Business Outlook 2025 | Independent Schools

From the start of 2024, with a General Election on the horizon and off the back of the Labour Party’s pledge to end the tax breaks for private schools in the UK, nervousness created a haze leading to apprehension amongst buyers, investors, funders, schools, and stakeholders. While there was a fair amount of market activity including mergers and school ownership transitions, during 2024 buyers became increasingly cautious when appraising new opportunities, with a granular focus on pupil retention, new student recruitment, forward-looking operational costs, financial implications and sustainability.

Most notably, against the backdrop of the introduction of VAT on school fees, effective January 2025, market uncertainty is likely to prevail in the short to medium term as the independent school sector and market adjust to these seismic policy changes. While some schools have well-established contingency plans in place, others, for a variety of reasons, have been less well-prepared and are much more likely to be impacted by the changes.

However, as we look ahead to 2025 a number of pertinent questions remain:

• How extensive are the loss of pupil numbers from independent schools likely to be and will state schools be able to accommodate these pupils?
• Will parents choose to send their child to a state school or will they opt for home-schooling alternatives?
• How will the addition of VAT impact schools’ new pupil recruitment?
• How many children with SEND who have been privately funded will proceed through an EHCP assessment programme? Should those children gain EHCPs and to what degree will these costs exceed the sum that had previously been privately funded? If this sits at the volumes that are anticipated, these VAT changes could have a financially negative net impact, at complete odds with the initial objective of raising £1.5 billion to train 6,500 new teachers for state schools.

In recent years, the makeup of the independent school sector has changed:

The Independent Schools Council (ISC) continues to monitor fee increases with the results published in its annual school census (ISC 2024):

• An annual average fee increase of 8% in 2024
• The majority of day schools charge between £3,000 and £6,000 per term
• Over a third of all ISC pupils receive some type of fee assistance
• The average means-tested bursary was worth £12,909 per annum, an increase of 9.3% compared with 2023

• Increased merger and acquisition activity
• Schools able to act nimbly in diversifying to create new, additional revenues will do so
• Pupil numbers will be impacted by the introduction of VAT on fees
• For some schools, operational cost pressures will lead to financial distress and an increase in closures
• In the event of school closures, assets will swiftly be acquired by SEND education providers or for alternative use