Report

Tuition tensions: labour markets and education taxes

This report from UK think tank the Adam Smith Institute looks at tuition tensions between labour markets and education taxes.

Author Maxwell Marlow has looked at the evidence on what happens when people experience a similar wealth gain, for example when they inherit money, or win the lottery. This backs up the ASI’s concern that parents experiencing a similar ‘windfall gain’ will reconsider how much they need to work.

Based on evidence, the ASI looked at what would happen if 40% of the money that parents earn, or the hours they worked, specifically to pay for the school fees was taken as leisure. It found that this unintended consequence alone could cost the Treasury between £360 million and £1.81 billion, depending on how many children migrate to state school.

The ASI has built on its original report on the consequences of charging VAT on private schools, which found that the policy could make no money at all, or even cost money, overwhelm state schools, and harm underprivileged children. If parents decide to work fewer hours then, combined with the other unintended consequences outlined in the ASI’s original report, this could mean that, in the IFS’ highly optimistic scenario in which 5% of children leave their private schools, it could raise a net £0.84 billion. If 10% leave, it could raise no money at all. If 25% leave, then it could cost as much as £2.51 billion.