Government urged to stop taxing colleges that are delivering its skills and youth opportunity agenda

New City College is one of the five further education college groups joining forces to call on the Government to stop taxing colleges that are already delivering two of its central priorities: expanding technical education and preventing more young people from falling out of education and work.

Along with Activate Learning, Capital City College Group, LTE Group and Luminate Education Group, New City College is calling for a targeted VAT refund arrangement for eligible further education colleges, comparable to the arrangements already available to schools and academies, to be considered in the UK Autumn Budget on 28 October 2026.

Schools and academies can recover VAT on relevant publicly funded activity. Further education colleges generally cannot.

Independent analysis by LSE Consulting estimates that irrecoverable VAT costs the FE sector around £200 million a year.

Follow-on analysis by the college groups estimates that around £379 million of the £2.275 billion of capital committed through the Government’s post-16 programme will return to the Treasury through irrecoverable VAT unless the rules change.

That matters because colleges are already central to the Government’s plans to expand technical education and tackle youth inactivity. More than one million 16 to 24-year-olds are not in education, employment or training, while the Prime Minister has promised new technical pathways and said Britain should value “the hard hat every bit as much as the graduation cap”.

Gerry McDonald CBE (New City College), Gary Headland (Activate Learning), Angela Joyce (Capital City College Group), John Thornhill (LTE Group) and Bill Jones (Luminate Education Group), speaking on behalf of the campaign, said:

“The Government wants fewer young people out of education and work, and more high-quality technical education. Colleges are already delivering both, but the tax system means we are doing it with less capacity than we could.

“A workshop or laboratory can cost a college up to 20 per cent more than the same facility at an academy because we cannot recover the VAT. That is money that could be going into learners, specialist staff and the equipment employers need us to provide.

“We are not asking for special treatment or a blank cheque. We are asking the Government to correct a structural inconsistency so that the public money it has already committed goes further. Let every pound reach the learner.”

The impact is tangible. New City College paid approximately £800,000 in VAT on a £5 million teaching block – enough, the college estimates, to have funded three additional fully equipped science laboratories.

The five groups also point to the change in colleges’ status since 2022. Colleges were reclassified into the public sector and became subject to Managing Public Money rules, tighter borrowing controls and reduced commercial flexibility, but the VAT treatment available to other public education bodies did not follow.

The anomaly is becoming more significant as post-16 funding is devolved to strategic authorities and Mayors. Under the current system, devolved skills money can buy less when it is spent through a college than where equivalent VAT can be recovered.

The five groups are asking the Chancellor to use the Budget on 28 October to establish a clear route to reform. Their preferred outcome is a commitment to introduce a targeted VAT refund mechanism for eligible colleges at or before Budget 2027.

If that cannot be agreed now, they are asking for a formal Treasury and Department for Education process with a defined timetable, or at minimum confirmation that the issue is under active review with the sector.

Participating colleges are prepared to publish how any VAT recovered is reinvested in learners, skills and local economic growth, and to identify the capital projects reform would bring forward.