Private schools depriving local councils of £144m per year, research finds

Research, published as Keir Starmer reaffirmed that Labour plans to scrap private schools’ exemption from VAT, has found that private schools with charitable status are depriving local councils of £144m per year through tax relief.

The report, published on Wednesday by Private Education Policy Forum (PEP Forum), analysed data from 267 councils for the financial year 2019-20 to calculate the shortfall in councils’ revenue.

The analysis revealed that, in London, where there is a high concentration of private schools, a total of £28.1m worth of tax was not paid – averaging at £879,000 per local authority.

In some areas, the loss of revenue was much higher, including Kensington and Chelsea council, which could have received as much as £3.15m if local private schools paid their full tax assessment.

Lead report author and PEP Forum board member Professor Francis Green said: “The large amount of money saved by private schools as a result of tax relief on their business rates deprives local councils of much-needed resources for the delivery of local services, including state education.”

Green, who is also professor of work and education economics at the UCL Institute of Education, added: “The removal of private schools’ business rates relief would contribute to narrowing the private-state gap in education resources.

“Though such a reform would only go a little way to resolving the unfairness that stems from the private-state school divide, it would be a step in the right direction and broadly welcomed by the large majority of the public who do not participate in the private education sector.”

The average loss per council across England and Wales was £415,000. The South East had the second highest average loss per council after London – £666,000 – followed by the South West on £422,000.

PEP Forum – a think tank that aims to reduce inequalities relating to private schools – estimates that private schools have saved £720 million through charitable relief over a five-year period, without factoring in inflation.

Private schools in England and Wales that are registered as charities currently pay only 20% of their tax assessments, while state schools pay the full rate.

Scotland removed charitable status from private schools in April, following the recommendation of the independent Barclay Review of the business rates system in Scotland. The Barclay Review estimated that the reform would save approximately £5m per year in lost taxes.

Starmer first committed to scrap private schools’ exemption from VAT in September 2021. The Labour leader reaffirmed his intention to end the charitable status of private schools in a speech on Monday.

Criticising Tory leadership candidates for making significant unfunded spending commitments, he said: “When I say we have a plan for investing in education, I also say it’ll be funded by closing the VAT loophole for private schools.”