In January 2025 the government removed the VAT exemption for private schools and applied the standard 20% rate to almost all education, boarding and vocational fees. By April a further measure came into force which stripped charities running schools of eligibility for business rates relief. For thousands of families the combined effect has been a dramatic increase in fees and for many schools the outcome has been financial strain that few were prepared for.

To see the impact you only need to look at the numbers. Fees have risen by an average of 22.6% compared with last year, the sharpest increase in decades according to BBC analysis. That surge has come at the same time as disposable incomes have been squeezed by high borrowing costs and persistent inflation. Unsurprisingly enrolment has fallen. The Independent Schools Council reported in January that there were 11,000 fewer pupils in private schools compared with the previous year. The Institute for Fiscal Studies had warned in advance that between 20,000 and 40,000 pupils could ultimately leave the sector as a result of the new charges and the early data suggests that prediction was well founded.

Behind those figures are stories of schools struggling to survive. Some smaller schools, particularly prep schools outside major cities, have been forced to close. Reports in the specialist press suggest that more than thirty independent schools have already shut their doors in 2025, a sharp rise on the average seen in previous years. Insolvency practitioners noted that July alone saw several closures. For the parents and staff affected these closures are not statistics but painful upheavals in their children’s education and in their own livelihoods.

There are also important regional differences. Wealthier day schools in London and the South East have so far absorbed the changes more easily, often passing costs onto parents who can still pay. By contrast schools in the Midlands, the North and Scotland have been hit harder because their fee levels were already lower and margins tighter. In those regions the extra 20 per cent has proved much more difficult to manage. A headteacher quoted by one insolvency practitioner described the new rules as “a wrecking ball for small schools” and warned that many more closures are likely in the coming year.

The political rationale for the tax change was clear enough. Ministers argued that ending the exemptions would raise about £1.8 billion a year and that the money could be redirected into the state sector. Supporters of the move said it was wrong that private schools enjoyed charitable relief at all. Critics, however, believe the government has underestimated the practical consequences. If tens of thousands of pupils migrate to the state sector it will bring extra pressure on local authorities already struggling with budgets and classroom space. There is also a fear that sudden closures could destabilise communities, particularly in towns where the independent school was one of the main local employers.

From a business and insolvency perspective, the private school story is a striking case study of how a single policy lever can trigger sector-wide stress. For most businesses a twenty per cent rise in core costs overnight would be unimaginable, yet that is precisely what has happened here. Larger, well capitalised schools are likely to consolidate their position, perhaps even benefiting as pupils transfer from smaller competitors. The long tail of smaller schools with limited reserves, however, will find it hard to survive without drastic restructuring or external support.

This moment is also instructive for business leaders outside education. It demonstrates the need to plan for regulatory shocks that can appear with little warning and to think carefully about resilience. Just as schools are now considering mergers, sales of assets and new income streams, companies in other sectors should ask themselves whether they could withstand a comparable policy change in their own industry. Insolvency is rarely about one single factor but sudden government intervention can tip the balance when finances are already tight.

The debate over the rights and wrongs of taxing private education will no doubt continue, but for those of us working with distressed businesses the lesson is already clear. Policy risk is business risk. The independent school sector is learning that the hard way and others would be wise to take note.