Why VAT on private school fees would be a fair way to fund the pupil premium

"I want every child to have the chances I had"

"I went to a fantastic school. I’m not embarrassed about that because I had a great education and I know what a great education means. And knowing what a great education means, means there’s a better chance of getting it for all of our children, which is absolutely what I want in this country"
- David Cameron at Tory party conferences 2009 and 2007.

"There is lots of anger about higher education at the moment and I understand it. I am angry too. Here's what makes me angry. Oxford and Cambridge take more students each year from just two schools — Eton and Westminster — than from among the 80,000 pupils who are eligible for free school meals... These are the things that make me angry: these are the facts that would make me take to the streets; these are the injustices that our policy will remedy"
- Nick Clegg, Hugo Young lecture, November 2010

"The risk now, given the new constraints on public spending, is that the [funding] gap between public and private sectors will be come a chasm"
- David Laws, as LibDem education spokesman, June 2009.

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The Coalition agreement promises that "we will fund a significant premium for disadvantaged pupils from outside the schools budget". But the spending review did not keep that pledge. Instead the government will cut funding for most state school pupils so it can fund the pupil premium from within a shrinking schools budget.

This is politically dangerous - it risks turning what should be a popular fairness policy into a source of resentment.

It is also unfair - the government risks, in the name of social mobility, asking the middle to sacrifice their chances to close the education gap with an increasingly entrenched elite.

Both David Cameron and Nick Clegg have talked about closing the opportunity gap between the most expensive private schools and the rest. But their policy will increase the funding gap between state and private schools. With the government cutting state school spending in real terms, the gap is likely to widen sharply.

Having warned a year ago about the danger of a "chasm" in private and state spending, influential LibDem backbencher David Laws will want to ensure his flagship policy idea does not further contribute to this.

In an essay 'How to fund a pupil premium', in the new Fabian Review, published in January, I want to open a debate about how this could be avoided - and propose some ways we might attempt this. My proposal to fund the pupil premium by hypothecating the proceeds of VAT on private school fees has the enthusiastic support of Kevin Maguire in the Mirror this morning, though his label of "toff tax" is best killed straight away.

That policy will spark support and disagreement. Yet there are three questions behind the proposal which will demand some coherent response from all parts of the political spectrum, even if they oppose that specific policy proposal.

(1) Given that the pupil premium is a good idea, can the "additional" funding promised be found, to avoid resourcing it from spending cuts in many (probably most) schools?

(2) Should a growing chasm between funding levels in private and state schools be of concern to any party committed to equal opportunity and social mobility? It would be useful to know whether we can find consensus at least on the merits of an aspiration to prevent this gap widening, and to narrow it over time.

(3) Given that there are tight spending constraints, what can be done practically to prevent the gap widening sharply, and to narrow it over time?

The gap between state and private school spending narrowed slightly thanks to the sustained spending increases of the Labour governments. The detail is set out in a very good 2007 research paper A level playing field? by the IFS for the CfBT education trust.

State school spending per pupil by 2009/10 had - in real terms - reached what independent schools had been spending in 1997. State school spending per pupil was 50% of that in private schools in 1997; but was closing a little to around 58% by the time Labour left office, despite the scale of sharp increases in private school fees, with some schools this year breaching a £30,000 a year level which, the Daily Telegraph reports, was thought "unthinkable" just a few years ago.

So large increases in state school spending averaging 4% a year were required to even keep pace with private school spending. The concern dramatically expressed by David Laws about the risk of a widening private/state funding "chasm" must surely be shared by Nick Clegg, David Cameron and Michael Gove, as well as by Andy Burnham, Alan Johnson and Ed Miliband, if what they have all said about opportunity and social mobility is sincere.

But few have yet noticed how the government's plans for funding the premium by redistributing a shriking state school budget risks exacerbating this problem. And, in tight fiscal circumstances, no party has yet set out any practical thinking about how to avoid this funding gap widening.

I make three proposals in the Fabian Review essay. One proposal identifies genuinely "additional" resources for the pupil premium: levying VAT on private school fees, to create a hypothecated Pupil Premium Mobility Fund. This would also help to limit an accelerating private-public spending gap at a time of public spending constraint.

With 628,000 children in the independent sector, this could raise around £1.5 billion per year, with the money dedicated to a Pupil Premium Mobility Fund.

The fairness case is this: whenever £10,000 is spent on private school fees, £2000 would go towards narrowing the gaps in opportunity and mobility. Every parent paying £30,000 per year at Eton would be contributing £6000 to the pupil premium, still leaving a hefty £24,000 to be spent on the best schooling that money can buy.

I expect this may be too radical for any of the major parties. Private education features heavily in the rhetorical advocacy of both Clegg and Cameron, yet is absent from their policy thinking. (Their aides talk cleverly of the "Nixon to China" tactical value of Clegg citing his anger at Westminster and Eton's contribution to stalled social mobility. What would make this more than clever reverse spin? Do they know that Nixon eventually got on the plane to Beijing?) Labour leader Ed Miliband opposed David Miliband's more modest £100 million proposal to withdraw charitable status from public schools, so is also likely to be wary of the VAT proposal.

The public would be more sympathetic. Significant minorities are either strong opponents or strong supporters of private education in principle: a Fabian/YouGov poll back in 2007 found 39 per cent are against, because they think it leads to unfair opportunities, with 29 per cent in favour of what is seen as an important freedom that should be open to anyone who can afford it. But attitudes to fairness and private education split three ways - and the middle ground (25 per cent) is held by those who believe both that parents should have the right to choose private education and also that it is the responsibility of government to ensure their children do not gain an unfair advantage from their doing so. It is that moderate goal which should be reflected in the policy of all three major parties.

The challenge to those minded to reject the VAT proposal is simple:

What would you do instead?

Does anybody seek to credibly argue that the size of the state-private funding gap is irrelevant or unimportant to equal opportunity?

The coalition often argues that more spending is not the only answer. That is correct. But money matters too – presumably that is why a ‘pupil premium’ is their own flagship policy, and perhaps why the private schools spend so much to ensure high quality education. Can anybody credibly argue both that more money on disadvantaged pupils is the key to social mobility - and that the funding gap between private and state schools is irrelevant to social mobility? That is the illogical implication of current government policy. In any event, anybody who thinks money is irrelevant would contradict themselves if they vocally opposed the proposal to redistribute some cash: they should simply be indifferent to it

Should a widening state-private funding gap be considered regrettable but inevitable?

This is the implication if the parties can not develop some policy response.

Or should the government and opposition parties try to have policies to match their language and meet their policy aspirations for opportunity and mobility?

Other ideas than my hypothecated VAT proposal might do this. And I suggest two other more modest approaches to investigating the issue further.

That the Educational Select Committee should hold an inquiry on whether a widening state-private funding gap is likely, and take expert evidence on whether this would impact on attainment and social mobility, identifying ways to prevent this. (I can't see how anybody interested in educational opportunity could possibly oppose this, so hope we will at least get cross-party pressure for the Select Committee to investigate the issue).

Another is that centre-right politicians wary of the tax proposal might want to investigate the possibility of voluntary agreement with the independent sector to prevent the gap widening further.

There may be other ways to address this gap. My central claim is that all of the parties should be challenged to respond to the issue.

So narrowing educational inequality - including how to avoid a growing gap between private and state spending - should be debated in the Labour party's policy review, and I hope to contribute constructively to that.

I also hope that the Liberal Democrats will address this theme too in their future policy development. The importance of the pupil premium unites its Orange Book and social liberal wings, and Nick Clegg fought hard inside government for additional funds for the premium, though he lost the policy battle. The egalitarian social liberal wing of the party should now try to put this or other approaches to funding the premium in a tight spending context up for debate.

It is always good to hear too from progressive Conservatives who think inequality matters - so I hope our friends at ResPublica, the Demos progressive Conservatism project will offer a response too, as to whether a growing funding gap should be an issue of concern.

So the challenge is for social liberals and Orange Book LibDems, New and Old Labour, progressive Conservatives and the traditional Tory right. All talk about equal opportunity and social mobility in a way which would be damaged by a growing gulf between state and private spending. What - if anything - should actually be done about it?

In the spirit of the political pluralism, Next Left intends to invite and publish responses from across the political spectrum to the challenges of educational inequality in the new year. I welcome offers to contribute, from whatever perspective.