VAT imposition could prompt mini-exodus from private education after 8% surge in school fees

Private school fees for the 2023/2024 academic year increased by 8.0 per cent on average from the previous year, according to the Independent School Council’s annual census of 1,353 private schools.

That takes the average day school fee to £6,021 per term or £18,064 per annum, while for boarding schools the average fee rose 9 per cent to £14,153 per term. The ISC also revealed that enrolments had fallen 2.7 per cent - the biggest fall since the ISC started collecting data in 2011.

Carl Green, Financial Planning Director at wealth management firm Evelyn Partners, comments:

'With the looming prospect of VAT being imposed on school fees at 20 per cent if Labour win the General Election it’s no wonder parents are already thinking twice about sending their children to private school.

‘Against the background of cost-of-living increases and surging mortgage payments that have stretched even comfortable household budgets, an 8 per cent hike would have been for many parents the last straw in the struggle to fund a private education, having faced an average 5.8 per cent rise the previous year.

‘Coming on top of this, a VAT shock at 20 per cent could prompt a mini-exodus from private schools.

‘Schools themselves of course are hardly to blame as they are facing huge expense pressures. The ISC report points towards the high general rate of inflation (8.7 per cent) that prevailed when fees were set in early 2023, together with having to fund higher employer contributions in the Teachers’ Pension Scheme.

‘So it is unlikely that most private schools will be willing or able to absorb the entire cost of VAT being introduced on fees, and some of our clients have already received notification from their children’s schools that some or all of any VAT imposition would be added to fees on top of any customary annual rise. It is possible that some schools though, to soften the blow of VAT imposition, could try to curtail planned inflationary fee increases for a year or two.

‘But there’s a huge amount of uncertainty about what exact shape a VAT imposition would take, how much scope schools might have to mitigate it, and therefore what sort of cost increase will be passed on to parents. Many schools already offer pay-in-advance deals for parents who want to lock in the next year’s fees at or close to the current year’s levels, and as VAT is traditionally charged at the time of invoice, some schools are marketing advance payment as a potential way for parents to avoid large cost increases.

‘There are some concerns that if a new government were to legislate retrospectively then schools could find that avenue closed off, and parents should check the clause of pay-in-advance deals to see if they would be liable for VAT under these circumstances even if they had paid in advance. Many are carrying legal disclaimers that they cannot be held responsible if this happens.

‘And that is the bottom line for most parents of children at private school: that they should budget for the VAT increase as if they will have to pay it in full. Some of our clients are taking some steps to reduce costs, such as going from boarding to non-boarding or boarding only during the school week.’