Exclusive:The inside story of how VAT is causing 'panic' at Scottish councils and private schools
The e-mail parents had been dreading finally dropped into their inboxes on Monday.
There it was, in black and white - confirmation they would be asked to foot the full 20 per cent VAT charge on their school fees, from January.
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Hide AdThe message sent to the families of pupils at Lomond School in Helensburgh was undoubtedly unwelcome. But it could hardly have come as a surprise.


After all, the school had launched a major fundraising appeal earlier this year, following the collapse of a plan to join a “major UK-based schools group”.
The deal was ditched, apparently, as a result of uncertainty caused by Labour’s commitment to introducing VAT on school fees.
Parents, meanwhile, had already been noticing changes that suggested all was not well financially.
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Hide AdNew charges were introduced for participation in sailing, which is part of the curriculum at Lomond, and helped to pave the way for two former pupils to compete in the sport at the Tokyo Olympics.
Then, in September, the local newspaper reported the future of Lomond was “in balance”, after it posted a £1.2 million deficit in its delayed accounts. Worryingly, the documents also confirmed the school had “no free reserves”, and there was a doubt over its ability to continue as a going concern.
Loans were taken out and a restructuring strategy implemented.
But after the email dropped into their inboxes on Monday, one parent of a pupil at Lomond reported that more than 30 families immediately gave notice their children would be leaving. They said this was followed by “panic at base”, with subsequent communications promising no further fee rises.
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Hide AdThe school has denied that any parents gave notice of their intention to withdraw their children in the aftermath of the communications, however.
Claire Chisholm, Lomond School principal, said: “In line with many other independent schools, Lomond School currently lacks the capacity to absorb the additional VAT costs, which means that - as things stand at the moment - this government-imposed tax will be levied from January 2025.
“However, our financial forecasting has enabled us to assure our current and prospective parents that there will be no further increases in either day or boarding fees for the 2025/26 school year, a decision that has been positively received by our existing parents.”
For Lomond, and many independent schools, the ending of the VAT exemption on school fees could not be coming at a worse time. Indeed, it has already been blamed, in part at least, for the closures of Cedars School in Greenock and Kilgraston in Perthshire.
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Hide AdPrivate schools in Scotland do not operate to make profits, but they aim for a surplus each year to reinvest in their school and bursaries for pupil. However, an investigation by The Scotsman has found the majority of them were in the red in their last published accounts, for 2022/23.
This has been caused by a variety of sometimes interlinked factors, including a fall in pupil numbers for some schools, the disruption of the Covid pandemic, higher salaries for teachers, and rocketing inflation and pension costs.
The prestigious Edinburgh Academy recorded a deficit of £3.3m in its last published accounts, despite an 8 per cent fee rise that year. It did, however, have assets worth £22.5m.


St Aloysius' College in Glasgow, Scotland's only Catholic Jesuit school, had a deficit of £1.7m, while the High School of Glasgow lost just more than £1m in 2022/23.
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Hide AdThe Edinburgh Merchant Company Education Board, meanwhile, is responsible for the Mary Erskine School, Stewart’s Melville College, their junior schools, and George Watson’s College, which between them educate more than 5,000 pupils in Scotland’s capital.
They had an income of almost £77m in 2022/23, but spent £330,000 more than they generated, despite a rise in fees of 8.1 per cent at George Watson’s and of 4.8 per cent at the Erskine Stewart’s Melville schools.
It was announced last month the Mary Erskine School and Stewart’s Melville College would merge to try to avoid further substantial fee rises, triggering a backlash from some parents and pupils.
Many other high-profile names also posted deficits of between £300,000 and £600,000 in their last published accounts, including Loretto School in Musselburgh, as well as Fettes College, St George’s and Cargilfield in Edinburgh, the Glasgow Academy, Morrison’s Academy, Strathallan School, Wellington School and St Margaret’s School for Girls.
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Hide AdSome of them are sitting on substantial reserves, worth more than £15m in the case of Fettes and £9.6m at Loretto, although much of that is tied to the value of their land and buildings.
Glenalmond College recorded a deficit of £54,000 in 2022/23, the High School of Dundee lost £98,000, Kelvinside Academy’s deficit was £186,000, Lathallan School’s was £47,000, St Columba’s was more than £300,000, and the loss at St Leonards was £281,000.
Ardvreck School posted a deficit of £621,000, Craigclowan School’s was £211,000, and the Edinburgh Steiner School lost £79,000.
Fernhill School and Ardfern School both have overdue accounts, according to Companies House.
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Hide AdLorraine Davidson, chief executive of the Scottish Council of Independent Schools, said: “We have consistently pointed out that the operating environment for our schools has been challenging for some time, and that this is the worst possible time to be moving to implement a 20 per cent tax on children’s education.
“Detailed financial evidence was shared with the UK government to demonstrate the flaws in the policy and the assumption that schools could merely absorb VAT.”
However, she added: “Deficit levels don’t provide the full picture of a charity’s financial health. Our schools have undertaken robust financial planning to reduce overheads, and ensure they continue to provide an excellent education for young people.”
In recent weeks, parents across the country have been finding out how much their fees will rise as a result of the VAT change in January. The Office for Budget Responsibility (OBR) has predicted that on average, parents will be asked to foot two-thirds of the tax bill.
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Hide AdWhen she confirmed the ending of the VAT exemption in her first Budget last month, Chancellor Rachel Reeves said she was doing it for the 94 per cent of children in the UK who attend state schools, to “provide the highest quality of support and teaching that they deserve”, by reinvesting the £1.6 billion a year it will raise.
However, the OBR said the “main uncertainty” with the policy was the way it would impact state schools, in terms of the number of families who will move their children to council-run secondaries and primaries as a result of higher fees.
And while the change has left schools and families facing uncertain times, it is now emerging that it is also causing alarm at some local authorities, despite what they may have said publicly in the recent past.
One week before the UK election on July 4, Perth and Kinross Council was among several local authorities to play down the impact of the VAT change on state schools. It said it had seen “no evidence of an increase in demand for places in our schools from parents or guardians whose children are currently in private schools”.
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Hide AdDocuments released under Freedom of Information (FOI) laws now show, however, the education director at Perth and Kinross Council, Sheena Devlin, wrote to colleagues raising concerns just a few weeks later.
On August 22, she said: “With the closure of Kilgraston and the forthcoming introduction of VAT on fees for independent schools from January 2025, there could well be some pinch points in some of our schools should there be lots of enrolment and placing requests for our schools from the independent sector.”
Ms Devlin said that in the “worst-case scenario” about 400 pupils would be trying to move to state schools in the area. She added: “If lots of pupils make the shift in January rather than the start of a school year, we will have real challenges with placing requests.”
In neighbouring Dundee City, emails show officials initially said of the VAT issue: “We haven’t discussed or even considered it, but I’m thinking we should!”
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Hide AdThen, one staff member reported having an inquiry from a family seeking to move their child to a state school.
The unnamed employee said: “I suppose we are in the dark and I’m concerned that there could be big numbers potentially going to change, and could be all in one area.”
In August, a meeting was held to consider the issue involving officials from the local authorities for Edinburgh City, Aberdeen City, East Dunbartonshire, East Renfrewshire, Glasgow City, as well as the Scottish Government.
A minute shows “it was noted by several colleagues that the potential impact on pupil movement could be more acute at secondary, especially noting pressures at S4”.
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Hide AdThe document added: “There are areas of particular pressure within each LA [local authority]. It was noted that there remains capacity in LAs to accommodate incoming pupils. However, this will not necessarily align with the stage of the pupil or schools receiving the placing requests.”
A further meeting was held last month involving the councils that expect to be impacted, and the Scottish Government.
Minutes obtained by The Scotsman show they discussed how “some areas are reviewing their admissions policies”, and that there was “a real concern” about the cost of transporting pupils who are unable to be placed in nearby schools, close to their homes.
Disruption to studies is another issue causing “difficulties”, with pupils in the middle of courses not necessarily always able to sit the same subjects at new schools.
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Hide AdOne parent described the “awful situation” they are facing, as they prepare to move their 15-year-old son, currently sitting GCSEs at a private school.
“We have been looking at the possibilities of moving to our local state school in April,” they said. “Having contacted the local school, the information given to us is that to move him at this time in his education is not something that they would recommend or could help with.
“The reasoning being that due to the difference in the curriculums he would not be able to take the National 5s as these take place in May, with the students being on study leave from spring holidays, resulting in no lessons.
“It was also pointed out that if he moved in August, there would be difficulties due to the Higher level teaching having started in June when he would be doing his GCSEs.”
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Hide AdResponding to the revelations in the council FOI responses, Ms Davidson said: “We have said for months that it is meaningless to claim there is capacity in the state system when the capacity is not in the areas where it is needed, and when many of our local authority secondary state schools have no places available.
“This has led to the ludicrous situation of taxpayers picking up the cost of ferrying children, displaced from the independent sector, in taxis to state schools many miles from where they live.”
Last week, Edinburgh City Council said it had 150 enquiries from parents of private school pupils about places in its schools between June and early September. Now, Perth and Kinross Council has revealed it has received 17 actual applications.
It is a long way short of the 6,000 pupils that some fear could flood under-pressure state schools, but the figures show the policy is starting to have an impact.
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Hide AdA spokesperson for Perth and Kinross Council said: “As schools are staffed and classes configured for a whole school year, some schools may have classes operating close to capacity.
“Increased levels of registrations or placing requests for any schools or classes running near capacity could prevent admission for pupils.
“In this type of situation, the council’s admission policy would apply and a space in an alternative school would be offered where any pupil could not be accommodated in their catchment school.
“Parents also have the right to make a placing request for another school if their child[ren] cannot be accommodated in their first choice of school.”
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Hide AdThe UK Treasury has said: “We want to ensure all children have the best chance in life to succeed. Ending tax breaks on private schools will help to raise the revenue needed to fund our education priorities for next year, such as recruiting 6,500 new teachers.”
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