The state sector is the elephant in Labour's classroom
Talking of "unfair tax breaks" in schools without referring to the state-backed monopolist is bonkers
I wrote before about Labour’s tax break attack line and why it’s unreasonable given the lack of a comparator; it’s true that private school feepayers don’t pay VAT on education, and also true that nobody pays VAT on education. Labour are making a huge, and obvious, mistake in considering the government tax treatment of independent schools in isolation, as though the 93pc centrally-controlled monopolist didn’t even exist let alone provide education free at the taxpayer’s pleasure.
If you were investigating the market for desktop computer operating systems, it would be very odd if you didn’t look at Microsoft (which has 75% market share)
If you were looking at healthcare in the UK, it would be very odd if you didn’t mention the NHS (which had 80% market share by expenditure in 2020)
In appraising online retail, it would be very odd if you didn’t mention Amazon (which had 30% market share in 2019)
In all these cases, you might be concerned about the lack of competition. These dominant firms might be restricting innovation, swallowing up potential competitors, reducing quality and charging excessive prices. They might benefit from or impose barriers-to-entry, for example in computing where users’ familiarity with Word, and the network benefit of fellow-users being familiar with Word, making them reluctant even to try other word processors.
Something like a taxpayer-guaranteed income stream with a largely-captive market would be considered a massive barrier-to-entry.
In the UK education sector the state sector has 93% market share paid for free by a monopoly on public support tax receipts, but Labour insists the structural problem is with 7pc of the market where schools are paid for by taxpayers’ private funds.
What might the CMA have to say?
As an aside, let’s note the CMA says
the risk of a firm being “dominant” increases if market share exceeds 40%
A business is only likely to hold a dominant position if it is able to behave independently of the normal constraints imposed by competitors, suppliers and consumers.
Having established that a business is dominant, anti-competitive conduct which exploits consumers or tends to have an exclusionary effect on competitors is likely to constitute an abuse.
What are the normal constraints in education, as regards “competitors, suppliers and consumers”? Well, in the independent sector, the obvious “constraint” is the market - you have to live within what price customers are willing-to-pay. In the state sector, you are entirely immune from that constraint, because you’re giving it away for “free”.
Not only is there a 93pc monopolist, but it benefits from full funding!
Good economics is the study of the whole, not the part
Bastiat’s great essay urged us to consider, in economics, “what is seen and what is not seen”. Hazlitt in Economics in One Lesson says the difference between good and bad economics is the ability to look beyond obvious immediate effects for one group, and to identify hidden and longer-term consequences for everyone. If economics is the study of costs and benefits, we need to consider ALL cost and ALL benefits.
Back to education: you can’t look at government intervention in the education sector by getting exercised about the treatment of the 7pc of children in independent schools. You have to look at the treatment of children in all schools - and you have to recognise that the favour of the taxpayer sits emphatically with the the children receiving free state-funded education, the cost of which (per-pupil) far outweighs the notional “tax break” Labour can’t stop talking about.