Not good news for Private Schools...

15 July 2024

by Yehuda Neuberger

Founder of DonorChase. A certified accountant with extensive experience in the education and charitable sectors. Yehuda spent many years working closely with donors, parents, and other pledgers, during which he recognised the limitations of existing bookkeeping packages. These packages were essential for basic financial information but fell short in managing donor relationships and scheduling follow-ups.

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Chancellor's announcement and private Schools

Today's announcement by the Chancellor has set the stall for the next few months. Of interest to schools will be numerous parts of this announcement and the related documents. One can't but help thinking that it is not good news for private schools. See the most important announcements as they relate to public and private schools;

1) the acceptance of the public pay review body to a pay increase of 5.5%.

How will this be funded for state schools? Partially by departments 'absorbing costs' (sound familiar?!) and part... not announced.

This means that teachers and school leaders should see a significant pay increase (in fact bringing increases over the past 3 years to over 15%. Not bad.).

Hopefully schools will see extra income from the Government. But... as numerous schools found out with the pension cost increase, the extra income didn't match the extra costs.

And for private schools... expect pay increase demands to match the public sector.

2) for private schools, VAT will be charged from January.

This isn't a huge surprise, though the nuts and bolts and getting schools registed in time will be difficult. Bookkeeping systems will need updating (contact us for help!) and there will be numerous unintended consequences.

If you are a private school and need to spend money... it may be worth delaying until January??

And if your struggling with school fees before the 20% increase ... our sympathies. The Government has said absolutely nothing about the consequences of schools needing to close due to financial pressures.

And don't think about paying your schools fees early - as of today (July 29th), any payments related to January 25 school fees are VATable.

3) supplies "closely related" to educational supplies will remain exempt from VAT

Examples given are school meals, transport, books and stationary. The guidance documents do pave the way for some nifty VAT planning - by invoicing these items separately, fees could be reduced. But woe betide those who play the game too hard - "HMRC will challenge any school who seeks to avoid their full VAT liability in this, or any other, way"

However this will make the school "partially exempt" and the VAT calculations are complex. It's not going to be easy.

4) business rates relief will disappear

Worryingly, business rates discounts for private schools which are charities will also disappear. This could lead to a 5 x increase in the amounts of business rates being charged. Not fun at all. There will be some mitigation on this for schools which cater for pupils with an EHCP.

This will not apply where the property, or parts of it, are used solely for disabled persons.

So if you are running a private school, expect that the future months will bring a demand for a 5.5% pay increase, business rates to quintuple, and a requirement to charge VAT on school fees together with some very tricky accounting. I leave the (second) last word to the Government;

"The government does not expect fees to go up by 20% as a result of this policy change. Rather, the government expects private schools to take steps to minimise fee increases."

Coming from the party that is making accusations about unfunded spending plans, it sounds a bit rich.

Please post responses below! Looking forward to read.

Happy chasing,

Yehuda

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Excellent blog post, which neatly summarises the nightmarish financial challenges facing school leaders and governors, in a very clear and useful way. This will certainly help school heads and bursars, who need to give governors succinct info, to structure and quantify their briefing papers. This is all deeply worrying for faith schools, and it's hard to see how they will avoid direct impact on the breadth and quality of education for their students. So many other direct costs are also rising sharing, and schools have no control over these. With staffing costs typically over 70% of budget expenditure, and most of the rest going on building maintenance, utilities, rates, educational supplies and so on, there's little room for economising, other than by cutting staff, increasing class sizes, and reducing curriculum enrichment activities, trips etc. Most parents - already struggling to support their children's education as family finances get squeezed hard - are simply not going to be able to absorb increases in fees or voluntary contributions. I suspect that one of the unintended consequences of this new policy will be a sharp uptick in claims for FSM and applications for EHCPs. Another will be a slightly slower but still relentless overall degrading of the pool of talent and educational expertise in schools, as heads find themselves forced to cut additional salary allowances for more experienced, veteran teachers with middle leadership responsibilities, resulting in higher staff turnover and greater reliance on younger, cheaper early-career teachers. And that in turn leaves heads carrying greater responsibilities alone, with fewer experienced senior colleagues to help share the burden. Expect more school leadership vacancies and a harder struggle to fill them! Getting expert management of procurement and finances in place is all the more critical. This might enable schools to join forces to find ways of economising through informal or formal partnerships for procurement, sharing staff and central admin functions, or preparing the ground for formal mergers or joining MATs etc. It's hard to see any other viable way forward, and I fear that many smaller independent faith schools might not survive the next few difficult years.

Yitzchak Freeman 29-Jul-2024 : 08:31:55