Further education can’t power the economy while VAT drains its fuel

The Prime Minister’s promise this week to “have a look” at the VAT anomaly hitting further education (FE) colleges is welcome, but it feels overdue.

For years, ministers have hailed FE as the “engine of economic renewal”, the “place where technical skills are built”, where “productivity gaps closed” and “opportunity widened”, yet colleges remain in a tax regime that quietly but continuously drains their budgets. 

The inequity is clear: FE colleges are classed as public sector bodies, however, unlike schools and academies educating largely the same 16–19 age group, they cannot reclaim VAT on their spending. 

When two providers deliver the same public good to the same learners, but with unequal tax treatment, the result is costly. Colleges lose hundreds of millions of pounds each year through irrecoverable VAT — money that could be spent on teachers, equipment, student support or crumbling estates.

In line with the Government’s own ambition on skills and economic growth, a boost in FE funding would make sense if ministers are serious about reform and widening participation.

Every day, colleges across the country do the most extraordinary work, and Starmer’s words suggest he understands the stakes. The real test now is whether “having a look” turns into decisive action.