Opinions

Tax attack

The left and right on the political spectrum may argue about a tax-free status for independent schools. But Kim Scharf says there needn’t be a debate at all. In her view, the answer is both logical and clear

I have yet to hear a compelling, rational argument on the debate surrounding the tax-free status of independent schools in the UK.

Independent schools are, of course, funded by the fees parents pay and/or by charitable donations. On this basis alone, since donations have tax-free status and fees are paid out of income that has already been taxed, and since charitable independent schools are not engaged in profit-making activities, they should have tax-free status.

Public benefit, pah!
Even if a public benefit test should be the determining criterion for tax-free status, then of course independent schools should maintain their tax-free status. The Charity Commission discounts, and possibly fails to see, the public benefit associated with having approximately 514,000 children opt out of Government-funded education (ISC, 2009).

Given a mean cost per state-school pupil of £3,580 across England (UK Parliamentary Business, 25 Mar 2009: Column 539W), the fees that parents pay to independent schools translate into a cost-saving to the Exchequer in excess of £1.8 billion on an annual basis. This effectively means that parents of independent school children collectively make a “gift’’ of £1.8 billion to the Exchequer every year. This is £1.8 billion that can be spent towards welfare programmes for the less privileged.

Strong support
By comparison, all donations to charities in the UK total £10.6 billion (NCVO, 2008). So, in terms of size of implied donations (£1.8 billion), the independent school sector represents about one-fifth of the rest of the UK third sector: this is not only a substantial public benefit that should not be ignored or discounted in the debate, but it is also one that is easy to measure.

Some may object to this conclusion by saying that parents of independent school pupils are upper-income individuals who want to give their children a “luxury” type of education and who should be prepared to pay fully for the privilege. But this is not a meaningful objection, whether arguing from the left or the right of the political spectrum.

Who are you targeting?
Not only does this not negate the logic of my previous argument, but it also unfairly discriminates against some individuals’ choices on the basis of unjustified and invidious assumptions about who these individuals are. It is probable that many parents who choose the independent sector are hard-working individuals who are not particularly wealthy, but decide to spend their money on school fees, sometimes with financial help from other family members, rather than spending it on other things.

In a free country, individuals should not be discriminated against on the basis of how they choose to spend their money. If I spend my savings on expensive jewellery for a loved one or on a private education for my child, I should be free to do so without being punished.

If we really feel that, as a society, we need to single out individuals on the basis of what they choose to do, it is not clear that the discrimination should be targeted at those who choose to spend their money on their children’s education rather than on frivolous consumption. On the other hand, if we think that the Government should engage in more income redistribution, then it should do so directly through the income tax system. Attempting to do so indirectly by harassing independent schools is a clumsy way of going about it, and it makes no economic sense.

Kimberley Scharf is a professor of economics at Warwick University and visiting professor at the London School of Economics.