Chancellor Rachel Reeves recently made headlines by announcing that the funds raised from new taxes on private schools will be funneled into the state education sector throughout the UK. Beginning in January, private schools will no longer enjoy the exemption from the 20% VAT, and the 80% business rate discount that independent schools in England receive as charities will also be abolished.
This significant policy shift, with no historical precedent in the UK, raises questions about its ramifications. Two primary concerns emerge: how many families might choose to withdraw their children from private education, and is the state sector prepared to absorb those students?
In the heart of this conversation is Edinburgh, which has one of the highest rates of privately educated secondary students in the UK—21%, compared to the national average of 5.9%. One iconic institution, George Heriot’s School, often likened to Hogwarts, has been a staple of Edinburgh’s educational scene for nearly 400 years. Yet, it now faces possible financial repercussions from the government’s tax reforms.
Louise Gibson, a mother of three students at Heriot’s, voiced her worries, highlighting that the annual fees of £17,426 could rise by an additional £700 per month if the school decides to pass on the VAT increase to families. “It really keeps people awake at night,” she remarked. While Gibson believes her family isn’t the worst affected, she acknowledged that they would need to significantly tighten their budget.
The school has already announced a 6% fee increase for the 2024/25 academic year, and recent communications to parents suggest it will be difficult to absorb the VAT hike entirely. In response to these mounting financial pressures, Gibson started a Facebook group for concerned parents in Edinburgh, which rapidly attracted over 1,000 followers. The comments within the group reflect a shared sense of anxiety and uncertainty regarding how families will cope with the anticipated fee hikes.
Despite the widespread concerns, research from the Institute for Fiscal Studies (IFS) indicates that fears of the VAT policy causing the collapse of independent schools may be exaggerated. The IFS predicts a potential decrease in attendance at private schools of 3% to 7%, while the Independent Schools Council has presented a more alarming projection from 2018, forecasting a withdrawal rate of 10.7% within a year of implementing the VAT.
Current data shows that private school enrollment has remained fairly stable, even amidst notable fee increases over the past two decades. In Edinburgh, for instance, private schools have consistently raised their fees beyond the rate of inflation. George Watson’s College recently increased its fees by 9%, yet many parents continue to choose these institutions for their children, with some schools attracting students from nearby areas.
Stuart Adam, an economist at the IFS, pointed out that rising fees have not dissuaded families from pursuing private education, noting that most households paying these fees are financially positioned to absorb the increases. The IFS estimates the new tax policy will yield between £1.3 and £1.5 billion for the UK government, with the rationale being that parents who might withdraw their children from private school will redirect their spending toward other taxable goods and services.
Questions have also been raised about whether state schools are equipped to handle the potential influx of students leaving private institutions. The IFS cites a declining birth rate, which could lead to a reduction in overall demand for school places, thereby easing some pressure on the state sector. However, this situation may not be uniform across regions, with certain areas likely to face challenges accommodating new students.
Gibson recounted her experiences, revealing that her local state school is currently at full capacity, although a government review suggested that additional places could be made available. The local authority is actively pursuing expansions and new constructions to address anticipated population growth.
As the discussions surrounding the VAT policy unfold, many families feel uneasy. Professor Francis Green from University College London indicated that reactions to this policy might be disproportionate relative to its expected fiscal impact, which is minimal compared to the overall education budget.
Chancellor Reeves has assured that the funds generated from these new taxes will be utilized to strengthen the state education system, including the hiring of 6,500 new teachers in England. However, private schools are poised to raise their fees even further, with Eton College announcing it will fully pass on the VAT increase, bringing its annual fees to £63,000. Other institutions may adopt a more measured approach, resulting in varying fee adjustments across the board.
