Labour’s VAT Policy and the Crisis in Private Education

The Cost of a Promise:

In the run-up to the general election, Sir Keir Starmer made two pivotal pledges to the nation’s schoolchildren. The first, a personal vow as a father, was to ensure that his own son’s education would remain uninterrupted should he become Prime Minister. The second, a political promise, was to impose a 20% VAT on private school fees “as soon as it can be done.”

In the wake of Labour’s electoral victory, both pledges have been fulfilled. Starmer’s son continues his education unaffected, while thousands of children across the UK face disruption, displacement, and uncertainty as the new VAT policy wreaks havoc across the private education sector. Six months into its implementation, the fallout from this policy is becoming painfully clear, with school closures, rising fees, and a growing exodus of pupils into the already overstretched state sector.

This article explores the far-reaching consequences of Labour’s education tax, the communities impacted, the unintended financial outcomes, and the growing questions over whether this policy will achieve its stated aims.

A Mass Exodus: 16,000 Pupils Displaced

When the Treasury published its impact assessment in October 2024, it projected that around 3,000 pupils would leave private schools in the first year following the VAT introduction. That figure now appears hopelessly naïve. By June 2025, Department for Education statistics revealed that private school pupil numbers had plummeted by more than 11,000 in England alone. When adjusted for a small rise in specialist school intake, the true exodus from mainstream independent education totals closer to 16,000 children.

These figures represent not only disrupted lives but also an economic paradox. Each child who moves from a private school to the state sector ceases to generate VAT income for the Treasury. More significantly, they become a fiscal liability, requiring state funding of approximately £8,000 per pupil per year. For the estimated 16,000 students who’ve left, this equates to an unexpected public expenditure of over £128 million annually—significantly eating into the projected gains from the tax.

Tim Barrow, a small business owner in Hertfordshire, is one of many parents forced to make the difficult decision to withdraw his children from independent education.

“This policy has targeted families like mine—the squeezed middle class,” he says. “We made sacrifices to afford private education, not because we’re wealthy, but because we prioritised our children’s learning. Now, my boys are in a local state school, taking up places that could have gone to others. The government has gained nothing financially, and two families have lost out.”

Barrow’s story reflects a broader truth: Labour’s education tax is not primarily affecting the elite, but rather working and middle-class families stretching their resources for better opportunities.

School Closures and Community Fallout

Nowhere is the impact of the policy more acute than in the wave of school closures across the country. At least 44 private schools have shut their doors since the policy was announced, with many directly attributing their demise to the VAT burden. A significant number of these institutions were smaller schools charging comparatively modest fees, often serving lower-income families seeking specialised or faith-based education.

St Joseph’s Preparatory School in Stoke-on-Trent—a Catholic school with annual fees of just over £10,000—closed on 31 December. Former headmistress Roisin Maguire is adamant that the tax disproportionately hurts the very families Labour claims to support.

“I wish I could take [Education Secretary] Bridget Phillipson around our school,” Maguire says. “We weren’t a place for the elite. Our parents worked overtime at hospitals, took on second jobs, just to give their children something better. This policy has shut them out.”

Such closures have not just displaced pupils but also severed the social and community ties many of these schools fostered over decades. Teachers have lost their jobs. Local suppliers and support staff have lost business. And most heartbreakingly, children have lost stability and continuity during their formative years.

Uneven Impact and Unexpected Benefits—for the Elite

Ironically, the very schools that Labour critics had in mind—elite institutions such as Eton and Harrow—have not suffered as much. In fact, due to VAT rules, they stand to benefit.

These high-fee schools are eligible to claim back historic VAT payments on capital investments such as building projects and land acquisitions made over the last ten years. The Telegraph has estimated that Eton College alone could reclaim nearly £5 million based on its previous capital expenditure.

While smaller, more affordable schools are shutting down, the richest institutions are recouping funds from the very Treasury now trying to tax them. It’s a bitter twist that has not gone unnoticed, even by some within the Labour Party.

Rachael Maskell, Labour MP for York Central, publicly criticised her own government, warning that the policy risks deepening inequalities in the education system by creating a two-tier private sector—one for the wealthy, and another that’s vanishing.

Yet, public opinion remains mixed. A recent poll conducted by AJ Bell found 45% of respondents supported the addition of VAT to private school fees, while only 23% opposed it. The remaining 31% were undecided, possibly unaware of the policy’s full implications or its disproportionate effects.

The Myth of 6,500 New Teachers

Labour’s central argument for the VAT policy was its promise to use the revenue to fund 6,500 new teachers in key subjects for state schools. This figure was printed on election campaign materials and promoted across social media as a justification for the tax.

However, scrutiny has since revealed significant flaws in this commitment. The money raised from the VAT has not been ring-fenced, despite early assurances by Shadow Chancellor Rachel Reeves that “every penny” would go to education.

Now, Prime Minister Starmer has suggested the revenue may be diverted to fund housing targets—casting doubt on whether education will benefit at all. The commitment has also been watered down. Originally pitched as 6,500 new teachers in STEM subjects, the current language from ministers is more vague, omitting mention of subject specialisation or even whether the roles will be new.

Emma Hollis, chief executive of the National Association of School-Based Teacher Trainers, warned the redefinition “fundamentally shifts the goalposts.”

Nicky Hardy, chair of governors at a Catholic state school in Reading, echoed this concern.

“We were told this was about improving outcomes for children in state schools,” she said. “But so far, there’s no clarity about where the money is going, and no evidence that it’s being reinvested in education at all.”

Even the Public Accounts Committee in Parliament has weighed in, accusing the government of lacking a coherent strategy for teacher recruitment. Without clear direction, the prospect of 6,500 new teachers appears increasingly unlikely.

Will the VAT Policy Even Raise £1.7 Billion?

Arguably the most pressing question is whether the policy will achieve its headline objective: to raise £1.7 billion by 2030. For a tax that has already caused substantial upheaval, doubts about its efficacy are growing.

Between January and April 2025, the VAT policy was forecast to generate £450 million. Whether this target has been met remains uncertain, and full revenue data will not be available until later in the year. But early indicators suggest the Treasury may fall short.

The original projections assumed school fees would rise by 10% in response to VAT. In reality, many schools increased fees by 14% in January, with further increases planned for September. Fee hikes of 17% or more are now anticipated for the 2025–26 school year.

These increases are driving more families out of the independent sector, compounding losses on both sides: the government forfeits VAT from departing pupils and simultaneously inherits their cost in the state sector.

Treasury analysts projected that 35,000 students would transition to state schools over the course of the parliament. If that number proves conservative—as the current 16,000 exodus within six months suggests—then the policy could end up costing more than it gains.

What Comes Next?

With the end of the academic year upon us, parents, school leaders, and policymakers alike are taking stock of the changes. The full consequences of Labour’s VAT on private schools may not be measurable for years, but the early signs are sobering.

The independent sector is being reshaped—smaller, less affluent schools are disappearing, while elite institutions become even more insulated. The state sector, already grappling with underfunding, is absorbing tens of thousands of pupils, straining classroom sizes and local resources. Meanwhile, families are being forced to make painful choices about their children’s futures.

Far from levelling the playing field, the VAT policy risks entrenching educational inequality by driving out the middle and working-class families from private education and failing to deliver on promises of reinvestment.

The intention may have been noble: to fund state education and redistribute opportunity. But in execution, the policy has faltered—marked by miscalculations, mixed messaging, and unintended consequences. As Labour looks ahead to the remainder of its term, one thing is clear: a re-evaluation is urgently needed before more damage is done.

If the goal is a fairer education system, then surely that system must begin by putting children—of every background—at its heart, not sacrificing them on the altar of fiscal ambition.