Plans by the Labour Party to impose VAT on independent school fees could lead to unforeseen consequences, according to analysis by the Adam Smith Institute think tank.

Its report, Short Term Thinking, warns that Labour’s proposals are based on flawed assumptions and could cost the public purse billions of pounds in expenditure over the span of a single parliamentary term.

As the number of pupils forced back into the state system increases, the benefit to the Treasury will decrease, with a 10-15% migration actually raising no money at all, the report concludes. At 25% migration, the scheme would create a loss to the Exchequer £1.6 billion annually.

The report notes that independent schools spend more than 70% of fee income on staffing costs and an exodus of just 5% of children would be likely to lead to 5,150 redundant teachers, compared with 2,300 vacancies in state schools.

The institute says the geographical distribution of migration and school closures is impossible to predict, but it has significant concerns about the ability of local authorities and schools to plan, adapt for and respond to unpredictable demand swings.

It adds: “There is a risk of children stranded without a place.”

The report cast doubt that putting private school children into the state system delivers benefit to the latter, and there may be even greater competition for preferred state schools, driving talented children from poorer backgrounds from high-performing state schools and grammar schools.

It also notes that “school fees motivate marginal families’ labour supply, which can be withdrawn at any time, shows that independent schools are strongly favourable to the public finances and the broader economy”.

Read the full report here