In a speech last summer, Sir Keir pledged: “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.”
And shadow education secretary Bridget Phillipson promised in January that Labour would be “scrapping charitable tax status for private schools to fund the most ambitious state school improvement plan in a generation”.
But Labour officials now claim they no longer need to strip the schools of their charitable status to fulfil its commitment to charge 20 per cent VAT on fees and make independent schools start paying business rates.
Defending his stance, Sir Keir has insisted he did not want to launch an “attack” on private schools with his VAT plans – and claimed the institutions would not have to pass on the extra cost to parents.
The Labour leader said he is “very comfortable” with the private institutions, as they continue to criticise him for his policy. Sir Keir told private schools they do not have to pass the additional costs in the form of increased fees.
“The school doesn’t have to pass this on to the parents in fees. And each of the schools is going to have to ask themselves whether that’s what they want to do,” he told the BBC’s Political Thinkingwith Nick Robinson podcast.
Sir Keir said he does not believe the private institutions are a barrier to opportunity. “We have to do something about the appalling state of our schools,” the Labour leader said. “It is not an attack on private schools. It’s just saying an exemption you have had is going to go.”
The updated Labour policy means some of the current perks for private schools will remain. Being able to claim gift aid on donations and not paying tax on annual profits, which must be reinvested in education, are among the tax breaks that the status confers.
Party officials claimed that they only ever intended to remove the VAT and business rates perks, saying charitable status was used more as shorthand for the policy.
A Labour spokesman said: “Our policy remains. We will remove the unfair tax breaks that private schools benefit from, to fund desperately needed teachers and mental-health counselling in every secondary school. This doesn’t require removing charitable status.”
Left-wing pressure group Momentum said that by backtracking on his pledge to end charitable status, Sir Keir was “capitulating to elite interests”.
Tory Treasury minister John Glen said Labour “has been forced to U-turn on one of their major policies – this time admitting that their schools tax hike just doesn’t work”.
Liz Brownsell, head of charities at law firm Birketts, said most private schools would actually have to reduce fees to make it cost-neutral for parents, despite Sir Keir’s claim it was down to schools whether to pass on the VAT to families.
“Whether or not schools are able to avoid an increase in cost for parents will depend on each school’s situation,” she told The Independent. But she warned that there will be an impact for “the vast majority of fee-paying parents”.
The legal expert said: “It’s possible some will be able to absorb the cost because they may have other sources of income, such as endowments. They would have to reduce their fees so the additional VAT charged is effectively cost-neutral for the parents.”
Ms Brownsell added: “But not every school can do that, in which case the VAT would need to be charged on top of existing fees, which would mean increased costs for parents.”
— Kay Burley (@KayBurley) September 28, 2023
Ms Phillipson insisted it was not a U-turn when she was asked by Mumsnet whether she stood by saying private schools should be stripped of their charity status.
“I’ve always been focused on how we end the tax breaks … ending charitable status was not a necessary part of doing that,” said the shadow education secretary. “So the policy is unchanged in that regard.”
Grilled on the change on Sky News, Labour’s deputy national coordinator Ellie Reeves said: “The important thing is tax breaks – ending charitable status would be a highly complex thing to do”.
The Tory party also questioned whether the tax changes would raise the £1.7bn that Labour claims it would. The Institute for Fiscal Studies (IFS) has previously said that imposing VAT on private schools would raise £1.5bn a year.
The Liberal Democrats also made clear it was opposed to imposing VAT on private schools – a possible bone of contention in the event of a hung parliament. A spokesman for Ed Davey’s party said that charitable status “does need to be reviewed so it only rewards schools that do real community work”.
Meanwhile, independent sector chiefs have warned the rise in fees could cause a large shift in pupils from the private to state schools. Julie Robinson, chief executive of the Independent Schools Council, remained critical of the policy, warning of a “two-tier system within the charity sector”.
She said: “If Labour takes away the tax relief associated with charitable status for independent schools, the policy would create a two-tier system within the charity sector, setting a worrying precedent that any charity seen as not reflecting the political ideology of the day could be subject to additional taxes.