Colleges hoping for VAT ‘anomaly’ end after MPs’ letter and PM pledge

Sixth form colleges could be about to see the end of a “longstanding inequality” on VAT after more than 70 MPs wrote to Education Secretary Michael Gove calling for a change in the law.

England’s 93 sixth form colleges currently have to pay VAT on goods and services, while schools and academies are reimbursed.

But a cross-party group of 74 MPs, led by Education Select Committee chair Graham Stuart, urged Mr Gove to support the introduction of a VAT refund scheme.

“MPs across the House feel strongly that it is wrong that sixth form colleges still have to pay VAT, when school and academies can reclaim those costs,” said Mr Stuart.

Their letter follows a pledge from David Cameron, during Prime Minister’s questions on October 9, to “look carefully at the issue”.

And now a Department for Education spokesperson has told FE Week: “In 2011/12 we ended the unfair funding between schools and colleges for post-16 students by putting both on the same funding rate. We have put in place protection until 2015, to make sure they can plan ahead.

“Colleges are treated differently to schools when it comes to VAT because of their legal status. We are looking into whether funding arrangements should be reviewed to take this into account.”

The MPs behind the letter all represent constituencies that either contain or are served by a sixth form college.

Among them are former Labour Education Secretaries David Blunkett and Alan Johnson, Liberal Democrats president Tim Farron and Green Party MP Caroline Lucas.

The VAT issue is believed to cost sixth form colleges an estimated £30m per year and, according to research from the Sixth Form Colleges’ Association (SFCA), has resulted in colleges being forced to drop courses such as modern foreign languages and further maths, as their funding reduces.

James Kewin, deputy chief executive of the SFCA, said: “We are delighted that so many MPs from across the political divide have united to campaign for an end to this longstanding inequality.

“Sixth form colleges are the most effective and efficient providers of sixth form education in England. However, changes to the way that 16 to 19 education is funded will see them lose a greater proportion of their income than any other type of sixth form provider — a VAT rebate would help sixth form colleges to maintain their high standards.

“We are not asking for anything that school and academy sixth forms do not already receive — the current VAT treatment of sixth form colleges amounts to a tax on learning that redirects funding away from the front line education of students.”

The SFCA report Unlocking the potential of Sixth Form Colleges was published on Tuesday, October 15. It highlighted how the additional investment from a VAT rebate would be used by the sector and the benefits it would bring.

It said: “At present, sixth form colleges are required to pay VAT on their purchases, but unlike schools and academies they are not reimbursed for these costs. This is a historic anomaly that the Department for Education estimates would cost £20 million per year to rectify.

“As this report highlights, the return on the government’s investment would be significant.

“In addition, it would help to rescue strategically important, but less popular courses, such as modern foreign languages and further maths, which colleges are being forced to drop as their funding reduces.”