When Labour launched its flagship policy to raise money for state education by imposing VAT on private school fees, I’m pretty sure the politicians did not intend to include organisations that were neither a school nor privately funded. And I’m even more sure that they did not intend the policy to cost the state money rather than raise it.
But specialist colleges funded by the Education and Skills Funding Agency and local authorities, for students with Education, Health and Care Plans (EHCPs), together with specialist colleges in Wales receiving Welsh Government funding for students with additional learning needs, somehow appear to have been drawn into the definition of “private school” in the draft legislation announced on July 29.
Non-maintained special schools, academies, and general further education colleges are all specifically excluded from the definition. By not explicitly excluding specialist colleges in the same way, the government has failed to recognise that they are the only state-funded alternative to mainstream further education for those with the most complex learning needs. To equate them with private schools is to completely misunderstand their role.
Specialist colleges are run by organisations with a variety of legal types. The vast majority are charities or not-for-profit companies. All students, including those that attend the minority of colleges that are run by private companies, are state-funded through a combination of 16-19 ESFA budgets and local authority high needs budgets in England and by Welsh Government in Wales.
The government will effectively be taxing itself
The potential inclusion of specialist colleges in the definition of a private school is at odds with all four principles outlined in the policy which are based on redistribution, quality, equity and efficiency.
The first is to “raise revenue to support the public finances”. That’s not going to happen.
According to the consultation, local authorities will be able to reclaim the VAT charged to their high needs budgets for each of the 8,000+ students in specialist colleges.
The government will effectively be taxing itself and the money will go round in circles, likely causing headaches, confusion and an extra administrative burden along the way.
Cash-strapped local authorities will need to pay the colleges 20 per cent extra and wait months before the VAT gets paid back to them.
Ironically, by becoming VAT registered, specialist colleges will be able to partially reclaim VAT on their purchases, thereby costing rather than raising public money.
The second principle is to “ensure high-quality education is available for every child”. I find it difficult to see how colleges will be able improve the quality of their provision when the added bureaucracy of the policy will divert them from their core business of providing high-quality education.
The policy could also risk equity of access to education if the 20 per cent increase in fees discourages some local authorities from placing students in specialist colleges, despite their need for specialist provision.
The third principle is to “be fair, with all users of private schools paying their fair share, whilst ensuring that pupils with the most acute needs are not impacted”. It doesn’t seem fair to me that students with the most complex needs, who require specialist provision, will have their fees subject to VAT if they are in a specialist college, but not if they attend a sixth form in an academy or maintained special school.
The final principle is to “minimise administrative burdens for taxpayers and HMRC, whilst ensuring these policies are not open to abuse.”
The consultation alone has caused administrative burdens galore, with uncertainty amongst colleges and tax advisers about whether specialist colleges are in or out of scope, and if so which students, and which parts of their programmes, will be subject to VAT.
Without urgent clarification, we could fall into a nightmare of specialist college and local authority staff spending hours calculating and processing VAT invoices on students aged 16-19 but not those aged 19+, and on the education elements of the programme, but not the health and social care elements. All so that LAs can then reclaim the VAT. This feels to me more like maximising than minimising administration and bureaucracy.
I’m fully supportive of the aim to create a more equitable system that sits at the core of this policy. However, the government must recognise that specialist colleges are neither privately funded, nor are they schools.
We await the outcome of the consultation but if they remain in scope, the only winners will be tax advisers and accountants, and the loser will be the state-funded education it seeks to protect.
Totally agree.
In a practical sense, there must be some schools out there that have a mix of specialist and non specialist provision, so there would need to be some way of handling that, without creating opportunities for the tax advisors and accountants!