) and Alicia Kearns (Con) was that the policy means parents who are sending their children to independent schools would be taxed twice (through their income tax and education system), with Kearns claiming that “families who sacrifice day after day will suffer”.

Christine Jardine (Lib Dem) observed that the government had said the proceeds of this policy will go back into education, but, she noted, VAT is a reserved tax, while education is devolved in Scotland, so there is no mechanism to ensure this. Even if the government come to an agreement with the SNP, “how will they ensure that places for the 9,000 children in Edinburgh in independent schools are available in their catchment area”.

A number of Labour MPs spoke in support of the policy, including James Frith, Oliver Ryan, Daniel Francis, Warinder Juss, Connor Naismith and Laurence Turner. Jonathan Brash said that until 4 July he had been a teacher at an independent school. Nevertheless he supported the policy: “When someone runs a private business, they pay VAT… [C]harging somebody £15,000 a year for an education is not a charitable act.”

The Shadow Financial Secretary at the Treasury, Nigel Huddleston, outlined the opposition's main concerns about the policy, including its impact on state schools and government finances, the timing of the proposals, the consideration of exemptions, and the impact on SEND children. He continued that imposing a 20% VAT hike ‘overnight’ meant that some families would no longer be able to afford the fees.

Huddleston made the case that it's ‘unfair’ to expect independent schools to “get their heads around new legislation, register for VAT and implement new systems and processes in literally a matter of weeks and before Christmas.” He added that concerns also remain whether the government will create “exemptions or special considerations” for the areas discussed.

Junior education minister Stephen Morgan replied for the government. He emphasised that pupils who require a local authority-funded place in independent schools, including those with a local authority-funded education, health and care plan (EHCP) “will not be affected by the changes”, as councils can reclaim VAT when they are charged.

Morgan suggested that private schools could take steps to minimise fee increases and argued that local authorities and schools would be able to support children who will be moving from private to state-funded schools mid-way through the academic year.

In a vote, the Conservative motion was rejected by 363 votes to 190.

Westminster Hall Debate

By coincidence, just a few hours earlier MPs had debated the same topic in Westminster Hall, though without any motion or votes.

Bradley Thomas (Con), who secured the debate, began by suggesting some improvements that the government could consider to minimise the impact of the policy on pupils and parents. These included delaying the imposition of VAT until September and the start of the next academic year, evaluating how very small schools can be protected from the changes, exempting service families on continuity of education allowance, and safeguarding children who are currently applying for an EHCP.

Sarah Olney, speaking for the Liberal Democrats, highlighted that VAT is “a complicated tax” and “different tax treatments can have a large impact on the eventual cost borne by the consumer”. She explained that education has always been exempt from VAT as “taxing education services would disincentivise people from purchasing them”. Furthermore, exempting education providers from VAT frees them from the ‘burden’ and expense of administering the tax, allowing more money to be spent on educating children.

Olney expressed concerns that while the government proposes that their new tax treatment would be applied only to the “provision of private schooling”, taxing “some forms of education and not others would almost inevitably create loopholes”. She suggested that accountants will be able to find ways of “delivering education services that fall outside the VAT legislation, while other education providers—which the government did not intend to tax—will unwittingly find themselves caught up in it”.

For the Conservatives, Nigel Huddleston said that, according to a think tank, the policy could cost the taxpayer £1.6 billion, instead of generating revenue. He asked whether the Department for Education would get more funding from the Treasury if the number of state pupils exceeds expectations.

The shadow minister criticised the timing of the policy implementation and questioned why the government is planning to cause “so much mid-year disruption” for children and their families. He closed his remarks by asking if the government is confident that HMRC is prepared and ‘resourced’ for this, urging the government to listen to stakeholders' concerns and “think twice about this policy”.

For the government, James Murray said that the government has been engaging “widely and in-depth” during the consultation process and he believes that it is right for the policy to be implemented. In response to questions about costings he said that these are currently being scrutinised by the independent Office for Budget Responsibility.