It is expected that from January parents will pay 20% VAT on fees for day school and boarding children. This, combined with the even greater cumulative effects of inflation, could see costs rise from £392,000 for a boarding pupil leaving for university this year to around £695,000 for a child starting the same journey from prep school to A-levels today.
The parents of a day school student leaving this year will have paid over £194,000 – set to soar to more than £350,000. And these are average fees; some schools will charge much more.
The numbers assume inflation at 2% and that schools charge VAT at 20% on all fees without discounting them.
Oliver Barnett, Head of Private Clients at Weatherbys Private Bank, said: “It’s hard at this stage to know the full effect of the VAT rise. Schools will be able to reclaim VAT on some of their expenses and may be able to pass some of these savings on through fees. However, to counter that we have been modest in our assumptions on inflation. Historically over the long-term schools have increased fees by 1.4 times inflation and, as we have learned in the past couple of years, you cannot assume that inflation is tamed.
“Inflation, not VAT, is responsible for the bigger part of these cost hikes. If inflation averaged 5% instead of 2%, for instance, it would add around a further £200,000 to the bill for boarding school pupils.”
Barnett added: “These numbers may cause many parents to gulp. The lesson here is to be really clear on the updated, likely cost of private education and plan accordingly. In many cases private education is possible with the help of grandparents, but often they are basing their assumptions on figures that are out of date. Families need to look at these numbers together, do some cashflow forecasting with their adviser and work out their plans appropriately.
“The other lesson in these numbers is that if you are putting aside a lump sum towards these costs you should be considering the need to inflation protect those savings.”
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