Chancellor Rachel Reeves is facing claims she “massively underestimated” the extent to which parents of private school pupils would prepay fees to avoid her VAT levy.
Figures suggest the top 50 independent schools received £515 million in advance fees before the 20% VAT charge came into force on 1 January 2025 – eclipsing Treasury expectations and allowing parents to lock in tax-free schooling costs for years ahead.
The Treasury had forecast £450 million in such prepayments, generating around £90 million in VAT revenue after Reeves announced last July that all prepayments from 29 July 2024 would be taxed. Internal documents also reveal ministers considered back-dating the charge to May 22 – the day the general election was called – to capture more revenue, but rejected the move as “difficult to justify” before policy details were public.
Private schools’ annual accounts point to higher sums than forecast. Eton College alone took in over £50 million in advance fees before the deadline – representing more than £10 million in VAT revenue foregone.
An Institute of Economic Affairs director said: “The Government massively underestimated the behavioural effect of introducing VAT on private school fees. Prepayment has been far more significant than anticipated. But that is just one part of the picture – more pupils have left the independent sector and more schools have closed.”
The Government insists the policy will still deliver on its revenue goals. A spokesperson said: “The Office for Budget Responsibility has already factored in the increased use of prepayment schemes in its revenue forecasts. Removing tax breaks for private schools is expected to raise £1.8 billion a year by 2029-30. This will help us recruit 6,500 new teachers and improve standards in state schools, which educate 94% of children.”
Read more:
Rachel Reeves ‘underestimated’ parents’ prepayment push to avoid private school VAT