Adam Smith Institute report
The father of modern economics turns in his grave at the idea not only of taxing education, but doing so in a discriminatory and distortionary way.
So this week the Adam Smith Institute published this excellent report, which I strongly encourage everyone to read and share. There are several themes in there that I’ve been exploring, such as the moral and social benefit case for the VAT exemption and the dynamic impact which poses enormous risks to the public finances. They identify the large risks associated with labour supply motivation for higher earners; they go on to reckon in a 25% migration scenario that the policy could lose £1.6bn. There’s new food-for-thought about the impact on state schools, the redundancy risks to 5-25k teachers (and the unreasonableness of the assumption the state sector will re-hire them).
And there’s some robust rebuttal of the awful IFS paper that this blog reviewed here. The Adam Smith paper goes deeper into the IFS guff and catches them out blatantly misrepresenting academic studies. It’s worse than I thought.
If you’re short of time to read the full report, I particularly like these two paragraphs:
Few economists recommend hypothecated taxation. Policymakers should consider not only (1) whether this is an effective tax and raises revenue, which the IFS paper partially considers, but also (2) whether it is an efficient tax, minimising harm to the public and private sectors and (3) whether it is an optimal tax, compared both to other taxes and to opportunities to find the money from savings.
Wishing to raise money, few economists would instinctively recommend (1) a new tax offering (2) highly uncertain net revenue potential (3) on a positive externality, that (4) distorts competition and (5) disrupts the education of (in the IFS’ optimistic scenario) some tens of thousands of children, (6) shifting their demand onto a state-obligated supplier; that (7) poses hard-to-quantify risks to the labour supply, value creation and taxes of higher earners, and that (8) requires new legislation, presenting many avoidance opportunities and enforcement challenges and (9) has only one international precedent, said to have caused “general mayhem”. This is not a good tax.
Positive reception
The paper has had positive coverage from some MPs:
Greg Hands said: “Labour’s ill-conceived, back of a fag packet tax on independent school parents risks damaging not only independent schools but the whole education sector. It’s the politics of envy, killing aspiration and failing to prepare for the likely consequences of pupils being priced out and moving to the state sector, which likely won’t be able to take the extra numbers. It is a bad policy at every level.”
Bim Afolami, said: “Once again, Labour’s sums don’t add up because Sir Keir Starmer does not have a plan. This is another unfunded spending promise that will cost money, meaning higher taxes on working people and more borrowing to fill the gap.”
Robin Walker said the paper highlighted the “severe risk” to the employment of thousands of teachers and criticised the assumptions behind Labour’s policy as “hopelessly optimistic”.
Over on X,
Education Secretary Gillian Keegan said: “This report exposes the real cost of Labour’s school tax. Not only could it cause 1 in 4 private school children to go to state schools, but it could also cost us £1.6bn. This is an ill-thought-through policy based on the politics of envy.”
And in response:
Rebecca Boden said “The Secretary of State for education defending obscene privilege for a tiny minority of rich kids whilst most children go hungry in crumbling schools with inadequate resources”
Advocates of a tax are often happy talking about how they want to spend the money. It’s a classic deflection to get off the hook of talking about the harm done by the tax itself. Next time you see some Labour spokesman on a panel show, see if they take or shirk accountability for the families, children, schools and teachers that will be materially harmed by this tax.
As the Adam Smith paper says, this debate is not about how to spend £1.5bn or whatever, or whether improving state schools is desirable, or whether we care about crumbling schools and all that. There are other taxes, fairer and less harmful. Even if “distribution” is the objective and the education tax is a proxy for “taxing the rich”:
If this is the outcome in mind, it would make more sense to simply “tax the rich”. The progressive taxation and benefits system are more traditional tools than targeted consumption taxes to manage distribution. It is not clear why it is “fair” to single out an independent school family to pay VAT for redistribution over an equally (or more) affluent state school family, especially given the latter may (1) buy into an excellent “catchment area” with a taxpayer-funded school place while being able to (2) buy VAT-free tutoring, take a skiing holiday, save an ISA for University, and still contribute a house deposit for each child.
This is just a debate about how to raise £1.5bn and trying to do minimal harm in the process.
I wrote about Rebecca Boden here noting her Marxist tendencies and that she wants to abolish private schools. If she supports the tax, I'd ask Rachel Reeves to consider whether that’s because she believes it will raise £1.5bn and make a difference to state schools.
It seems highly likely she agrees with the Adam Smith analysis that taxing education will lose money and harm schools. It’s just that, for her and fellow abolitionists, that would be seen as a good result. She wants the tax not for the stated purpose of raising revenue, but the more probable outcome of causing harm.
The more I watch that 90 sec video by Paul Johnson it just sounds more and more like damage limitation. It's all "you might think this"... "you might believe that" etc, and then ends with "but don't be fooled". Was it scripted by Sir Humphrey I wonder? And if/when it all does go pear-shaped they can trot out this video and say "well, we did warn you!".
Labour are dreaming if they think private school teachers will simply become teachers in the state sector. Even state school teachers don't want to be teachers there! They have a huge recruitment and retention problem because most state schools are jungles. My daughter who was privately educated has taught in both and has just called me on her way home from a day of supply teaching (plenty of that with all the teachers on sick leave) at a state secondary. Her words: "I'd rather work in a cafe. At least you don't get people telling you F.... off. The whole place is pointless. There is no point in trying to teach these 'children' algebra, they are feral and simply walk out of class. They'll never survive in the real world". I said, oh yes they will - they will live on benefits. She will never send her own children to a state school - home education all the way.