Labour VAT raid on private school fees is set to raise more money than initially predicted after schools hiked fees for families.
One of Labour’s most eye-catching and widely supported policies from their election manifesto last year had been a pledge to charge VAT on private schools.
Some had warned the policy would force students out of private school and into the state system, and whilst this has happened to an extent, councils in March said there had been “no obvious impact” on applications for state sector places.
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And now, the Telegraph reports that the tax hike is actually set to raise more revenue for the Treasury than forecast, after schools raised fees for families by more than expected.
Treasury sources told the publication that despite more pupils moving into the state sector than predicted, ministers believe they are “on track to raise the revenue forecast if not slightly exceed it”.
The government had calculated the policy would raise £460m from its introduction on January 1 2025 to the end of the tax year in April, assuming school fees rose by an average of 10%.
But fees have ended up going up by around 14% in January, according to analysis from the Telegraph. This has seen parents facing an average fee increase of more than £2,500 for day schools and almost £6,000 for boarding schools.
This has increased the overall tax base, meaning the levy is applied to a bigger pool of fee revenue.
Chancellor Rachel Reeves has said the Office for Budget Responsibility will publish updated figures on how much the VAT raid will raise ahead of the Budget.
Speaking in Washington last week, she said: “Last year, when we announced things like the non-doms, like the [tax increase for] private equity, like the VAT on private school fees, there was so much bleating that it wasn’t going to raise the money – that people would leave.
“The OBR will publish updated numbers on all of those things.”
The government has already pledged that the revenue raised from the tax will be put straight back into the state system.