Should We Levy VAT On Private School Fees?

The answer - and the reason why - might surprise you

Perhaps Labour’s most controversial policy – or at least the one which has generated the most hot takes on social media – is the plan to levy VAT at 20% on private school fees. Please consider this my modest contribution to the Discourse. Sir Keir Starmer is right to call for VAT to be levied on private school fees, but not for the reasons Labour – or many of their supporters – cite. We’ll come to this later.

I am pretty comfortable with inequality. As long as everyone is getting richer then I’m incredibly relaxed about a tiny minority becoming filthy rich. However, while I’m comfortable with inequality of outcome (for the most part), I am deeply uneasy with inequality of opportunity. It really is not right that too many children are going hungry while others will never face such hardship due to the wealth of their parents. This is one of the reasons I think universal free school meals is a good policy. 

It also cannot be right that there is such a huge gulf in the quality of education on offer with some children receiving a world class education while poorer children are condemned to a failing and structurally unsound school. This is an issue which is close to my heart. I grew up in a single parent household on a council estate in West Yorkshire. The state school I went to was initially failing but thanks to the efforts of the headteacher it had dramatically improved by the time I arrived and my teachers were, for the most part, excellent and had a number of advanced classes. Perhaps more importantly, despite times being tough I had a stable home life and both my parents put a premium on education. As such, my brother and I were the first generation of our family to go to university (I got the nickname ‘Jarvis’ as I apparently sounded like Jarvis Cocker due to my Yorkshire accent according to the posh southerners).

Not everyone is as fortunate. The majority of the children who grew up on my council estate dropped out of school and are in low paying jobs or long term unemployed. I’m unsure on the statistics but it was far from a given that a child would go onto sixth form after GCSEs at my school and perhaps only half of my cohort went onto university (with the vast majority of them going to the local uni).

We are really bad at social mobility in the UK and the school system is surely a part of this. Many well meaning Conservatives advocate for the reintroduction of grammar schools for this reason but this would actually exacerbate inequality. If we are to accept the existence of private schools then I would favour overhauling the entire system and replacing it with a model which increases access to private schools for smart children from disadvantaged backgrounds while also raising standards across the board which could look something similar to education vouchers. I wrote an article about this back in 2018 and is actually the reason Truss approached me through her economic adviser, the excellent Shabbir Merali (who wrote this very good piece on AI for Onward).

For the most part I stand by what I wrote about education vouchers. However, I realise that it is highly unlikely to ever happen. As such, we need to look at other models. I realise there is a debate as to just how much revenue charging VAT on school fees would raise, but extra money for State schools would surely be welcome. 

I also don’t buy into the argument that the move is an attack on aspiration by acting as a massive deterrent to middle class children being able to attend private schools given that fees are already prohibitively expensive and are continuing to increase in real terms that it will in reality have a minimal impact on the middle classes. However, even if this were the case, a bunch of relatively wealthy and pushy parents being forced to send their progeny to a state school could actually help to improve these schools.

Therefore, there is a strong possibility that the move will improve state schools and improve the life chances and future earnings of children from poor households. Boosting social mobility is a good thing and is something which sadly no longer seems to be a priority for the current government.

However, the main reason I’m in favour of making private school fees subject to VAT is because EVERYTHING should be subject to VAT. The UK’s tax system as a whole is a mess; the tax code is far too long and complicated and is riddled with loopholes. 

VAT in particular is ridiculously complicated and has far too many different rates and exemptions which often exist for now quite archaic reasons based around definitions of luxury and necessity. The fact that McVitie's baked a giant Jaffa Cake to present as evidence at a tax tribunal is the most famous one, but there are so many other examples of what s subject to VAT and at which rate.

Sanitary products are now VAT exempt and we have seen calls from lobby groups to make dog food and sun lotion zero rated as well - it was even a UKIP policy in the 2017 General Election to scrap VAT on fish & chips (one of the least nutty UKIP policies to be fair, but that is a low bar). The reason sanitary products are now VAT exempt and some foodstuffs always have been and the reason why lobby groups want dog food and sun lotion to be zero rated is for social reasons. Well-meaning campaigners and politicians want to ensure that women and girls do not face financial difficulties, help people with the costs of looking after their pets, and reduce the prevalence of skin cancer. These are all good and noble aims. 

It’s the same with private school fees. They are currently exempt because the State sees the provision of education as a good thing. The State is right. However, using the VAT system to achieve this – and pretty much anything else for that matter – is the wrong way to do this. Using the VAT system to alleviate poverty, promote a healthy lifestyle, look after animals, or even help parents send their children to a great school is an inefficient way of going about it as it is complicated and poorly targeted.

Instead, we should scrap all exemptions and levy a single rate of VAT on EVERYTHING, private school fees included. As I wrote on this blog before, levying VAT at 17.5 per cent on all goods and services would be a significant revenue raiser. This would obviously increase the cost of living and so would be a hard sell but this extra revenue could be used to provide more targeted support for low income households while also providing extra funding for education and other nice things.

Starmer’s policy is the right one. Charging VAT on school fees may well improve social mobility but it will definitely simplify the UK’s tax system.