Britain’s Labour Party is romping home to a massive win next week in its general election, and despite being careful not to be too radical, it has one policy that represents a massive change for independent schools. Labour promises to charge VAT – the Value-Added Tax that resembles our GST – on private school fees. The standard VAT rate is 20 per cent, double our GST of 10 per cent.
The Labour manifesto promises to apply the revenue from applying VAT and business rates to private schools, estimated at £1,510m, to 6,500 new expert teachers in state schools, teacher training, mental health support for all schools and over 3,000 new nurseries.
The UK election on July 4 – which will lead to the VAT for independent schools, occurs in the same week that Victoria is imposing a payroll tax on schools with fees above $15,000.
(As UK private schools will now be able to deduct VAT from purchases, the net effect on their income will be about 15 per cent, according to The Institute for Fiscal Studies (IFS) think tank the BBC reported.
Labour leader Sir Kier Starmer was challenged in leaders’ debate about the VAT impost affecting aspiration working-class parents. “I have nothing against private schools, I absolutely recognise that many parents work hard and save hard to send their children to private schools because they have aspirations for their children,” Starmer replied
“I equally accept that every parent has aspiration for their children whether they go to private school or not.”
Starmer went on to add that thousands of teachers are missing in key subjects such as maths in state secondary schools and that 6,500 teachers would be recruited for the state sector by ending tax breaks for private schools and using that money for state secondary schools.
The 6,500 teachers are for England only. Scotland and Wales will have to decide what to do with the extra money, which would lift school spending by 2 per cent.
The extent of an exemption for special needs students is unclear: those with a legally binding education health care plan (EHCP) won’t have to pay the VAT.
Taxing private schools is not just a UK proposal, almost certain to be implemented, but it has already arrived in Australia. While GST is a federal tax, one state, Victoria, has imposed a state-based tax.
“From 1 July 2024, non-government schools with an income per student of more than $15,000 will be subject to the payroll tax, following changes to legislation announced by the Minister for Education on Thursday, 29 June 2023,” according to an official announcement.
“‘The government needs to rethink its rushed and unprecedented decision to tax schools,’ Independent Schools Victoria’s (ISV) Acting Chief Executive Meg Hansen said last month.
Long established high fee schools bear the brunt. “The bulk of the schools affected by the tax this year are in Melbourne’s inner east and Bayside suburbs. But as the tax net widens, as more schools reach the fee threshold due to rising costs, the impact will spread into other suburbs,” according to ISV.
https://www.aacs.net.au/news-update-victorias-new-payroll-taxThe $15,000 fee threshold means “the vast majority of non-government schools, including all Christian schools, will remain exempt under the current determinations, according to the Australian Association of Christian Schools.
Catholic schools responded differently when the tax was announced. “What this effectively means is schools will have to raise $135 million each year from cuts to educational programs, cuts to campus refurbishment plans, and increases in fees and charges for families,’ Catholic Education Commission of Victoria’s (CECV) Executive Director Jim Miles said.
‘Catholic schools strive to keep fees as low as possible to remain accessible, so any increases will
significantly impact hard-working, middle-class families. More families won’t be able to afford their school of choice.”
Image: Kier Starmer. Image Credit: Rwendland/Wikimedia