Examining Labour's tax breaks claim
Labour's "end tax breaks for posh schools" is pure spin. Nobody pays VAT on education in UK - the favour of the taxman is clearly with the state sector
Labour’s favourite attack line concerns “tax breaks on private schools”. Here they go, and here, and here. You can see why it’s politically effective. Nobody likes unfairness - and Labour wants to stake their claim to integrity, the party that sticks up for the little guy.
Unfortunately, it’s total nonsense - there are no VAT breaks in education, because there is no VAT in education at all. There are just schools that charge fees, and schools that don’t need to because the taxpayer foots the bill.
I’m pretty sure Starmer knows this. Let’s look a little closer.
What is a tax break anyway? Usually we’re referring to a “preference, concession, or advantage”. You don’t need economics training to realise that these are relative terms - an advantage here can only exist in relation to a disadvantage over there. If you buy an electric car out of gross income, with a minimal 2% benefit-in-kind tax, then you’re enjoying a tax break compared to when I buy a diesel out of my post-tax income. The electric car maker has the advantage over the diesel.
When we buy food, we have a tax break compared to when we buy a television. Nobody’s complaining about the tax break on food, because nobody pays VAT on food. Likewise, we just mostly accept that everybody pays VAT on televisions. Labour say the absence of VAT on private school fees is a “tax break”. Relative to what? Like with food and televisions, we want comparisons within the industry.
Independent schools’ competitors are not subject to VAT because they don’t have to charge fees. Taxpayers’ money is handed to them. There’s no VAT on fees that don’t exist - and, when state schools do sell various services like boarding alongside fully-funded education, those services aren’t VATable either.
The fact is, the exemption on VAT is applied in an industry dominated by a 100% state-funded 93% market-share monopolist, which receives taxpayers' money worth around £60bn. Furthermore, the taxpayers that don’t use state schools tend to contribute a disproportionate share of taxes on income and capital, paying heavily for the “free” state school places to which they are entitled but don’t use. The best thing for state school funding, and the public finances, is a family earning money to send their children to an independent school.
There are just two ways education is paid for in the UK: either from private (after-tax) money, or “free” but paid from general taxation. It’s clear where the taxman’s favour lies.
In respect of independent schools, Labour should stop talking about tax breaks that don’t exist.