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Imposing VAT on private schools could be a net cost for the Treasury, research suggests

John O’Connell, chief executive of the TaxPayers' Alliance, said: "VAT on private schools is a clear cut case of a policy gimmick that will do grievous harm to families with potentially pathetic results for revenues."
John O’Connell, chief executive of the TaxPayers' Alliance, said: "VAT on private schools is a clear cut case of a policy gimmick that will do grievous harm to families with potentially pathetic results for revenues."

New research from the Taxpayers’ Alliance suggests that the Treasury might lose money from forcing private schools to pay VAT as it will force more pupils into the state sector.

The think tank pointed to a survey from Saltus, which showed that 26 per cent of children would have to be removed from their independent school if VAT was imposed, forcing just over 144,000 children into the state sector.

With the government spending £7,690 per pupil, this would mean the government would have to spend an extra £1.1bn on children moving to state schools from the private sector.

Independent schools currently do not have to charge VAT because there is an exemption for the supply of education. Labour have pledged to end this exemption, estimating that imposing VAT on private school fees would raise £1.7bn per year.

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Taking into account the extra costs as children move into the state sector, the Taxpayers Alliance notes that this would mean the Treasury would bank a net gain of just under £600m per year.

The Conservatives argue that the policy will only raise £950m per year, meaning the Treasury would actually face a net loss of £150m per year.

John O’Connell, chief executive of the TaxPayers’ Alliance, said: “VAT on private schools is a clear cut case of a policy gimmick that will do grievous harm to families with potentially pathetic results for revenues.”

“Politicians may talk of a level-playing field, but taxpayers won’t be fooled by proposals that simply punish ambition without even achieving its own objectives,” he continued.

The possible introduction of VAT is already being in the private sector. The Independent Schools Council (ISC) said last week that nearly 3,000 fewer pupils started at private schools this year compared to last. It noted that the “spectre of VAT is looming large in parents’ minds”.

However, the topic is an area of considerable debate. A report published last summer by the Institute for Fiscal Studies estimated that the policy would raise up to £1.5bn annually in the medium term.