Murdo Fraser:
Why private school tax changes will hit us all
This week and next, parents across Scotland will breathe sighs of relief as their little darlings return to school after what has been a long, and damp, summer holiday. Some of these young people will go back to attending local state schools, as I did. For others, their parents will have made the choice to send them to an independent educational establishment.
With a new Prime Minister who, like so many of his predecessors, attended Eton, there is sometimes an assumption that all independent schools are similar to this very elite institution, which has been educating members of the establishment for centuries. Few Scottish independent schools would be considered in that way.
In Edinburgh today, one in four school places are in the independent sector, and many of the parents who choose to send their children to an independent school do so at considerable personal sacrifice: foregoing expensive holidays or new cars. They may do so because of concerns about the quality of education in the state sector; perhaps because their child has a particular aptitude or special needs they might feel would be better catered for in an independent school, or perhaps because of family tradition.
Those who make this choice are effectively paying twice for their children’s education: still contributing through their taxes to the state system, whilst paying from their own pockets over and above for annual school fees. If all pupils currently attending independent schools in local authority areas such as the City of Edinburgh or Perth and Kinross were to switch en masse to the state sector, the cost to local councils would be in the tens of millions.
Moreover, independent schools have a substantial economic footprint. According to a report published in April 2016 by Biggar Economics, members of the Scottish Council of Independent Schools (SCIS) contribute £455.7 million gross value added to the Scottish economy, and supported around 10,600 jobs in 2015. In Edinburgh, the independent schools employ nearly 3,000 staff and contribute
£125m gross value added. Scottish independent schools currently benefit from charitable status, a position which has been subject to a great deal of political debate over the last two decades. The Scottish charity regulator, OSCR, rigorously enforces the current rules to ensure that schools meet the charity test and provide public benefit, and in recent years have required a number of schools to change their operating practices to allow them to retain the benefits of charitable status.
The question of the tax status on independent schools has come back into political focus with the introduction by the Scottish Government of the Non-domestic Rates Bill, currently being considered by the Scottish Parliament. This seeks to implement the recommendations of the recent Barclay Review of business rates, a largely welcome and uncontroversial set of measures aimed at streamlining the rating system. However, in relation to the Barclay proposal that independent schools should have their exemption from business rates removed, there has been significant concern from those working in the sector.
It is far from clear where exactly the proposal to charge independent schools business rates came from in the first place. This was not a matter included in the SNP’S manifesto for the 2016 elections, and appeared in the Barclay recommendations without either proper consideration of all the factors or detailed consultation with stakeholders.
This omission is reflected in the Non-domestic Rates Bill itself, with the financial memorandum, astonishingly, failing to recognise that there would be any additional cost to the public sector from a £7 million annual tax hike on independent schools. The charities running independent schools have made it clear that there is not £7m lying around unspent in their budgets every year. Accordingly, this money can only be found by increasing fees to parents, by cutting bursaries, or by a combination of both.
It is a simple law of economics that as the cost of a service rises, so demand for it will fall. We have parents currently choosing to send their children to independent schools who, as a result of fee increases, will not be able to afford that choice in the future. The inevitable result will be an additional burden on local authorities, particularly those in areas such as Edinburgh and Perth & Kinross, where relatively high proportions of the pupil population are currently in the independent sector. But the Scottish Government seems to think that this additional cost will be zero.
Nor is it impossible that these tax changes could see the closure of some independent schools. As the OSCR made clear in its submission to the Scottish Government’s Local Government and Communities Committee, currently considering the Non Domestic Rates Bill, a number of independent schools are in marginal financial positions. There have been a spate of closures and mergers in recent times, and further closures will just increase the pressure on, and the cost to, the public sector.
On the principle of charging rates on independent schools, the OSCR has made clear its opposition, stating that they have “a long-held general concern that treating any group of charities in a differentiated way for tax or other purposes, as proposed by the Barclay Review and now the Bill, introduces the potential for confusion in the minds of the public as to what it means to be a charity”.
What makes this all the more disappointing is that the Non Domestic Rates Bill is, in the main, an important and uncontroversial piece of legislation. It has been widely welcomed by the business community, who are particularly enthusiastic about the move from a five-year to a three-year cycle of revaluation.
The danger is that by tacking on a proposal on independent schools that does not have widespread political support, for which there is no evidence base, and which could well end up costing the public sector more than it would actually raise, the whole package of reform in the Bill is being put at risk.
I would urge the SNP Government to think again. If they want to change the tax status of independent schools, let them put that in their manifesto and let us get on with reforming business rates without this unnecessary political distraction. And take a weight off the minds of pupils, teachers, and parents, as children return to school in coming days.