Taxing private schools could raise £1.5bn and have ‘little effect’ on numbers attending

Fees for private schools currently benefit from being exempt from VAT, while the schools themselves enjoy an 80% discount on business rates.

The Labour Party has previously claimed that adding VAT to school fees and forcing private schools to full pay business rates could raise £1.6bn. The new research supports this figure, but calculates that a small number of people choosing to send their children to state schools as a result of higher fees would slightly reduce the revenue generated by the new VAT charges.

Luke Sibieta, IFS Research Fellow and author of the report, said: “Labour’s proposals to remove tax exemptions are likely to raise an extra £1.3–1.5 billion after allowing for exemptions, deductions and extra school spending to cater for any pupils moving to the state sector. The evidence suggests higher fees are likely to have a weak effect on demand.”

It’s calculated by the IFS that the additional burden on state expenditure by pupils entering state schools after leaving private education would cost between £100m and £300m, leaving a net increase in the state education sector’s balance sheet of between £1.3bn and £1.5bn. This accounts for a 2% increase in available funding for education in England - something Labour has proposed using to support disadvantaged students.

“We expect that the change in private school attendance levels will be small,” adds Sibieta. “This leads to surer increases in tax revenues and less need for additional public spending on state schools. If the main aim of removing tax exemptions from private schools is to raise revenue, then this is likely to be achievable.

“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.”

The research also shows that the gap in funding between private and public school pupils has more than doubled since 2010. Average private school fees in the UK for 2022-23 were £15,200, 90% higher than the average spend per pupil in state schools of £8,000. For 2009-10 the gap was 40% or £3,500.

Josh Hillman, Director of Education at the Nuffield Foundation - who partly 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.”