Independent School Fees: VAT

Question

11:26:00

Asked by

To ask His Majesty’s Government what assessment they have made of the results of imposing value added tax on independent school fees on 1 January.

My Lords, before I call the noble Lord, Lord Lexden, for the third Oral Question, I should remind noble Lords that there are active legal proceedings relating to the policy of applying VAT to private schools. Part of my role is to decide whether, in specific circumstances, it is appropriate to waive the application of the sub judice rule, under which we do not debate matters before the courts. In view of the national importance of this issue, I have decided to grant a waiver of the rule to allow reference to this matter on an ongoing basis. It is relevant to my decision that a similar waiver has been issued in the House of Commons.

My Lords, I beg leave to ask the Question standing in my name on the Order Paper and declare my interest as president of the Independent Schools Association, whose 700 members—mainly small schools—are now at serious risk of damage or closure.

My Lords, the result of imposing VAT on school fees has been to help raise revenue to fund the Government’s objective that every child has access to high-quality education, including the 94% of children who are educated in the state sector. The Government have published a tax impact and information note setting out an analysis of the impacts of this policy. The Government’s costings, set out in a detailed costings note, have been certified by the independent Office for Budget Responsibility. We remain confident in those assessments but will of course continue to monitor the impact of the reforms.

My Lords, what are the Government to say to the mother of a child with special needs whose independent school is closing because of their education tax? She writes to me: “Shell-shocked does not cover it. My child is autistic. State secondary was an utter disaster. She felt safe and happy. Her heart is now broken”. What are they to say to the head of a small independent school in Derbyshire with 120 pupils, who writes to me: “I am battling to save my life’s work”? How would members of the Government feel if they were forced to move their child to a new school in the middle of an academic year, particularly if exams were in the offing? How should the sudden imposition of an unprecedented education tax on 1 January, after a rushed consultation last summer when schools were on holiday, be described? One word does it: cruel.

I am grateful to the noble Lord for his question, and I pay tribute to his involvement in this sector. As he will know, probably better than me, there has historically been a significant turnover within the private school sector, with around 3% of private schools—roughly 75 in the UK—opening and closing each year, with the overall number of private schools remaining stable. Since this policy was announced in July, private schools have continued to open in England in line with historic trends.

My Lords, I thank the Minister and the Government for their recognition of the unique role that the Music and Dance Scheme schools play in enabling talented young dancers and musicians to pursue their dreams, whatever their background. Is the Minister aware of the recent demonstration of the success of that scheme in the outstanding achievements of Jakob Wheway Hughes, who is a student on the scheme at Tring Park School for the Performing Arts? He won not one but three of the prizes at the prestigious international ballet competition, the Prix de Lausanne. Will the Minister join me not only in congratulating Jakob on his success but in noting the role that the Music and Dance Scheme has played in achieving that success?

I am grateful to the noble Baroness for her question. Of course, I will join her in congratulating Jakob. As she knows far better than I do, the Music and Dance Scheme provides grants and help with fees at eight schools and 20 centres for advanced training. The Department for Education has decided to adjust its Music and Dance Scheme bursary contribution for families with a relevant income below £45,000 a year to account for the VAT that will be applied to fees, ensuring that the total parental fee contribution for families with below-average relevant incomes remains unchanged for the rest of this academic year.

My Lords—

My Lords—

My Lords—

The Tories have had a say.

I am not a Tory, thank you. I remind the House of my declared interests in this field. Special educational needs is one of the big sectors where the private system has been used by the state system to reinforce its own effectiveness. You get support only if you have an EHC plan. These are agreed by everybody as being extremely expensive and difficult to implement. Why are the Government giving support only to those with special educational needs who ask for such plans to be imposed on the state system and encouraging people who do not have them in the private sector to take them out?

The policy remains as it was. It will not impact pupils with the most acute additional needs. Where pupils’ places in private schools are funded by local authorities in England, Scotland and Wales because their needs can be met only in a private school, local authorities will be able to reclaim that VAT. In terms of those without one of those systems in place, on average, the Government expect private school fees to increase by around 10% as a result of this measure.

My Lords, I am not a Tory either. Does my noble friend the Minister agree that the scare stories coming from opposite, like many of their scare stories, have been proven to be wrong? The Press Association’s review of schools has shown that there has not been a major transfer from the private sector to the public sector. In fact, in the public sector in England, more pupils have got their first choice of school this year than last year. The private schools that are closing are doing so for reasons other than the increase in fees. The noble Lord, Lord Lexden, is shaking his head, but he is wrong.

As always, I agree with everything that my noble friend says. All the comments that we have heard to date about the Government’s assessments being incorrect have been proven to be wrong. On the number of pupils who would move from one sector to another, that is absolutely in line with what the Government’s assessment said. On the amount of VAT that would pass through to the fees that parents pay, that is absolutely in line with what the Government said. On the number of schools that would close, that is absolutely in line with what the Government said. As my noble friend said, many councils now say that there has been no obvious impact from the addition of VAT on private school fees, and more pupils are receiving their first choice of school than they did last year.

My Lords—

My Lords—

We have plenty of time. We will hear from the noble Earl, Lord Clancarty, and then we will go to the Conservatives.

My Lords, while I welcome any relief for the music and dance schools, does the Minister accept that the £45,000 cut-off point for a whole family is too low? When will that be reviewed? Should not the Government do everything possible to encourage UK students into our creative schools, including the Yehudi Menuhin School, whose remarkable students we had the privilege of hearing in the Lords last week?

I am grateful to the noble Earl for his question. I agree with the second part of it that we should encourage people into those schools. In terms of what the Government can do, the Department for Education has already acted and adjusted its scheme, and it will continue to maintain that for the rest of the academic year.

Many of our Armed Forces educate their children privately because that is the only way they can ensure continuous provision of education because of the extraordinary lives we ask them to lead and the sacrifices they make for the safety of our nation. While the MoD pays a continuity of education allowance, that covers only a proportion of the parental cost. The imposition of VAT on private school fees has added to the expense of the balance which Armed Forces personnel are paying, magnified if they have more than one child being educated. Is this really the best we can do for our Armed Forces personnel?

I agree with much of the sentiment that the noble Baroness expresses. The Government greatly value the contribution of our diplomatic staff and our serving military personnel. The continuity of education allowance provides clearly defined financial support to ensure that the need for frequent mobility, which often involves an overseas posting, does not interfere with the education of their children. As the noble Baroness will know, the Ministry of Defence and the Foreign Office have both increased the funding allocated to that allowance to account for the impact of any private school fee increases on the proportion of fees covered. The noble Baroness raises the proportion of the fees paid by the parents. As she will know, on average, the Government expect private school fees to increase by around 10% as a result of this measure, but many schools, as we have seen so far, have fully or partially absorbed VAT costs. How individual schools fund this additional cost is a commercial decision for them.

Does my noble friend agree that, although this is a critical area, it should be confined to those serving overseas and should not include those spending a substantial amount of time in the UK but still having their fees subsidised by either the MoD or the Foreign Office?

I am grateful to my noble friend for his question. As I have said, the continuity of education allowance is designed to provide clearly defined financial support to ensure that the need for frequent mobility, often involving overseas postings, does not interfere with the education of the children involved.

My Lords, VAT on independent school fees is an unpleasant, class-based change of the kind sometimes adopted by the party opposite. This increased private school fees by 12.7% this January, according to the ONS. We will debate this matter next week with the Finance Bill, but does the Minister not feel rather embarrassed that his Government are the first one to tax education?

If the noble Baroness wants to talk about what she is embarrassed about, I am very happy to talk about the previous Government’s record over the past 14 years. This was a necessary decision that will generate additional funding to help improve public services, including for the 94% of pupils who are in the state sector.