Asked by
To ask His Majesty's Government what estimates they have made of
the pupil migration arising out of the proposed VAT on
independent school fees, and what is the exact basis of such
estimates.
The Financial Secretary to the Treasury () (Lab)
My Lords, in July, the Government set out their view that the
number of pupils who may switch schools as a result of these
changes represents a very small proportion of overall pupils in
the state sector. Projections from the Institute for Fiscal
Studies suggest that this is likely to represent less than 0.5%
of total UK state school pupils, with any movement expected to
take place over several years. At the Budget, the Government will
set out our assessment of the expected impacts and a tax
information and impact note. This assessment will be consistent
with the costings of this policy by the Office for Budget
Responsibility. In making this assessment, the Government will
consider pass-through of VAT to school fees as well as the likely
elasticity of demand.
(Lab)
My Lords, I am very grateful to my noble friend for answering my
Question. He cites the IFS report that advised that there would
be a very small pupil migration of between 3% and 7%. The
question is whether that is correct. Do the findings of the IFS
provide any clear indication of parents' ability to pay a 20%
increase in the cost of school fees? Also, should not the
Government listen to the parents of pupils in independent schools
in the various parent surveys? In recent surveys, between 18% and
26% have said that they will not be able to pay this increase and
will have to take their child or children out of independent
schools.
(Lab)
At the Budget, we will set out an assessment of the expected
impacts of this policy in the normal way by publishing a tax
information and impact note. In this assessment, we will
consider, first, the likely pass-through of VAT to school fees.
Here, after a cover of VAT on input costs, we expect schools to
be liable for VAT of an average of around 15% of their fee
income. The Government expect that private schools will take
steps to absorb a significant proportion of this VAT liability.
Secondly, we will consider the likely elasticity of demand, which
will be consistent with the elasticity used by the OBR in the
costing of this policy. It is worth noting that, despite a 75%
real-terms increase in fees since 2000, the number of children in
independent schools has remained steady, which suggests an
inelastic demand for private school places.
(Con)
Should we not all be grateful to the noble Lord, , who has sent a very thorough
report to the Prime Minister, showing the dire consequences that
the Government's education tax will have? Is it not time that the
Government realised that their education tax—the first in our
history—is likely to force a large number of parents,
particularly those using small special needs schools in the
independent sector, to move their children next term to state
schools which are wholly unprepared for them?
(Lab)
The answer to the noble Lord's question is no, because the
assumptions underlying that report are incorrect. We expect that
a large number of private schools will take steps to absorb a
significant proportion of this VAT liability, so the majority of
that fee will not be passed through.
(CB)
My Lords, 3,000 military families take advantage of the
continuing education allowance and send their children to private
school. In previous answers, the Minister has said that no
decision will be taken on how the impact of the VAT rise will be
dealt with for those families until the spending review. The
Armed Forces are facing a retention crisis, as is well known. Why
does the Minister think that leaving those families with this
level of uncertainty is going to help with that retention?
(Lab)
The core answer to the noble Lord's question is that very many
private schools will take steps to absorb a proportion, if not
all, of the new VAT liability, so there may actually be no
increase in fees in such circumstances, which is why it is right
that we leave it until the spending review. It is worth pointing
out that very many military personnel send their children to
state schools and want them to benefit from the improvements that
will happen in those schools.
The Lord Speaker ( of Alcluith)
My Lords, the noble Lord, , is participating
remotely.
(Lab) [V]
Why not positively foster pupil migration from the public schools
into the state boarding school sector, such as Keswick School, a
comprehensive in the Lake District? They offer a far wider social
mix, often higher standards of education, help to foster far more
balanced social interaction among the young, and all at a
fraction—often one-third —of the cost. Is this discussion about
not just tax receipts but breaking down social division that can
begin in childhood and later divide society?
(Lab)
I am very grateful for my noble friend's insights. I will take
those on board.
(LD)
My Lords, the Minister keeps saying, “Our modelling, our
predictions” et cetera. What happens if they have got it wrong?
If, for example, 10%, 20% or 30% of pupils leave the private
sector, have the Government made contingency plans to ensure a
sufficient number of teachers and sufficient provision? A point
was made about special needs schools. Many children in the
private sector are in special schools providing a particular type
of provision. Will that be available in the state system?
(Lab)
The noble Lord asks about the assumptions we are making. As I
said, we will set out our assessment of the expected impacts of
this policy in the normal way by publishing a tax information
impact note at the time of the Budget. At that point he can judge
those assumptions for himself.
(Con)
According to the Government, VAT is a tax on consumption and
therefore falls on the parents. Yet the Minister keeps saying
that this consumption tax will be absorbed by the producer—the
schools. Many noble Lords have pointed out today that schools
cannot simply magic up lots of cash to mitigate against this
consumption tax on the parents. Has he considered that he is
undermining what a tax on the consumer actually is?
(Lab)
The noble Baroness will know that how schools will fund this
additional cost is a commercial decision for each school. Some
schools have already announced a very wide range of fee
increases, from zero to 5%, to 10%, up to, for example, Eton at
20% above the average expected VAT liability. This reflects the
Government's expectation that private schools will take steps to
absorb a significant proportion of the new VAT liability.
Noble Lords
My Lords—
(Lab Co-op)
Can we hear from the noble Baroness, Lady Foster?
(Non-Afl)
My Lords, I am grateful to the noble Lord. Is the Minister aware
of the disproportionate impact that this tax will have on
Christian schools in Northern Ireland given the structure of the
education system there? Given that, will a specific impact
assessment be carried out?
(Lab)
The impact assessment will cover the full range of expected
impacts.
of Cumnock (Lab Co-op)
My Lords, is the Minister aware that many of us think that taxing
the schools like other private enterprises is long overdue? Will
he confirm that, in the case of the sons and daughters of MoD and
FCDO personnel, it is in fact just a transfer from one government
department to the other and has no net impact?
(Lab)
I absolutely agree with the spirit of my noble friend's point.
This is a necessary decision that will generate additional
funding to help improve public services, including the
Government's commitments relating to education and young people.
The Government are committed to breaking down barriers to
opportunity and determined to drive up standards in those schools
serving the overwhelming majority of children in this
country.
(Con)
What is clear from the comments is that this is all built on a
number of assumptions that clearly could be incorrect. Given that
the whole objective of this is to raise money, will the Minister
undertake a review a year from now when this has been in place to
see whether those assumptions were borne out, or, as we suspect,
it has ended up losing money and will be repealed?
(Lab)
The Government are extremely confident in our costings. We expect
this policy to raise significant amounts of revenue. The Office
for Budget Responsibility will certify the Government's costings
at the Budget. Of course, one keeps all tax policy under
review.
(CB)
Do the Minister and the Government realise that we are talking
about not only Eton, Winchester and Westminster? There are a
large number of small independent schools serving local people on
relatively low fees. They are the ones that will fail, in
Northern Ireland and other places. There is no point reviewing it
in a year's time—they will be closed and those children may or
may not find sufficient places in the local state schools.
(Lab)
I disagree with the assumptions that underlie the noble and
learned Baroness's assumptions. As I said, some schools have
already announced a very wide range of fee increases, from zero
to 5% and up to 10%.
