Scrapping private school tax breaks would raise £1.5bn for state sector, says thinktank

As reported by The Guardian, warnings of a mass exodus from private schools if Labour carries out its pledge to scrap their tax breaks have been dismissed by a leading economic thinktank

Research by the Institute for Fiscal Studies (IFS) found that Labour’s plans to add VAT to private school fees would generate up to £1.5bn in additional revenue, “a small but potentially worthwhile sum” providing a two per cent boost in spending on England’s state schools.

The policy would have “a relatively limited effect” on pupil numbers, the research found.

Contrary to predictions of families quitting independent schools due to rising fees and moving their children into the already creaking state sector, the IFS said it expected higher fees would have “a weak effect” on demand, potentially reducing private school numbers by as little as three to seven per cent.

As the political parties set out their stalls for the next general election, the private schools policy has become one of Labour’s most eye-catching and hotly debated pledges. The latest IFS research answers some of the challenges to the policy, which others believe does not go far enough.

“If the main aim of removing tax exemptions from private schools is to raise revenue, then this is likely to be achievable,” the report’s author, Luke Sibieta, said. “If the aim is to encourage more pupils into the state sector and reduce inequalities by school attended, then this policy package is likely to have only minor impacts.”

Prof Francis Green of the Private Policy Education Forum, which also co-authored the study Engines of privilege: Britain’s private school problem, said: “The removal of charity status from private schools is right. But, without further measures, this will do little to lessen the unfairness in our class-segmented school system.”

The IFS analysis, published on Tuesday, confirms Labour’s calculation that ending private schools’ tax breaks would increase tax revenues by about £1.6bn and estimates that, taking into account additional costs to the state sector of around £100-£300m a year, the policy would lead to a net gain to the public finances of £1.3bn-£1.5bn.

If the numbers transferring into the state sector are low, tax revenues from private schools will be healthy and the cost of incorporating more pupils into the state sector will be limited, though the paper points out that with pupil numbers expected to fall dramatically over the next decade, state schools might welcome extra pupils.

Julie Robinson, CEO of the Independent Schools Council, said the number of pupils moving from independent schools into the state sector would be higher than the 20,000 to 40,000 estimated by the IFS.

She said: “This is the second report in less than a month to confirm what we have consistently said: Labour’s policy will not raise the money it claims it would. Even an over-optimistic estimate – which this most certainly is – leaves Labour significantly short of funding the education policies they claim a tax on parents would pay for.”

In a keynote speech last week, Keir Starmer said money raised from removing tax breaks on private schools would be used to give primary schools cash for “world-class early language innovation”. The party has also said the funds would be used to help recruit more than 6,500 new teachers into the state sector.

The shadow education secretary, Bridget Phillipson, said the IFS analysis reinforced the fact that that all of Labour’s policies are fully costed and fully funded. “The Conservatives have crashed the economy and have no plan for growth which will mean we face tough choices in government,” she said.

“Labour will fund our fully costed plans to drive high and rising standards in our state schools by ending private schools’ unjustifiable tax breaks.”

Josh Hillman, director of education at the Nuffield Foundation, which funded the research, said: “This timely analysis shows that the combination of levying VAT on fees and the tax exemptions associated with removing charitable status from private schools would raise a small but potentially worthwhile sum of money for use in state education.

“However, to make a significant contribution to reversing the widening gap in achievement between advantaged and disadvantaged pupils, a wealth of other research suggests it would need to be spent carefully on well-targeted funding streams and evidence-based programmes and practices.”