What’s the difference between a private school and a university?
David Kernohan is Deputy Editor of Wonkhe
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It’s not often you get a settled Labour education policy, but I’m committed to giving them full scrutiny whenever they turn up.
Keir Starmer’s party has hit (once again) on the very popular idea of charging VAT on private school fees, and removing the charitable status enjoyed by schools. with the rhetorical flourish that some of the funds raised for the exchequer (around £1.6bn, it is estimated) used to further support state schools.
It polls well – 47 per cent of adults agree with the plans, with a further caveat that 27 per cent would see it imposed for those that do not do more to help state schools. It’s actually more popular among the kind of older voters that Labour are keen to bring on board, and the policy is a winner even among Conservative voters and Leave voters.
Individual schools are less keen – with the various private school associations grouping together to write to the Telegraph. They cite a 2018 Baines Cutler report already subjected to a forensic skewering by Sam Freedman to suggest that the policy will actually be revenue negative (spoiler – there’s some low n, cherry picking, and sample bias fun in there).
Back to basics
So what has this to do with higher education? Bear with me. If you are going to put in place a policy that affects private schools you have to define a private school. And in doing that, you raise a number of questions.
If you were to define an organisation that charges fees for education and are regulated and inspected as autonomous bodies by a government agency as a “private school”, your definition also includes universities. If you were to define an organisation that educates under 18s to level 3 – you are also including a small part of what universities do.
The only way to exempt universities and other higher education providers from this policy is to do so explicitly and with careful and judicious use of the OfS register (there are a few providers on the register that are not FECs that offer L3 courses, for instance) and the DfE register of private schools.
Which would be great – except there are three providers (David Game College, ArtsEd, and Regent College) that are on both registers.
Definition of a problem
Many higher education providers are charities (some regulated as charities by OfS, others not). Many have exemptions available to them on VAT.
Some deft parliamentary drafting is going to be required to separate out universities from private schools. Indeed such would be the hassle that an awkward question may be asked. Why?
The popular case against private schools being charities is that, well, they are run more like businesses than charities. They charge fees to entrants, and while they may have a nominal charitable aim around “education” in most cases the overwhelming majority of this provision is only available to those who pay for it. Other charitable activity is sporadic and often difficult to quantify. Despite not being in the public sector, many schools also receive government funding to support what they do. And there will also be funding from elsewhere – both from industry and from private benefactors.
All of those things also apply to higher education providers. The only difference is that the government offers fee loans to some entrants (the majority of entrants to be fair – but recall the government also spent more than £100m on school fees for diplomats and senior military officers in 2017). Universities do make a public contribution – in civic and financial terms – and we even get regular reports explaining this. Just like the ones we see about private schools.
During Covid-19 restrictions – we often lamented the way government saw universities as “big boarding schools”. As I never tire of saying – all policy boils down to data definitions. But this is one example of where the act of making a precise definition might get the higher education sector into some hot water.
This is somewhat of a strawman – if we are to define a private school a certain way it would include universities but what if we defined it differently? Independent schools already have to register with the government so wouldn’t those existing criteria* exclude universities? The Education Act 1997 defines a school as being outside of FE and HE which appears to save us from further confusion.
The DfE manages to work with different structural definitions within the same institution – whenever the government refers to schools we know it excludes Reception and 6th Forms as these years don’t fall under the ‘compulsory school age’.
This needn’t be as complicated as feared.
* See p6 of https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/865049/BRANDED_independent_school_registration_guidance_21_August_2019Ms.pdf
Given that international student fees in HE are £8 billion a year and rising, it might be tempting for a future government to claim a slice via VAT simply to claim a share. I believe that New Zealand charges Goods and Services Tax (GST) – the equivalent of VAT – on all types of education, albeit at a lower 15% rate.
There needs to be a separation between teaching income and all other income of universities. There is no moral argument for not taxing other income, including rented accommodation in line with other sectors/businesses.
This is a good challenge. But there’s no reason to believe that if private schools lose their VAT exemption (nothing to do with being a charity, everything to do with the nature of the supply and tax law) universities will automatically be tarred with the same brush.
As we’re no longer subject to EU law, the UK can decide its own tax base, including how VAT is applied. So the supply of higher education could remain exempt (or ideally be re-classified as zero-rated so we could reclaim input VAT) while the supply of privately funded education could be standard-rated for VAT purposes.
On what basis could you justify a differential VAT treatment for the supply of education?
In the minds of any reasonable person on the Clapham omnibus a public school education is a private good (despite the public benefit test of charitable status – there lies the nub of this debate). Whereas publicly funded education (in the HE the loan system with a RAB charge of c53%) is for public benefit. So universities that have access to the SLC could be considered as providing education for public good – which takes us back to the OfS Register as the arbiter. Universities also combine teaching with research, with the latter being financially dependant upon the former, underlining the public good nature of what universities do.
If the Government were to re-classify the supply of education as zero-rated (as opposed to exempt) then tuition fees reclaim VAT-free, but we’d be able to reclaim input VAT on capital projects and recurrent bought-in inputs. That would be a good way for the Government to exercise a Brexit freedom.
I’m not sure on what basis a reasonable person would deem it fair to charge VAT on the “supply of secondary education” to UK taxpayers but not to charge VAT to the international community for the “supply of higher education”.
I disagree we the claim that private schools have a “nominal” charitable status in education. The real issue is that private schools provide a vastly better education than state schools. That is not the schools fault but the government’s due to underfunding. The consequence is that this is only available to those who can afford it -or who are bright enough to get a scholarship or a bursary. Yes there are many students in the private sector that do not pay the fees or vastly reduced fees.
There is not much difference in reality between private school fees and university fees other than perception.
So the solution to get away from this elitist system is to fund the state school system to the point where it is working properly and the private school system would have a hard time.
And by the way Britain could always decide its own tax regime – no Brexit necessary!
People who pay for private education already pay into funding the state system but don’t use it. Not sure how overcrowding an overcrowded system from those leaving private education would improve things. In fact, the gap from haves and have nots will only widen.