Government must put right injustice of colleges having no VAT relief – leaders

The Government should put right the “injustices” of colleges having to pay VAT to ensure further education students no longer have fewer resources, sector leaders have urged.

Plans to remove the VAT exemption for private schools shows it is “possible” to make changes to the rules, according to a letter to the Chancellor from the Association of Colleges (AoC).

It said colleges spend an estimated £210 million a year on VAT – 3% of income – that they cannot reclaim, which is “a tax” on further education (FE) students.

“The result is that college students have fewer resources spent on them than their peers in schools,” leaders have said.

The letter to Rachel Reeves, signed by around 172 college leaders, has called for the autumn budget to offer colleges the VAT reimbursement that state schools and academies benefit from.

The Government plans to remove the VAT exemption and business rates relief for private schools from January to enable funding for 6,500 new teachers in state schools.

The letter to the Chancellor also called for more investment in the FE sector to ensure colleges can deliver the extra space and equipment needed for a growing cohort of 16-year-olds.

It added that FE colleges are unable to give lecturers a pay rise on par with state school teachers due to a lack of funding from the Government, which is making it harder to recruit staff in key skills shortage sectors – including construction, engineering and health and social care.

The letter said: “Without the lecturers, skill shortages will remain, making it unlikely that the government will be able to fully deliver a number of manifesto commitments, including the 1.5 million new homes, the transition to net zero, a reformed NHS and the productivity gains needed to secure strong economic growth.”

“Without equality of pay between FE and schools and FE and industry, colleges will continue to struggle to recruit and retain the staff they need, and without in-year growth and capital funding colleges won’t be able to meet the population demand.”

He added: “We recognise the tight fiscal environment the Government is operating in. However, in the upcoming autumn budget, the Chancellor has a very real opportunity to inject £210 million directly into colleges through changes to VAT rules and show commitment to the FE sector and the government’s own missions.

“Imposing VAT on independent schools will bring in £1.5 billion, so the time to right this wrong is now.”

Sam Parrett, group principal and chief executive of London South East Colleges, said: “The decision to grant the FE sector a VAT exemption is long-overdue and very much needed.

“For our college alone, this exemption would have been worth around £3 million last year – funds that would enable us to continue investing in our estate and capital programmes. This is essential as we strive to ensure our high-quality provision can meet local, regional and national skills needs and support people of all ages into successful careers.

Andrew Green, chief executive of Chichester College Group, said: “Year on year, colleges are finding it harder to fill vacancies in teaching roles and at Chichester College Group, we are no different. The decision to award school teaching staff a 5.5% pay award, without making funding available to colleges to do the same, has made that worse.

“That means the country will stall in its bid for growth, as there will be no staff to deliver the skills training that our economy so desperately needs. Without lecturers, skills shortages will deepen, and our young people, adults and apprenticeships will suffer. It really is that simple.”

A Government spokesperson said: “We recognise the vital role that FE teachers and providers play in empowering learners to seize opportunity and drive growth, which is why we are investing over £600 million in further education over the next two financial years.

“Decisions on future funding for further education will be taken as part of the spending review.”