Parents pulling pupils from private schools could cost UK Treasury £1.8 billion

Report author said some parents could retire early, meaning a cut in the money they pay in tax

The Adam Smith Institute looked at what parents might do if VAT fees force them to take their children out of private school. PA

Parents who pull their children out of private education because of new VAT expenses could cost the UK treasury up to £1.8 billion ($2.4bn), a report has found.

The new Labour government is moving to introduce VAT on private school fees.

The Adam Smith Institute (ASI) looked at what parents might do if they take their children out of private school and how they could spend the money if it does not go on fees, potentially tens of thousands of pounds per pupil.

To help its calculations, the ASI examined what happens when people experience sudden wealth gain, such as an inheritance or lottery win.

Report author Maxwell Marlow said some parents could work fewer hours or retire early, meaning a cut in the money they pay in tax.

It found the “unintended consequence” of the new UK government policy could cost the treasury between £360 million and £1.81 billion.

“There is very little evidence on what will happen if the government imposes a tax on private education because most countries have never tried it,” said Mr Marlow, director of research at the institute.

“It is not possible to exactly predict how many children will leave, how many parents will reduce their working hours and to what extent, and what kind of impact it will have on state schools. That is exactly why it’s so risky.

“What evidence on people who have experienced other types of wealth gains tells us is that it is likely that parents will reconsider how much they want, and need, to work. ”

The government calculates its manifesto pledge to introduce VAT on school fees will raise £1.6 billion, part of which will be used to fund 6,500 teaching posts in state-run schools.

The VAT move is scheduled to begin on January 1 next year.

The government has taken measures to ensure wealthy parents do not evade VAT by paying school fees far in advance before the tax takes effect.