Private schools would retain some of their tax breaks under a Labour government, after the party backed down on its pledge to strip them of charitable status. The party said it no longer needs to end the charitable status of private schools to achieve its policy of charging 20% VAT on fees and ending business rates relief in England, as first reported by the i. Independent schools are able to claim gift aid on donations and avoid paying tax on annual profits, which must be reinvested in education. The latest move contradicts comments made in 2021 by Rachel Reeves, the shadow chancellor. Reeves said at the time: “Here’s the truth: private schools are not charities. And so we will end that exemption and put that money straight into our state schools. That is what a Labour government will do.” But party sources are now claiming that they only ever intended to remove the VAT and business rates perks, saying charitable status was used more as shorthand for the policy.
A Labour spokesperson told PA Media: “Our policy remains. We will remove the unfair tax breaks that private schools benefit from, to fund desperately needed teachers and mental health counselling in every secondary school. “This doesn’t require removing charitable status, however driving high and rising standards for every child against the backdrop of a broken economy requires political choices. Labour isn’t afraid to make them.” Labour’s policy costings only ever took into account charging VAT on school fees and ending the business rates exemption, rather than the other tax breaks. Julie Robinson, the chief executive of the Independent Schools Council, said: “If Labour takes away the tax relief associated with charitable status for independent schools, the policy would create a two-tier system within the charity sector, setting a worrying precedent that any charity seen as not reflecting the political ideology of the day could be subject to additional taxes. “We would love to work with Labour to build more effective ways to achieve our shared goal of improving education for all young people.” The shadow education secretary, Bridget Phillipson, had spoken of “scrapping charitable tax status for private schools to fund the most ambitious state school improvement plan in a generation”. The Institute for Fiscal Studies has previously estimated that VAT on school fees would raise about £1.5bn annually, with average fees now about £15,200 a year. The Conservatives said the development showed Keir Starmer was “clearly only interested in short-term policies designed to grab headlines”. The chief secretary to the Treasury, John Glen, said: “Labour has been forced to U-turn on one of their major policies – this time admitting that their schools tax hike just doesn’t work. They are just making it up as they go along.”