Remove VAT from private-school fees: calculation note

Central fiscal result

+£1.8bn - Net fiscal impact in 2028-29

Low case: +£1.0bn. High case: +£3.0bn. Positive numbers are fiscal costs or borrowing pressure. Negative numbers are Exchequer savings or receipts.

Scenario and baseline

• Model removal of 20 percent VAT on private-school fees by 2028-29.
• Central cost is £1.8bn net of state-school displacement.
• Baseline is VAT charge from January 2025.
• Business-rates relief is not separately reversed unless specified.

Affected population

• Affected population is private-school pupils, parents and providers.
• Direct gains depend on pass-through to fees.
• Indirect exposure includes state schools and local authorities.
• Distribution skews toward higher-income households.

Gross impact

• Gross VAT revenue loss assumed £2.1bn.
• State-school displacement offset assumed £0.3bn.
• Central net cost: £1.8bn.
• High case assumes weak displacement savings and high pass-through uncertainty.

Fiscal build-up, central case

• Lost VAT receipts: +£2.1bn
• Lower state-school placement costs: -£0.3bn
• Administration and compliance savings: £0.0bn
• Other tax effects: £0.0bn

Central net impact: +£1.8bn in 2028-29.

Behaviour and pass-through

• Low case assumes more private-school retention and lower state-school costs.
• Central case assumes partial offset from fewer transfers.
• High case assumes most VAT revenue is lost with limited public-sector offset.
• Schools may retain part of the tax cut.
• No wider productivity gain is booked.

Phasing

• 2026-27: +£0.5bn. Preparation or partial implementation.
• 2027-28: +£1.6bn. Main ramp-up year.
• 2028-29: +£1.8bn. Target-year central estimate.
• 2029-30: +£1.8bn. Continuation at steady-state assumptions.

Main source groups

• HM Treasury and HMRC, "Applying VAT to private school fees" (2024): The government applied 20% VAT to private-school education and boarding from January 2025; defines the tax to be reversed.
• House of Commons Library, "VAT on private school fees" (2026): The briefing summarises the VAT policy, its rationale and Parliament's scrutiny of impacts; provides implementation context beyond the tax note.
• HM Revenue and Customs, "Direct effects of illustrative tax changes bulletin" (2025): HMRC provides direct-effect estimates for illustrative changes to SDLT, VAT, fuel duties and other taxes; anchors tax costs before behavioural and macro adjustments.
• Benzarti, Carloni, Harju and Kosonen, "What Goes Up May Not Come Down" (Quarterly Journal of Economics, 2020): VAT rises and cuts need not pass through symmetrically to consumer prices; relevant to household energy VAT and private-school-fee VAT reversals.
• Epple, Romano and Urquiola, "School Vouchers: A Survey of the Economics Literature" (Journal of Economic Literature, 2017): School-choice policies can alter sorting, peer groups and public-private school equilibria; relevant to VAT changes that affect private-school demand.
• Conservative Party, "Our Plan for Britain" (2026): Used to define the pledge wording, policy scope and implementation scenario being modelled.