Has Labour flip-flopped on stripping private schools in England of their charitable status? Senior party figures from Keir Starmer down have certainly been guilty of using loose language, conflating such a move with their plan to apply VAT to private school fees and other tax breaks. Starmer said in July last year: “When I say we are going to pay for kids to catch up at school, I also say it’ll be funded by removing private schools’ charitable status.” He was repeating language and policies contained in Labour’s 2017 and 2019 manifestos. But when Labour policymakers have been questioned about how the plan would work in practice and how much it could raise in additional revenue, they have been clear: adding VAT to fees and removing business rates relief from private schools was the first priority, and questions about charitable status would have to wait.
There are two reasons why Labour wonks were happy to leave charitable status alone. The first is that the VAT exemption for school fees is entirely unconnected to charitable status. Under current tax regulations, most educational services – such as music lessons, university tuition and private tutors – are exempt from VAT. Changing the rules to apply VAT to encompass private school fees would be technically straightforward, according to experts. And it’s the VAT change that will raise the bulk of the £1.3bn-£1.5bn in net revenues anticipated by the Institute for Fiscal Studies (IFS). Similarly, removing the relief on business rates that private schools currently enjoy is also unconnected to charitable status, as the Scottish government has already demonstrated by removing the tax break from schools there. The second reason is that revoking charitable status is far more complicated, time-consuming and fraught with danger. Some Labour MPs will recall previous Labour government attempts, with the 2006 Charities Act threatening to revoke charitable status from private schools that failed to show public benefit through bursaries. That ended after a legal challenge from the Independent Schools Council, and while the ruling holds out a potential route for Labour, the party will be wary of going down that route again. To add to the potential confusion, charitable status does confer tax advantages including VAT relief in some circumstances. But the main benefits for schools are likely to be relief from capital gains tax and stamp duty land tax, particularly for the wealthiest private schools, while donations attract gift aid. There are no records of the total tax benefits that accrue to private schools through charitable status. And in any case, a substantial number of private schools are not charities. No one knows the exact number but several hundred of the 2,400 registered private schools in England are owned by for-profit companies. When the IFS conducted its review of Labour’s policy, it ignored shadow ministers’ rhetoric over charitable status, noting: “There have been suggestions of removing their charitable status, but undertaking this change in legal status would be a much more complicated process and the associated extra corporation tax revenues would be likely to be small. We therefore do not consider this option as part of our analysis.” Given all the complications involved, shadow ministers lapsed into using “charitable status” as a shorthand for the series of tax changes and policy options. And many journalists were willing to use the same language, understandably unaware of the disconnection between VAT on education services and charitable status.