Private schools are the complete antithesis of charity – Labour is right to end their tax perks

More radicalism, not less, will be needed by an incoming Labour government

September 28, 2023 5:08 pm(Updated 5:32 pm)

It is ludicrous that private schools have charitable status. If I donate to a local food bank, a hospice or to relieve famine abroad, I know that money is helping people in more need than me. Domestic abuse refuges, medical research, animal sanctuaries, and arts projects are all worthy causes to which people donate. Giving children from wealthy backgrounds an elite education does not quite fall into the same category.

That’s not just my view, but the view of the British public, with polling by Redfield & Wilton finding 62 per cent backing the removal of private schools’ charitable status and only 13 per cent opposed (opposition only rises to 22 per cent among Conservative voters).

The revelation that Labour would not remove charitable status from private schools feels like yet another disappointing U-turn from Starmer’s opposition as it waters down its policy programme, despite the mounting evidence all around us that more radicalism, not less, will be needed by an incoming Labour government.

Over recent weeks and months, Starmer has reneged on pledges he himself made to take water, energy and Royal Mail into public ownership, to abolish tuition fees, to equalise capital gains tax, to raise income tax for the highest earners, and to scrap the two-child limit on benefits.

However, Labour has defended this policy on private schools as more of a clarification than a U-turn. While private schools will now keep charitable status, they will lose two of the biggest tax perks that status brought – exempting them from VAT and an 80 per cent relief on business rates.

So Labour is still planning to raise the £1.7bn it promised before from ending charitable status and putting that money into state schools which educate 93 per cent of the nation’s children.

Senior Labour sources tell me that “loose language” has been the problem, with “removing charitable status” used as a shorthand for the removal of the VAT and business rate tax perks. That has now been clarified, without any change to the policy commitments that Labour has made.

However, there are differences between removing charitable status and simply removing two tax perks.

Firstly, it would probably require primary legislation and a long consultative process of rewriting of charity law to remove private schools’ charitable status.

There are tax implications too. As charities, private schools can claim gift aid on the donations they receive – meaning that when people give to their old school a tax rebate from the Exchequer goes on top, boosting the donation by 25 per cent. If no longer charities, private schools could also be liable for corporation tax, but given few would become profit-making (instead reinvesting surplus into the school or bursaries) that would be unlikely to yield significant revenue.

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Labour remains fully committed, for now at least, to raising the £1.7bn previously announced which will be used to “fund desperately needed teachers and mental health counselling in every secondary school.”

Both are vital. A growing number of students are being taught by unqualified teachers and in oversized classes due to the teacher shortage.

Likewise, there is a mental health crisis of terrifying scale among young people. According to the British Medical Association, in the last five years rates of probable mental disorder increased from around one in eight young people aged 7-16 to more than one in six. For those aged 17-19, rates increased from one in 10 to one in four.

Per pupil funding in England’s schools (education is a devolved issue) is still slightly below where it was in 2010 and teachers’ pay is down significantly in real terms – a large factor in the recruitment and retention crisis.

Cutting public tax subsidies to private schools, to fund improvements in state schools, is a sound and popular policy.

The 2019 Labour manifesto pledged, “we will close the tax loopholes enjoyed by elite private schools and use that money to improve the lives of all children”. As of today’s “clarification” that still remains the policy of the current Labour leadership – even if they could go a bit further.

Andrew Fisher is the former executive director of policy at the Labour Party