Exclusive:The 'domino effect' of Labour VAT charge feared for Scottish private schools, house prices and catchment zones

A group of partners from the Scottish law firm Lindsays outlined various potential “unintended consequences” of the UK government’s policy, which is due to come into force from January.

The lawyers stated that “some people will find the outcomes positive, and some will find them negative”, but they predicted that, either way, “this is a policy intervention which will have a very long and very unpredictable tail”.

The VAT change has already been blamed, in part, for the closure of Kilgraston School in Perthshire, and Cedars School in Greenock. Helen Kidd, Lindsays partner and head of charities and the third sector, said more could follow.

“We are expecting that some Scottish independent schools will experience a downsizing of their operations, and sadly it would not be a surprise if we witnessed more closures of some of the smaller specialist schools,” she said.

”Although the less price-sensitive institutions may be able to largely withstand the change, the majority of schools in areas where there are good state alternatives are already experiencing a reduction in their rolls, which will most likely lead to a reduction in turnover and profitability, forcing schools to consider even leaner models of operation.

“Some people will find this outcome positive, and some negative, depending on their politics, but either way a downsizing is the likely outcome, and it will inevitably trigger a domino effect with unintended consequences. 

“This is a policy intervention which could have a very long and unpredictable tail.”

Private schools in Scotland have estimated that 6,000 pupils north of the border could switch to local state school as a result of higher fees, based on a 20 per cent fall in enrolments.

However, the Institute of Fiscal Studies believes the decline is likely to be of between 3 per cent and 7 per cent, or 900 to 2,100 pupils in Scotland.

A total of 9,310 pupils living in Edinburgh are estimated to attend private schools, around 15 per cent of the total.

The next highest is Glasgow, where 3,170 private school pupils are thought to live, followed by Aberdeen with 2,530 and Perth and Kinross with 2,240. Edinburgh City Council has said the area’s schools have capacity for a further 12,700 pupils.

However, David Rose, Lindsays partner in commercial property, said: “One interesting aspect of the government’s VAT policy, on which we are keeping a close eye, is the impact on capacity in the state sector.

“This may be particularly acute in a city like Edinburgh, where many of the families who remove their children from independent schooling are likely to live in catchment areas which are already full.

“The obvious initial consequence, is the need for more physical capacity, and that may very well require the acquisition of expensive land on which to build and uncertain construction costs on new and existing sites, when school estate planning is already subject to budgetary pressures.

“At the other end of the scale, ironically, the independent schools building new facilities will be able to reclaim VAT on these developments and, anecdotally, some have postponed work to enable them to do so.

“So, taking both of these quirks into account, along with the anticipated reduction in school rolls, it is highly unlikely that the net increase to the public purse from the levying of the VAT will be significant and reported analysis suggests there may be a net decrease.

“The impact will be long term and may affect all school pupils, not just those in the private sector.”

Andrew Diamond, Lindsays partner and head of residential property, said: “House prices in Edinburgh, in particular, have long been heavily influenced by secondary school catchment areas, with two otherwise identical houses able to command significantly different sums depending on the perceived quality of the state school.

“With the expected increase in the number of children moving from the independent to the state sector - whether in the end that is a trickle or a wave - it would be no surprise to see something of a chase for homes in the most sought-after catchment areas.

“Thinking more strategically, if the council is faced with more and more children trying to access popular schools, they may simply run out of expansion options. 

“If they do, they may be left with the prospect of a catchment area redraw which, as well as being a political hot potato, could have a meaningful impact on house prices, with some homeowners benefiting, but others losing substantially.”

Caroline Fraser, Lindsays partner in private client, said grandparents often help cover of school fees.

“We think that we will see more grandparents helping with school fees to try and avoid the disruption that a school move could cause to their grandchild’s education - this could be to cover all or part of the anticipated increases,” she said.

“However, their pockets are not of unlimited depth, and we expect more conversations between parents and grandparents about whether this is the best legacy for them to leave their grandchildren.”

A UK government spokesperson said: “We want to ensure all children have the best chance in life to succeed.

“Ending tax breaks on private schools will help to raise the revenue needed to fund our education priorities for next year.”