A right-wing case for taxing private schools: Sensible right-wingers should support Labour's plan to impose VAT on private schools.
Let’s start from the fact that Labour wants to “bash the rich”, and you’ll not convince them otherwise. The question therefore is whether to do this by taxing their incomes or taxing their spending. Yes, Labour will probably do both – but more of one should mean less of the other.
To the extent that VAT on school fees means lower top tax rates than would otherwise be the case, the right should welcome this. They believe that high top tax rates reduce the labour supply and increase tax-dodging – Laffer curves and all that. By contrast, the behavioural effect of VAT on private schools is small: the IFS has estimated a price elasticity of demand for them of only around -0.26. From the right’s point of view, therefore VAT is more likely to raise revenues and less likely to deter productive activity than higher top income taxes. In fact, it might even incentivize hard work, as parents will have to work harder to afford school fees.
Yes, the move would hurt hard-working families who are struggling to pay the fees. But income taxes hurt hard-workers too. The solution to this is to shift taxes onto land. But nobody wants to deny Englishmen their god-given right to get something for nothing by watching their house prices rise.
What's more, zero-rating school fees introduces a distortion into the tax system. It means these are cheaper relative to (say) cars or holidays than they’d be in a free market system. If you think the free market price system is a good signal of relative costs and benefits, you’ll want to remove this distortion.
Worse still, our current VAT operates as a form of protectionism. In making schools cheaper relative to BMWs than they’d be in a free market, it encourages consumers to shift their spending towards a domestic business. ...
This raises the question: what might be the justification for giving private schools a tax break? One argument would be that they have positive externalities. They take pupils out of the state sector and so reduce the cost of state education. And their top-quality education provides us with the great leaders who have made our politics, media and businesses who have made us the envy of the world.
But if you’re a free marketeer, you’ll see this as a dangerous slippery slope. Yes, private schools reduce the expense to the tax-payer. But equally, people who eat healthily reduce the burden on the NHS. So why not tax fatty and sugary foods more heavily that healthy ones? But free marketeers are opposed to the latter. By the same logic, however, they should oppose the tax break for private schools. We could go further. People who obey the law save tax-payers the expense of police and prisons. So why not give a tax break for things that help people stay out of trouble, such as games consoles that keep youngsters indoors rather than out on the streets?
Once you start seeing positive externalities in private schools, you’ll soon see them everywhere. That’s a licence to intervene everywhere.
Right-wingers, therefore, should welcome Corbyn’s plan. ... Being on the right doesn’t mean having to defend all privilege. Does it?