2 weeks Ago By The Telegraph
Labour deliberately chose the “most disruptive” start date for its VAT raid on private schools , internal Government documents reveal. Court documents obtained by The Telegraph show that the Government was still undecided about when to implement the sweeping changes two weeks before Rachel Reeves, the Chancellor, announced they would hit in the middle of an academic year. Ministers ultimately decided on the most disruptive course of action for schools in order to “maximise revenue”, The Telegraph can disclose.
The documents also show the Chancellor was warned eight months ago that the tax raid would probably lead to an extra 100 private school closures , despite ministers only making that estimated figure public last month. Treasury officials emailed Ms Reeves and two other ministers just days after the general election last year with a “pros and cons” list about potential start dates for the tax levy. In a briefing prepared on July 6 2024, they warned Ms Reeves that hitting private schools with VAT from January 2025 would be the “most disruptive” option for pupils and local authorities and would allow little time for schools to get ready.
Civil servants advised the Chancellor that a start date of April 2025 would grant “longer for schools and HMRC [HM Revenue & Customs] to prepare”, alongside the prospect of “fewer errors and more time for schools to consider how to manage additional costs”. They said a start date of September 2025 would present the “least disruptive” option for the education sector and “reduce potential teething issues”, although they said this could eat into the overall revenue raised by the tax policy. The documents also reveal that the Department for Education (DfE) appears to have lobbied against a January 2025 start date for VAT on private schools.
The Treasury briefing sent to Ms Reeves on July 6 claimed that “DfE have noted it may be less disruptive for schools and parents, and allow more time for schools, LAs [local authorities] and the DAs [devolved administrations] to prepare if the changes took effect from August 2025 (to capture the September 2025 term, as schools start earlier in Scotland)”. Ms Reeves deliberately chose to go ahead with the earliest start date despite these concerns, in order to maximise the net gain to the Treasury, court documents show. Legal actions against decision The Government is being sued over its decision to apply 20 per cent VAT to private school fees, in a major tax raid that came into effect on January 1 this year.
Three separate challenges are being heard together in the High Court between April 1 and 3, using more than a dozen families as case studies. A separate document obtained by The Telegraph through the High Court shows that James Murray, the Exchequer Secretary to the Treasury, took less than two weeks after the general election to decide on the course of action over Labour VAT’s plans. An email sent by a Treasury official to colleagues on July 15 last year claimed that Mr Murray wanted to “put the two options of a January 2025 and an April 2025 start date to CX [the Chancellor] for a final decision, noting the trade-offs between revenue maximisation (January) and giving schools time to prepare (April)”.
The document referred to a separate briefing by the Treasury drawn up on July 12 last year which said the “key trade-off is between maximising revenue and giving stakeholders more time to prepare”. Ms Reeves eventually announced on July 29 that the VAT policy would come into force on the first day of 2025, in a surprise move that sparked chaos within the private school sector. The Independent Schools Council (ISC), which is one of three groups suing the Government over its VAT policy, has criticised the rushed rollout and said there had “effectively only been a few weeks for schools to properly get ready”.
Julie Robinson, the chief executive of the ISC, said in a witness statement that “the short window of time means that schools and parents have been forced to scramble”. Documents seen by The Telegraph show Treasury officials advised the Chancellor to leave at least a three-month window between the introduction of the Finance Bill and the VAT start date “to ensure these schools have had time to familiarise themselves with their obligations”. Instead, Ms Reeves formally unveiled the VAT legislation in the autumn Budget on Oct 30 last year, before the Finance Bill was introduced in the House of Commons on Nov 7.
This left less than two months before the tax raid kicked in. Backlash expected Court documents also reveal that the Government prepared for a backlash over the July 29 announcement, but had still not decided the start date when it prepared communications mock-ups just over two weeks earlier. A briefing prepared for Treasury ministers on July 12 2024 provided counter-factuals for ministers entitled “if challenged on how a January 2025 start date will impact the state sector”, and “if April 2025 start date for VAT”.
The document also suggested that Bridget Phillipson, the Education Secretary, had still not been properly consulted over the policy just two weeks before it was unveiled. It added: “We understand DfE have not yet discussed the policy with their ministers and we may need to revert to you following that with further advice if they raise any concerns.” Cabinet ministers were advised that going ahead with their VAT raid on private schools on Jan 1 would raise an extra £430 million for the Government in 2024-25.
However, they were told that it could create increased demand for state school places in a number of local areas by 2028-29, “with significant pressures in the 16-19 age group”. Treasury officials also informed Ms Reeves last July that “around 100 additional independent schools may close over the next three years directly as a result of the new VAT charge”, documents show. It proves the Government knew about the likely impact of its VAT raid on schools eight months before the figure was made public in March by Torsten Bell, a Treasury minister.
In a debate on independent schools in Westminster Hall last month, Mr Bell revealed that the Government was expecting an extra 100 private schools to close because of VAT on fees, on top of the annual closure rate of around 80 schools across the UK. Ms Robinson said at the time that it was “frustrating to discover the Government has been planning in private for what it rejected in public”, after ministers denied that the VAT policy would lead to any private school closures. More than a dozen independent schools have said policy is forcing them to close, while many others have said worsening financial pressures are causing them to buckle.
Claimants suing the Government argue that the VAT raid interferes with the fundamental right to education for some pupils, and disproportionately affects lower-income families. The Treasury is defending the challenges, with HMRC and the DfE also taking part. The Government’s defence began on Wednesday afternoon.
It is expected to argue that taxing education through VAT on private school fees is a legitimate aim to raise money for state schools. The judicial review is being heard by Dame Victoria Sharp, Lord Justice Newey and Mr Justice Chamberlain, and will conclude on Thursday. The three judges are expected to issue a single judgement on the matters in writing at a later date.
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