House of Commons · Westminster Hall
17 May 2023 · 7 other contributors · 7,846 words
Opened by George Eustice Con Camborne and Redruth
Responding minister: Victoria Atkins
Summarised by AI from the official record, so it can contain mistakes.
George Eustice raised concerns about public bodies and vat in Westminster Hall. A government minister responded.
Key points
Key requests to Government
I invite the Minister to commit to introducing a statutory instrument under section 33 of the Value Added Tax Act 1994 to ensure fair treatment for FE colleges. This would provide a small but significant financial respite (estimated 2-4%) that could be used immediately to retain and recruit staff.
MPs spoke in turn to share their views and ask questions. Here's what each person said.
Opened the debate
FE colleges are treated unfairly under the Value Added Tax Act 1994 compared to other public bodies such as schools. This is particularly problematic for FE colleges as they struggle with higher costs due to practical skill courses like electrical engineering, bricklaying and construction which require hands-on teaching. The current tax rules prevent FE colleges from reclaiming VAT on their inputs, placing them at a disadvantage compared to schools.
The Labour party recognises the importance of further education colleges in training the future workforce. FE college funding fell by 27% in real terms between 2010 and 2019, leading to difficulties such as rising costs and staff recruitment challenges. The party supports adding further education colleges to the section 33 list under the Value Added Tax Act 1994 so they can reclaim VAT similarly to schools.
My right hon. Friend questioned whether we are discussing a free gift to FE colleges and highlighted the financial pressures on Colchester Institute, leading to staff redundancies and cost reductions in an environment of low academic pay.
The right hon. Gentleman highlighted the VAT trap, which has been used as a lever to academise institutions such as Hills Road Sixth Form College and Long Road Sixth Form College in Cambridge.
Douglas Chapman highlighted the issue of VAT impacting further education colleges in Scotland, drawing parallels with previous instances where emergency services faced similar challenges. He cited a £175 million cost to Scottish taxpayers over five years due to the lack of VAT exemptions for Police Scotland and Scottish fire and rescue services post-amalgamation. Chapman expressed hope that FE colleges would receive the same relief as emergency services enjoyed in England, noting the importance of supporting high-skill economies through further education.
Kevin Foster highlighted the impact of VAT on further education and sixth-form colleges, noting that 228 institutions were reclassified as public sector organisations in November 2022 but cannot reclaim VAT. He emphasised the significant consequences this has for student funding and skills training, particularly mentioning South Devon College's disadvantage compared to schools.
FE colleges in Cornwall, including the college with a campus in my constituency, are struggling due to higher costs of practical skill courses compared to universities. The unfair treatment under VAT rules affects their ability to recruit staff.
My right hon. Friend pointed out that Chelmsford College pays around half a million pounds annually in unrecoverable VAT, impacting its ability to pay staff comparably with local schools and academies, which is unfair for both the college and the young people it serves.
Government Response
Victoria AtkinsCelebrated the UK's rise in international education league tables, discussed government investments in further education including £300 million investment before end of previous financial year to eliminate funding deficit for FE colleges, provided an additional £150 million allocation of capital grant funding in current financial year. Explained VAT schemes for public bodies and mentioned cost of allowing FE colleges to join section 33 scheme at £200 million annually.