Wealthy Families Mull Relocation as UK Private School Tax Looms

A recent survey has unveiled that one in ten affluent UK families is contemplating relocation abroad in response to the government's planned Value Added Tax (VAT) on private school fees, set to take effect from January 1, 2025. The Saltus Wealth Index Report, which polled over 2,000 high-net-worth individuals with assets exceeding £250,000, highlights growing concerns among wealthy parents about the rising cost of private education.

Rachel Reeves, the Chancellor, defended the tax measure at the Labour Party Conference in Liverpool, stating it was "the fair choice, the responsible choice, the Labour choice to support the 94 per cent of our children in our state schools." However, the survey results suggest potential unintended consequences of the policy.

The UK's private education sector, comprising about 2,500 independent schools, has long been a significant contributor to the national economy. These institutions collectively add £13.7 billion annually to the UK's economic output and generate £1.6 billion in tax revenues. Moreover, they save taxpayers £3.5 billion per year by educating students who would otherwise require state funding.

The survey reveals that 12.5% of private school parents plan to transfer their children to state schools this year, while 21% are considering switching to more affordable private institutions. This shift could potentially increase pressure on the state education system, which currently educates about 93% of UK children.

"Our respondents are the ones with the 'broad shoulders' who, according to the rhetoric from Downing Street, will be footing a significant proportion of the bill to fund the Government's programmes. Even more importantly, high-net-worth individuals are active participants in the wealth creation of the future."

The potential exodus of wealthy families raises concerns about the UK's economic future. Private schools in the UK employ over 300,000 people and contribute £1.9 billion in exports annually. They also attract students from more than 160 countries, with about 5% of their student body coming from overseas.

Dr Michael Peacey, a senior lecturer in economics at the University of Bristol, noted that while affluent families are best positioned to support the British economy, they are also the most globally mobile. This mobility presents a challenge for policymakers seeking to balance tax revenue with economic growth.

The government aims to raise up to £1.5 billion from the VAT on private school fees to improve state school standards. Plans include recruiting 6,500 new teachers and implementing free breakfast clubs for all primary schools in England. A pilot program for breakfast clubs is scheduled to begin in April 2025, initially involving 750 primary schools.

Despite these concerns, the Saltus Wealth Index has shown improvement, rising to 66.9 in September 2024 – its highest level since early 2022. This indicates a generally optimistic outlook on personal finances and the UK economy among high-net-worth individuals.

The private school sector in the UK has a rich history, with some institutions dating back to the 16th century. These schools have produced numerous prime ministers, Nobel laureates, and Olympic medalists. They also offer various educational options, including the International Baccalaureate alongside A-levels, and maintain a favorable pupil-teacher ratio of about 9:1.

As the debate over private school taxation continues, it remains to be seen how the government will balance its revenue goals with the potential economic implications of wealthy families relocating abroad. The coming months will be crucial in determining the long-term impact of this policy on both the education sector and the broader UK economy.