Starmer urged to consider 'implications' of removing charitable status for private schools

12 Jul 2022 News

Official portrait of Keir Starmer

Chris McAndrew, CC BY 3.0 , via Wikimedia Commons

Sector bodies have advised the Labour party to consider “unintended consequences and potential implications for other parts of the sector” after it pledged to remove charitable status from private schools.

Keir Starmer, Labour party leader, had previously outlined the plan in 2021, but elaborated on the policy in a speech in Gateshead on Monday.

He said the Labour party would use tax money gained by removing private schools’ charitable status to invest in state education if it wins the next general election.

The party leader said a Labour government would increase investment in education, with funding raised by “closing the VAT loophole for private schools”. The commitment is similar to one made by Jeremy Corbyn in the party’s 2019 manifesto.

Many independent schools are registered charities, and have to generate a meaningful amount of public benefit, though the Charity Commission is not prescriptive on this.

'Consider unintended consequences and potential implications'

Richard Sagar, head of policy at Charity Finance Group (CFG) said: “CFG would want to see more details on these proposals and consider unintended consequences and potential implications for other parts of the sector.

“Removing some tax benefits and retaining charitable status which some commentators have proposed, and which the Barclay review in Scotland recommended as the best approach, would create a two-tier system of charities and risk creating confusion amongst the public.

“Removing charitable status from private schools would avoid this difficulty. Regardless of what is decided, CFG will work with the sector to support charities with the implications of the transition."

Richard Bray, chair of Charity Tax Group (CTG), said: “CTG’s position has always been that all charity tax reliefs should apply equally to all organisations which are recognised as being charities. We have consistently argued that charitable status should be determined by charity law and not by the tax system. If the Labour Party were to remove charitable status from public schools, this would no longer be a tax issue.”

ISC: ‘A tax on aspiration’

Julie Robinson, chief executive of the Independent Schools Council (ISC), said Labour’s proposal to charge VAT on independent school fees “will have the greatest impact on the families who work the hardest to pay the fees”. 

She said: “These parents are striving to do the best for their children and often sacrifice other spending to pay school fees - their right to make choices over education should not be undermined by a tax on aspiration.

“Ultimately, the policy would threaten the survival of the smallest independent schools, which operate on tight margins and without large endowments. Most independent schools have fewer than 400 pupils on roll, and these small schools, serving their local communities, would be at risk of closure.”

Robinson added “everyone working in independent schools wants to see a well-funded state school system” but said this is a policy proposal “in which the numbers simply do not stack up”. 

In Spring 2018, Baines Cutler Solutions and KPMG were commissioned by the ISC to conduct a review of the potential impact of the introduction of 20% VAT on the independent schools’ sector.

The review suggested that axing VAT exemption on independent school fees would cost the government at least £416m in its fifth year once pupil displacement and VAT recovery is taken into account.

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