Lord Lexden (Con)

My Lords, in the autumn of 2024, when I was in better health, I introduced two debates on the imposition of VAT on independent school fees, due to come into effect on 1 January 2025. Most speakers in those debates referred to the grave difficulties independent schools and the families of their pupils would face as a result of Labour’s education tax—the first to be introduced in Britain and, apart from a disastrous experiment in Greece, the first in Europe. The Government added further to the costs of independent schools last year and, in the process, helped jack up their fees—after five years during which fee rises had been lower than wage inflation—by scrapping the exemption from business rates that most of them enjoyed by virtue of being charities. Just like the VAT exemption, both were scurrilously misrepresented by Labour as tax breaks. Independent schools were hit again by the increase in employers’ national insurance contributions. State schools received additional public funding to off-set the higher NIC bill; independent schools did not. The object of today’s debate is to consider how independent schools, of which there are some 2,500 in total, are faring in the face of Labour’s unprecedented financial assault upon them. I declare my interest as a former general secretary of the Independent Schools Council and the current president of the Independent Schools Association, one of the ISC’s constituent bodies. The ISC represents some 1,400 schools, in which around 80% of the pupils in the independent sector are educated. The Independent Schools Association has some 700 schools, a large slice of the total, in its membership. As I have stressed on previous occasions, it is among these 700 schools that many of the small schools, so prevalent in the independent sector today and so valued by their local communities, are to be found. Large, well-known schools that fascinate the public and the media are the exception, not the rule. Article after article and survey after survey have provided evidence of the strain that the Government’s education tax is placing on hard-working families. The latest survey by Parentkind found that 40% of parents with children in independent schools have been forced to cut back on household spending to meet the cost of their children’s education. These are the people who work extra hours, forgo holidays and put off replacing the family car because they believe an independent school is right for their child. The education tax increases the sacrifices that they have to make. The independent sector’s contribution extends far beyond this country. Independent schools are a major export success story and an important source of British soft power, helping attract talented young people to the United Kingdom and enhance Britain’s reputation overseas. This is something the Government should be championing, not chipping away at. Together, independent schools generate more than £3 billion annually through education, exports and transnational education, despite intense international competition. At home, independent schools stand ready to use their expertise to help raise standards and deliver national education priorities. One clear opportunity is for them to work with state schools in meeting the Government’s new enrichment benchmarks. These expect pupils to have access to civic engagement, arts and culture, outdoor adventure, life and future skills, and sport and physical activity, but the Government have confirmed that no dedicated funding will be provided to schools to deliver this ambition. Independent/state school partnerships already make a major contribution in these areas. In the past year, more than 1,000 ISC schools have worked with state school colleagues in nearly 10,000 partnership projects across sport, music, the arts and academic collaboration. These range from sharing facilities and running joint lessons and events to seconding staff and helping state school sixth-formers with university applications. All represent invaluable opportunities for children at no cost to the state. Sadly, the Government have shown remarkably little interest in supporting and strengthening this work, even as they place greater expectations on schools to broaden pupils’ opportunities. The Government claim that falling pupil numbers in England’s independent schools reflect the wider decline in the school-age population. The figures do not bear this out. Pupil losses in independent schools have been more than triple the decline in the school population as a whole. The Government also trot out the line that more independent schools have opened than closed since the introduction of the education tax. This disguises the importance of the loss of mainstream independent schools, many of them centuries-old centres of academic excellence. Mainstream schools account for 82% of the 106 school closures so far under the impact of the education tax. The schools that have opened, though numerically larger, are for the most part very different. The independent sector now has many more special schools, catering for children with acute and complex special needs, which account for some 90% of the newcomers. The growth of specialist provision is both welcome and necessary at a time of rising demand for SEND support, but the Government failed to acknowledge the change in the character of the independent sector that this trend represents. Many places in special schools are commissioned and funded by local authorities. Where an independent school is named in the child’s education, health and care plan, the local authority can also reclaim the VAT. The Government may argue that closures are in line with long-established trends, but the average capacity of the schools that have closed since the introduction of the education tax has been almost double that of schools which closed in the preceding 10 years. The casualties of the Government’s education tax include Malvern St James in Worcestershire, which closed after 133 years. Durham High School closed after 142 years, Ruthin School in Denbighshire closed after 742 years and Thetford Grammar School in Norfolk closed after nearly 1,400 years. Labour have been in government for little more than two years, yet the damage they have done is considerable. Every school closure means lost jobs, disrupted local supply chains and children losing a community that may have impacted their lives for years. The effects are often particularly severe in rural areas. Reports on closures refer to distraught teachers, anxiety among parents forced to find a new school at short notice and children having to move midway through their A-levels. Mr Campbell Harrison, head of St Gerard’s School in Bangor, which closed in July after more than 100 years, told me: “VAT, the loss of business-rate relief and higher national insurance pushed us over the edge. More than 30 members of staff lost their jobs, with some unable to make mortgage payments and few comparable posts available locally. We gave families as much notice as we could so that the children had a chance to find places before September. Some families have struggled to find suitable places, while some children now need to travel an hour and a half each way to get to school—an exhausting three-hour daily commute for a child. In an area where employment is already scarce, the closure has taken more than £1 million a year out of the local economy”. That is what Labour’s education tax means in practice. Ministers have called the VAT exemption a subsidy, but of course the truth is the reverse. Independent school parents subsidise the state by educating their children at no cost to the taxpayer. Every child who moves into the state sector will cost the taxpayer more than £8,500 a year. The more children are forced by the education tax to leave independent schools, the higher the cost will be, and the proceeds of the tax will drop dramatically. The evidence from Scotland is stark. The introduction of VAT there is already estimated to be costing more than it is raising. Analysis by BiGGAR Economics, commissioned by the Scottish Council of Independent Schools, estimates that VAT on independent school fees will cost the Scottish taxpayer some £16 million this year. Over time, the annual cost is projected to rise to a staggering £181 million. Labour claimed that this policy would help fund the recruitment of 6,500 new teachers. Ministers may well try to shift the manifesto goalposts to suit their current communication strategy, but the stark reality is that the number of full-time equivalent teachers in state schools has fallen by 2,322 since 2023-24. With teacher numbers down, where is the money going? The former Prime Minister, Sir Keir Starmer, even suggested that the education tax had enabled the Government to make “the largest investment in … affordable housing in a generation”. Labour may dislike independent schools, but the public take a different view. Opinion polls show that more than half of respondents believe that independent schools have a positive impact nationally and in their local communities, with fewer than one in 10 believing that the impact is negative. Independent schools are part of our cultural heritage, a source of educational excellence, a great British success story and a powerful instrument of soft power around the world. The Government should recognise that they are a national asset worth protecting. The sad truth is that the Government will not admit that this policy was never driven by economics. It was driven by ideology—by the old prejudice that independent schools are an enemy to be overcome rather than a national asset to be supported. They are taxing families to the hilt, placing an impossible burden on some of our finest institutions and adding pressure to a state system which is already at capacity at secondary level. The stark consequences are now before us. In assessing the effects of their education tax, the Government continue to rely on HMRC’s tax information and impact note, which was drawn up almost two years ago—before the policy took effect. It must be reviewed. The Government may point to the Office for Budget Responsibility’s slightly higher revenue forecast in 2025, but that revision largely reflected schools having to pass on more of the tax than the Government originally expected. It does not take account of the subsequent fall in pupil numbers, further school closures or the additional costs falling on the state sector. A review is essential. There is also a need for a clear and robust methodology for estimating the revenue raised by VAT on independent school fees in each tax year. Last weekend, the Secretary of State said: “My interest is in the 93 per cent of kids who are educated in the state sector”. Does she have no interest in the more than half a million children educated outside of it, and in their families? Does she have no interest in the hundreds of teachers who have lost their jobs, or the countless supply chains that have been affected? Does she have no interest in the wider economic consequences of this policy, or the damage to our international education exports? She should begin to show some interest, because surely every child and every school matters. I beg to move.