7th June, 2024

What does the Labour party plan for VAT on private school fees mean for pupils with special educational needs?

The Labour Party plan to charge VAT on private school fees.

Exemption from VAT for primary and secondary education was introduced in the Finance Act 1972. VAT relief was first granted for education “provided by a school”

The fact that Labour are able to contemplate this is a consequence of a “Brexit freedom” – EU member states are prohibited from charging VAT on “certain activities in the public interest” which includes education.

The current plan is a change from the previous idea to completely strip private schools of their charitable status. The Labour party argue that adding VAT to fees means that they can raise in the region of £1.6bn per annum and that this will then be used to fund state schools.

The average cost of a day senior school placement is £19,000 per year and so, in theory parents would be looking at finding an extra £3,800 per year.

However, the increase in fees may not be the full 20%. Firstly, some schools might be willing or able to absorb some or the entire costs associated with the introduction of VAT on school fees.

Secondly, like any other business making VAT taxable supplies, when a school is obliged to charge VAT, they are able to set-off the amount of VAT paid on goods and services supplied to/which have been incurred for the purposes of the business so, in theory, schools are unlikely to need to pass on a full 20% increase in the overall cost to parents.

There is a concern that there has not been enough consideration upon the wider implications for specialist independent schools who cater for children with SEN.

The proposal is that specialist provision per se would not be exempt from VAT.

The key to VAT exemption is for the child to have an Education Health and Care plan (EHCP) – the legal document describing a child or young person's special educational needs, the support they need and the outcomes they would like to achieve

If the child has an EHCP, then and only then would they not incur VAT on their school fees. Parents with a child with an EHC plan who opt to educate their child in a private school will not have to pay the additional sum.

There are children with special educational needs (SEN) who have not yet secured (for a multitude of reasons) an EHCP who are now progressing and thriving in the independent sector but will face this uplift in fees.

For those parents who cannot afford the uplift, there is a concern that the child’s progress will now be stymied if they have to vacate their private school place and return to the state sector. This is not a blanket sleight on provision in the state sector but reflective of the fact that it is struggling to cope with SEN demands.

Some independent schools catering for SEN are already in a fragile situation and if there is a significant reduction of the roll – because parents cannot afford the increase and pupils have to leave – they will no longer be able to pay the market price for teachers salaries/pensions and in the worst case scenario, those schools could close.

The Independent Schools Council (ISC) is seeking an exemption for the over 96,000 students in its schools who are receiving SEN support but who do not have an EHCP.

Some suggest that this could lead to abuse in the system – those schools could simply claim to be special schools if an EHC plan were no longer the gateway for VAT exemption.

There is an argument that local authorities should be relieved that the private sector provides extra capacity, is able to educate pupils with SEN and take some pressure from the state system.

It is clear that there is a special needs funding crisis being caused by the catastrophe facing many local authorities with Birmingham City Council representing a stark example.

The Labour party plan risks adding pressure to state schools with requests for expensive support for pupils with SEN and the consequences for a system already under strain - the battle for scarce resources will continue.

The Labour Party may well argue that funding for those pupils who do need to return to the state sector could be achieved from the circa £1.6bn that the plan aims to generate.

Census data from the ISC shows that 111,154 pupils received SEN support in private schools in 2024, an increase of 7.5% from 2023 and a 67% increase from 2014.

Only 7,646 of the pupils receiving SEND support at private schools have an EHC plan.

The other 103,508 do not.

For some of this cohort, parents will have decided to enter the independent sector because of their inability to get the support from the state sector. Children can struggle in mainstream state schools and private schools can offer smaller class sizes, low-arousal environments, greater resources and increased staffing levels.

The independent sector is presently catering for the needs of these children, meaning that they are not currently known to the state sector and not calling upon the local authority for additional resources.

This could change with the proposed increase – thus adding to the crisis and meaning that mainstream schools could be asked to educate these pupils. The move could result in children being adversely affected and potential mental health implications for them.

Their parents would be keen for them to have EHCP’s but would need to accept the delays and difficulties in obtaining the same due to the availability of specialist practitioners such as educational psychologists who provide evidence and expertise for the plans.

Some instinctively oppose the Labour party proposal on the basis of it stoking “class envy” or “taxing aspiration.”

Those may well be valid concerns but in my analysis, there are some unintended consequences on the horizon and it is not clear how, particularly for SEND children (presently without an EHCP) those will be addressed amid the already stark funding crisis in the sector.

Martin Mensah is Head of the Special Educational Needs group.



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