Flow of Ideas
The Business of Becoming a Business for Academies

Glenn Rikowski, London, 7th October 2005

In a recent article in The Times, Will Pavia and Jon Surtees (2005) reported that:

“Tony Blair’s flagship academies programme is at risk of failing to fulfil one of it core aims because of a “tax trap” that will cost individual schools millions of pounds in VAT. The schools, part-funded and managed by business, faith or voluntary groups, were supposed to revitalise deprived areas by bringing new amenities and adult learning to the community, but as ten academies opened this month, taking the total to 27, and with 200 planned by 2010, principals at the schools told The Times that they faced financial disaster because of a government oversight. If an academy were to make its gym, hall or swimming pool available to local people – as promised in its founding charter – it would face a VAT bill of millions.”

What the account of Pavia and Surtees hints at is that academies are being restricted in charging for their services, such as the hire of rooms or use of facilities. It also seems from the report that the Department for Education and Skills always viewed that the academies would be able to recoup some of the vast sums spent on them [1] by charging for services.

Yet there was a flaw in this scheme. New Labour and the Department for Education and Skills (DfES) did not want to post this up front as it might raise suspicions about what the academies programme was all about. It was supposed to be about raising education standards in areas of disadvantage and where schools were seen to be failing by the Office for Standards in Education (Ofsted) [2]. Academies were also supposed to be a community resource. Yet if they were charging enough for the hire of services and facilities to generate surpluses then there was the problem of how this might be squared with this remit.

It could be surmised that the real agenda was for the schools to suck in those who could pay enough for the hire of services and facilities in order to create these profits: the middle strata of society, not those deemed to be working class. If this agenda became clear then it might raise questions about the future clientele for the academies: children of the middle strata would gradually move in and then sufficient charges for services could be made, perhaps eventually moving towards “co-payment” with fees being levied. Thus, these schools and the services they offer might not be for the poor and disadvantaged – who could not pay enough.

The strategy of recouping money back for hire of services and facilities had another problem to overcome: VAT (Valued Added Tax). New Labour and the Department for Education and Skills insisted that the academies were ‘independent institutions’ (i.e. not subject to the control of the Local Education Authority – LEA) (PriceWaterhouseCoopers, 2005, p.7). Furthermore, some of them were controlled by business sponsors. The obsession with academies being viewed as ‘independent’ seemed to set them up as ‘businesses’ under European Union tax law, and hence they were liable for VAT when they charged for services and facilities. Phillipa Booth (2005) has recently been through the debate about whether academies are businesses. She noted government reluctance to debate the issue. Whether academies were businesses and hence liable for VAT also surfaced in Parliament where New Labour Ministers were slow to reply to questions on the issue (see Hansard 2005a and 2005b).

The UK Treasury had managed to clinch a deal with the European Union for the building of the academies. The construction costs were given “zero rating” for VAT purposes (Pavia and Surtees, 2005). However:

“The waiver only applies as long as 90 percent of the usage of the new buildings is for “relevant charitable purposes”, a regulation intended to stop commercial enterprises posing as charities” (Ibid.).

It could be argued that what was as stake was the academies operating as commercial enterprises themselves. This was the real issue; not outside companies cloaked as charities using academies for business purposes. The Department for Education and Skills and the UK Treasury were all for the academies making money out of their services and the UK Treasury sought to change the EU VAT rule, but failed (Ibid.). Having not succeeded in changing the rules of the game the UK Treasury advocated ‘academies dodge the regulations by opening up for free’ (Pavia and Surtees, 2005). The problem with this was the DfES would not wear it. First, academies would not be generating the sorts of sums the DfES had hoped for in setting the original charter and contracts in place. Second:

“Neither the DfES nor the schools have budgeted for large VAT bills” (Ibid.).

There is no money for the DfES to bail out the academies on VAT, and inter-departmental strife over the issue seems set to continue unless a new UK/EU deal can be fixed.

The whole fiasco seems to have emerged out of New Labour’s strategy of attempting to hoodwink the general public over the academies’ status as businesses. One of the aims of this strategy is to habituate teachers, parents and children into working with businesses in school life, as sponsors and ‘partners’ and eventually as profit-makers from educational services (Rikowski, 2005). There is a need in the DfES to get people in schools used to working with businesses before a more substantial and faster programme for the business takeover of schools can proceed. Business folk need to be viewed as saviours, experts and as cuddly and smiley simultaneously: revered and loved. There is no guarantee this strategy will work, and a softly-softly approach is being pursued by New Labour and the DfES, with parents groups (rather than trade unions) being viewed as the main source of resistance, to date. For companies with fingers in the pie of state revenue for schools the strategy is complex and long-winded (see Rikowski, 2005).

The UK Treasury’s line on the affair reveals the real vision that New Labour and the DfES has on academies. According to Pavia and Surtees (2005), a Treasury spokesman said:

“The 10 percent business limit does not prevent academies from these activities [i.e. charging for services] – it just limits the extent to which they can do this while still remaining eligible for VAT relief.”

This limitation has to be smashed – somehow – in order that academies can go to play their groundbreaking and historic role of habituating people to working with businesses in order to realise the real goal of business enterprises' involvement in state schools: profit filtered out of state revenue.


[1] £5 billion according to Mansell, Luck and Paton (2005) in today’s Times Educational Supplement. The Business Academy in Bexley alone cost £31 million to build (Pavia and Surtees, 2005).

[2] The outfit that runs the schools’ inspection regime – for non-UK readers.


Booth, P. (2005) VAT: Business & Non-Business, The Buzzacott Charity Tax Team, Buzzacott, 12 New Fetter Lane, London, EC4A 1AG.

Hansard (2005a) Part 1: Written Questions for Answer on Tuesday 1 February 2005, House of Commons, Session 2004-05, The Question Book, at: http://www.publications.parliament.uk/pa/cm200405/cmordbk1/50201w01.htm

Hansard (2005b) Written Answers to Questions, Tuesday 1 February 2005 – Treasury, House of Commons, 1 Feb 2005: Column 759W [Long URL: but see the following: http://www.publications.parliament.uk].

Mansell, W., Luck, A. & Paton, G. (2005) Ministers ‘misled’ public on academies, Times Educational Supplement, 7th October, p.1.

Pavia, W. & Surtees, J. (2005) Academies facing £7m VAT trap, The Times, 3rd October, p.16.

PriceWaterhouseCoopers (2005) Academies Evaluation, 2nd Annual Report, Department for Education and Skills, Nottingham: DfES Publications.

Rikowski, G. (2005) Silence on the Wolves: What is Absent in New Labour’s Five Year Strategy for Education, May, Occasional Paper, Education Research Centre, University of Brighton.

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