Sarah Lambert is still battling to find a state school place for her 13-year-old daughter from January, when the Labour government rolls out the introduction of value added tax on private school fees.
Already stretched to their financial limits, Lambert and her husband are unable to afford the increase to daughter Nicole’s new private school fees and have no choice but to remove her from the school in the new year.
Their daughter is one of the 3,000 private school pupils ministers expect to move to the state system before the end of the 2024-25 academic year, as a result of the move to apply a 20 per cent VAT charge to independent education and boarding schools.
Ministers argue that applying the levy on these schools will raise £1.5bn for investment in state schools, including recruiting 6,500 teachers. But they face a backlash from both parents and private schools, who fear it will make fees unaffordable for much larger numbers of students and have questioned the ethics of taxing education.
“We have had to make the decision to pull her out as our school has had to add 15 per cent to her £20,000 a year fees,” says Lambert. The mother of three works two jobs as a nurse practitioner in a GP surgery where the family lives in Lincolnshire, and as a 111 call handler. Her husband, Will, who spent 23 years serving in the British Army, now works in security.
“When we signed Nicole up for private education we did it on a seven-year trajectory, accounting for growth [and] inflation as much as we could,” she says. “At no point did we even think that a luxury tax of 20 per cent could be added to education. It has blindsided us.”
The couple are among thousands of parents wondering if they will be able to find the extra several thousand pounds a year to cover the higher fees coming into force. Their anxiety has been heightened by the largest tax-raising Budget in living memory last month, which included big tax rises for wealthier people.
“Nicole doesn’t have a school to go to yet as we have been unable to secure her a place,” Lambert says. “I just feel sick, no one wants to have to take their child out of a school they’re thriving in.”
In the UK, the private sector currently educates approximately just 5.9 per cent of children, about 620,000, in more than 2,500 schools, according to the Independent Schools Council (ISC), which speaks for about 1,400 of them. Average fees per term range from £13,000 at boarding schools to £5,550 at day schools.
A number of private schools in the UK have told parents they will pass on the full 20 per cent cost of the new tax on fees, while others have said they can absorb some of the extra costs through efficiencies.
Ministers have pointed to the fact that the vast majority of children are educated in the state system, which they argue they have a responsibility to improve.
“Our state schools need teachers more than private schools need embossed stationery,” education secretary Bridget Phillipson wrote recently on X. “Our children need mental health support more than private schools need new pools.”
The Office for Budget Responsibility estimated last month that “around two-thirds of the cost” of the VAT charge to schools will be passed to parents through higher fees.
Julie Robinson, ISC chief executive, says they expect thousands of children to leave the sector at Christmas as a result of the levy being introduced in the middle of the school year. The umbrella group says it is launching legal action against the government over its tax plan.
“Heads are already telling us that parents are giving notice to remove their children in January,” she says. “The fact children are moving mid-year shows you how many just cannot afford this increase. We weren’t bluffing about the impact this would have on parents already making huge sacrifices.”
Polling of ISC members showed fewer pupils started secondary private school in September this year amid rising concerns over increasing fees, Robinson adds, with some schools reporting a 4.6 per cent drop in year 7 pupils.
She said that the 1,185 schools that responded to their survey had seen an average 1.7 per cent drop in numbers across all year groups, which equated to 8,233 fewer children starting at an independent school than a year earlier.
In the long term, 37,000 pupils will leave or never enter the UK private school sector as a result of the VAT policy, according to government estimates.
The government said: “We want to ensure all children have the best chance in life to succeed. Ending tax breaks on private schools will help to raise the revenue needed to fund our education priorities for next year.”
Financial advisers note an uptake in clients seeking advice on how best to manage the increase.
David Gage, head of VAT at accountancy and wealth management firm Old Mill, warns parents they should be aware of a potential “double whammy” of fee increases in 2025.
Schools facing VAT from January will typically pass on between 14 and 20 per cent to parents, depending on their ability to absorb some of the VAT. But from April 2025, schools will also face increases to employers’ national insurance contributions, at the same time as they lose their charitable status and have to pay full business rates.
Independent schools typically uprate their fees in September, so parents not only have to factor in the January VAT rise but also further inflationary costs. Schools are also likely to pass on NI increases and the loss of business rates relief, says Gage. “Parents need to be budgeting twice.”
He adds: “A lot of people I speak to who have their children in private school are not cash rich and there will have to be an additional sacrifice to afford the extra VAT. Many parents are already pushing the boundaries of what they can realistically afford.”
Some UK private schools are advertising schemes that allow parents to pay fees for multiple years in advance. However, there is a risk that these schools may not return the money if a child has to move later, or if a parent goes bankrupt.
The government has confirmed that fees paid after July 29 2024, covering a period on or after January 1 2025, will be subject to the 20 per cent VAT.
Sarah Coles, head of personal finance at Hargreaves Lansdown, suggests that setting up a “bare trust” could enable parents and grandparents to invest on behalf of the child, as the trust can be used before they turn 18 “for the benefit of the child — and that includes school fees”.
A more complicated route, she suggests, is to create a specific educational trust, designed to ensure the money is used for schooling.
“You normally transfer cash in the trust up to the inheritance tax threshold, so that it’s free from an immediate charge from IHT, but there are ongoing costs involved with running the trust and there can be tax on assets within it,” she cautions.
The easiest route for grandparents to help directly is to pay the shortfall created by the VAT rise.
“It’s one of the most effective ways of planning for inheritance tax (IHT) because they are making contributions on a regular basis and when it comes out of their surplus income, it immediately comes out of their estate for IHT purposes,” she says.
Among the parents who worry over how they will afford the increase, the most anxious are those whose children have special educational needs (Send) and feel the provision in their local state schools is inadequate.
Karen Burns’ daughter has dyscalculia and goes to a specialist educational private school in Cambridge that caters to children with dyslexia and dysgraphia.
“We actually moved back to the UK from abroad for such a school setting,” says Burns, a single parent to two girls. She believes it is “just wrong” to levy the new tax on specialist schools which exist because “government-funded schools just can’t provide adequate support for these kids”.
As an entrepreneur, she says she earns more than the national average salary, but without financial support from her ex-husband, she would be unable to afford them. She is increasingly worried about how she will afford the increase in her daughter’s school fees, which she has been told will rise by the full 20 per cent.
“My daughter can’t thrive in a large classroom setting despite local state schools offering various Send support, so we’re in a private school that caters for her specific needs, as she can’t currently cope in a mainstream setting.”
Carl Green, director of financial planning at Evelyn Partners, says some clients scrambling to pay fee rises are looking at reducing pension contributions or remortgaging their homes. Others are looking to grandparents to draw money from their own pensions to pay the fees.
Burns says she does not pay herself a pension, faces higher housing costs as a renter and has no option to remortgage.
Green says the “pinch point” for many is the increase in fees coupled with increases in their mortgages. “You see general household bills increase, historically low mortgages come off and the new fees kick in.”
He urges clients to save earlier, some of whom may have their children in a state primary and want to send them to a private secondary. “We are talking about bringing forward saving plans and allowing compound interest growth to help offset those increased fees by starting earlier.”
Laura Suter, head of personal finance at investment platform AJ Bell, suggests it is worth parents asking the schools for assistance if they can demonstrate they will suffer financial hardship as a result of the increase.
“Obviously, it’s a fine line, because it’s quite difficult for what are essentially wealthy people to argue they are suffering”, she says. “But if it’s forcing you to remove your child, it’s worth going to the school to see what discretionary funds might be available.”
For Sophie, who asked to remain anonymous, the decision to take her child out of a selective girls’ secondary school in London and return to Denmark is less about the pressure the new policy puts on her finances, than what she describes as the “rhetoric” of the new government.
“We feel we’re being accused of somehow ‘taking’ something away from state-educated children by sending our children to a private school,” she says. “That we are somewhat selfish for making this choice. I don’t want my child to be vilified.”
After initially sending her daughter to her local state school, Sophie says the child struggled. “Not all parents want to send their children to private schools, they send them there because their children suffered or are likely to suffer in the state sector,” she says. “For many parents, this doesn’t represent a true choice.”
Her own daughter will go to a state school in Denmark, which she says will provide an “education superior to a selective private school in the UK”. “I’m blessed that I have this option, something that most British people don’t have since the end of freedom of movement.”
Credit: Source link
