The Fiscal Effects and Social Mobility Constraints of VAT on Private School Fees: A Synthesis Analysis

DOI: https://doi.org/10.62517/jel.202614426

Author(s)

Ziqi Zhang

Affiliation(s)

Mander Portman Woodward Cambridge, CB2 1JE, United Kingdom

Abstract

As of January 2025, the government of the United Kingdom has eliminated the exemption from VAT for tuition fees for private schools, which will attract a 20% tax, and expects annual revenue of £1.6 billion. The advocates of the measure claim that the revenues can be reinvested into the system of public education to level the playing field and enhance social mobility. This paper presents the synthesis of fiscal (as well as behavioral) evidence in order to analyze the income stream. We find that fiscal revenue is great (an estimated net of £1.071.5 billion, despite extreme changes in enrollment), but the burden of the new tax will be placed on the shoulders of the parents in the short run and may lead to deadweight losses in the long term. In terms of spending, the problem of lack of absorption of the SEND budget, inflation of service pricing, and diminishing returns of the pupil premium will reduce real resources. It is important to note that the decline of enrollment in private schools may be affected by demographic changes and other reasons unrelated to the new tax implementation. As a result, the requirement of social mobility is connected to four preconditions (additionality, inflation-proofing, high-return spending, and local capacity), which are not guaranteed by any institution. Therefore, it is necessary to create special policies to address these issues.

Keywords

Education VAT; Private Schools; Socio-Economic Mobility; Tax Incidence; Education Finance; Public School Capacity

References

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