UK private schools feel the squeeze of new tax policy

At Malvern St James Girls' School in Worcestershire, England, Headmaster Gareth Lloyd gathered students for an encouraging pep talk ahead of an important inspection this week. But beyond academic preparations, Lloyd is also bracing for a different kind of challenge - navigating the financial uncertainty brought on by a newly imposed government tax.

Starting in January, the UK's private schools face a 20 percent Value Added Tax (VAT) on tuition fees, a policy introduced by the government to bridge funding disparities in education. While authorities expect the measure to generate more revenues to better fund the public sector, it has left many families and schools grappling with hard decisions.

"This tax has caused anxiety," said Lloyd. "No parents have left yet, but some have politely asked for rolling notice, depending on how the impact may be borne out by themselves in the school."

The headmaster said his school has been fortunate, thanks to its investor, Galaxy Global Education Group, which has absorbed most of the VAT burden for now. But Lloyd knows there are smaller schools that are not as well-resourced. 

"I'm aware of many schools that are facing huge financial difficulties and indeed schools by the week having to close," he highlights.

Families feel the pinch

For parents like Serena Crump, the changes strike at the heart of what they have worked hard to secure for their children. Her daughter Anna, who has dyslexia, goes to Malvern St James because the school could meet her needs. 

"We have one child, but certainly for people who have more than one child in private education, it will be a massive deal," said Crump.

Mark Manwaring-White, another parent, echoed similar concerns. His daughter, Stephanie, joined Malvern St James in Year Two (first grade in the U.S.). 

"We moved her because the local primary school wasn't pushing her enough," he explained. "Here, she gets the attention she needs."

But Manwaring-White does admit the new tax has left him weighing options: "I'm nearly 68 and therefore I can't go on working forever just to keep Stephanie at school."

The ripple effects are already showing, he said. 

"Overall, it is affecting a hell lot of children all over the country. Private or independent schools are closing. And children, quite a few, have gone from her class already and are squeezed into the state school in Malvern."

Government defends the policy

According to government estimates, between 35,000 and 37,000 students - around six percent of the private school population - will move to state schools in the long term. 

The cost to the state sector is forecast to peak at about $340 million a year to accommodate these students "after a few years."

Meanwhile, the government believes the revenue raised from the VAT on private schools would surpass $2 billion a year by 2029-2030.

Sarah Cunnane, from the Independent Schools Council (ISC), is skeptical of the government's projections. 

"The idea that this policy will raise significant funds is erroneous," she said. 

"It relies on minimal movement of children from private to state schools. But we think the numbers will be much higher. As a result, the money raised from this policy will be negligible or nonexistent," she pointed out.

In a study conducted by one of the ISC's associations, 11 percent of schools surveyed found they would be at risk of closure because of the VAT and the loss of charitable business rates relief, said Cunnane. 

"This was before further tax whammies were announced by the government, such as the rise in employer contributions for national insurance rates," she explained. "So that 11 percent is likely to be higher now because there is increased strain on schools budgets above and beyond the tax measures aimed directly at independent schools."

Experts call for cooperation

Stephen Gorard, professor of education and public policy at Durham University, sees the potential for positive change but warns of the policy's flaws. 

"This has been imposed halfway through the academic year rather than for a year ahead. The more pupils who move to the state sector, we'll have to pay for places with those extra students," said the academic. "At the moment, initial teacher training is not meeting demand for teachers. So if there's demand for more teachers, they might exacerbate the situation."

He argued that instead of taxing independent schools, the government should focus on strengthening state schools. 

"I'd rather they actually focused more attention on improving the opportunities and outcomes for students who are receiving state-funded education, you'd hope it would mean that people would feel less of a need to use private education."

The VAT policy has reignited a long-standing debate about the role of private education in the UK. Supporters highlight its contributions to choice, innovation, and diversity in the education system, but citics argue it perpetuates inequality.

Although private-school attendees only make up around 5.9 percent of UK students, they constitute around 20.4 percent of Cambridge University undergraduates and 32.4 of Oxford University students. Private students are also more likely to go on to take the country's top jobs: the final three cabinets of the previous Conservative government were all more than 60 percent privately educated.

But the new Labour government elected last year has a very different makeup. Of the cabinet he chose upon election in July 2024, only one member amiong the 25 (4 percent) went to private school.

For Labour, this is also a long-standing matter of political principles. In 2019, the party voted to abolish private schools completely, claiming that their very existence was incompatible with Labour's underlying aim to boost social equality.

Five years later, and back in government, Labour has rolled back from that position – but the aim of the new tax remains grounded on those same political foundations.