How the UK's Independent Schools Lost the VAT Argument

The imposition of VAT on private education caught the sector by surprise. But it should not have been so poorly prepared.

In 2010, I bumped into Dame Suzi Leather after a Charity Commission event in London as we both headed to an underground station. Leather was known as the “quango queen” following thirteen appointments under the Blair Labour government and had chaired the Charity Commission since 2006. Despite being independently educated herself, Leather had spoken of the need for independent schools to be more “charitable,” following her introduction in 2009 of a new public benefit test that was proving all too challenging for many schools. As I introduced myself as the chief executive of the Independent Schools Association, Leather made the sign of the cross as if to protect herself from the devil incarnate, but without any sense of a smile that might have softened the gesture. I had kept an open mind about the Commission’s direction, with a degree of sympathy from my own experience of teaching and leading private schools, as fee increases were increasingly excluding many of the professional classes that had previously chosen to educate their children privately. The period from 1998 to 2002 was typical in that fee inflation outstripped hikes in earnings each year, often by more than two percentage points. Much of this increase was down to schools engaging in a capital spending arms race, with new builds such as improved boarding facilities, artificial hockey pitches and swimming pools. But affordability was increasingly in question. The cumulative effect of large annual fee hikes was that private schools were distancing themselves from the families that might have been more vocal in their support when VAT on fees was first mooted. An Ipsos poll in October 2023 showed that only 18% of the public disagreed with adding VAT on private schools and, strikingly, only 32% of Conservative voters opposed it.

With hindsight, if the Charity Commission had successfully withstood the Independent Schools Council’s (ISC) judicial challenge in 2011 that led to the striking down of its public benefit guidance, the imposition of VAT would have been more difficult for the Labour government today. Initial forays by the Commission had suggested that private charitable schools would pass the public benefits test if they allocated 5% of their gross fee income to bursaries for disadvantaged children. Charitable schools weren’t far short of that mark, though the true impact of bursaries was obscured by scholarships, negotiated discounts and even substantial fee reductions for the children of teaching staff. But schools were understandably wary of a charity regulator that, as they saw it, would remove the discretion that governors had over disbursements and admissions arrangements. The courts found that the commission had not acted illegally, but parts of its guidance was deemed to be wrong or “obscure”, effectively agreeing that governors, as trustees of their charities, were best placed to make decisions on public benefit. There was a collective sigh of relief across the independent schools’ sector, but the issue of independent schools and public benefit was always likely to reappear in an overtly-politicised education system. A high-profile judicial review was always going to raise public awareness of the tax advantages held by charitable trust private schools. So the question that dominated conversations in the margins at the ISC board was whether the time was right to campaign for a stronger public consensus in favour of private schools’ charitable benefits, including corporation tax and local business rate exemptions. VAT on fees wasn’t a consideration at the time, as EU-wide laws made it clear that education wasn’t an acceptable area for governments to bolster their net tax revenues. Not that other countries hadn’t explored the possibilities. When Greece tried to levy 23% VAT on private school fees in 2015, pressure from the European Commission led to a swift reversal of the policy. An unforeseen consequence the 2016 EU referendum was that Brexit swept away such protections, lost in the morass of negotiations on workers’ rights and immigration.

Within the context of the Coalition and Conservative governments after the 2010 general election, and with weak political opposition, the Independent Schools Council understandably took its eye off of the public benefit game. But there were still uncharitable murmurings even within the Cabinet and in 2017 former education secretary Michael Gove addressed the VAT issue, reminding readers of The Times that, “Private school fees are VAT-exempt. That tax advantage allows the wealthiest in this country, indeed the very wealthiest in the globe, to buy a prestige service that secures their children a permanent positional edge in society at an effective 20 per cent discount”. Gove didn’t consider that Britain’s educational institutions, including its private schools, help to promote the country’s soft power overseas while adding positively to the balance of trade, and that the imposition of VAT on school fees might undermine that. However, ISC’s reaction was muted and once more it shied away from a campaign that may have shored up wider political support. Instead, with the tacit approval of successive schools ministers, it put most of its eggs into what became the independent-state school partnerships basket, with small curricular and extra-curricular collaborations in areas such as university preparation, science and languages. A few well-resourced private schools became sponsors of Free Schools and academies, such as Eton’s backing since 2014 of Holyport College, a state boarding school near Maidenhead. The majority of projects were in the main worthy and went well beyond what Sir Michael Wilshaw, the chief inspector for schools, described as, “thin stuff” and “crumbs from their table”. The fact that he said this at the annual meeting of the Headmasters and Headmistresses Conference (HMC) was either naive or deliberately inflammatory, though it did serve to remind the sector once more that even with the demise of Dame Suzi Leather (she stepped away from the Charity Commission in 2012) and a refocussed Michael Gove, there were still unrequited voices that remained to be convinced that private schools were doing enough to justify their considerable taxation benefits, estimated to be worth over £3 billion annually. A minority on the ISC board felt more was now needed, but the response was always, “Labour are difficult to talk to”. There is truth in that, as the opposition had become marginalised under Jeremy Corbyn and pressure groups such as Labour Against Private Schools worked largely under the radar. Yet some pointed to effective PR campaigns in once-denigrated sectors such as private healthcare, which rebranded as a solution to pressures within the NHS rather than as its ideological enemy.

The consequence was that private schools were too late to the PR party. David Yelland on BBC R4’s PR programme, “When It Hits The Fan”, described the sector’s efforts as “badly prepared” and “a slow-motion car crash”, with a clear failure to “make the right kind of friends”. While never a great fan of independent schools, Yelland bemoaned their inability to mount a credible communications strategy and castigated them for the “cardinal sin” of “getting its numbers wrong in public”. It wasn’t ISC’s figures that had been misrepresented, but others had happily weighed in on the backs of some questionable polling. ISC, effectively a trade body, represents two-thirds of registered independent schools in England but has limited influence on the private schools’ industry, which is notoriously fractious. The impending VAT “crisis” brought numerous agents and publicity-seeking headteachers to the fore, seemingly happy to promote a mix of ill-informed predictions and occasionally cringeworthy bluster, as if rhetoric alone would turn minds and cause a government climbdown. As Yelland pointed out, too many seem to live in an echo chamber, while the general public really doesn’t care all that much about the fate of private schools.

For its own part, ISC has mounted a limited campaign to harness its constituency, by energising parents and minority groups such as those supporting children with special needs. Prominent in its case are small schools, such as the family institutions that have carved a niche as part of a local educational offering. In fact, ISC’s own numbers have been bolstered over the last fifteen years by such schools, as I brought over 250 of them into membership of one of ISC’s constituent groups, the Independent Schools Association, in contrast to the wealthier and more traditional end of the market that still dominates the landscape. The irony isn’t lost that a prominent sector leader once described such schools as “basket cases” while they are now in the campaign vanguard, as schools such as Harrow and Winchester would not pass muster as poster boys in the current debate. But it is again a long-term PR failure that stories across the press are littered by photos of expensive educational outliers where unique traditions and uniforms only serve to widen the general public’s affinity gap.

But this isn’t to say that Labour’s imposition of VAT (and local business rates for charitable schools in April) isn’t without its problems for local authorities and the government itself. While the predicted flood of children leaving private education is unlikely to materialise (numbers vary according to which side of the debate you are on), some prospective parents may well have been spooked by unguarded forecasts of mass school closures. Private schools close every year, though more open and it is too easy for governors in distressed schools to blame the imposition of VAT. If there is an influx of pupils into the state sector, its schools will be able to absorb the raw numbers, although the pressure will be felt in the growing competition for places in the most selective and popular school catchments. Parents who previously paid for private school places may further push up house prices in leafy suburbs close to outstanding state schools. Unfortunately, the government does seem blind to the place of many private schools in the local education matrix, even outside of the academy sponsorship programme. LAs benefit from the low-cost (compared to out-of-county) special educational needs and disabilities (SEND) places provided by private schools, vitally important given the lack of state SEND provision. While LAs will be able to claw back the VAT that private schools must now charge for Education Health and Care Plan (EHCP) pupils, there will be more families with SEND children applying for EHCP funding now that their independent school fees are on the rise. There are over 90,000 children in ISC schools with special needs and disabilities, representing 17% of all pupils educated privately, and many can afford the independent assessments that will support their EHCP applications, and the inevitable appeals that will result. And perhaps Labour has made a rod for its own back if vociferous parents previously educating their children independently now throw their weight into a state school standards battle; pity the academy trust facing that particular barrage.

The imposition of VAT has certainly honed thinking within the UK’s private schools. Boarding schools have redoubled their efforts to recruit from overseas, with the effect of skewing the balance of nationalities in some establishments. Negotiated fee discounts outside of published bursary and scholarship awards are becoming increasingly common, particularly for UK parents away from over-subscribed institutions in London and the South East. Perversely, the overseas franchising that has seen hundreds of British named schools spring up in China and the Middle East, with an associated income stream to help offset VAT, may be detrimental in the long-term as families abroad can now access a private British education within their own countries without paying VAT.

Structural changes are also squeezing the number of children for private schools to recruit. Current UK population changes mean that considerable effort is now required to recruit the same quantity of local day pupils. Independent junior schools are well aware that the number of children born in England and Wales has been falling for the last decade and is at its lowest since 1977, while the average age of first-time mothers is at an all-time high. Further, there are fewer families that will traditionally consider only a private education for their children, with many pragmatically choosing state or private education according to perceived quality at each key stage. Families have also factored university fees into their long-term planning since these tripled in 2012. VAT is just one of the issues that independent schools now need to factor into their long-term business planning.

Labour’s VAT plans have certainly brought about a mindset change in the UK’s private schools. Some now question why they should act charitably if those costly partnerships with state schools are now deemed insufficient. There are more than 6,900 cross-sector partnerships according to ISC and many could be withdrawn, not through a fit of spite, but simply because most private schools are looking to reduce discretionary costs. In the twenty-five or so of the wealthier private schools that directly sponsor state academies and Free Schools, it would be natural for chairs of governors to question their future involvement purely on economic grounds. And while the general public doesn’t care about private schools per se as they were priced out of that market long ago, there’s some evidence to suggest that voters can spot an ideological battle when they see it, and no voter likes a vindictive government.

Having enjoyed limited traction with its campaign so far, ISC has recently resorted to the legal route, possibly with its historic challenge against the Charity Commission in mind. It supported parent and religious groups who claimed that the imposition of VAT was discriminatory, on the grounds that the tax change may “disproportionately impact” groups such as single mothers who will be less likely to afford the VAT fee hikes, and that faith schools would be disproportionately affected and this would narrow parental choice. The High Court rejected the claims in 2025, with Justice Humphreys stating that while the right to education under the European Convention on Human Rights is protected, it does not guarantee the availability of a particular form of education, such as private or specialized schooling. He found no unlawful discrimination by the government, emphasizing the broad margin of appreciation allowed in balancing public finances and social policy.

Brexit itself closed off what might have been a more promising legal route in the European courts, as the EU sees private education as fiscally neutral and outside the scope of VAT. But that hasn’t stopped European diplomats raising the VAT issue with Labour on behalf of the foreign children in lycees, schulen and American programme schools in London. Pressure from the armed forces has also resulted in some concessions to the support that serving families receive through the Continuity of Education Allowance (CEA), and a number of private boarding schools have introduced fee reductions for CEA holders despite the risk that other families, echoing Michael Gove, may ask the question, “why them and not us?” Schools have also done what they can to avoid passing on the full 20% increase, through cutting back-office costs, planning for larger class sizes, and stripping out any non-Vattable elements from core fees. Parents in some schools are now able to choose from a menu of offerings that were once part of the all-inclusive fee, such as curriculum trips, lunches and even books.

While it isn’t certain how many children will eventually be forced out of independent schools by Labour’s VAT policy, there seems little doubt that the sector will look somewhat different going forward. Many schools were caught on the hop when implementation was brought forward from September 2025. Further to Labour’s chagrin, VAT registration now allows wealthier schools to recover the tax paid on any capital investment of £300,000 or more, back as far as 10 years. These schools have passed on much if not all of the increased VAT value directly to parents, and a few are financially better off as a result of the VAT changes. They are also growing regionally through mergers and acquisitions, arguably reducing choice for parents still intent on a private education for their children. Brighton College, with annual fees up to £59,168 (including VAT but excluding examination fees and other extras) now has eleven prep schools within its family, including the recently renamed Handcross Park.

Some schools with both overseas and domestic pupils have explored differential pricing akin to the UK universities’ charging model. Denstone College in Staffordshire charges a premium of up to £3500 for international boarding. This reflects the supplementary costs schools often incur through commission for overseas recruiting agents, the administration of visa applications and compliance, and curriculum support in areas such as additional English. Overseas pupils at UK schools have benefitted from the long-term decline of Sterling against most major currencies, and their rapidly expanding aspirational families have found UK boarding fees increasingly affordable. The GBP-USD exchange rate depreciated by 13.3% in 2016-17 alone. UK parents have not been as fortunate, seeing average day school fees rising by 77% since the turn of the millennium. Indeed, it is this steady fee inflation for UK parents that has done as much as anything to undermine the sector’s arguments against VAT today.

While long-term currency depreciations have favoured overseas families, there’s no doubt that the rapid imposition of VAT in January 2025 has had an impact on recruitment. However, this was within the context of a history of rising fees to fund school infrastructure, stricter and costlier visa requirements, health surcharges, the UK’s political uncertainty and its messages on immigration, British schools’ overseas franchising, growing competition from other countries that offer a warmer welcome, residual issues from Covid lockdowns. UK boarding schools have seen a 14% drop in international enrolment since 2020, with especially large declines from Spain, Nigeria, Russia, Thailand and Hong Kong. This further reduces schools’ abilities to cross-subsidise, where higher international fees help keep costs lower for UK families.

Finally, it is easy to overlook that charitable trust schools no longer dominate the independent schools’ sector in the UK. For-profit groups, often private-equity backed and with a rigorous approach to costs, with the competitive advantage that they already pay business rates and corporation tax, are well positioned to sweep up distressed charitable trust schools. In taking over charitable schools, for-profit groups have one eye on their land and maximising all-year returns to even out cash flow, while centralising and lowering marginal costs. Some charitable groups have also sensed an opportunity, taking control of troubled schools outside of their traditional geographies. The Mill Hill Education Group centred on North London recently added Heathfield in Ascot to its portfolio.

Indeed, as average fees still rise, which is inevitable given ongoing cost pressures, parents may even benefit as new low-cost and stripped-down private schools enter the market. The Independent Grammar School in Durham with annual fees around £3,900 is well-established, while some “micro-schools”, hybrid and “homeschool co-ops” are under development. While the latter have not made a significant national impact, there is an opportunity for some private schools to support the growing number of children who are now home educated. This may all widen choice and entice new families to consider an independent education for their children, particularly if more low-cost offers appear. The numbers of children in the UK’s private schools may not drastically decline as some predict, but there seems little doubt that the private schools’ sector in the UK will look a little different in the years ahead.

Neil Roskilly

Chief Executive of the Independent Schools Association, 2009-2020

The Independent Council Board, 2010-2020