Short-Term Thinking: Analysing the Effect of Applying VAT to School Fees

This paper reviews the proposal to apply VAT of 20% to private school fees in order to raise significant revenue. We build on a paper from the Institute of Fiscal Studies (IFS) which concludes that levying an effective 15% of VAT on school fees would lead to a 3-7% reduction in private school attendance and raise a net £1.3-1.5 billion; As the IFS noted, the evidence they drew on was “old” and “thin”. We raise several further concerns about the relevance of historical small price increases to a much larger price increase in a changed macro environment. We question the IFS’ confidence that higher migration scenarios, including up to 25% can be excluded from consideration; The IFS paper mentions some unintended consequences and risks; it would be prudent to consider many more, including school closures and cost-cutting; labour supply withdrawal, and human costs;