Charity Schools in Wales Face Tax Increases: A Bold Move or a Misstep?

Starting from April, fee-charging schools in Wales that are run by charities will experience a significant increase in business rates as the Welsh government plans to withdraw the existing 80% relief. This move aligns Welsh regulations with those already implemented in Scotland and upcoming changes in England. The government asserts that this change will generate around £1.3 million annually, which is intended to bolster local public services.

Currently, 17 independent schools in Wales benefit from this charitable rate relief out of the 83 registered independent schools. The government’s rationale for this decision is to ensure parity between schools with and without charitable status, effectively pulling charity-run schools into the same tax framework as their non-charity counterparts.

In conjunction with these changes, schools are already grappling with the implications of recent VAT additions to their fees that began in January 2023, further straining financial resources. The Welsh Independent Schools Council (WISC) has expressed concerns regarding the sustainability of many institutions in light of these increased financial pressures, indicating that many schools may not withstand a five-fold increase in non-domestic rates.

The council warns that the overall effect of such increases could lead to a ‘net loss’ for taxpayers when factoring in potential student migration to state schools and possible school closures. The average financial relief that schools stand to lose is estimated to be around £75,000, which is roughly equivalent to the fee income generated from seven non-boarding pupils, demonstrating a significant blow to their financial health.

Should the proposal pass through the Senedd, the new rate structure will take effect on April 1. Mark Drakeford, Finance Secretary, defends this initiative, asserting that it aligns the treatment of independent schools in Wales with those lacking charitable status, all while stressing the importance of redirecting funds to local services.

In opposition, Natasha Asghar, the Welsh Conservative shadow education secretary, criticizes the Labour government’s approach, deeming the tax hikes on independent schools as excessively burdensome, citing an accumulation of tax increases that could jeopardize the future of charity-run institutions.