Gary Headland (Activate Learning), Angela Joyce (Capital City College Group), John Thornhill (LTE Group), Bill Jones (Luminate Education Group) and Gerry McDonald CBE (New City College), 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.
Notes
This is a joint campaign by Activate Learning, Capital City College Group, LTE Group, Luminate Education Group and New City College. It is not a separate membership body or legal entity.
Maintained schools recover VAT through Section 33 of the Value Added Tax Act 1994 and academies through Section 33B. Further education colleges generally sit outside both arrangements.
The campaign is seeking a targeted VAT refund mechanism for eligible colleges covering expenditure related to publicly funded education and training. It is not proposing that VAT should be charged to learners.
LSE Consulting’s November 2025 analysis estimates sector-wide irrecoverable VAT at approximately £200 million a year.
Any VAT reform sought by the campaign is intended to be additional to committed capital and revenue allocations. Netting a refund off future allocations would not resolve the underlying problem.
