State schools to receive boost as ending VAT break for private schools raises £1.7bn

• Thousands of state schools to receive boost as the VAT break for private schools ends, raising £1.7 billion a year by 2029/30
• Next year there will be an additional £2.3 billion to help deliver the government’s education priorities, such as bolstering student skills, improving Special Education system and hiring 6,500 new teachers
• VAT change marks next step to help achieve Prime Minister’s Plan for Change by giving every child the best start in life.

Thousands of state schools are set to receive a funding boost next year as the VAT break historically enjoyed by private schools ends on New Year’s day (1 January 2025).

The core schools Budget will increase by £2.3 billion next year and the VAT change will raise £1.5 billion next year, rising to £1.7 billion a year by 2029/30.

The Prime Minister’s Plan for Change has set out the priorities for government funding which includes giving children the best start in life, as a key milestone within the Opportunity Mission. As part of this Mission, the government is committed to hiring 6,500 new teachers, driving up standards and improving the Special Educational Needs and Disabilities system.

Through the introduction of 20% VAT to all education services, vocational training and boarding services provided by UK private schools, the government is raising revenue which can help the 94% of school children who attend state schools and deliver on its mission to break down barriers to opportunity.

Chancellor of the Exchequer, Rachel Reeves, said: “It’s time things are done differently. Ending the VAT break for private schools means an additional £1.7 billion a year that can go towards our state schools where 94% of this country’s children are educated. 

“That means more teachers. Higher standards. And the best chance in life for all our children as we deliver on our Plan for Change.”

Education Secretary Bridget Phillipson said: “High and rising standards cannot just be for families who can afford them, and we must build an education system where every child can achieve and thrive.

“Our ambitious Plan for Change sets out our clear mission to break the link between background and success and ending the VAT break enjoyed by private schools will provide much needed investment in our state schools, to help recruit and retain expert teachers.”

The policy sets out that any fees paid from 29 July 2024 – when the policy was first announced by the government – relating to the term starting in January 2025 onwards will be subject to VAT. This is expected to raise £1.5 billion in 2025-26, rising to £1.7 billion by 2029-30.

Where a private school in England has charitable status, the government will also remove their eligibility to business rates charitable rate relief from April 2025. The business rates change will raise around £140 million per year, bringing the total raised by these policies to £1.8 billion a year by 2029/30.

With the change coming in on New Year’s Day, the Chancellor visited the Harris Academy state school in London alongside Education Secretary Bridget Phillipson to talk to students and teachers about the government’s education priorities, including £1 billion for the Special Educational Needs and Disabilities system, increasing per pupil funding in real terms and taking core schools funding to £63.9 billion in 2025-26.