Should Private Education Be VAT Exempt? IEA Debate

The Labour leader Sir Keir Starmer has announced that he would implement a VAT on private schools if he was to be elected as prime minister on the 4th of July. To discuss whether private schools should remain VAT exempt in the UK, the Institute of Economic Affairs recently hosted a lively debate on the topic. Arguing for the motion that private schools should maintain their VAT exemption was Max Marlow, Director of Research at the Adam Smith Institute. Opposing the motion and arguing that VAT should be applied to private school fees was Daniel Freeman, Managing Editor at the IEA.
Marlow contending that education is a public good that benefits society and should be tax exempt to incentivise private provision and competition. Freeman argued for a simpler, broader tax base by removing VAT exemptions and applying it universally, using the revenues to cut other more harmful taxes. They grappled with defining public goods, distortionary effects of tax exemptions, and the practical impacts on enrolment if VAT were imposed on private tuition.
With two strong arguments coming from both free market think tank perspectives, this debate raised deeper philosophical questions around the role of the state in education provision and principles of optimal tax policy design. The exchange highlighted the complexities and tradeoffs involved in this controversial issue.
01:15:05 - Max Marlow's argument that education is a public good that benefits society (For VAT exemption)
01:46:33 - Daniel Freeman's case for applying VAT universally to broaden the tax base (Against VAT exemption)
02:35:25 - Discussion of what constitutes a "public good" and positive externalities
05:55:10 - Potential impacts on enrolment and affordability if VAT imposed (Against exemption)
18:48:37 - Whether tax simplification could actually lead to lower VAT rates (For broad VAT base)
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[@gintasvilkelis2544]

Parents paying taxes that flow to public education, but who don't use public education (because they spend extra to give their children private education) is "public good" that will be negatively impacted by VAT on private education.

[@jamescameron3406]

By sending their children to private school, parents are saving the state money. That they should be punished for doing so is perverse. The number of children leaving private schools if the exemption is removed is likely to be 15-20%, which completely negates the purpose of the policy. Ultimately, it is playing politics with children's educations and it will make the education system, as a whole, worse in the short- to medium-term, punishing all but the most privileged children.

[@jelenaa9838]

Very well described

[@freedomwatch3991]

No, it shouldn’t. Private schools should be taxed just like every other business.

[@tomhaigh_]

No they shouldn’t

[@jacobs8102]

So as every charity. Charity is business as well.

[@freedomwatch3991]

@@jacobs8102 If it’s a for profit business, then it should pay taxes.

[@jacobs8102]

@@freedomwatch3991 Most independent schools are registered as charities so it is not for profit. We should treat all charities the same then. I would argue that kid's education should not be taxed.

[@freedomwatch3991]

@happytimes6113 As a matter of principle, all businesses should pay the same tax without exemptions (including charities - which are now the primary way for billionaires to hoard their wealth and avoid paying taxes). When the overall tax is lowered, then the tax on schools will also be lowered.

[@xtc2v]

Pubs are entertainment. Schools are far more useful to society. My brother was backward (with other medical problems). The conventional school system didn't want him. If he had not gone to a private school but to a state "special" school he would have still been drawing giraffes by leaving age. State sector teachers have no incentive to do anything but the bare minimum and never get sacked for poor performance

[@ArtyBayville]

Prisons for children

[@xtc2v]

@@ArtyBayville Explain

[@lowlyworm9325]

“We should have VAT on basically everything”? Sigh. If 10-15% of the 554,243 pupils in private education (source: Statista) will leave, private schools will merely source new pupils from overseas. So, the effect of the policy will be to increasingly educate international students at the expense of natives.

[@damindra]

Yes it's a tax break they currently get so tax them and let them feel the same pressure 93% of schools have had to feel.

[@jamesholt4449]

Yes, the gap between private and state per head has increased massivly. State needs investment

[@PhilipWhite-fx1hb]

VAT was introduced as an additional tax on luxury goods Education is not a luxury good and should not be liable for VAT I see that nurseries and university fees have not been included...yet...watch this space # Labour tax high, spend high

[@NilsAlmquist]

Private education is a luxury good and should be taxed at an even higher rate than standard goods and services.

[@jacobs8102]

I really think Labour is looking at this not as an education problem but as a cheap policy to sell. Independent schools excel because they do not have to follow the National Curriculum. They manage to efficiently tailor their programs to achieve the highest results with the least effort. Kids have shorter terms than in public schools and generally are a year or two ahead of their peers in public schools. There is clearly something wrong with the National Curriculum and public school management if private schools can outcompete them. Labour is cheating people by saying that they will resolve the issue with 6500 new teachers. Just a quick maths. There are around 18000 public primary schools. 6500/18000 = 0.361 teachers per school. Drop in the ocean, it is all propaganda !!!!

[@johnhoulihan4000]

Private schools are not inspected by Ofsted either. They have their own private inspections. Indeed when it was muted that private schools would be inspected by Ofsted they squealed that ofsted did not understand their values.

[@jacobs8102]

@@johnhoulihan4000 We all know that Ofsted needs reform too. If you allow private schools to not follow the national curriculum, suddenly Ofsted lacks the tools to measure their success, as it is not a cookie-cutter approach. Yet, the market and top universities cherish graduates of private schools. Ofsted is useless or market is wrong?

[@dpn1604]

What you, and everyone else, seem to be missing is the benefit this may bring to the state school system. 1.3 billion and 6500 is a drop in the ocean for state schools. Pure policy of envy. Period. If you add VAT on private schools, then all education must have VAT applied to. Then this policy has a leg to stand on.

[@KalyaniRichard]

Someone comparing education vat to pub vat, and the lady laughing!!!! Thats the start!!!

[@andrewcarey2582]

That was a good little televisual debate was that, cheers. Two points: 1) I was able to concentrate given the mod. 2) I started out being against the Freeman of the IEA, but swung round the other way by the end.

[@malcolm8564]

The basic issue is that is insufficient tax on high income people.

[@chrissanders1027]

If there being subsidies by the tax payer then no they should be taxed.

[@rojavida]

I’ve just received a letter telling me they can’t continue hiring me for a couple of hours a week due to “political changes”. I’m receiving UC already, but now I won’t even be able to mitigate against that cost to the government. Starmer hasn’t even considered the employment that private schools provide.

[@JoinTheTemple]

I would like to see a third way. Make private schools pay VAT but then make all schools private. Abolish state schools. The government should have nothing to do at all with education. Free marketise it.

[@AmSam-tp4ck]

Why do parents buy a private education for their children? Is it a selfless sacrifice to hep the government provide more school places and resources to the general population? Of course not. It is because they know that having a private education will give their children an advantage over their peers whose parents cannot (or, in some cases, choose not to) afford a private education. It's not merely a product of quality of instruction or class size either: in addition to being educational institutions, private schools are, inevitably, social institutions, and they function as exclusive social clubs for children from affluent families. When you buy a private education for your child, you also receive as an added bonus a ready-made network of influential connections that will benefit that child for the rest of her or his life. They will form strong bonds with peers who will one day inherit wealth, property, businesses, political legacies and social standing that others outside their school will have to fight very hard to gain. A private education is therefore an extremely valuable and, understandably, an extremely costly product. A private education is an unfair advantage that one can, provided they have the means, purchase for their child. I frankly struggle to understand how anyone justifies giving people a tax break to purchase such a product.

[@xtc2v]

There are only a handful of private schools that have any "name". Most are totally unknown to the general public (or employers). People in business need a boarding school as they may often have necessary travelling to do. Private schools also get rid of disruptive pupils and crap teachers

[@beefy0978]

What stops the privately funded school academising and becoming a state funded school..?

[@alastairharris1866]

it is VAT exempt now. You should be debating whether there is any valid grounds for the Labour policy to remove this exemption!

[@adinunes12]

I can't believe he just compared pubs with education This wrong 😤

[@marksip01234]

Fine , send your children to private school, but be honest that the reason for that decision is that your children will benefit disproportionately in life - 6% of the population privately educated but they dominate the judiciary, business, journalism etc.

[@NilsAlmquist]

Exactly. This is the one aspect of it I find the most offensive. They claim that by sending their own kids to private school they are doing the rest of society a public 'good' when they know full well it exists to advantage themselves and their offspring to the detriment of others. They're totally disingenuous.

[@tinyleopard6741]

About private schools increasing prices, won't the different kinds of private schools matter? There are provincial private schools cheaper than elite private schools, presumably multiples of the ordinary tuition fees a school has. Also, private schools in places with fewer people can't do economies of scale as much as urban private schools, while elite private schools often serve a select number of students. Elite schools and large private schools will be more robust, but provincial schools might die off, even if they aren't increasing tuition fees. I guess this is a point too about either doing no VAT or an all-encompassing VAT, to avoid schools doing artificial behaviors just to optimize curves imposed by laws, but then the disproportionate impact of VAT won't be mitigated.

[@lonewanderer3456]

Education should be tax exempt, Health care should be tax exempt, Food, Energy (including Petrol and Diesel), Water, Sewage services,...should all be exempt of tax. The States expenditure should be based on a flat 20% income tax on earnings above £10k, and any other tax should be voluntary.

[@wand199]

It's a very Interesting thing to see Dan always responsed "I am skeptical about ……" but not actually giveing many static evidences to proof his point like how the other guess Max did.😂

[@tinyleopard6741]

Thanks for this, very interesting. It's also relevant for my developing country, where private schools associated with a church or similar form, which have tax exemptions, get the privileges too. It's justified by the historical public good done by religions, Catholic to Muslim, and their tendency to serve students who can afford tuition fees while public schools have lots and lots of students in urban areas, or specialist schools run by them like elite institutions which the very rich can afford and with which they sponsor talented kids from poor families, or have a school in very remote areas, e.g. what amounts to virgin islands and mountains.

[@jongalloway726]

one side of the argument had facts, the other feelings and argument on the grounds of morality. Dan's argument in New Zealand is also not correct, naturally the subsidy is proportional to the fee. and it pretty much covers the GST. it the same principle applied in America. He also ignore the fact that 50% of private schools are not charities and might not be able to absorb these costs.

[@sharonjames2041]

😢if u can't afford it 🤔❤

[@malcolm8564]

We don't elect prime minsters.

[@johnhoulihan4000]

I am really surprised that the IEA is not telling the private education sector to make saving and become more efficient. The state sector educates kids for 1/3 the cost of the private sector so surely the private education has got fat and lazy. Private schools can make efficiency savings and all will be well. That’s IEA propaganda in action.

[@MrFreekill101]

The point you’re making is literally what the IEA guy is arguing in this video.

[@ken-ip4ih]

There is absolutely nothing wrong with migrating to state schools. Competition, eh Marlow? Make up your mind

[@tinyleopard6741]

@ken-ip4ih A competitor using the power of the state to restrict competition is a monopoly. That's an unfair competitor.

[@jacobs8102]

Lets assume that is right however if there is no space in your catchment school you have to move and that is a problem that is not taken into consideration.

[@Sdakouls3]

This is peak inane right wing British content. Arguments based solely on rhetoric instead of economics, from "opposing" debaters (they're both from economicslly right wing think tanks) who both have undergraduate degrees in history and no technical or economic education.