Independent Schools: Calculating the effect of VAT rise on fees

As would be expected, the policy has been heavily criticised by private schools, who say it is a tax on education that will have widespread unintended consequences, including for disadvantaged pupils, those with additional support needs, and for under-pressure state schools.

Supporters, however, insist the levy will raise vital funds that are needed by local state primaries and secondaries, which are attended by the vast majority of pupils across the country.

Following a heated debate about the move, the policy has now been implemented.

What has changed?

On 1 January, all education and boarding services provided by a private school became subject to VAT at the standard rate of 20 per cent.

As VAT is a tax power reserved to Westminster, rather than being devolved to Holyrood, the change has been applied across the UK.

How is the policy being challenged?

The ending of the VAT exemption on fees is the subject of legal action by the Independent Schools Council (ISC), including its affiliate, the Scottish Council of Independent Schools (SCIS).

The ISC is hoping for a judicial review, which will focus on claims of breaches of the European Convention on Human Rights.

The action will be brought around Article 14, the prohibition of discrimination, and the first protocol of Article 2, the right to education.

The group said its legal claimants will be parents who argue they cannot find an alternative education for their children in the state sector, and are likely to include families with children with special educational needs.

How has VAT impacted fees in Scotland?

This varies. The 20 per cent VAT has been added to the fees paid at every private school. However, some schools were able to reduce their fees before the addition of VAT, so that parents did not experience the full rise of 20 per cent in their bills.

More than a dozen of the most high profile private schools in Scotland have confirmed their fee changes to The Scotsman in recent weeks, with the average increase in cost to parents being 14 per cent.

Fairview International School in Bridge of Allan said its fees would be frozen until 2027, and the Glasgow Academy confirmed there would be no increase to fees for the 2024/25 academic year as a result of the implementation of VAT, although it did say fees would rise by 5.75 per cent from August this year.

How has this impacted north of the border?

Even before its implementation, the prospect of VAT being added to fees had already been linked to the closure of two independent schools in Scotland.

Kilgraston School in Perthshire, which had previously been saved from closure, announced it was shutting in August last year. It was also revealed around the same time that Cedars School in Greenock was to close.

Other schools have moved to restructure, including Stewart’s Melville College and The Mary Erskine School in Edinburgh, which will become a single, co-educational school with 2,500 pupils from the start of the 2026/27 academic year.

These schools previously operated what is known as “a diamond structure”, with girls and boys educated together in junior school and then separated for the bulk of secondary, before coming back together for the final year.

In general, the tax could not have come at a worse time for the sector, with the majority of independent schools in Scotland having posted deficits in their last published accounts for 2022/23, as a result of a variety of sometimes interlinked factors, including a fall in pupil numbers for some schools, the disruption of the Covid-19 pandemic, higher salaries for teachers, and rocketing inflation and pension costs.

Some schools have launched fundraising campaigns to help support them through the change, while others are thought to be turning to wealthy alumni for a helping hand.

One head teacher recently said that the true impact of VAT remains “unknown”.

At the moment it was predominantly causing “concern” among parents, who are questioning the long-term viability of schools, meaning more conversations are being had between schools and families.

Enquiries about places have also reportedly slowed down at many schools as a result of the “negativity” surrounding the debate.

Have many moved to Scottish state schools?

One of the biggest uncertainties with the policy has been the extent to which it will price families out of private education, leading parents to send their children to local state schools instead.

If this happened on a large scale, then the £1.6 billion expected to be raised for the Exchequer by the policy could be undermined by a significant rise in costs for state schools – potentially running into hundreds of millions of pounds.

Before the implementation of the policy, estimates varied widely for the impact in Scotland. Private schools suggested about 6,000 pupils could have their education disrupted by moving schools, based on a 20 per cent fall in enrolments for the private sector.

The calculation used by the Institute of Fiscal Studies research body put the estimated drop at between 3 per cent and 7 per cent, or 900 to 2,100 pupils in Scotland.

The Office for Budget Responsibility (OBR), meanwhile, forecasted a 6 per cent reduction, which would equate to 1,800 pupils in Scotland.

Since 1 January, it has been confirmed that 51 pupils in Edinburgh have made the move from private to state schools. The city council had previously said there had been 144 applications for places at council-run schools in Edinburgh since June from families with children in private schools.

Many other local authorities are not specifically tracking the numbers.

Some have viewed the figures for Edinburgh, where more children are privately educated than anywhere else in the country, as evidence that the policy is not having a significant impact.

However, the OBR previously suggested the bulk of the reduction in enrolments would not come from current students, because “parents will be more reluctant to disrupt their education”, but that it would be more likely to be “prospective future new students” who will not now attend private schools.

Also, even with apparently smaller numbers of pupils moving schools, there can be specific pinch points in certain areas, and in specific year groups.

For example, it was recently reported that both Boroughmuir High School and James Gillespie’s High School in Edinburgh have told parents they are “at capacity” and have put them on a waiting list.

What has the Scottish Government said?

SNP ministers publicly support the ending of the VAT exemption on independent school fees.

However, The Scotsman recently obtained the Scottish Government’s official response to the UK Government’s consultation on the policy.

It showed that a series of concerns were raised about the detail of the legislation, and its potential impact north of the Border, including the inclusion of grant-aided special schools, and the way it would impact nurseries at independent schools.

Scottish education secretary Jenny Gilruth was recently asked about the policy by MSPs on the Scottish Parliament’s education committee.

She told them: “We have engaged with the UK Government throughout the process, and we agree with it on a point of principle around the policy.

“However... the private sector in Scotland is very different from that which exists in other parts of the UK. It is hugely important that the way in which the legislation is enacted in Scotland meets the needs of the Scottish system.

“I met representatives of the Scottish Council of Independent Schools over the summer last year to hear about those needs, and it is hugely important that they are reflected.

“As I think was documented in the press over the Christmas recess, we asked for a number of changes to the way in which the policy would be enacted in Scotland. Some of our concerns and issues were listened to.”

What has the UK Government said?

Westminster continues to defend the policy, which has also been supported by a majority of the UK public in opinion polls.

It says that “ending tax breaks” for private schools will raise £1.8bn a year by 2029/30 to help deliver 6,500 new teachers and raise school standards, supporting the 94 per cent of children in state schools to “achieve and thrive”.

English education secretary Bridget Phillipson has said the policy has the backing of middle class parents who have already been “priced out” of the private sector.

She has also said: “We need to prioritise investment in our state schools… tax breaks for private schools are a luxury we cannot afford.”

This article first appeared in The Scotsman’s Independent Schools Guide, published on Saturday 15 February 2025