Rachel Reeves' flagship policy to raise £1.5 billion by applying VAT to private school fees is under threat after it emerged parents have paid at least £500 million in advance to avoid the tax. Thousands of families rushed to pay fees before the 20% levy took effect this year, significantly reducing the amount the Treasury can expect to recover.
Some schools collected as much as £10 million each from parents keen to avoid what Labour had called a “loophole” for the wealthy. One parent reportedly paid £295,000 to cover seven years of education before the tax began in January.
As a result, the revenue raised could fall hundreds of millions short of expectations. The Institute for Fiscal Studies had already warned that the original estimates were likely “overstated”. The IFS stated: “Labour has suggested it could raise £1.5 billion. In practice, the amount raised is likely to be somewhat lower.”
Labour insists the policy will fund 6,500 new teachers, but critics argue it is backfiring. Sir Peter Lampl of the Sutton Trust warned it would make private education harder for low- and middle-income families. Barnaby Lenon of the Independent Schools Council urged the government to consider impacts on pupil welfare and school sustainability.
Some schools are allowing upfront payments for up to seven years, while others have imposed limits due to potential HMRC scrutiny. The rush to pay early means Labour may have to wait years to see the full benefit. A Treasury spokesperson noted that the Office for Budget Responsibility factored prepayment schemes into its revenue forecasts.
