The Chancellor Rachel Reeves announced in Autumn Budget on 30 October 2024 the government will charge VAT at the standard 20% rate for private schools from 1 January 2025.
Whitehall has confirmed that they are worried that there will private school closures due to the Chancellor’s controversial Budget tax hikes.
Labour officials are concerned that there will be a surge in parents taking their children out of private schools and enrolling them into state schools.
Local authorities have been told to prepare for a rapid surge of students, and according to figures released by the Independent School Council more than 3,000 private school students made applications to join state schools between June and September, GB News reports.
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According to the Institute of Fiscal Studies (IFS) they are estimating numbers between 20,000 and 40,000 pupils may end up in state schools after being forced out of private schools due to Labour’s VAT raid.
The Treasury is only estimating there will be a reduce rate 37,000 pupils leaving private schools.
A Whitehall source told The Times, “We have to plan for the worst.
“Officials are monitoring those schools most at risk of closure to help local authorities prepare better where the number in need is significantly greater.”
Another sources warned that small independent schools are at risk because there is “an obvious added challenge we need to prepare for.”
Labour is hoping to raise an extra £1.8 billion per annum and the government claims this will recruit more than 6,500 teachers.
“We are confident the state sector will be able to accommodate them,” the spokesman told The Times.
Julie Robinson, chief executive at the Independent Schools Council, told The Times, “I have every sympathy for local authorities worrying about an influx into schools.”
She warned, “At a macro level, it is true to say there are spaces in the state sector. But are there spaces in the right places at the right time? We don’t know.”
She then added the Government had “seriously underestimated the level of movement” as a result of their policies.
“There are a lot of financial shocks building up on independent schools,” she added.
Nicholas Hyett, Investment Manager at Wealth Club warned in Jume, “While removing the VAT exemption doesn’t necessarily mean that school fees will increase by the same 20%, it will likely see a widespread increase in fees. The reality is that a meaningful number of parents will struggle to pay those higher bills. That could see the tax raise generate significantly less revenue than expected.
“According to the Independent Schools Council the UK independent sector educates around 620,000 children in the UK. Should 24% decide to leave the system that would see around 149,000 children entering the state system, which assuming an average class size of 30 children implies a need for another 5,000 or so teachers. In other words, a significant proportion of the additional teaching resource funded by the tax would be absorbed by those moving out of the private school system.
“There are some steps parents can take to mitigate the pain, including asking for help from grandparents is just one example. That’s already common, of those Wealth Club clients paying school fees, 68.4% were grandparents. This could become even more common if fees rise, and is sensible from a tax planning perspective since gifts made from regular income are potentially free from inheritance tax.”
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