Private schools to retain some tax breaks despite Labour U-turn

Private schools to retain some tax breaks despite Labour U-turn

Private schools would retain some of their tax breaks under a Labour government, despite party chiefs U-turning on their pledge to strip such schools of charitable status.

Sir Keir Starmer's party, however, insists that it will still impose 20 per cent VAT on private schools in England in its first year in power.

In January, shadow education secretary Bridget Phillipson vowed that Labour would scrap charitable tax status for private schools to finance the most ambitious state school improvement plan in a generation.

Labour officials say they no longer need to strip schools of their charitable status to meet their commitment to charge 20 per cent VAT on fees and make independent schools pay business rates.

Sir Keir has insisted he did not want to launch an 'attack' on private schools with his VAT plans, saying that the institutions would not have to pass on the extra cost to parents.

The Labour leader said he is very comfortable with the private institutions, as they continue to criticise him for his policy. Sir Keir said private schools don't have to pass the additional costs in the form of increased fees.

In fees, he has to pass this on to his parents. And each of the schools is going to have to ask themselves whether that's what they want to do, he said on the BBC's Political Thinking with Nick Robinson podcast.

The updated Labour policy will ensure some of the current perks for private schools will remain. Tax breaks that are a part of the status are the ability to claim gift aid on donations and not pay tax on annual profits, which must be reinvested in education.

Party officials claimed they only ever intended to remove the VAT and business rates perks, saying charitable status was used more as shorthand for the policy.

The left-wing pressure group, Momentum, said that by backtracking on his pledge to end charitable status, Sir Keir was 'capitulating to elite interests'.

The Tory Treasury minister John Glen said Labour has been forced to U-turn on one of their major policies - this time admitting that their schools tax hike just doesn't work.

Most private schools would actually have to lower fees to make it cost-neutral for parents, despite Sir Keir's claim that it was down to schools whether to pass on the VAT to families, Liz Brownsell, head of charities at law firm Birketts, said.

She said: 'I am not sure how this situation will affect us,' she told the Independent. But she warned that there will be an impact for the vast majority of fee-paying parents.

When asked by Mumsnet whether she stood by saying private schools should be scrapped from their charitable status, Ms Phillipson said it was not a U-turn.

On Sky News, Labour's deputy national coordinator Ellie Reeves said:

The Tory party has also questioned whether the tax changes would raise the £1.7bn that Labour claim it would. The Institute for Fiscal Studies has previously said that imposing VAT on private schools would raise the value of the sector by up to£1.5bn a year.

The Liberal Democrats also made clear it was opposed to imposing VAT on private schools - a possible bone of contention in the event of a hung parliament. A spokesman for the party said charitable status 'does need to be reviewed so it only rewards schools that do real community work'.

Independent sector chiefs have warned that increasing fees could lead to a significant shift in pupils from the private to state schools. Julie Robinson, the chief executive of the independent schools council, remained critical of the policy, warning of a two-tier system within the charity sector.

The policy would create a two-tier system within the charitable sector, setting a worrying precedent that any charity seen as not reflecting the political ideology of the day could be subject to additional taxes, she said, adding that Labour would take away the tax relief associated with charitable status for independent schools.