Is VAT on fees really to blame for private school closures?

Headlines suggest ending the exemption has been a ‘wicked’ act by a ‘cruel’ government. But even the schools admit they are struggling for a range of reasons

It was, if you like, almost the final nail in the coffin

A deluge of media fury has blamed recent private school closures on the government’s decision to impose VAT on school fees. One commentator even claimed the move was “akin to what we have seen from Vladimir Putin”. 

But a Schools Week investigation has found that fewer than a dozen schools have publicly blamed the new VAT policy for their closure.

 So how accurate are the headlines? Schools Week investigates … 

What Labour did 

In the run-up to the general election, Labour published a manifesto proposal to remove the VAT exemption that applies to private school fees. 

Once in power, the government confirmed that private school fees would be charged VAT at the standard 20 per cent rate from this month. 

Labour estimated the policy would raise £460 million in 2024-25, rising to £1.5 billion the following year, to be spent on public services including state schools. 

It forecast that imposing VAT on fees will result in 37,000 pupils leaving the private sector, about 6% of the current private school population. 

Since the announcement, blowback from the Conservatives, and right-leaning parts of the media, has been significant. Headlines have called the tax “discriminatory”, “cruel”, “wicked” and even “inhumane”.  

 The Daily Telegraph has racked up some 200 stories on the issue, suggesting the tax will raise the cost of school dinners and crush the next Billy Elliot. 

According to one Telegraph commentator, the former headteacher at St Paul’s School, the policy is a “sinister threat to democracy itself”, and “akin to what we have seen from Putin”

So, what is going on? 

Bridget Phillipson
Bridget Phillipson

What the numbers show 

Government figures show that even before Labour’s VAT change, many private schools were closing each year. 

 Data from the register of private schools in England showed that, on average, about 85 independent schools closed each year in the decade from 2013 to 2023.  

The data was released by the government after a parliamentary question in October.

It showed that 77 private schools closed between January and early October last year. If this rate had continued through to the end of the year, 103 schools would have closed – which is more than would normally be expected.

But government data also suggests that private schools have been closing for reasons other than the new VAT policy. 

One school closed after inspectors found an illegal secondary school operating above it. 

Another was the subject of a BBC Panorama investigation, in which staff were filmed abusing students. 

And at least eight schools closed after their most recent inspection resulted in an ‘inadequate’ Ofsted rating, or independent school warning notices. 

Of those schools that have closed since the government took office, nearly one in five merged with another institution. 

Almost a third were classed as special schools. These schools open and close more frequently than mainstream schools, “especially in the independent sector, where special schools can be set up for a very specific local need”, Sarah Cunnane of the Independent Schools Council said. 

They may enrol just a handful of pupils, and close down when those students move on to other provision. 

A government spokesperson told Schools Week that private schools close for “a range of reasons, including financial struggles and school standards issues. Local authorities and schools commonly support children and parents in these circumstances.” 

What the schools say 

Schools Week has found that fewer than a dozen schools which have announced closures since Labour took office have publicly blamed the VAT policy. Most of the ones that did said the policy was not the sole reason for their decision. 

 A closer look at some shuttered schools’ accounts also shows they have been in financial trouble for years. 

Alton School, in Hampshire, said on its website that a “combination of adverse political and economic factors” was to blame for its closure in August. 

The school was operating at just over 50 per cent capacity last year, government figures show. Its accounts also show that it had been in significant financial difficulty since the pandemic. Its former head declined to comment for this story. 

Maidwell Hall, in Northamptonshire, intends to close at end of the summer term, citing the government’s new VAT policy – as well as the elimination of business rates relief, and the increase in employers’ national insurance payments introduced by the Labour government. 

But the school had prior financial difficulties, too. It was rescued from insolvency in 2022 through a merger with another local school, which paid off an outstanding six-figure bank loan. 

Numbers dropped since the pandemic

Its imminent closure also comes amid an inquiry related to Earl Spencer, the brother of Princess Diana, who has alleged that he suffered physical and sexual abuse at the school as a child in the 1970s. 

The Iona School in Nottingham, which closed in September, stated in July that it was “facing the threat of closure due to the government’s proposed VAT on private school fees”. 

It was operating at 75 per cent capacity when it closed. Company accounts show the school experienced a significant drop in income since the pandemic, particularly between 2022 and 2023. The school did not respond to a request for comment. 

St Joseph’s Preparatory School in Stoke-on-Trent closed in December. On its website, it  said that “varied financial challenges … and the changes coming regarding independent school funding” were to blame. 

The school was running at 72 per cent capacity at the time of its closure, after a steep drop in enrolment since the pandemic. 

“It was, if you like, almost the final nail in the coffin,” said Roisin Maguire, the school’s former head. She said the VAT policy was a “blunt instrument” and a “cheap shot” by Labour.  

“It was to win votes. To say, ‘Oh yes, we’ll bring those buggers down’.” 

‘The worst is yet to come’ 

But critics have pointed out the disproportionate impact on smaller private schools like Iona and St Joseph’s. 

“Smaller independent schools, particularly those that deliver special needs provision, were always likely to be hit harder by the addition of VAT on fees,” said Tom Richmond, director of education think-tank EDSK. 

“They have smaller asset bases, recruit fewer pupils from abroad and often rely on interest from local families. In contrast, some large schools could actually end up better off as a result of this policy, even if parents are having to pay higher fees.” 

Neil O'Brien
Neil OBrien

Conservative MP Neil O’Brien, the shadow schools minister, said the policy had impacted local choice and diversity. “Labour’s education tax has led to the closure of schools,” he said.

“It’s disruptive for teachers, parents and children, and particularly hits those who have special needs or want something specific that is right for their child.

“In my own area on the edge of Leicester, I see how whole extended families come together to invest in education. Many of these families are not wealthy, but really believe in the value of education.” 

Meanwhile, Julie Robinson, CEO of the Independent Schools Council, predicted that the impact of the government’s VAT policy would increase “over the coming months and years”. 

“It is true that a small number of schools close every year. But it is equally true that the government’s triple tax whammy on independent schools will prove a bridge too far for schools already under financial pressure,” she said. 

Private schools ‘priced themselves out’

Despite the substantial critical coverage, the government has continued to defend the policy as it kicks in this month. In her first education committee meeting on Wednesday, Bridget Phillipson said schools should be doing more to cushion parents from VAT costs. 

“Private schools are private institutions that can set their own levels of fee,” she said. “I would hope and expect that schools in those situations would be seeking to bear down on costs to parents. 

 “Their fees have gone up year on year – way, way beyond inflation – and they have frankly priced themselves out of the market for lots of middle-class parents.” 

Some experts agree. “No one’s in uproar when private schools normally put up their fees,” said Loic Menzies, associate fellow at the Institute for Public Policy Research.

“I don’t quite understand why they should be so much more in uproar when it’s to raise money to support ordinary working families.”

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3 Comments

  1. Jonathan Oswald

    I find it astonishing that we are still expecting established schools to simply close as a result of this policy. This is unlikely to be the case for years, if ever.

    What is happening in the short term, as the article points out, is that smaller schools and those in financial distress are closing. These schools are affected on two economic fronts: demand and supply. On the demand side, VAT deters new parents, compounded by the falling birth rate. On the supply side, schools are struggling to operate at low costs due to increases in National Insurance, business rates, and TPS contributions.

    The impact of this policy is therefore not the immediate closure of established schools but rather a deterrence to market entry and the forced consolidation—or closure—of financially distressed schools.

    What we should be focusing on is the net number of school openings. The government theorized that when schools close, a proportion of children would find places in other private schools. However, with fewer schools opening, it is likely that a larger number of children will transition into the state sector than originally anticipated.

  2. Labour are right to highlight that private schools regularly close, and mainly for the same reasons. Hitting private school parents with vat on their fees 1/3 way in the budgetted school year is unreasonable for the sector, particularly clobbering the same schools with the NI hike which compounds the felony. Leaving Military families and those whose children have supported Ballet, Dance, Drama and Music funded places in the dark increased the hurt, and the killer punches have been the government’s unwillingness to support the low level tuition fee schools, or explain how EHCP/SEN children in local authorities who’ve chosen to give parents certainty through delegated Budgets. We know that faith schools are badly represented in the state sector and that all LAs face a High Needs funding crisis. Shame above all on journalists that won’t put the record straight. VAT on school fees is a new tax. As with Care services, local authorities privatised SEN schools and PRUs in the 90s, because they couldn’t afford to run them and thought free governance in our sector was a cheaper solution.

  3. Ben Dylan

    No, it wasn’t just VAT, it was the removal of Business Rates Reliefs and, most importantly, the shock rise in Employers NI, compounded by parents giving notice. That was the real unexpected financial hit. It was a triple whammy beyond VAT.

    Plus bringing it through the educational mid-year. Unforgivable.

    When thousands of private school SEND kids go back into a State system that can’t afford them, well-tutored kids push truly disadvantaged peer down the results tables destroying their fragile confidence, and the Chinese have flown in to buy up all the excellent private schools for themselves, then ALL of Britain will be poorer for it.

    Still, best not let a bad ending get in the way of an ideology.