VAT on independent school fees: a legal analysis of the judicial review claim R (ALR and others) v Chancellor of the Exchequer

The failed challenge to VAT on independent school fees provides fresh insight for lawyers advising clients on human rights claims regarding government policy, and demonstrates the broad discretion retained by Parliament in matters of economic policy.

On 13 June 2025, judgment was handed down in the hotly contested public law challenge. The claim, brought by way of a judicial review, sought to challenge the compatibility of Sections 47 to 49 of the Finance Act 2025 (which impose VAT on independent school fees from 1 January 2025) with protections afforded by the European Convention on Human Rights (ECHR). The decision was made by three senior judges sitting in the Administrative Court in the High Court of Justice, following a three-day hearing in April this year. 

Background 

In its 2024 Autumn Budget, the government confirmed it would be proceeding with its manifesto commitment to impose VAT on independent school fees. 

The case combined three separate claims, all heard together. The claimant group was comprised of children attending independent schools (through their litigation friends), their parents and certain independent schools themselves. The claimants were representatives of children who: 

• have special educational needs;

• adhere to particular religions, which require specialist schooling; 

• are foreign nationals and require access to their national curriculum; and/or

• need to receive their education in a single-sex environment.

The varied characteristics of the claimants presented the Court with a diverse and complex set of circumstances to be considered when determining the proportionality of the interference of the imposition of VAT with the claimants’ human rights.

The defendant to the claim was the Chancellor of the Exchequer (as the decision-maker responsible for the Budget), with the Secretary of State for Education and the Commissioners for HM Revenue and Customs also being given permission to make joint submissions.

Legal framework 

Declarations under Section 4 of the Human Rights Act 1998

The claimants were seeking a declaration under Section 4 that the imposition of VAT on independent school fees was incompatible with the ECHR. In particular, the claimants sought to rely on the rights afforded by Article 2 of the First Protocol (A2P1) and Article 14 read with A2P1. The independent school claimants also sought to rely on the rights afforded by Article 1 of the First Protocol (A1P1) and Article 14 read with A1P1.

A1P1 provides:

‘Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties’ (emphasis added).

A2P1 provides: 

‘No person shall be denied the right to education. In the exercise of any functions which it assumes in relation to education and to teaching, the State shall respect the right of parents to ensure such education and teaching in conformity with their own religious and philosophical convictions.’

Article 14 provides: 

‘The enjoyment of the rights and freedoms set forth in this Convention shall be secured without discrimination on any ground such as sex, race, colour, language, religion, political or other opinion, national or social origin, association with a national minority, property, birth or other status.’

Issues 

The key legal issues raised in the claim were as follows:

1. Is the imposition of VAT on independent school fees incompatible with A2P1 because it (a) impairs the very essence of the right to education; and/or (b) is disproportionate in all the circumstances?
2. Is the imposition of VAT incompatible with Article 14, read with A2P1, because it involves unjustified discrimination against the different groups represented by the claimants?
3. Is the imposition of VAT incompatible with the Convention rights of the Evangelical Christian claimants (including claimant schools) under (a) A1P1 and/or (b) Article 14 read with A1P1?
4. Is the imposition of VAT incompatible with the Convention rights of Evangelical Christian parents under (a) the second sentence of A2P1; and/or (b) Article 14 read with A2P1?

A key background issue was the breadth of the discretion that the Court would afford the government in respect of economic policy and tax in particular.  

The Court’s decision: why the challenge failed

A1P1: protection of property 

The Court held that the imposition of VAT does not constitute an interference with the independent schools’ A1P1 right on the basis that it does not diminish the market value of the schools’ goodwill and, insofar as it threatens the viability of the claimant schools, it does so because it impacts a future right to income in relation to which no enforceable right exists.

A2P1: right to education 

The parties’ approaches to the question of interference with A2P1 were diametrically opposed: while the claimants argued that the imposition of VAT impairs ‘the very essence of the A2P1 right,’ the government sought (in oral submissions) to argue that A2P1 was not even engaged. The Court dismissed these arguments and went on to make interesting observations in relation to the more nuanced submissions regarding the proportionality of the imposition of VAT and the question as to whether it was introduced in pursuit of a legitimate aim.

Legitimate aim

In examining whether the imposition of VAT pursued a legitimate aim, the Court considered its objectives. These were recognised as fourfold: (1) raising revenue, (2) ensuring fairness, (3) protecting those with acute needs and (4) minimising the administrative burden and potential for abuse. The Court noted that it was not incumbent on the government to demonstrate that a particular measure will achieve its stated objective(s), but that a ‘rational connection’ between the measure and its objective is sufficient. 

The evidence filed by the government estimated a net revenue gain of around £1.5 billion per annum in the long term. The 2024 October Budget provided for a £2.3 billion increase in the core state schools budget, including a £1 billion uplift in high needs funding.

The Court held the objectives were ‘both legitimate aims for the purpose of A2P1 and, in principle, sufficiently important to justify the limitation of the important right guaranteed by that provision.’  

Proportionality

The Court agreed with the claimants that the imposition of VAT does constitute an interference with their A2P1 and (in some cases) Article 14 (non-discrimination) rights. It was required to assess, however, whether the interference is proportionate and falls within the broad margin of discretion afforded to Parliament (in particular, in relation to matters of financial policy and national security). 

In conducting this assessment, the Court highlighted the redistributive aim of the measure: it was understood as imposing a burden on one group (the 6% attending independent schools) for the benefit of another (the 94% that rely on state education). It was noted that policy decisions concerning redistribution are generally reserved for Parliament. As was noted by Leggatt LJ in the case of SC (which concerned the decision to limit key subsistence benefits to two children per household), the courts are not ‘attuned in the way that democratically elected institutions are attuned to reflect a collective sense of what is fair or where the balance of fairness lies on questions of distributive justice.’ This, as well as the fact that the measure was a manifesto commitment and was considered in-depth by Parliament, weigh in favour of the application of a wide margin of discretion.

The government recognised that 25% of the households affected by the imposition of VAT on independent school fees would fall into the bottom half of the household income distribution. Indeed, the Court heard that Charedi schools typically ask for a contribution of less than £100 p/w and children are generally supported by the community if their parents cannot afford these fees. The government recognised that faith schools serving narrow religious communities would face a proportionately larger VAT liability because staff costs make up a larger proportion of their costs and these cannot be reclaimed. They would be more at risk of insolvency and more likely to pass on a relatively larger proportion of a new VAT charge to parents. On this basis, it was expected that pupils at these schools would be disproportionately impacted.  

However, the Court determined that Parliament’s conclusion that the revenue raised justified the impact on those with lower incomes fell within its margin of appreciation.

Discrimination claims (Article 14)

The claimants argued that the imposition of VAT was discriminatory under Article 14 read with A2P1, affecting children with special educational needs, those from religious communities and those requiring single-sex education. The Court found that, while the measure has a disproportionate impact on certain groups, the decision not to create exemptions was justified within the broad margin of discretion.

In reaching this decision, the Court acknowledged that it can be justifiable for Parliament to ‘prefer a general rule with no exemptions over a system which requires fine and potentially invidious distinctions between categories of individuals who qualify for an exemption and categories who do not.’ The claimants in this case are illustrative of the invidiousness of this task in relation to this measure. As the Court noted, an exemption for all schools with a religious ethos would be overly inclusive (it would, for example, include Eton and Harrow where, as a group, the pupils and their families lack the special features said to justify the exemption), whereas an exemption based on a particular ‘need’ for a religious education that is not available in the state sector (ie, that required by Charedi Jews) would be incredibly difficult to police and would be open to abuse. 

In reaching its decision, the Court emphasised the importance of fairness and the need to avoid complex exemptions that could undermine the policy’s objectives.

What this means for practitioners and the sector

While the legal outcome was predictable, practitioners should note three key takeaways from the government’s own admissions that create opportunities for future challenges.  

The imposition of VAT on fees is likely to have a significant impact on the independent school sector, which was already in a state of flux as a result of various financial challenges. According to evidence collected by the Independent Schools Council, on average schools passed on 14% of the 20% VAT cost to parents. This represents a significant increase in cost for many families, and pupil numbers have dropped 2.4% in the most recent figures. There is significant consolidation in the market, with larger schools merging with small schools and some economically less viable schools closing, particularly outside London and the South East of England. One silver lining for independent schools is that the Court observed that an outright ban on independent schools would likely contravene A2P1 rights. While the current government has never proposed a total ban, this was something mooted during Jeremy Corbyn’s leadership of the Labour Party. 

There were two other interesting aspects of the judgment. The first concerns the situation for children with special educational needs who do not have an Education, Health and Care Plan (EHCP). EHCPs commit local authorities to meeting the needs of the relevant students. For students with special educational needs but no EHCP, accommodations come out of a school’s general funds. Interestingly, in defending this case, the government acknowledged the problems that exist for special educational needs provision within the state sector, a system which the judges described as being ‘in a parlous condition due to a chronic lack of funding.’ However, the government used this argument to justify the VAT policy, as it agreed that funding on a very large scale is required for the existing 1.1 million children with special educational needs being educated within the state sector. Acknowledging the current scale of the problem may, however, leave the government a hostage to fortune in relation to potential future cases regarding education policy.

Secondly, the Court’s analysis of the impact of VAT on the Charedi Jewish community is a reminder of the special status of this community and a warning that further attacks on the independent school sector that impact this community may exceed the lawful scope of government action. The Court accepted that religious education was a religious obligation for Charedi Jews, and that state schools typically do not provide a viable alternative. Furthermore, the Court recognised that the Charedi community has significant deprivation and many families do not have the means to absorb significant increases to their costs.