Umm, what subsidy is this?

A Labour government will impose VAT on private school fees to pay for free meals for all primary school pupils, Jeremy Corbyn is to announce.

The Labour leader will say on Thursday that the policy will boost the health and educational attainment of all children while ending a “subsidy to the privileged few”.

Can’t quite see what subsidy no VAT on school fees is.

The taxes which pay for the state system aren’t charged VAT as well. The grants to the state schools from the tax aren’t carrying VAT. Private schools aren’t paying VAT on fees. What subsidy?

That two versions of something are under the same tax regime isn’t a subsidy to one of them.

Interestingly, if the VAT is imposed then private schools will no longer have any incentive to reach out to those other local schools, will they? It being the threat of VAT which has been driving such programs. Might rather backfire….without the threat much of the power over them goes.

31 comments on “Umm, what subsidy is this?

  1. As Richard Murphy’s most excellent analysis on Trump’s proposed tax differentials for imports and exports shows, tax incidence is something our politicians could do with learning. VAT will be the death knell for some private schools and some parents will help themselves to the free education provided by the state.

  2. The Labour Party know full well they can propose the most ludicrous of policies between now and 2020 – there’s more chance of me managing Manchester City than there is of that shower of shite being elected.

  3. Where do they get these ideas from ?
    People currently on very low incomes get free school meals and that is generally considered acceptable by the electorate.

    There might be some support for raising the income threshold marginally but I don’t think there is any support for a free for all from anybody no matter how it is paid for.

    There is support for free breakfast clubs but that is mainly because working parents use it as free childcare, these parents would support free after school clubs for the same reason.

    (free as in somebody else appearing to pay)

    People (even low income people too) would rather have accessible dentists than free food for fat kids.

  4. A policy driven as much by the teaching unions’ hatred of the private sector as anything else.

    if the VAT is imposed then private schools will no longer have any incentive to reach out to those other local schools, will they

    As with the abolition of Grammar Schools in the late 60s and early 70s,the result will be fewer State pupils getting an excellent education, and less “social mobility”. You would think, looking at their policies, that Labour was the party of strict social stratification.

  5. as Ironman points out, raise the price of Private school and more people will use the state-funded schools instead. In addition, they’re already promising how to spend the extra revenue from the VAT.

    So some parents will leave their kids in private schools and pay the VAT, which will be spent on school meals for everyone else. The parents that move from Private to Public schools will cost the government money. Net result: This policy is revenue-negative for the government.

    The only people that gain are those well off enough to pay for their own kids food (which really should be everyone – don’t have kids if you can’t afford it. Doesn’t seem to work like that these days, mind…) who won’t really care. And I bet they put all sorts of restrictions on what the free food can be (cheapest provider, no meat in case it offends someone, no fat for health reasons, no salt, no sugar, etc).

  6. People like Corbyn and Murphy believe that “not taxing you yet” is a subsidy from the State. Any generous disinclination to take all of the 100% of your income you owe them is a ‘subsidy’.

  7. I would be contrary to the EU VAT Directives, at least as long as we are a member of EU?

  8. I agree with Ironman and RA.

    In reality, private education “subsidises” state, as the state still pilfers the tax money but doesn’t have to handle the education.

    My answer to the “private gives an unfair advantage” is that the state should use private as a yardstick and up its game, rather than whining.

    I get the feeling that some of these anti-private folks have this weird fantasy in their heads that the privately educated have some kind of Masonic easy pass through life and job interviews. A bit like they believe the same silly crap about the Masons.

  9. OK, how many parents will go from paying private fees to putting their kids into state school, thereby generating a) zero VAT on the now unpaid school fees, and b) a £8k or so cost on the taxpayer?

    The interesting things happen at the margins indeed…

  10. We’ve already got an education bod (I suppose it would be more truthful to say anti-education) chipping in to protest about rich kids getting free meals.

  11. Rational Anarchist>

    “don’t have kids if you can’t afford it. Doesn’t seem to work like that these days, mind…”

    No. Because that can also be rephrased as ‘don’t be born to poor parents if you can’t afford it’, and I think we can all agree that the kids haven’t done anything wrong.

    If you come up with a way to only punish the parents in that situation, do let us know.

  12. On LBC: “end the subsidy that the state gives to private education”.

    OK, so then, if a 0% VAT rating is a subsidy why do you want the state to subsidise sanitary products? Why is the State subsidising rent and mortgage payments?

  13. Labour’s default position – if all else fails send for the green eyed monster.

    Their education spokeswoman was on Today saying that it was only fair because small businesses have to pay VAT. Are they now saying VAT is a turnover tax?

    Can they do this to a charity? If so should all other services provided by charities be charged VAT? There’s an awful lot of them provide services to Government so this could end by trashing some departments’ budgets.

  14. A pal of mine paid for private education, rationalising thus:
    It’s worth paying twice for the same thing, because in the state sector two thirds of the teachers are useless, but in the private sector only one third of them are.

  15. I don’t fundamentally have any objection to universal free meals at Primary School. It makes administration and provision so much simpler. When I was at Primary School meals were free – as well as a free 1/3pt bottle of milk at morning break. When at Secondary School we had to pay for school meals. I don’t know if this was any particular policy, local or central, or because my Primary-to-Secondary transition was when the Thatcher government came in.

  16. jgh>

    To an extent I agree with you, but at least paid meals provide a feedback mechanism which helps keep quality up.

    I remember when my younger sister was at school the meals got so bad that more and more kids went onto packed lunches until eventually the numbers still purchasing school dinners were so low that it became uneconomic to keep providing them. That was the point where they finally sorted out the quality, and almost all parents were only too delighted to stop making packed lunches every day. If the school had kept getting paid the lunch fee for every child, nothing would have changed.

  17. It seems only fair and reasonable that having paid for a State education you never actually use for your child, you are then also taxed on the alternate provision you made, the one which actually eased the burden on the State.

    Only a socialist could think this was a fair and proper course of action. They really do think differently.

  18. If the meals are free, why can’t everyone have free school meals? In fact, why can’t everyone have free meals? They are free, after all.

  19. Quite a few people on low incomes are paying for private education or to educate themselves. Adult Education classes, correspondence courses, OU, books etc. I’ve dealt with a benefits claimant who was wondering why he couldn’t afford to live – the two biggest discretionary spends were driving a car to work at the airport and £3600 a year for fee-paying religious education in the evening for his 2 kids ( they went to State school during the day ). Will VAT be charged on all that lot?
    The universal principle isn’t bad – economies of scale, division of labour, parents are busy in the morning etc. But damn, Labour are awful at finding things to cut.

  20. Shadow education secretary Angela Rayner “Why should the state school system subsidise the private sector?”. So let’s see, every private school child from a UK citizen frees up around £5000 per child that would otherwise be spent on a state school place. Private schools often lend expertise and resources to state schools and further take children on charitable bursaries, multiplying the effect of the release of funds.

    Also in the same article by the BBC : Official figures show that more than two thirds of children living in poverty are now in working families.

  21. Beg to differ with our host, here. VAT is generally chargeable on services. If the middle classes want their drains unblocked, the plumber’s obliged to charge VAT on his services. As I can’t see the slightest difference between unblocking the drains of the middle classes & educating their vermin, VAT on private education would be entirely righteous. Not doing so is a subsidy.

    There is, of course, an entirely different argument whether those opt not to enjoy a service provided by the State should be exempt from the cost of same. Maybe that needs addressing. But not through the VAT system

  22. All education is deliberately and expressly vat free because we don’t want to discourage any amount of education. Ritchie’s calling for less education here, that’s the bottom line.

  23. @Rob, April 6, 2017 at 9:16 am

    As with the abolition of Grammar Schools in the late 60s and early 70s,the result will be fewer State pupils getting an excellent education, and less “social mobility”. You would think, looking at their policies, that Labour was the party of strict social stratification.

    They are. If the poor are educated and obtain a good job, they won’t vote for Labour. Aim is to keep them poor and reliant on Gov’t largesse

  24. @abacab
    Yet the most useful educational device invented in 4 millennia carries VAT

  25. abacab:

    “OK, how many parents will go from paying private fees to putting their kids into state school, thereby generating a) zero VAT on the now unpaid school fees, and b) a £8k or so cost on the taxpayer?

    The interesting things happen at the margins indeed…”

    Have some experience in this area. For many manufacturing businesses with substantial gross margin costs, the input VAT reclaimed is significant. For schools this is not the case – in the case I know well, staff salaries account for about ~70% of total fee income.

    Last year, state-mandated changes to NI and pension contributions caused this salary bill to rise by 3.5% before any pay rises were given.

    Many private schools in the area are struggling to fill places – only the best performing schools in the private sector have the luxury of a waiting list. Worse still; even those that do are seeing a social squeeze with lower middle classes families being priced out of the market.

    Now add 20% to your fees. Very very little input VAT to reclaim to offset, so this is going to be passed straight on.

    I could easily see a 20% fall in applications and/or the school roll. There would then be a bloodbath in the private sector as the less popular schools would close and the ones at risk desperately holding on to try and pick up remaining pupils.

    20% reduction in private school rolls is perfectly possible and it would be the aspiring middle classes who would pull out en masse.

    At the Eton end of the scale, the banksters might take it on the chin, but many others would trade down – avg 2 kids, you are looking at an extra £10k p.a. out of your post tax income.

    If you are already paying this, you are already a high earner. If you choose to trade down – from the £30k p.a. bracket down to the merchant school £10k p.a. level – you will suddenly have a chunk more free cash. But you are not the type to fritter this away. You are prudent; you make significant sacrifices to educate your children. What do you do? Fund your pension like you never have before.

    Net tax effect:
    – VAT on only £10k, not £30k
    – Lots of PAYE reclaimed into pension pots.
    – 20% of current privately educated children now elbowing their way into state schools.

    It’s almost as though they haven’t thought it through.

  26. You would think, looking at their policies, that Labour was the party of strict social stratification.

    Old Labour opposed Grammar Schools precisely because they allowed the best-and-brightest of the working class to rise up into the EVIL bourgeoisie. Those kids were supposed to sacrifice their own future to work for the Glorious People’s Revolution.

Leave a Reply

Name and email are required. Your email address will not be published.