Back to school for Labour's big idea
Taxing private education to help fund state schools may be harder than it looks
Today brings the news that the Labour Party plans to impose a tax on independent education. The mechanism is to remove private schools’ charitable status, resulting in a VAT bill for parents that Labour estimates to be £1.6 billion pa. There would also be an extra £0.1 bn pa from business rates.
Really? If prices go up by 20% (the current rate of VAT), won’t that push the fees out of reach for a lot of parents who are already paying, on average, around £15,500 pa. For every child who is taken out of private education under a future Labour Government, approximately £3,500 pa of the expected VAT income would not materialise. And, of course, the child would then go into the state system, pushing up costs by another £5,000 pa (or £6,500 pa if Labour plans to restore state spending on education to pre-Conservative levels).
Many on the Labour Left would like to ban private education altogether. That’s not part of the plan described today. But suppose, for the sake of argument, the extra taxes resulted in around 25% of privately educated children dropping back into the state system. Based on the estimates in this post (which I readily admit are somewhat crude), that would wipe out the entirety of the £1.6 billion pa that Labour hopes to raise. A drop-out rate higher than 25% would mean that the plan became a net cost to Government.
In practice, I don’t imagine the drop-out from private education would be as high as 25%. Instinctively, that figure feels too high. But has Labour carried out any analysis to test how much the real drop-out rate might be - how much the proposal would actually contribute to state-funded education.
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