Labour U-turns on plan to scrap charitable status of private schools

Labour has U-turned on its plans to remove the charitable status of private schools.

Shadow chancellor Rachel Reeves announced in 2021 that her party was ideologically opposed to fee-charging schools avoiding tax by operating as charities.

However, it has now emerged that, while Labour still plans to force independent schools to pay VAT, it will no longer remove their charitable status.

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Labour is claiming that politicians talking about the charitable status was only ever a shorthand for changing the taxes schools paid.

A party spokesperson said: “Our policy remains. We will remove the unfair tax breaks that private schools benefit from, to fund desperately needed teachers and mental health counselling in every secondary school.

“This doesn’t require removing charitable status, however, driving high and rising standards for every child against the backdrop of a broken economy requires political choices. Labour isn’t afraid to make them.”

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Sky News understands that the change was made to Labour policy as removing the charitable status of schools would require complex legal procedures, while applying VAT is a fairly simple process.

Labour’s plan to put VAT – equivalent to 20% – on school fees has sparked outrage from some in the Conservative Party who believe it will prevent parents from sending their offspring to schools which charge tens of thousands of pounds a year to educate them.

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Speaking in 2021, Ms Reeves said: “Right now, private schools enjoy charitable status which makes them exempt from both business rates and from VAT at a cost to the taxpayer of £1.7bn every year.

“But… here’s the truth: Private schools are not charities.

“And so we will end that exemption and put that money straight into our state schools.

“That is what a Labour government will do.”

Deputy political editor

Labour has changed its policy on private schools.

It will continue to charge business rates and VAT, raising up to £1.5bn. This will fund 6,500 new teachers, mental health support workers and early speech and language training.

However, it will no longer be removing charitable status.

Asked why, the source did not say – saying they “didn’t want to get into the weeds of charitable status” and declined to say when the decision was made.

There’s a clear political logic though. This allows the measure to be done in a finance bill – i.e. quickly. Removing charitable status from schools is a highly complex affair.

The independent school sector says they started seeing the rhetoric change on this policy almost a year ago, after the November budget, when it was raised by Jeremy Hunt.

The sector is worried at the remaining uncertainties – will private schools be able to claim gift aid, tax exemptions on annual profits, for example.

“This is the worst of all worlds for schools. They must keep their charitable obligations without the benefits. This is a lot of stick, not a lot of carrot,” said one source.

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Charitable status qualifies schools for an 80% relief on business rates.

Julie Robinson, chief executive of the Independent Schools Council, remained critical of the policy.

She said: “If Labour takes away the tax relief associated with charitable status for independent schools, the policy would create a two-tier system within the charity sector, setting a worrying precedent that any charity seen as not reflecting the political ideology of the day could be subject to additional taxes.

“We would love to work with Labour to build more effective ways to achieve our shared goal of improving education for all young people.”

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Labour’s policy costings only ever took into account charging VAT on school fees and ending the business rates exemption, rather than the other tax breaks.

But shadow education secretary Bridget Phillipson had spoken of “scrapping charitable tax status for private schools to fund the most ambitious state school improvement plan in a generation”.

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