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Labour’s plan to end the tax breaks enjoyed by UK private schools is unlikely to cause a mass exodus of pupils from the sector but will probably raise less money than the party has predicted, a think-tank has said.
The Institute for Fiscal Studies said in a report on Tuesday that as few as 3 per cent of privately educated pupils would move to state schools if a Labour government axed tax perks, well below a forecast of at least 17 per cent in a study commissioned by the lobby group for independent schools.
Labour leader Sir Keir Starmer has pledged to add VAT at 20 per cent to school fees for the first time if he wins the general election expected next year, as part of a plan to break the “class ceiling”.
His government would also remove the 80 per cent discount on business rates in England and Wales that can be claimed by private schools. They educate an estimated 614,449 pupils — about 6 per cent of the UK total — and take in fee income of about £10.2bn a year.
Labour has said the measures would raise £1.6bn and help fund policies such as hiring 6,500 new teachers in the state sector.
However, the IFS predicted that the measures would provide the public finances with a net gain of £1.3bn-£1.5bn, because the state would have to cope with higher spending on a small number of pupils moving from independent to state schools.
The think-tank said that, even if the VAT reform caused a drop in demand for private education, it would not affect additional tax revenue because parents who had earmarked money for school fees would spend it on other goods and services.
But it predicted that state schools would need extra funding of £100mn-£300mn a year in the medium to long term because of a fall in private school attendance of 3-7 per cent. This reduction would not be immediate, it noted, since most parents would not want their children to change school midway through their education.
The IFS’ forecast of 3-7 per cent is far below a 2018 estimate by advisory firm Baines Cutler, which predicted an outflow of 17-25 per cent in a report commissioned by the Independent Schools Council
ISC chief executive Julie Robinson said it believed the IFS was underestimating how many private school students would enter the state sector.
“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,” she said, adding that the IFS’ calculations on pupil movement were “uncertain and based on limited evidence”.
But shadow education secretary Bridget Phillipson said Tuesday’s study proved Labour’s claim that removing private schools’ tax exemptions would have little effect on pupil numbers.
“This analysis reinforces the fact that all of Labour’s policies are fully costed and fully funded, because we take fiscal responsibility seriously,” she said.
The IFS said the extra funding for state schools could in theory be lower because the number of pupils in England is forecast to drop by 700,000 by 2030, freeing up space for former private schools students at no extra cost.
Tom Richmond, founder of the education think-tank EDSK, warned that modelling future decisions by hundreds of thousands of parents had it limits.
“Some independent schools will be able to partly absorb a sharp increase in costs whereas others may have to increase fees by 10-15 per cent,” he said, adding that a range of factors, such as location, endowment and age range, would influence how the reforms affected private schools.
