It is the policy idea that has made private school parents dread the prospect of a Labour government.
Sir Keir Starmer’s proposal to add VAT to private school fees stepped up a gear on Tuesday with the announcement that Labour would implement the change immediately if it wins power at the next general election.
Instead of phasing in the scheme over several academic years if it enters Downing Street, it appears the party plans to end the tax breaks enjoyed by private schools as soon as possible.
Labour claims removing the charitable status from independent schools, which gives them at least 80pc relief on business rates, could raise £1.7bn to invest in state schools to spend on more staff, mental health counsellors and careers advice.
Defending the policy, shadow education secretary Bridget Phillipson claims the money would fund 6,500 new state school teachers.
Starmer attended the selective state Reigate Grammar School, which became a private school while he was a pupil. He insists the policy is not an “ideological” move and said: “This is not intended as any reflection on independent schools. We want them to thrive and to work with them.”
Yet according to the Independent Schools Council, the proposed tax raid on private schools risks forcing out a fifth of pupils – 40,000 – after a survey of parents found 20pc would “definitely” withdraw their children.
Jeremy Hunt put the figure even higher in last year’s Autumn Statement, when he said that policy would “result in up to 90,000 children from the independent sector switching to state schools”.
Rishi Sunak, who attended £36,369-a-year Winchester College, has described the plan as “an attack on the hard-working aspiration of millions of people”. His predecessors Lord Hague and Sir Iain Duncan Smith have also criticised the proposals as “vindictive” and “monstrous”, pointing out that they threaten the education of children of parents in the Armed Forces.
The Ministry of Defence pays for most of the fees for military families but the proposals could mean extra bills that make private schooling unaffordable for service personnel.
The ISC says the greatest impact will be felt by the “strivers and sacrificers” who work hardest to pay the fees, as well as threatening “the survival of the smallest independent schools, which operate on tight margins and without large endowments”.
According to Oxford Economics research, private schools contribute £16.5bn to the economy and support as many jobs as Asda, Sainsbury’s and Co-op supermarkets combined, bringing in £5.1bn in tax revenue. The saving to the taxpayer by providing a school place instead of going to state school is estimated at £4.4bn.
However, while elite private schools like Eton and St Paul’s Girls may have the resources to offset any fee increases, including millions of pounds in endowments, investments and property, most independent schools have fewer than 400 pupils in attendance, limiting their incomes.
For many, the extra costs would be simply too much.
Michael Hartland, headmaster of independent Chase Grammar in Staffordshire, where fees range from £6,915-13,779 a year, previously said: “We have lots of small business owners as our families here, so people who run a fish and chip shop or a cleaning company, a taxi company, driving instructors – they’re not the fabulously wealthy.
“This would hit the exact sorts of people that I think Labour really should be supporting.
“There’s a danger that independent schools won’t thrive if he adds VAT because inevitably, if parents and families on the margins can no longer afford their fees, it could quite likely lead to a school not being able to keep up the workforce.”
Bill Pratt, headmaster of Naima Jewish Prep school, where fees cost some £15,465 a year, has said pupils at his school would have to leave under higher fees “as sure as night follows day”.
So how can the parents of private school pupils best prepare for what might be coming down the track?
Call Granny and Grandpa
You can use grandparents to help fund school fees either by making gifts or via a trust. Provided the gifts are under the annual £3,000 “gift allowance” per grandparent, there will be no inheritance tax liabilities. More substantial sums can also potentially be gifted free from tax, as long as the grandparent survives for seven years after making the gift.
Parents setting up a bare trust with the help of a financial adviser can hold assets by a trustee (the grandparent) for the benefit of a beneficiary (the grandchild). The assets are taxed as if they belong to the grandchild, meaning that the grandparents can take advantage of the grandchild’s personal tax allowance, currently £12,570.
Again, if the grandparent remains alive for seven years after contributing to the trust, no inheritance tax will be due. Parents and grandparents should be aware, however, that when the child turns 18 (or 16 in Scotland), he or she has the right to take control of the money within the trust.
Pay up front
Parents are also advised to try to negotiate with the school directly to pay several years up front as a lump sum in exchange for a discount.
Switch from boarding to day
Do boarders really need to board? It could be cheaper for parents to send their children as day pupils and cover the cost of transport instead.
Apply for a scholarship
While the majority of private school pupils will not qualify for means-tested grants and bursaries, parents of particularly academic, sporty, arty or musical children should apply for scholarships which can substantially reduce fees.
Parents of siblings all attending the same school are urged to apply for a family discount. Even if one isn’t advertised, it is still worth asking.
With private school uniforms costing as much as £500 per child, per year, parents should make good use of the second-hand shop as well as exercising caution when booking extra-curricular lessons since it can often be cheaper for children to take music and drama lessons externally.
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