Independent schools counting the costs of rising VAT

Fernhill School was among those affected by the VAT change | John Devlin / The Scotsman

The impact of adding VAT onto private school fees in Scotland is having a devastating effect on the country’s education sector, it has been warned.

VAT was added to private school fees in January last year by the UK Labour Government, who argued the money raised would go towards helping funding for state schools.

The decision is understood to have led to private school fees rising by around 22% and has sparked growing concerns the change could actually be costing local councils, as the number of pupils going to state schools increases.

It has also heaped pressure onto the independent school sector, with five schools in Scotland closing since the VAT change, including Fernhill School in Rutherglen, and Drumduan School near Forres. The latter, co-founded by the Oscar-winning actress Tilda Swinton, said the VAT increase had ‘played a part’ in their decision.

The Drumduan School building was put up for sale this week as the business winds up, with proceeds from the sale set to be put into a trust that could be used in future to re-establish an independent school in the area.

The impact of the VAT change on the school was “the final straw”, and led to an immediate 24% reduction in their school roll as parents were simply unable to meet the rising costs.

Sarah-Jane Mills, a Trustee at Drumduan School, said: “It was a significant effect, and it was announced in the middle of a school year so we had already budgeted for the year ahead, and that all had to be changed. There were no exemptions, no grace period for smaller schools like ours.

“It was the final straw I think - we were hit by Brexit, as a lot of our staff and pupils had come from Europe. Then we were hit by Covid, then the rising costs of running a school, rising energy costs, and of course the cost of living crisis was hitting the families of our pupils as well.

“Then we had business rates relief removed, and we had rising staff costs through the national insurance increase, so it was like a perfect storm, and the VAT decision killed us. It sounds emotive to say it, but it killed us.”

Scottish Conservative education spokeswoman Meghan Gallacher has called on Holyrood's education committee to launch an inquiry into the impact of the decision on both state and independent schools.

“Private schools are under mounting financial pressure, while state schools are being left to pick up the pieces as more pupils transfer across,” she said.

“The Education Committee should now properly examine the growing pressure on private and state schools and the impact these policies are having across Scotland."

VAT policy is reserved and is the responsibility of the UK Government and while Scottish Ministers have statutory responsibilities for the registration and regulation of independent schools in Scotland, independent schools are classed as private businesses.

Lorraine Davidson, chief executive of The Scottish Council of Independent Schools (SCIS) warned it could cost Scottish taxpayers up to £200 million a year within a decade.

“VAT on fees is a failed policy which will cost the Scottish taxpayer £16 million a year this year, rising to £200 million annually within a decade because of the extra pupils being educated at the state’s expense,” she said.

She also called on the Scottish Government to look at how it can support the country’s independent schools, pointing out that by attracting pupils from around the world they are helping to contribute to the Scottish economy.

“The Scottish Government should consider how it can harness the expertise in the independent sector for the benefit of all pupils,” she said.

“Ministers should also consider how they can use the Scottish Government’s overseas network of offices to promote our successful sector. The Scottish independent school sector is worth £700 million annually to the Scottish economy, and we attract pupils from all over the world who go on to study at Scottish Universities where they pay international fees.

“If there is a lesson from VAT on fees, it is that there is far more to be gained by working with our sector, than against it.”