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Spring Budget tax cuts must include VAT on FE colleges

David Hughes
February 20, 2024

In what many commentators expect to be a tax-cutting budget, there’s one we are pressing for in March: a VAT cut on further education colleges to allow them to spend more money supporting their students.

Colleges educate and train over half of all 16 to 18-year-olds and yet, unlike schools, they pay VAT of about £200m per year on the funding they receive. No policy maker or politician would openly advocate for this because it is not fair on the students, but for years we have failed to persuade successive Chancellors that it needs to change.

Before Brexit we were told that it couldn’t change due to membership of the EU. Then Brexit happened and we were told that it was because colleges were deemed to be private sector organisations. Then when colleges were designated by the Office for National Statistics (ONS) as public sector organisations in December 2022, we were told that there is no automatic VAT reimbursement for public sector organisations, even though every school benefits from it.

It feels like we keep getting fobbed off and that the real reason is they would rather spend £200m somewhere else and hope that it goes unnoticed.

This year the case to remove the VAT is stronger than ever, given the announcement on the Advanced British Standard (ABS). The Prime Minister has realised that our young people receive far fewer hours per week of contact time than their peers in other OECD countries, and that FE students receive far fewer hours, less funding, a narrower curriculum and less enrichment than their younger peers in 11 to 16 education.

These realisations are at the heart of the new ABS, which is due to replace A Levels, T Levels and the other qualifications that young people take in this pivotal stage of their education and indeed their lives.

This year the case to remove the VAT is stronger than ever, given the announcement on the Advanced British Standard Quote

I’ve written to the Prime Minister asking him to back up his commitment to the ABS with this tax cut. I’ve also asked for an extension of the tuition funding started as a result of Covid disruptions and a plan to close the £9,000 pay gap between college lecturers and school teachers. Those three actions would be great first steps on the 10-year journey to the full roll-out of the ABS and would show that he means business.

The tuition fund is working for colleges, and students are getting the extra support they need to progress and achieve, but the funding is due to end this summer, even though the need is as strong as it ever was. We believe that this sort of support for those young people struggling most with their learning will be a vital part of the new ABS if it is to overcome the inequalities that we see throughout education and realise the talents of all of our young people.

On the pay gap with schools, we made progress last year when the Education Secretary fought hard to win colleges the funding they needed to match the school teacher pay award, but there is no plan for this year and beyond. If the PM and the Education Secretary are serious about a high quality, broader, bigger education offer for every young person which incorporates the best of A Levels and T Levels then we will need more college lecturers. The problem is that the pay is just not good enough to guarantee that will happen: the sooner the pay gap starts to close the easier it will be to eradicate all together.

Sadly, the only discussion and media coverage I hear on VAT is about the plans to impose it on private schools. It’s so telling that there are reports of outrage at the thought of this, but nothing reported on behalf of college students. It’s even more telling given that the private school pupils by definition come mainly from the higher socio-economic groups and colleges cater disproportionately for young people from the lower socio-economic groups.

If this government wants to show it cares about everyone in society, they should address our asks in the budget and start to put right the longstanding underinvestment in colleges and in their students. Acting on VAT, tuition funding and pay would show a government that is listening and willing to back up its own stated policies with the investment needed.

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David Hughes is the Chief Executive of the Association of Colleges.

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