VAT and School Cost Control – How to reduce the staffing budget without impacting on quality.
VAT on School Fees
One of the greatest challenges facing independent schools is the prospect of a new Labour Government introducing VAT on school fees.
Few schools will be able to increase their fees by 20% without considerable fall-out. A proportion of parents will simply leave moving to cheaper schools, say by moving from boarding to day school or by moving into the maintained sector.
Independent Schools are exploring other ways to face this challenge, such as increasing other income streams by expanding into new markets: senior schools opening or acquiring preps schools; or by opening overseas franchises, but these are unlikely to be sufficient to raise sufficient additional funds to cover the VAT rise. Schools therefore need to look to reducing their costs. Given that staffing accounts for between 70 and 80% of a typical school’s costs, this is inevitably an area that needs exploring.
Reticence to reduce staffing costs:
In my experience, many schools have lived for some time with an inherent tension between the financial-operational side and the educationalists over the issue of staffing costs. The tension is structural:
Over the past decade Independent schools have appointed increasingly professional bursarial teams who bring to their roles significant experience from industry or the armed forces where the concepts of cost reduction and value for money are central.
Conversely, most headteachers come up through the academic and pastoral ranks without any training in business. Cost saving is not their natural habitat and most headteachers have become quite adept at resisting attempts to trim the staffing budget.
The result has been an impasse. That is all about to change. The VAT issue has been the ‘burning platform’ that is forcing schools to sharpen their pencils.
Minimising Impact
Independent schools rightly pride themselves on the quality of the education and the range of co-curricular activities that they provide. That quality and range of provision comes at a cost.
The challenge for schools is how to reduce the staffing budget without impacting on quality.
Schools need to be aware that any changes that they make have the potential to affect both parents and staff. Maintaining the confidence of both groups is vital. Any cuts therefore need to be at the margin. For example, removing the option to study German A-level is likely to have very little impact on whether or not a parent chooses the school, but it could have a significant cost saving.
Ways of reducing staffing costs:
At Steed Education we have identified some twenty ways to reduce staffing costs. Here is a sample:
Employ cheaper teachers: The school might adopt a policy of appointing the ‘best value’ candidate, rather than the ‘best’ candidate. Schools need to consider the total cost of employing candidates. A more experienced, married teacher with two children can be twice as expensive as a young less-experienced single teacher when the lower salary scale point, the discretionary school discount on places at the school and the higher housing allowance/ married accommodation are taken into consideration.
Employ cheaper “support teachers” or teaching assistants and sports coaches to perform tasks that are currently performed by fully qualified teachers. Insisting that a qualified Physics teacher takes a sports team or does a lunchtime or boarding house duty may not be the best use of a scarce resource.
Introduce/enforce strict viability criteria for GCSE and A-level subjects to be offered. Running a German GCSE or Music A-level class of 4 is not cost effective.
Reduce the number of GCSE and A-level options available. Schools continually add new subjects to the curriculum, but rarely take them out. There is a cost to offering ever greater choice.
Lower Sixth (Year 12) students only opt for 3 A-levels. Many independent schools like to follow the old AS pattern of students studying 4 A-level subjects in Year 12 dropping down to three at some point during the year. There are undoubtedly advantages to this in terms of giving students the opportunity to find the right subjects, but there is a significant staffing cost to offering this.
It is very unlikely that all twenty ways of reducing staffing costs will work in every school. Each senior team needs to make informed decisions about how it wants to allocate its staffing budget.
A school, for example, might decide that the cost allowing students to start four A-levels is fundamental to its academic provision and, ultimately, to its results. Thus, it is a cost worth paying.
One school might decide that the schoolmaster/ schoolmistress model of teachers interacting with students on the games field and doing boarding house duties is fundamental to the ethos of the school; another might be happy to have all of its games provision led by external coaches.
These are important debates for schools to have when considering how they are going to reduce the staffing budget.
Where to start
When a school embarks on the exercise of reviewing its levels of staffing, it is vital that the senior team has an accurate picture of the school. An insightful way to do this is to collect key operational data comparing the past five years:
At Steed Education we have identified 16 useful metrics, including the following:
Number of staff on each scale point
Average salary of the teaching staff (not including SLT)
% of Teaching staff with a responsibility allowance
% Teaching load of primary/ secondary teachers
% of classes at KS5 < 6 and >15* (*if 15 max A-level class size)
Collating these metrics before and throughout the period of transition will allow the SLT to track their progress in reducing staffing costs.
Time to prepare
The earliest that a Labour Government might enact the necessary legislation to impose VAT on school fees means that it is likely that the impact will not be felt until the academic year 2025-26. This means that schools have two years to prepare.
Steed Education is working with SLTs and Governing Bodies of UK independent schools facilitating internal discussions as to how they might reduce staffing costs over the coming years. If you would like further information, please do contact us at enquiries@steededucation.com.