30% drop in private school pupils if VAT added to fees

30% drop in private school pupils if VAT added to fees

Jul 2, 2024

According to research from Premium Credit a third of private school staff members believe there could be a 30% drop in private school attendance if Labour wins the election on 4 July

A 20% increase in fees could force some parents to pull their children out of private education due to not being able to afford the increase in fees the Labour Party is proposing.

From a survey of private school headteachers, bursars and finance managers at private schools the majority (91%) think there would be just a drop of 10% in private school attendance.

Between 35% and 15% believe the figure could be much higher with up to 30% of children leaving for state-run schools.

However, the survey found that just one in ten schools would pass on the full 20% VAT to the parents. 1% of respondents said they would pass on 10% or under the total amount of additional VAT, while the majority (43%) said between 25%-50% of the incurred VAT would be passed on to the parents.

Stewart Ward, director of education sector & head of school see plan at Premium Credit said: ‘Schools fees are already substantial, around £16,374 a year for day school children, and around £39,000 for those that board.

‘Increasing these by up to 20% as a result of applying VAT would place a financial burden on many parents. However, our research shows that many private schools already have plans in place to reduce the full impact of this if it is introduced.

‘We would also expect to see more parents using schemes such as our School Fee Plan to spread the cost of fees over 12 months.’

Although some schools would look to cover some of the costs themselves to retain students this could result in cutbacks in overall budgets across the schools that do so. 66% of headteachers at private schools said they would reduce the number of staff, potentially leading to larger classes and a reduction in the quality of teaching.

Half of respondents also said there would have to be a reduction in salaries, and a further 21% said expenditure on school equipment would have to be cut.

Jonathan Main, VAT and indirect taxes partner at MHA said: ‘As was widely expected the Labour Party has confirmed that the introduction of VAT on private school fees is one of their first “steps for change”. While there remains ambiguity about these proposals, we should assume that the new government will introduce these changes in a September Budget.’

Main went on to advise people to update their accounting software ‘to separately record VAT on their costs’ and to ‘Record all building and renovation work in the last ten years with total spend above £250,000. Schools may be able to secure partial recovery of VAT on these costs following the imposition of VAT’.