Scrap the public benefit test and abolish all taxes on education

The current controversy surrounding independent schools and their charitable status is becoming increasingly absurd. First, the public benefit test is a pointless exercise because it should be clear to any right minded person that a school will benefit the public simply by being a school and educating children. After all, the public benefit associated with schooling was one of the key reasons used to justify government subsidies in education in the first place. Furthermore, if all independent schools are not automatically assumed to provide a public benefit then this must also apply to all state schools serving middle and high income families. One could even claim that some independent schools provide a much greater public benefit than many failing inner-city state comprehensives, where a high percentage of students graduate with few qualifications and subsequently become dependent on government handouts.

Second, the suggestion that the charitable and tax free status enjoyed by independent schools is the same or equivalent to receiving a public subsidy is simply incorrect. A public subsidy involves the government taking money from some people and giving it to others – a transfer of resources from A to B. Some people therefore benefit at the expense of others. However, in the case of independent schools there is no transfer of income and so nobody is worse off. A public subsidy can’t just appear out of thin air, as if by magic. Instead, in this case the government is simply respecting the right and freedom of people to set up their own schools outside of government control and without arbitrary government interference. The tax-free status is also based on an understanding that to introduce a tax on any kind of school will be counterproductive as it will discourage private investment in the sector and also result in the transfer of resources out of education into less important sectors of the economy. While those receiving the new public subsidy may now be better off, it is also important to recognise that the school being taxed will now be much worse off. In short, a tax on schooling is likely to cause much more harm than good. This begs the following questions: why would any government would want to introduce any kind of tax on any kind of school? If a tax acts as a disincentive why would any government want to discourage private investment in education? Also, why is the government intent on transferring resources out of education and what does the government intend to use these tax revenues for? What could possibly be more important than children’s education and is there not a less damaging way of raising such revenue?

The solution to this embarrassing charade is simple. First, scrap the public benefit test which represents an insult to all independent schools, which incidentally were providing a public benefit for hundreds of years prior to the existence of state schools. We should also never forget that thousands of these schools would still be providing a public benefit if they hadn’t been unfairly forced out of business by the introduction of free government schools. Second, abolish the link between organisational form and tax status (for further details see ‘For Profit Charities in Education’). The debate about independent schools and their charitable status will then become irrelevant. All schools should be tax free, whatever their legal structure.

To be fair, a tax break IS a kind of subsidy, but then again, private schools don't get 5,000 quid and upwards per pupil towards expenses, which is a huge negative subsidy and completely outweighs the value of the charity tax break (about 125 quid per pupil). Click my name for the post on my own blog from last week. As ever, best thing is just scrap ALL taxes on incomes and output, tax land values and dish out the proceeds as a Citizen's Income or Education Vouchers.
A tax expenditure is a subsidy, In the UK tax expenditures account for 13 percent of GDP causing massive distortions in consumption and investment decision making. Tax expenditures for those 180,000 bodies that have obtained charitable status run into the billions of pounds (Treasury is not able to provide an accurate estimate of the exact costs) and provide a mechanism a mile wide to avoid (and evade) taxation. The way forward for education is to broaden the model allowing more private sector provision, wider choice and a broader range of edcuation objectives which match the needs and wants of consumers; investment in education should be driven by its profitability relative to other forms of investment and not by favourable tax treatments. In an ideal world where businesses face low rates of corporate taxation I see no reason why schools established under charitable status should not be taxed in the same way as their competitors.

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