Budget: Private schools VAT raid confirmed for the new year

Rachel Reeves ploughed through loud criticism of her plan to make private schools pay VAT today as she confirmed it would come into force in January. 

Starting in the new year fee-paying schools will no longer be exempt from the tax, and from April will get no business rate relief, as the government looks to fund 6,500 extra teachers for state schools. 

Critics of the plan have argued that the change is coming in too fast and could force some schools to close as parents pull their children out due to higher fees. 

There are also fears of the impact on special needs schools, military children, and the effect of extra pupils entering the state system in the middle of the academic year.

Currently, independent schools do not have to charge 20 per cent VAT on their fees because there is an exemption for the supply of education.

The French and German ambassadors to the UK have also called for international to be excluded from the plans. 

But supporters of the change say it is a long-overdue closure of a loophole that allows wealthy schools to avoid tax. 

Ms Reeves told the Commons: 'Ninety-four percent of children in the UK attend state schools. To provide the highest quality of support and teaching that they deserve, we will introduce VAT on private school fees from January 2025 and we will shortly introduce legislation to remove their business rates relief from April 2025, too.

'We said in our manifesto that these changes, alongside our measures to tackle tax avoidance, would bring in £8.5 billion by the final year of the forecast.

'I can confirm today that they will in fact raise over £9 billion to support our public services and restore our public finances.

'That is a promise made and a promise fulfilled.'

At the weekend it was revealed more than 100,000 children with special needs will be hit by the VAT change. 

Education secretary Bridget Phillipson said Labour was determined to press ahead to fund additional teachers in state schools.

She said that only the small minority of special needs children with a formal education health and care plan (EHCP) statement would be spared the hike.

But the designation, handed out by local authorities, covers fewer than 8,000 of the estimated 111,000 children with special needs taught in private schools, whose parents face a potential 20 per cent rise in fees from January. 

Health Secretary Wes Streeting yesterday said private schools have the means to mitigate against the risk of children with special educational needs being priced out by tax rises.

In response to concerns about how raising tax on private schools will affect their provision to pupils with special educational needs, Wes Streeting told LBC: 'Children with statements of special educational needs and disabilities will be exempt.'

Pushed on how this will work for children who do not have that statement, Mr Streeting said independent schools have the means to deal with those situations.

'Firstly, I'd say the statement is available to children and young people and their parents in that situation.

'I'd also say to independent schools, they have the means. They have hyped up their fees with inflation-busting increases for well over a decade and I'm sure they can take steps to mitigate against children being forced to drop out.'