The Conservatives have betrayed private schools on tax

The idea that people’s hard-earned money should be siphoned off has set in. Where does it stop?

What started as a levy on “windfall” profits is fast turning into a 20pc jump in school fees for parents who send their child to Manchester Grammar.

The link between windfall taxes and calls to add VAT to private school fees is not immediately obvious but it must be understood if we are to avoid straying into dangerous economic and philosophical territory.

The idea of tacking VAT onto private school fees has been floating around for years, promoted not just by the Labour party but even by former Tory education secretary Michael Gove.

Describing “Eton Rifles” as “welfare junkies” in The Times five years ago, the now-levelling Up Secretary insisted that leaving VAT off the bill was a tax advantage for the super wealthy and one that should come to an end.

That article has been extensively quoted by Sir Keir Starmer this week as Labour ramps up its attack on the Tory party over private school fees. It’s easy politics as far as Sir Keir is concerned.

Rishi Sunak comes from a privileged educational background – something the Prime Minister has never denied. Indeed, his praise for his parents during the leadership election for making sure he had those opportunities was chalked up as one of his most powerful moments on the campaign trail.

Accusations of hypocrisy can also be levelled at Labour MPS who promote one kind of education for other people’s children and then privately pursue another for their own.

But there’s a deeper economic issue here. As I wrote in these pages several weeks ago, the Liz Truss implosion created just as big of a problem for Labour as it has for the Tories. The idea of borrowing your way to tax cuts – or spending hikes – was shut down by global markets.

Labour is acutely aware of this. In public, they talk about “costed” policies. In private, select MPS acknowledge that the closer they get to power, the bigger an economic problem they have on their hands: if they want to be more generous than the Tories on public spending, pay settlements and the like, they have to find billions more.

There is no money left to discover down the back of the couch. The era of cheap money has come to an end and the era of money-grabbing has begun.

Workers and wealth holders will increasingly be viewed as walking pound symbols to politicians who desperately need to find cash somewhere to fund their policies.

Just look at the language that Sir Keir is now using to make the case for VAT on private school fees: he claims the Government decided to “hand” Sunak’s secondary school “nearly £6m of taxpayers money this year”.

Of course, no such transfer has occurred. What Sir Keir means is that Winchester College could have been taxed by an additional £6m had VAT been applied to school fees.

But these days, not taxing a person or business is framed as a giveaway. This idea was applied to BP’S profits through a windfall tax and Labour now wants it to apply to fee-paying schools with VAT – where there are signs of big spenders, tax them more; where there are signs of big profits, go and grab them. This is where the arguments for VAT on school fees and windfall taxes overlap.

There are plenty of practical problems with excess profit grabs. Issues include big questions around how much these taxes will actually raise for the Treasury’s coffers and the growing risk that companies will divert investment elsewhere, something that is already happening with businesses like Total.

But the biggest risk of a Tory government ushering in a windfall tax was always the principles. Surprise money grabs imply that a person or company’s money is not their own: it all belongs to the state, and politicians can collect it any time they think you’ve done a bit too well, or indeed when their own purses are looking empty.

That reasoning was never going to stay confined to an energy windfall tax with an ever-delayed sunset clause. It was always going to be capitalised on by the economic Left, who are not shy about calling for more and more taxes on the wealthy.

Of course, more often than not, those who are not super-rich will get rinsed too – like the people compromising on lots of life’s treats to just about pay for school fees.

As we saw in Jeremy Hunt’s Autumn Statement last month, the more the Government needs to find cash fast, the further the threshold falls for people to be considered well off. A graduate earning £51,000 a year, who is also tied into student loan repayments, now has a marginal tax rate of 51pc. It is not obvious any politician meant for this to be the case, but it is the consequence of rather flippantly treating taxpayer money with such a cavalier attitude.

Do not expect this cash grab logic to stop at VAT. Pressure will only grow for more funding for a collapsing health service, while a broad range of sectors simultaneously demand higher pay. We are not just entering into a “winter of discontent’’, but a rather long recession and a period of sustained high inflation in the first half of next year (at least).

Regardless of what the Tories or Labour decide they want to prioritise, it’s hard to imagine more funding promises won’t follow. And it is becoming increasingly clear how they will find the money: by claiming someone’s hard-earned cash never belonged to them in the first place.

No doubt the Tories will come to regret their role in unleashing this political attitude with supposedly short-term windfall taxes. As the VAT debate on private school fees shows, the economic narrative is already out of their control.