VAT on school fees may be the first shot fired in Labour’s class war
The prospect of a Labour government has moved from highly likely to being an odds-on certainty. So parents are taking steps to avoid the increase in independent school fees that will come after Sir Keir Starmer introduces 20pc VAT on private education and abolishes the sector’s business rates relief.
Some are scrambling to employ tutors so that their children will have more chance of passing grammar schools’ selection tests, while others will move home to be in the catchment areas of the best state schools.
The lesson to be learned from this is not just the damaging impact Labour’s policy will have on our education system. It also establishes a precedent, and allows the party the opportunity to roll out similar tax policies in other parts of our lives – for example, by extending VAT to private healthcare.
Just as Labour defends its attack on Britain’s world-renowned independent schools by saying the £1.7bn revenue it optimistically says it will generate will be used to support spending on state education, so it could, theoretically, justify extending VAT to private health procedures under the guise of helping to “save our NHS”.
Tens of thousands of people unwilling to wait months, if not more than a year, for a new knee or hip abandon the NHS and go private, often having to pay a painful bill if they don’t have health insurance to cover it.
Going to the dentist would become even more painful, as the NHS dental provision is collapsing – more than 12 million people are not registered with an NHS dental surgery. Any change to private dental care would mean millions paying huge sums that are not subject to VAT.
For a Labour government it would not matter if the VAT is paid for by an insurance policy or from individuals’ hard-earned savings – and it would be a great money-spinner. Those without insurance would have to bear the pain of waiting, or scrape together the cash.
With the number of private hip operations nearly doubling between 2019 and 2022, according to the National Joint Registry, it is clear British people are no longer prepared to wait for the NHS to relieve their pain. Labour will know this but would simply blame the Tories. The Conservatives have missed their chance to hugely expand healthcare capacity by encouraging people to go private voluntarily with health insurance tax breaks that would help ease pressure on the NHS.
Labour could also look at using VAT to drive the public towards its net zero target – which is estimated by Aurora Energy Research for the Policy Exchange think tank to cost £116bn by 2030.
Labour could argue increasing the 5pc rate of VAT on energy bills would encourage people to conserve energy and take up the Government’s solar power and heat pump schemes. Charging energy at the standard rate of 20pc may be too big a jump, but increasing it gradually, first to 10pc, then more later, might receive the enthusiastic support of Ed Miliband, the shadow environment secretary.
More directly, Labour could simply increase the standard rate of VAT from 20pc to 22pc or more. While such a move may be thought unlikely, the UK’s rate would remain lower than Hungary’s eyewatering 27pc, Sweden’s and Denmark’s, at 25pc, Finland’s and Greece’s at 24pc, Ireland’s and Portugal’s at 23pc and the Netherlands’ and Belgium’s at 21pc. Could Labour resist higher VAT rates when they are common in Europe?
Politically, the smart move would be to say that raising the standard rate of VAT for everyone was considered but ruled out in favour of removing the VAT exemptions enjoyed by “wealthier people” who access private health and dental care.
So be warned: not only will VAT on education fees provide Labour with the example of how to raise taxes higher – by spreading the burden wider – but applying it consistently opens up the possibility of taxing the supposedly wealthy who are forced to opt out of our beloved NHS and pay for private healthcare.
Labour’s class war could become very painful if it wins power.