Best laid plans, eh? There have been a series of miscalculations when it comes Labour’s plans to charge VAT on private schools. First there was the pupil exodus from schools and the inability to recruit enough teachers to the state sector. Now private school accounts now reveal that parents have prepaid vast sums of money to avoid the VAT levy applied in January of this year.
What was meant to be a morally redistributive tax dreamt up by Labour has become a sham. The richest may not, in fact, pay any VAT
Figures released in annual accounts reveal that the top 50 private schools held £515 million in advanced fee schemes, up from £121 million in 2023. The figures are staggering, not least because they form a new, modern portrait of Britain’s most powerful and moneyed private schools. Take Eton whose prepayment scheme held £16.6 million in 2023 and now holds £52.7 million. Or St Mary’s Ascot, up to £17.7 million from only £880,000 the year before. I could go on, but I’m sure you get the picture. What was meant to be a morally redistributive tax dreamt up by Labour has become a sham. The richest may not, in fact, pay any VAT.
In yet another division of the private school-parent demographic since Starmer stormed in, ‘prepayers’ are now a known entity as recognisable to parents as the ‘VAT exiles’ who left abruptly in the middle of the academic year or the ‘scrapers’ of which I am one. And really it is the scrapers who will suffer; those who send their children to small non-glamorous private schools (often religious or special needs) who are not getting any of the redistributive benefits from the super-rich at all. These schools, as we know, are shuttering at an alarming rate: 44 private schools are reported to have closed since the VAT levy came into effect. Smaller private schools that did not have a large and well-staffed bursary, or the clientele able to make large pre-payments anyway are being punished, while the educational freedom of the sector becomes ever more diminished.
When the VAT rise on private school fees moved from the rhetorical playing fields of the general election last year to a reality, prepayment of the school fees circulated among parents as a kind of appalling joke. ‘Just let me find that 100 grand behind the sofa’ one father joked to me at a lunch party while I made a similar quip about looking in the change tray in my husband’s office. Ha ha, who could afford that? Some, of course, but not most.
There were other gaming strategies that were mooted and covered in the press – moving siblings to cheaper private schools or the old ‘state till eight’ strategy; apocryphally making faux applications to state schools to flood the system and alarm Labour; cosying up to the bursar for sibling discounts – but prepayment schemes were the only strategy that really had legs. ‘We’ve already done it’ one mother whispered breathlessly to me at sports day last year, ‘they’ll never get us’. From then on, I have looked at her in a totally different way. Others tell of Granny and Grandpa liquidating assets at breakneck speed to get in before the ‘axe falls’.
Like all good dodges, prepaying the school fees comes with a large dollop of risk, in this case potential tax disputes. Tax experts such as Dan Neidle at the Tax Policy Associates describes payment in advance schemes of school fees as a form of ‘sleepwalking’. Dangerous and not done in the clear light of day, in other words. Turns out, paying the school fees in advance isn’t such a wizard wheeze since it doesn’t operate as an advance payment: VAT may be taken at the time the funds are used rather than the time the fees were paid as per ‘anti-forestalling’ legislation used by both Labour and Conservatives alike. Kick the can down the road, but sooner or later, the prepayers may have their comeuppance. How private schools will handle this hot potato remains to be seen. Will they manage to recover the VAT from parents in a politely worded way? Or will the existential crisis that plagues the sector become ever deeper as the prepayers turn against the schools themselves in civil war?
At this point, nothing would surprise me. Just don’t expect it to be well thought out, or even logical. But know this: the scrapers don’t have long left. Our demise may be the one plan that Labour can say was well-laid.
