Rachel Reeves' plan to boost coffers with VAT raid risks falling short

Rachel Reeves' flagship plan to raise £1.5 billion for schools by slapping VAT on private education fees is under pressure - after it emerged that parents have already paid at least £500 million upfront to avoid the tax.

Thousands of families rushed to pay school fees in advance before the new 20% VAT charge kicked in this year, dramatically reducing the sums the Treasury can expect to claw back.

Some schools are understood to have collected as much as £10 million each from parents keen to avoid what Labour had branded a "loophole" enjoyed by the wealthiest.

One parent reportedly paid £295,000 to cover seven years of private education before the tax came into force in January.

As a result, Rachel Reeves' headline-grabbing revenue raiser could fall hundreds of millions short of expectations in its early years - with the Institute for Fiscal Studies warning that even the original estimates were likely "overstated".

The IFS has previously said: "Labour has suggested it could raise £1.5 billion from removing the tax exemption from private school fees. In practice, the amount raised is likely to be somewhat lower than this."

Labour insists the move will help fund 6,500 new teachers and boost state education - but critics say it is already backfiring.

Sir Peter Lampl, founder of the Sutton Trust social mobility charity, warned the policy would "make it more difficult for low- and middle-income families to send their children to independent schools".

He added: "Many independent schools will raise fees by 20 per cent and more, leading to a fall in the number of pupils. The result will be a growing burden on the state school system and more inequality."

Barnaby Lenon, chair of the Independent Schools Council, said: "The government needs to think very carefully about the impact of VAT on schools, not only in financial terms but also in terms of pupil welfare, teacher wellbeing and school sustainability."

Some schools are allowing parents to cover up to five or even seven years of fees in advance. Others have put limits in place over concerns the tax dodge might attract HMRC scrutiny.

The Telegraph reported that one school that allowed multiple years' fees to be paid in a lump sum took in £10 million in just a few months.

The Times revealed that another parent who paid £295,000 up front has saved nearly £60,000 in tax.

According to independent school finance experts, the rush to pay early means Labour may now have to wait years to see the full benefit of the policy. Meanwhile, many schools are still scrambling to assess how they will absorb the cost - or pass it on.

A Treasury spokesperson said: "The Office for Budget Responsibility did factor the increased uptake of prepayment schemes into its revenue forecasts for the VAT policy."