Basic Economics in Education
Blog: Blog - Adam Smith Institute
Education, not unlike all sectors of industry, benefits from a free market understanding. The competition that arises from private and public schools is one that creates a more innovative and sensible product, that being students.The value added tax (VAT) on private schools is another of many regulations attempting to downplay this competition. Christine Maxwell does not see it in this way listing three reasons she disagrees with those against the VAT on private schools through the lens of a proposed secondary option of giving free places to low-income students in independent schools in avoidance of paying the tax:1. State schools will still need to exist, albeit with fewer pupils. This would result in budget cuts for them as their income is directly linked to the number of pupils on their rolls. In order to run effectively, they would have to cut staff, or the state would have to increase the amount paid per pupil.2. Most independent schools select their intake. Independent schools that claim to act charitably when educating, at a discount, children from poorer families are more likely to take pupils with special education needs and disabilities or behavioural problems. Indeed, this is demonstrated in the statistics.3. There is a benefit for all students, no matter their background, character, or make-up.I do not believe that anyone is arguing for the dissolution of state schools, however, the line of thinking which is used in the first argument is incorrect. As highlighted in the ASI's paper Short-Term Thinking: Analysing the Effect of Applying VAT to School Fees, the tax would not only generate no net revenue, resulting in no net change to the funding for state school staff, but further resulting in a greater competition for preferred state schools. Christine Maxwell likens the absence of a VAT to pauperisation, instead it drives competition leading to a more efficient and productive market for everyone. With the VAT exemption, independent institutions may poach some pupils from state schools, leading to less state school funding, however this funding should correlate efficiently with the cost to the school for each student. Even if staff cuts happen, there should be an inverse need for staff at independent schools, resulting in no net market change.While the second argument, that independent schools take only more able students (which is not true) is an issue which is not facilitated by some ableist form of thinking, rather, it stems from a lack of resources for students with special education needs and disabilities in state schools. While one cannot argue that the resources in which these pupils need is necessary, the competition that arises between the different types of schools, benefits students by offering a school that best fits their needs, which may be the independent school. Furthermore, fairness is something difficult to discuss, through its apparent subjectivity, but looking through an economic framework there is still no net social benefit. When a tax such as the VAT is applied to only part of the independent sector, not to mention favouring the tax-funded supplier in state schools, it further distorts competition harming the little competition that the state has. Finally, the last argument, which I believe to be true, goes both ways. In the same sense that there is a benefit for all students when there are more affluent families and more able pupils in the mix, one must also argue that there is an equal, or possibly greater, benefit to the inclusion of low-income students to independent schools.Stick with Harris and keep the VAT off private schools.