In June 2025, Fettes College, one of Scotland’s most esteemed private schools, announced a potential reduction in staff numbers. At the heart of this decision is the Labour government’s removal of the VAT exemption on private school fees.
Effective 1 January 2025, a 20 percent VAT charge began applying to all school fee payments, levelling up costs and straining school budgets. Fettes, whose annual fees can reach £54,000 for boarders, admits the new VAT and concurrent rise in employer National Insurance have significantly increased its financial burden.
As a result, the school opened a consultation in May aimed at “right‑sizing” its workforce, a move that may unfortunately lead to redundancies. This development not only reflects Fettes’ internal financial stress but also signals deeper implications for elite independent education across Scotland and the wider UK.
VAT Policy Shift Hits Independent Schools
The Labour government abolished the VAT exemption on private school fees as part of an agenda to fund public education, including hiring 6,500 state school teachers by 2029–30.
Long exempt since 2021’s manifesto pledge, private schools are now required to charge VAT on term-time payments post January 2025. This marks a sharp policy turn with significant budgetary implications. Schools that once managed without VAT must now incorporate this additional 20 percent cost, directly passed on to parents or absorbed through budget cuts.
Fettes College Under Financial Duress
Fettes College currently educates around 751 pupils, down from 780 in the previous year. Its income stands at £24.2 million, while expenses reach £26.2 million, revealing a £2 million shortfall.
With 125 teaching staff and 210 operational employees, the school’s total payroll of £15.4 million is heavy against dwindling revenue. As described by a school spokesperson, “Various factors have conspired to increase costs … particularly with the recent imposition of VAT on school fees and rise in National Insurance contributions”. The consultation launched in May aims to “right‑size our staffing model”, albeit with the risk of redundancy
Economic and Community Ramifications
Fettes’ case exemplifies a broader struggle felt across Scotland’s independent-sector, where additional VAT obligations and increasing NI levies are prompting urgency about employment cuts and financial viability.
Lisa Kerr, principal of George Watson’s College, notes that her institution contributed £44.7 million and 680 jobs to Scotland’s economy, and laments that VAT changes threaten such community impact. Beyond losing jobs, Fettes and similar schools may face shrinking student numbers, fewer bursaries, and squeezed facilities as they trim expenditure to survive
Wider Sector Impacts
Earlier this year, data indicated roughly 13,000 pupils departed private schools, a figure far exceeding official predictions.
Schools across the UK have shut down, including 77 independent and specialist institutions in England since 2023, and closures like Kilgraston and Cedars in Scotland have underscored the trend. Smaller, specialist independent schools, particularly those offering SEN or niche curricula, face acute vulnerability, unable to absorb VAT increases or navigate reduced enrolments
Labour’s Revenue Ziel and Funding Rationale
Labour’s rationale centres on generating up to £1.5 billion annually from VAT and other tax changes to bolster the state education system.
Alongside VAT, ending charitable/business rates relief from April 2025 enhances projected returns, with around £1.8 billion expected by 2029–30. However, critics argue this may backfire, forcing state schools to absorb additional students without proportional funding increases
Voices from the Field
A Fettes spokesperson emphasised the challenge: “These headwinds ... are having an impact on our costs and numbers, and we are obliged to run our operations as efficiently as possible,” noting the difficulty of the decision.
Lisa Kerr accused policymakers of ideological targeting, emphasising that private schools contribute significantly to local economic activity, benefits unseen in political rhetoric. Supporters of the policy say it’s a long-overdue step to fund the wider education system and erase privilege, while detractors warn it risks weakening both private and public sectors by shifting the burden .
Conclusion
Fettes College’s planned job cuts highlight a growing fight for survival in Scotland’s private education sector. Beyond affected staff and students, the ripple effects threaten wider community support, bursary capacity, and public-sector finances.
While VAT revenue is earmarked to strengthen state education, the policy may produce unintended strain, rising class sizes, budget reallocations, and uneven institutional resilience. The unfolding situation calls for careful policy recalibration, ensuring equity without compromising education quality at either end of the spectrum.
