Why we must start taxing private schools

    4 September 2019

    The left is once again turning its guns on private schools ahead of a possible forthcoming election. Scotland’s SNP government has already announced, in its December budget, that it will charge Scottish private schools business rates, while the Labour-affiliated group Labour Against Private Schools (its Twitter handle is @AbolishEton) is seeking to carry a motion at the party’s conference this month to integrate private schools into the state system. The campaign has the support of leading figures, including Labour’s Ed Miliband and the shadow Treasury minister Clive Lewis. ‘We cannot claim to have an education system that is socially just when children in private schools continue to have 300 per cent more spent on their education than children in state schools,’ Lewis has said.

    Of course, the people who feel most keenly the disparity between private school fees and the expenditure in state schools are not left-wing politicians, but the hard-pressed middle classes who send their children to private schools. Paying £25,000 a year for ten years for a child’s education will require income of more than £400,000, given a 40 per cent marginal tax rate. That’s an awful lot of money. And yet boarding fees at most schools are well over £30,000 per year, and some more than £40,000. Faced with this mountainous financial burden, there are signs that parents are voting with their feet. Pupil numbers at private schools are now at their lowest since 2014, despite an overall increase across the country.

    Clive Lewis’s outrage and the accusation of social injustice cannot be dismissed out of hand. A campaign group, Save Our Schools, recently claimed that 200 state schools in England are cutting short their week, or considering it, as a result of financial pressures. You don’t have to be a communist to see something slightly amiss here. Even Anthony Seldon, the former headmaster of Wellington College, has said that private schools ‘have allowed themselves to get too expensive’. Something needs to be done to put downward pressure on private school fees, and up the expenditure in the state sector.

    There is a mechanism to do this that would not involve gratuitously punishing private schools. Just as sometimes lowering tax rates on income or commodities can actually increase the overall tax revenue, so a well-designed tax on private schools could have the effect of bringing down fees significantly. Private schools should be taxed progressively for anything they charge per head over and above the average expenditure per pupil in state schools. In other words, there would be no taxes for schools that charged the same amount as state schools, small taxes for schools that charged a small amount over what state schools spend, and significant taxes for those that charge significantly higher. It would work just like income tax, with progressively higher bands.

    This would mean private schools would have to think far more carefully about expenditure. In general, this system would push schools towards increasing numbers, adding more day pupils, going mixed and using endowment funds to reduce fees, putting less towards Olympic swimming pools, rowing lakes and all-singing, all-dancing concert halls.

    Of course, some top schools would be able to remain committed to state-of-the-art facilities in every area, exclusively boarding, unisex and very expensive. But most would not, and ‘arms race’ expenditure in the private sector would be curtailed. A new theatre may look great in a prospectus, but good school drama is underpinned by enthusiastic teachers far more than by a fancy lighting rig. Private schools would have to be more honest about this kind of thing. More schools would have to give up on chasing the rich international market and serve the domestic market better. A virtuously circular relationship would be created between the two sectors. As fees fall and pupil numbers in the private sector increase, average expenditure per head in the state sector would rise, producing a higher threshold at which private schools would start paying tax.

    One of the great advantages of such a system would be to give a very high incentive to private-sector schools to lobby for higher expenditure in the state sector. If private schools insisted that it was impossible to reduce fees and that the new taxes were crippling them, it would then be fair to ask why state schools have to exist with even lower resources. On the other hand, some private schools might be able to deliver education for less money per head than the local state schools. In which case, it would make perfect sense for the state to send its own pupils to those private schools.

    All kinds of technical issues would need to be addressed. What would the various thresholds be for increasing the tax rate? What would those tax rates be? Would they be increased over time and, if so, how? Would the scheme run just nationally, or would it be regionally based? How would sharing facilities be priced? None of the answers would be simple, but they would be no more insurmountable than the complexities of income tax brackets or of pricing in privatised utilities.

    Such a system would introduce a real market in ideas about what works and help to expose the merits or shortcomings of different approaches, both in terms of results and administration, across the board. Just as importantly, as the expenditure gap narrowed, it would go some way to lessening the social antagonism of the debates that surround education. A better dialogue would ensue and Eton would cease to be the butt of every discussion on private education.

    At the political level, for the Conservatives — or any other party committed to the market as well as social equity — it could work brilliantly. The party that adopted it would be able to take on the left in an area it considers its own turf and address the very real grievances on which it builds its support through the mechanisms of the market economy.