The Labour Party have committed to remove tax exemptions from private schools, including exemptions from VAT and relief on business rates.
A new report from the Institute of Fiscal Studies has estimated that such a move would raise tax revenues by about £1.6 billion.
With a small movement of pupils into the state sector, costing perhaps £100–£300 million a year, this would lead to a net gain to the public finances of £1.3–1.5 billion.
The evidence suggests that putting VAT on private school fees would have a relatively limited effect on numbers attending private schools – perhaps a reduction of 3–7% in private school attendance. Even that reduction would have limited impact on tax revenues as money not spent on school fees would likely be spent on other goods and services on which VAT would be payable. If some pupils do move to the state sector, extra school spending of about £100–300 million per year is likely to be required in the medium to long run. But, IFS said it should be remembered that pupil numbers in the state sector are expected to fall dramatically over the next decade and state schools might therefore welcome extra pupils moving from the private sector.
Combining these estimates, the report ‘Tax, private school fees and state school spending’ says that Labour’s proposals will raise an extra £1.3–1.5 billion per year in the medium to long run. This would allow for about a 2% increase in spending on schools in England, which Labour have proposed would be targeted at disadvantaged students.
