8. VAT should be removed from publicly funded sixth form education

Recommendation 8

On the day we leave the EU, VAT should be removed from publicly funded sixth form education, and a new English Social Fund should be introduced.

Compared to some sectors, colleges are less affected by the plan to leave the EU because education and training are handled mainly at national government level and because colleges cater pre-dominantly for people who live and their work in their localities. There are nevertheless, two areas where decisions could and should be taken as part of a Brexit plan for further education:

VAT is a poorly applied tax in education because it discriminates between different categories of 16 to 18 institution for no good reason. The ability of the UK Government to act has been constrained by the sixth VAT directive which regulates education exemptions. Under existing rules, colleges, unlike schools and academies, are required to pay VAT on their purchases. VAT consumes about 3% of college income, acts as a disincentive to outsourcing and means that HMRC is subsidising less efficient school sixth forms. The decision to allow sixth form colleges to convert to become 16-19 academies is unattractive for most[1] and does nothing for students in FE colleges (40% of the age group). Bringing FE and sixth form college corporations into the VAT refund scheme for their publicly funded 16 to 18 education courses would be a sensible improvement to the system.

Exit from the EU is likely to end the European Social Fund (ESF) which has been used by colleges over the last two decades to help retrain and improve the skills of hundreds of thousands of people. Over the last five years, colleges have received between £50 and £100 million a year in ESF income and £18 million in direct European grants. This represents 1% to 2% of total income and is very important to colleges in more economically disadvantaged parts of the country. The money is concentrated in a small number of colleges – some of whom are currently quite financially weak. Brexit provides an opportunity for new approaches to European funds, but the focus on areas with high unemployment and low productivity must not be lost. We believe it would be sensible to devise a new English Social Fund with existing funding levels, less bureaucracy and action to help people get into work and deal with economic change.

There are no national statistics on the number of EU workers in colleges and although the total appears to be relatively low, the uncertainty about their future status and the possibility of future immigration controls on EU27 countries is a threat – particularly if the Home Office transfers income thresholds that apply to non EU workers. The Government should consider visa arrangements that prioritise key teaching roles.

 

[1]The restrictive financial framework in place for academies means that sixth form colleges are being asked to give up income generation opportunities and decision-making flexibility when they convert. In accounting terms conversion is a form of nationalization.