Labour ‘underestimated' impact of VAT raid on private schools as fees surge

Telegraph

15-05-2025

Labour has been accused of having 'underestimated' the impact of its VAT policy on private schools as fees surged by almost a quarter this year.
The Independent Schools Council (ISC), which represents about half of private schools across the UK, said fees were 22.6 per cent higher on average in January compared with a year ago.
It comes after the Government hit private schools with 20 per cent VAT on fees for the first time from Jan 1, in the middle of an academic year.
Private schools have also been grappling with recent National Insurance changes, while those in England with charitable status were stripped of their 80 per cent business rates relief last month.
This year's average fee hike of nearly a quarter, revealed in the ISC's latest annual census and shared with the BBC, compares with an 8.4 per cent rise in 2024 and a 6.4 per cent increase in 2023.
Julie Robinson, the chief executive of the ISC, said it is 'clear to us that the Government has underestimated the effect ' of its 'triple whammy' on private schools.
Ministers have repeatedly insisted that their VAT policy on private schools would only result in fee rises of around 10 to 15 per cent.
A Treasury impact assessment published last October also said that 'on average, the Government expects private school fees to go up by around 10 per cent as a result of the introduction of VAT'.
The document, published alongside Rachel Reeves' inaugural Budget, insisted that private schools would likely choose to absorb much of the VAT rise and that some had 'already said publicly that they are going to cap fee increases at 5 per cent'.
However, many of the UK's most prestigious schools have raised fees by the maximum 20 per cent, while smaller private schools have suggested their lack of reserves has prevented them from absorbing much of the levy.
At Eton College, boarding fees increased from £17,583 to £21,100 per term this year. Meanwhile, Harrow and Marlborough have passed on 15 per cent to parents, putting both schools' annualised fees at around £60,000.
Ms Robinson suggested the Government's forecasts had missed the mark and that the true impact of the VAT raid would likely emerge in years to come, as families reconsider private education altogether.
'We know parents have already left the sector because of the threat of VAT coming in so we do expect the reality of this to lead to further decreases, but the full effects will only become apparent over the next few years,' the ISC chief said.
In the run-up to the general election, Labour also relied on analysis by the Institute for Fiscal Studies (IFS) suggesting that 15 per cent fee rises on average would result in a modest movement of private school pupils to the state sector.
The IFS report, published in July 2023, said that an 'effective VAT rate of 15 per cent would lead to a 3 to 7 per cent reduction in private school attendance'.
The ISC said data from its latest annual census, due to be published next week, showed some of its members reported a 4.6 per cent fall in Year 7 pupils in September 2024.
However, others have pointed to a declining birth rate and broader financial concerns to explain the drop.
The Treasury also rejected suggestions the VAT raid was solely to blame for fee rises this year and said it followed large increases over the past few decades.
A Treasury spokesman said: 'This data misrepresents reality – the increases in fees are not only down to VAT. Average fees have risen by 75 per cent in real terms in the past 25 years and pupil numbers have remained steady.
'Ending tax breaks for private schools will raise £1.8 billion a year by 2029/30 to help deliver 6,500 new teachers and raise school standards, supporting the 94 per cent of children in state schools to achieve and thrive.'
More than a dozen private schools have directly blamed the VAT raid for causing them to close so far, while many others have announced they are shuttering because of financial constraints.
Ministers have repeatedly brushed off attempts to link the closures to the VAT raid and insisted around 80 private schools shut across the UK in an average year.
However, High Court documents obtained by The Telegraph last month revealed that Ms Reeves was warned Labour's tax levy could cause many more to shut – something the Government has never admitted in public.
Internal government documents show Treasury officials informed the Chancellor last July that 'around 100 additional independent schools may close over the next three years directly as a result of the new VAT charge'.
Court documents obtained by The Telegraph also revealed that Labour deliberately chose the 'most disruptive' start date for the VAT raid on private schools after being presented with a range of options.
Ministers ultimately decided to go with the course of action labelled by civil servants as 'the most disruptive' for schools and pupils in order to 'maximise revenue', The Telegraph disclosed.
It comes as the Government is currently embroiled in a High Court battle over its VAT policy after parent groups argued the tax raid is discriminatory.
Parent groups are seeking a 'declaration of incompatibility' under human rights laws. Although this would not overturn the VAT policy in itself, it could force the Government to take a second look at the tax raid or hand out exemptions.
The judicial review was heard by three High Court judges, who are expected to issue a single written judgement in the next few weeks.