Private school parents face paying different fees for the same education as Labour confirms the introduction of 20 per cent VAT, i can reveal.
Independent schools are becoming more likely to offer “flexible” fee structures to parents willing to “shop around” and negotiate for the best price, according to industry insiders.
It means some parents could pay lower fees based on the school’s discretion rather than the usual structures of a means-tested bursary or a talent-based scholarship.
It comes after private school headteachers told The Times that the imposition of VAT would force them to cut back on bursaries due to financial constraints, making top institutions more exclusive.
But Education Secretary Bridget Phillipson refused to accept this, telling Times Radio there is an “expectation” that outreach work would continue.
Education consultant Neil Roskilly, former chief executive of the Independent Schools Association (ISA), told i that private schools have been offering “more negotiated discounts outside of their scholarships and bursaries” in recent years.
“Outside of the oversubscribed institutions, schools will always be providing discounts for parents,” he said. “That’s often just because parents are pushy and want to get what they can. We’ll see a lot more of that, no doubt about it.”
Lynne Horner, independent school specialist at the Association of School and College Leaders (ASC), said private schools have always had “flexibility” over whether to offer parents reduced rates, particularly if there are siblings at the school or a family is under financial pressure.
She said this could increase “as a result of the VAT levy, particularly where families are struggling with fee increases and would otherwise have to take their children out of the school”.
“However, schools will obviously have to balance that decision against their own costs, so this is a pretty difficult issue for them to navigate,” Mr Horner added.
Mairéad Warren de Búrca, managing director with Alvarez & Marsal Tax, said it is “perfectly legitimate” for schools to offer parents negotiated discounts but warned it could leave the parents paying full price “aggrieved”.
“Sibling discount would be a palatable way of doing it,” she said, adding: “This is the opportunity for parents to ask for discounts because most will assume it’s a fixed price. But like any commercial trade, if you don’t ask, you don’t get.”
“Schools are looking at every opportunity they can to fill the classrooms… and also managing this additional VAT cost.”
Asked whether the imposition of VAT on private school fees would cause parents to shop around more, she said: “That has got to be right… you’ll have this contradiction where you potentially have private school students looking for places but equally not looking to pay the extra 10 to 20 per cent.
“But it’s going to be a balancing act. It’ll depend on the location of the private school, whether there is competition in the area versus those private schools that are in a more isolated location and have more of a captive market.”
It comes after Chancellor Rachel Reeves confirmed 20 per cent VAT would be added to private school fees from January 2025 in her Budget speech on Wednesday 30 October, despite calls from the sector to push it back until September next year.
Following the announcement of taxes on things such as inherited land and private schools, Ms Reeves told the BBC’s Laura Kuenssberg that her Budget “wasn’t an ideological one”. The Chancellor adeed that difficult decisions had to be made to put the economy on the right footing and pass funding onto state schools and the NHS.
The Office for Budget Responsibility (OBR) published an impact analysis of the policy revealing that the majority of VAT will be passed onto parents, with the Government saying fees are expected to rise by an average of 10 per cent.
This is because the OBR has estimated that around two-thirds of the effective VAT rate of 15.4 per cent will be “passed on through higher fees” while a quarter will be reflected in “reduced service provision”. It said the effective VAT rate is lower than the standard 20 per cent rate because schools can recover some input costs.
The remainder of approximately 1.3 per cent will be absorbed by schools through cost efficiencies and from profits.
Mr Roskilly previously said that parents have “every right to look at published financial statements and ask why reserves aren’t being used for what is clearly a very rainy day”.
Discussing the impact of VAT on fee structures, he said it has become increasingly common for prospective parents to contact several local private schools to look for the best offer. This is especially likely in parts of the country with lots of private schools such as Surrey, Kent and North Yorkshire.
Mr Roskilly told i: “If you’re a popular, oversubscribed school, you would simply say ‘no’ because you’ve got scholarships and bursaries. If you’re a charitable trust school, then it could be that the governors don’t allow that kind of thing.
“But outside of that, you may well find some discretion – normally held with the bursar – in order to agree to that approach. So you do get these negotiated discounts.
He said these discounts are “not uncommon” in private schools that are undersubscribed, but added that it can cause “long-term difficulties” if institutions are no longer able to cover their core costs.
The chair of a south coast independent school, who wished to remain anonymous, warned schools against offering differential pricing because it would be “very difficult for finance departments of a school to manage” and “extremely problematic” for fairness and transparency.
“There are real risks of making complicated pricing structures that end up not working because we don’t actually know how this policy is going to affect parental choices,” he told i.
But he said the industry will become a “buyers’ market” in the short term due to the risk of school closures shrinking the sector.
“Parents are more likely to look around and look at cost-effective alternatives,” he told i. “There are a wide variety of schools offering a wide variety of fee structures ranging from relatively less expensive to very expensive. Parents may look at alternatives if they’re finding it difficult to fund the VAT increase.”
Grace Moody-Stuart, director of the Good Schools Guide Education Consultants, said schools are attracting their parents by improving their marketing and showcasing their unique offerings such as creative arts, sports or pastoral care.
She warned private schools that decreasing their marketing budget would be the “worst thing they could do at this point” as it is vital to show parents “what they’re getting for their money”.
“Schools can distinguish themselves by what they offer so they will attract those children and families who appreciate that,” she said, adding that many schools are using a “more intuitive and nuanced approach”.
A Department for Education spokesperson said: “The Budget confirmed ending tax breaks for private schools will raise £1.8 billion a year by 2029/30 to improve education for the 94 per cent of children in state schools.
“Private schools set their own fees and it’s absolutely right they work with parents to manage the introduction of VAT on fees.”
