More than a fifth of parents plan to use credit cards to pay for Labour’s VAT school fees rise

More than a fifth of affected parents (23%) will turn to credit cards to combat the rise in private school fees, according to new research by Pepper Money, the specialist mortgage lender. 

The research examines the impact on families’ personal finances following Labour’s plans to remove the current 20 per cent VAT exemption on private school fees, which is expected to come into force in January 2025.

Some parents are even planning to take more drastic actions to fund the fee rise: 13% of parents plan to remortgage while 7% plan to go to the lengths of selling their home. 

Family contributions are playing a significant role in helping parents maintain their children’s education in the face of increasing private school fees.  One in six affected parents (16%) plan to rely on financial gifts from family to plug the gap when the VAT changes take effect, up from 13% who already lean on relatives to cover the cost of private school fees. 

Currently nine in 10 (90%) parents pay private school fees using their primary or investment incomes, but when fees rise, this is set to drop by a staggering 17 percentage points to 73%. The shift leaves nearly one in four (23%) parents looking for alternative sources of funds, including borrowing or gifts from family to address the shortfall. 

Aside from income from work or investments, credit cards (19%) rank as the most popular means by which  parents are already paying school fees, followed by personal loans (15%). While falling back on credit cards can be a quick way to access more funds, consumers can expect high levels of interest as a consequence. Currently, 8% of parents have chosen a homeowner loan to pay private school fees, and a further 12% plan to once the VAT exemption is removed. 

Parents’ reaction to Labour scrapping the VAT exemption

More than one in seven parents (15%) say Labour’s decision to scrap the current VAT exemption will now stop them sending their child to private school altogether. Of these parents, 47% said this was purely a financial decision, admitting that ‘the increased cost makes private school unaffordable’. This suggests that almost 90,000* private school pupils may be set to join state schools over the next academic year. 

That leaves two thirds (70%) of parents who say they will ‘find a way to pay’ because their child(ren) ‘are already settled in private school’ and they don’t want to disrupt their education. Pepper Money’s research suggests that taking on extra borrowing will play a significant role in addressing the financial shortfall. 

Ryan McGrath, Director of Second Charge Mortgages at Pepper Money, comments: “Labour’s expected end to the VAT exemption on schools has long been talked about, but for parents this move will come with some difficult decisions. 

“The fact that 23% of parents are planning to use credit cards highlights how immediate this burden is, but it also raises concerns about long-term financial health, as credit card debt can accumulate quickly with high interest rates. Similarly, the 8% of parents who have already remortgaged, and the further 13% planning to do so, show the lengths to which families are going to secure their child’s education, by uprooting the entire family in some cases.

“The pressure to keep children in schools where they are already settled is immense, with 70% of parents determined to find a way to cover the rising costs. Homeowner loans offer a practical solution for parents needing to find the funds immediately, without significantly disrupting cash flow or borrowing at high interest rates. By using the equity in their homes as collateral, parents can access a lump sum at relatively lower interest rates compared to unsecured loans or credit cards. A homeowner loan potentially allows them to spread the cost of school fees over a longer period, making it more manageable in the short term. For families confident in their ability to repay, a homeowner loan provides a flexible, accessible option to fund their children’s education while maintaining other financial commitments.”