I first became suspicious of fee increases when the school bought a drone. This was one of the costs the headmaster used to justify an 8 per cent increase in a year when inflation was running at a quarter of that.
In his letter to parents the head explained that a sophisticated drone was essential to film aerial footage of sports fixtures of the kind seen on TV.
When I attended St Custard’s back in the Paleolithic, this technology did not exist. To make movies of the rugby, the games master would have needed to zip wire over the pitch in his anorak clutching a Super 8 cine camera.
“Is a drone really vital?” I wondered. By then, our family was inured to the “facilities race”: the contest among the UK’s 2,600 private schools to build and equip fancier premises for their 620,000 pupils.
While shopping around, we had visited private schools with concert-standard grand pianos, factory-grade 3D printers and stables — “so the children don’t have to be separated from their ponies”.
Some contestants in the facilities race have just run full tilt into a brick wall. The trigger is the imposition of value added tax of 20 per cent on fees by the UK’s Labour government.
I will not repeat the arguments for and against the reform. This column is about personal finance and investment, not politics. I want to explore the impact on families who pay for private education or are considering doing so.
My contention is that by raising fees imprudently in recent years, the independent sector has deprived a tier of parents of financial wriggle room. This could have helped them cope with the imposition of VAT. More will now experience “sticker shock” and forgo private education for their kids.
For that contention to stand, there would genuinely need to have been a facilities race, or, as a proxy for it, fee rises that are not explained by sector inflation. Private schools sometimes dispute this, claiming that increases simply cover essential costs.
An excellent 2023 report from the Institute for Fiscal Studies weighs against them. Research fellow Luke Sibieta benchmarked average private school fees adjusted for bursaries against spending per pupil in the state sector over the previous two decades.
The inflation-adjusted gap between the two figures had grown from around £3,500 annually to £7,200 since 2010. Lower class sizes are a key attraction of private schools. But Sibieta wrote: “Increases in private school fees over the last 10-15 years do not seem to have been spent on [this].”
He added: “It is therefore likely that higher private school fees have been spent on other resources — for example other staff, facilities, staff pay levels and extra costs.”
The next question is whether parental complaints about affordability are credible, or just whingeing.
Private schools appeal to a broad range of parents with means. This includes rich people for whom VAT is immaterial. VAT matters more to middling folk. Their inflation-adjusted earnings have not increased by around 50 per cent over 20 years as average fees have. Instead, the gross joint income of a couple defined as “full-time corporate managers” by National Statistics has dropped slightly. It presently stands at around £136,000, some £100,000 after tax.
I make no plea for sympathy for these families. Their income is substantial by most standards. But it may not be enough to cover day school fees for two kids. In London, VAT has increased the cost at this January’s rates from some £44,000 per year to over £50,000 before any discounts. It would have been higher if many schools had not trimmed fees to absorb some of the hit from VAT.
What are families getting in return? We should be wary of boiling paybacks on education down to hard cash. But for what it is worth, in 2010 researchers calculated a historic 13 per cent annual return on day school fees based on the higher adult earnings of ex-pupils. Simple logic decrees that, all else being equal, VAT costs have reduced any such return in future.
The bulk of the “private school pay premium” is moreover the result of family background, not schooling. The question for parents — and, perhaps, munificent grandparents — is whether to stump up for the balance of advantage in the form of smaller classes, better facilities and networking opportunities.
The final element needed to prove my point is a reduction in demand for private education. This is famously inelastic, which helps explain the facilities race. But the annual census published by the ISC last week showed a record drop of over 5 per cent in enrolments at Reception, Year 3 and Year 7, the main intake years.
I hope that proves my contention.
“I think the decrease may be more like 10 per cent,” says Rudolf Eliott Lockhart, chief executive of the Independent Schools Association, which also represents the sector, “This will take three years to work its way through.”
Consolidation is likely, he says. This would improve efficiency at the cost of disruption to some pupils.
Parents should consider the financial viability of schools if they remain minded to go private. Exam league tables, published accounts and a little local sleuthing can help them spot whether an educational establishment looks vulnerable. They may decide to send their kids elsewhere.
In a year or so, the safer school may even have the chance to pick up a grand piano or drone cheaply on the second-hand market.
Jonathan Guthrie is a writer, an adviser and a former head of Lex; [email protected]