Labour’s proposals to remove tax exemptions on private schools are likely to raise an extra £1.3-1.5 billion according to the Think Tank the Institute for Fiscal Studies in a report out today.
Labour have committed to remove tax exemptions from private schools, including exemptions from VAT and relief on business rates.
The report,‘Tax, private school fees and state school spending’, estimates that this would raise tax revenues by about £1.6 billion. With a small movement of pupils into the state sector, costing perhaps £100–300 million a year, this would lead to a net gain to the public finances of £1.3–1.5 billion.
The evidence suggests that putting VAT on private school fees would have a relatively limited effect on numbers attending private schools – perhaps a reduction of 3–7% in private school attendance.
Even that reduction would have limited impact on tax revenues as money not spent on school fees would likely be spent on other goods and services on which VAT would be payable.
If some pupils do move to the state sector, extra school spending of about £100–300 million per year is likely to be required in the medium to long run. But it should be remembered that pupil numbers in the state sector are expected to fall dramatically over the next decade and state schools might therefore welcome extra pupils moving from the private sector.
Combining these estimates, they estimate that Labour’s proposals will raise an extra £1.3–1.5 billion per year in the medium to long run. This would allow for about a 2% increase in spending on schools in England, which Labour have proposed would be targeted at disadvantaged students.
Luke Sibieta, IFS Research Fellow and author of the report, said:
‘Labour’s proposals to remove tax exemptions are likely to raise an extra £1.3–1.5 billion after allowing for exemptions, deductions and extra school spending to cater for any pupils moving to the state sector. The evidence suggests higher fees are likely to have a weak effect on demand.
‘As it is, we expect that the change in private school attendance levels will be small. This leads to surer increases in tax revenues and less need for additional public spending on state schools. If the main aim of removing tax exemptions from private schools is to raise revenue, then this is likely to be achievable. If the aim is to encourage more pupils into the state sector and reduce inequalities by school attended, then this policy package is likely to have only minor impacts.’
Josh Hillman, Director of Education at the Nuffield Foundation, said:
‘This timely analysis shows that the combination of levying VAT on fees and the tax exemptions associated with removing charitable status from private schools would raise a small but potentially worthwhile sum of money for use in state education. However, to make a significant contribution to reversing the widening gap in achievement between advantaged and disadvantaged pupils, a wealth of other research suggests it would need to be spent carefully on well-targeted funding streams and evidence-based programmes and practices.’
