Don't apply VAT to independent school fees, or remove business rates relief.

Prevent independent schools from having to pay VAT on fees and incurring business rates as a result of new legislation.

We think the Government needs to understand that not all independent school parents are wealthy, appreciate the benefits of independent schools and do better due diligence. Independent schools have supported Ukrainian refugees, children with SEN, sharing facilities with public schools and supporting less fortunate families with bursaries. We think this policy will split children from established friend networks, familiar environments and place the burden and cost on public schools.

From 1 January 2025, all education services, vocational training, and boarding services provided by private schools for a charge will be subject to 20% VAT. This will apply to any fees charged on or after 29 July 2024 for terms starting 1 January 2025 onwards. Alongside ending the VAT exemption, private schools that are charities in England will no longer be able to claim charitable rate relief. This is intended to take effect from April 2025, subject to Parliamentary passage. Together, these policies are expected to raise c.£1.8 billion a year by 2029/30.

Around 94% of school children in the UK attend state schools. Ending tax breaks for private schools was a tough but necessary decision that will secure additional funding to help deliver the Government’s commitments relating to education and young people. At Autumn Budget 2024, the Government announced a £2.3 billion increase to the core schools budget in 2025/26 in England, increasing per pupil funding in real terms.

The Government has carefully considered the likely impacts of these policies, and the Government's costings have been scrutinised and certified by the independent Office for Budget Responsibility. On the VAT policy, the Government has published a detailed costing note and Tax Impact and Information Note, which are viewable online. The Government also conducted a technical consultation, which received over 17,000 responses, all of which were carefully considered before the final policy design was confirmed. The Government’s response to this consultation is also viewable online.

Ending the VAT break for private schools does not mean that schools must increase fees by 20%. On average, the Government expects fees to rise by 10%. However, some schools have already said that they will cap fee increases at 5%, or indeed, absorb the full VAT cost themselves. The number of pupils in private schools has remained steady despite a 75% real terms increase in average private school fees since 2000. The Government is confident that the vast majority of parents will be able to keep their child in private school, even if fees increase.

The Government recognises, however, that some parents may not be able, or willing, to pay higher fees. The Government estimates that, in the long-term, 37,000 pupils will leave or never enter the UK private school sector as a result of the VAT change. The Government estimates that approximately 3,100 additional pupils in England will leave or never enter the private school sector in England as a result of the business rates policy.

Many of the resulting moves into state schools are expected to take place at natural transition points, such as when a child moves from primary to secondary school, or at the beginning of exam courses. Furthermore, some parents will be opting not to send their child to private school when they otherwise might have done, rather than removing their child from a private school.

These policies will not impact pupils with the most acute additional needs. Where a pupil’s place in a private school is funded by a Local Authority or Devolved Government because their needs cannot be met in the state sector, Local Authorities and Devolved Governments will be compensated for the VAT they pay on these pupils’ fees. Furthermore, private schools that are charities that wholly or mainly provide education for pupils with an Education, Health and Care Plan will remain eligible for charitable rate relief. The Government therefore expects that most special schools will not be affected by the business rates policy.

The Government is committed to taking a community-wide approach to children and young people with special educational needs and disabilities (SEND). At Autumn Budget 2024, the Government announced a £1 billion uplift in high needs funding in financial year 2025/26, providing additional support and improving outcomes for the more than a million children in the state sector with SEND. This is in addition to a £740 million capital investment to create more specialist places in mainstream schools. This new funding can be used to adapt classrooms to be more accessible for children with SEND, and create specialist facilities within mainstream schools that can deliver more intensive support adapted to suit pupils’ needs. This will start to pave the way for the Government’s wide-ranging long-term plans for reform to help more pupils with SEND to have their needs met in mainstream schools.

HM Treasury