Objective Justification for VAT on Private School Fees: No Convention Right to a Low-Cost Faith-School Exemption

1. Introduction

BYL & Anor, R (On the Application Of) v Chancellor of the Exchequer concerns a high-profile challenge to the Finance Act 2025 reform which subjected most private school fees to VAT from 1 January 2025. Two claimant groups appealed from the Divisional Court:

  • Group One Claimants: children and parents in the disadvantaged Charedi Orthodox Jewish community, contending that state education is not religiously acceptable and that VAT would make low-fee schools unaffordable, threatening school closure.
  • Group Two Claimants: children, parents, and several low-cost schools providing a strictly Evangelical Christian curriculum, making parallel claims and additionally invoking A1P1 (property) and the “essence” of the right to education.

The legal framework was principally Article 14 (non-discrimination) read with Article 2 of Protocol 1 (A2P1) (right to education), and for Group Two additionally Article 1 of Protocol 1 (A1P1). The core appellate issue was whether the failure to create a low-cost fee exemption (a “carve-out”) was objectively and reasonably justified, given the measure’s claimed discriminatory impact on certain religious communities.

2. Summary of the Judgment

The Court of Appeal dismissed both appeals.

  • A1P1: not engaged. The schools’ case was characterised as a complaint about anticipated future income, which is not a “possession”. Parents were not compelled to purchase private education and therefore could not frame VAT as an interference with their possessions.
  • A2P1 (first sentence): no infringement of the “very essence” of the right to education. There is no Convention right to education of a particular kind beyond that prevailing in the state system, and no obligation to subsidise private education.
  • A2P1 (second sentence): no breach. The measure did not amount to a failure by the state to “respect” parental convictions in the Convention sense.
  • Article 14 + A2P1 (and, for Group Two, the associated Article 14 formulations): even assuming discriminatory effect (including “Thlimmenos discrimination” and/or indirect discrimination), the Government showed objective and reasonable justification for not creating a low-cost exemption. The Court carried out its own Bank Mellat structured proportionality analysis and found the justifications “compelling”.

A significant methodological holding was that, under Shvidler, the Court of Appeal should make a fresh proportionality determination because this was the first appellate consideration of a new legislative regime of general application with major social significance.

3. Analysis

3.1 Precedents Cited

(A) Appellate proportionality: when the Court of Appeal re-determines proportionality

  • Shvidler v. Secretary of State for Foreign, Commonwealth and Development Affairs [2025] UKSC 30, [2025] 3 WLR 346 (Shvidler)
    The Court treated Shvidler as determinative of appellate method. It rejected a deferential “review only” stance and adopted the “fresh determination” approach because this litigation is (i) the first appellate consideration of a new, general legislative regime, (ii) socially significant, and (iii) permitted on substantive grounds (paras 10, 49–55). This is an important signal for future Human Rights Act challenges to major fiscal or welfare reforms: appellate courts may be expected to engage directly with proportionality rather than merely police first-instance reasoning.

(B) Article 14 proportionality and intensity: structured analysis, not slogans

  • R (SC and others) v. Secretary of State for Work and Pensions [2021] UKSC 26, [2022] AC 223 (SC)
    SC supplied the principal framework for Article 14 justification: a nuanced, factor-sensitive scrutiny, resisting a single formula (paras 13, 68–74). The Court drew particularly on (i) the need for careful scrutiny even in socio-economic policy, (ii) the contextual nature of the “margin” or discretionary area of judgment, and (iii) the centrality of “objective and reasonable justification”.
  • Bank Mellat v. HM Treasury (No 2) [2013] UKSC 38, [2014] AC 700 (Bank Mellat)
    The Court insisted that “margin of discretion” language is not itself a legal test; the operative legal test is structured proportionality (paras 13, 85). It applied the four-stage Bank Mellat approach to the absence of a low-cost carve-out and found the Government’s evidence satisfied each stage (paras 97).
  • Carson and Others v. United Kingdom (2010) 51 EHRR 13 (Carson)
    Used for the orthodox definition: differential treatment is discriminatory only if it lacks objective and reasonable justification, meaning no legitimate aim or no reasonable proportionality between means and ends (paras 163).

(C) Discrimination categories: Thlimmenos and indirect discrimination

  • Thlimmenos v. Greece (2001) 31 EHRR 15
    The Court accepted the framing that a failure to differentiate can amount to discrimination where situations are significantly different (paras 8, 58–60). But it treated the decisive question as justification for the lack of an exemption, ultimately answered by the Government’s evidence on feasibility, avoidance, fairness around thresholds, and revenue consequences.
  • Biao v. Denmark (2017) 64 EHRR 1 and Markin v. Russia (2013) 56 EHRR 8 (Markin)
    These cases were used to illustrate indirect discrimination and the role of consensus and “standards to be achieved” (paras 62–66, 155). The Court distinguished Biao sharply because it involved severe family separation consequences and discrimination closely tied to nationality/ethnic origin—contexts triggering very weighty reasons and narrow margins, unlike a broadly applicable fiscal measure (paras 67).
  • DH v Czech Republic (2008) 47 EHRR 3 and SAS v France (2015) 60 EHRR 11
    Cited (via the Divisional Court) for how indirect discrimination may be evidenced statistically or by demonstrating disproportionate adverse impact (para 38).

(D) The right to education (A2P1): no right to state-facilitated private education

  • A v. Head Teacher and Governors of the Lord Grey School [2006] UKHL 14, [2006] 2 AC 363 (The Lord Grey School)
    Central authority for the “weak” nature of A2P1: no right to education of a particular kind or quality other than that prevailing in the state (paras 12, 139). This was decisive against the claim that A2P1 prevents educational taxes or requires access to particular private religious schooling.
  • Case Relating to Certain Aspects of the Laws on the Use of Languages in Education in Belgium (1968) 1 EHRR 252 (Belgian Linguistic)
    The foundation for the first sentence of A2P1: it guarantees access to existing educational institutions, not a duty to establish/subsidise particular educational forms (paras 136–137).
  • Sahin v. Turkey (2007) 44 EHRR 5 (Sahin)
    Used for the “practical and effective” approach and the concept that restrictions must not impair the “very essence” of the right, and must pursue a legitimate aim with proportionality (paras 127, 138, 141). The Court held that VAT making private schooling more expensive did not cross that essence threshold (paras 143).
  • Campbell and Cosans v. United Kingdom (1982) 4 EHRR 293 (Campbell and Cosans)
    Relied on by claimants to argue that children risked being denied education. The Court distinguished it: there the condition of access conflicted with the second sentence of A2P1; here, state schools would respect religious convictions in the Convention sense, and the barrier was not a Convention breach by the state but the parents’ preference for “infused” schooling (paras 147–150).
  • Lautsi v. Italy (2012) 54 EHRR 3 (Lautsi)
    Used to explain that the first sentence guarantees education in a form respecting belief/non-belief, but there was no contention that the state system failed this baseline (paras 142).
  • Konrad v. Germany (2007) 44 EHRR SE8 (Konrad)
    Considered in the context of home schooling. The Court noted the UK context differs, but treated the availability of state education and home schooling as relevant to proportionality and the practical availability of education (paras 145–146).

(E) Property (A1P1): goodwill vs expectation of future income

  • Burden v. United Kingdom (2008) 47 EHRR 38
    Cited for the general proposition that tax measures can fall within A1P1, but the Court focused on whether “possessions” existed in the first place (para 98).
  • R (Countryside Alliance) v. Attorney General [2007] UKHL 52, [2008] AC 719 (Countryside Alliance), R (Malik) v. Waltham Forest NHS Primary Care Trust [2007] EWCA Civ 265, [2007] 1 WLR 2092 (Malik), R (Nicholds) v. Security Industry Authority [2007] 1 WLR 2067 (Nicholds), Breyer Group v. Department for Energy and Climate Change [2015] EWCA Civ 408, [2015] 1 WLR 4559 (Breyer)
    These authorities structured the “possessions” inquiry. The Court applied the established distinction: marketable goodwill may be a possession; a mere expectation of future income without an enforceable claim is not (paras 99–107). The schools’ claimed harm was reduced future fee income contingent on parental choice, so it fell on the non-protected side of the line.
  • Inland Revenue Comrs v. Muller & Co's Margarine Ltd [1901] AC 217
    Used (via Breyer) for the classic description of goodwill as the “attractive force which brings in custom” (paras 103–104), reinforcing that A1P1 does not constitutionalise future revenue forecasts.
  • NKM v. Hungary (2016) 62 EHRR 33 (NKM)
    Cited on the “public interest” and proportionality of taxation; the Court used it to reject the argument that the VAT measure was incapable of being in the public interest (paras 117–118).

(F) International instruments, consensus, and domestic limits

  • Catan v. Moldova and Russia (2013) 57 EHRR 4
    Invoked for the interpretive principle of harmony with relevant international law, but the Court held it did not support a rule against taxing private education (paras 122–123).
  • Christian Institute v. Lord Advocate [2016] UKSC 51; [2016] HRLR 19 (Christian Institute) and SC
    The Court emphasised domestic constitutional limits: unincorporated treaties cannot be enforced by domestic courts, and the ECtHR’s use of international materials does not “incorporate” them into Convention obligations (paras 128–133).
  • Hirst v. United Kingdom (No 2) (2006) 42 EHRR 41
    Used in the argument on “European consensus”, but the Court held that the VAT Directive consensus was primarily economic harmonisation, not a human-rights “standard to be achieved” under the Convention (paras 151–157).
  • EU Council Directive 2006/112/EC on the Common System of VAT (the VAT Directive)
    The Court treated it as economically-driven harmonisation among EU Member States, not a Strasbourg-relevant consensus limiting the UK’s discretion in its post-EU fiscal choices (paras 112–116, 151–158).

(G) Democracy, minority protection, and the HRA remedial structure

  • A v. Secretary of State for the Home Department [2004] UKHL 56, [2005] 2 AC 68 (A v. SSHD)
    The Court used this to underscore that Parliament has mandated courts (via HRA s.4) to scrutinise compatibility and that in discrimination cases “what needs to be justified is the discrimination” (paras 76–77). This supported the Court’s insistence on squarely answering objective justification rather than hiding behind “margin” labels.
  • Ghaidan v. Godin-Mendoza [2004] UKHL 30, [2004] 2 AC 557
    Cited for the constitutional value of minority protection within a rights-based democracy (“democracy values everyone equally even if the majority does not”) (para 77), framing why careful scrutiny was required even in socio-economic policy.

3.2 Legal Reasoning

(1) The Court’s insistence on “objective justification” over “margin of discretion” rhetoric

A notable feature is the Court’s critique of analytical slippage at first instance: the Divisional Court’s repeated reliance on the measure falling “within the margin of discretion” risked obscuring the required legal inquiry (paras 83–85). The Court of Appeal stressed that “margin” metaphors are tools, not tests; the legal test is structured proportionality (paras 85).

(2) Article 14 + A2P1: justification for not exempting low-fee schools

The decisive proportionality battleground was the proposed low-cost exemption. The Court accepted that the claimants had serious religious motivations and that state alternatives were limited or unacceptable for many (paras 25, 27–28). It also proceeded on the basis that the measure interfered with Article 14 read with A2P1 rights (consistent with the Divisional Court’s approach).

However, the Government’s justification for refusing a fee-threshold carve-out was treated as compelling, based primarily on Ms Graham’s evidence (paras 14, 94–97), including:

  • Threshold unfairness (cliff-edge treatment for schools just above vs just below);
  • Market distortion and perverse incentives to suppress fees;
  • Avoidance opportunities (notional fee reductions, “donations” that are not truly optional, value shifting);
  • Administrative burden for compliant schools, HMRC, and complexity of ongoing verification;
  • Revenue loss (estimated £30m at a £7,690 threshold), treated as substantial in real terms; and
  • Policy coherence with state education suitability for all faiths and the Equality Act 2010 framework (though the Court’s emphasis was more on practical considerations than abstract “principle”) (paras 80–82).

Applying Bank Mellat stages, the Court held: (i) revenue-raising for public educational priorities is sufficiently important; (ii) VAT imposition is rationally connected; (iii) the exemption is not a less-intrusive measure achieving the same objectives without unacceptable compromise; and (iv) a fair balance is struck given alternatives including state education and (importantly in the Court’s analysis) home schooling (paras 81–82, 97).

(3) A2P1: rejection of a “no educational taxes” reading and the “essence” argument

The Court’s reasoning strongly reaffirms a restrained approach to A2P1. It rejected attempts to build a positive obligation to facilitate access to private religious education through tax exemptions, whether via:

  • an expanded construction derived from international instruments (paras 119–133), or
  • a claim that VAT “impairs the very essence” of the right to education (paras 134–146).

The controlling idea from Belgian Linguistic and The Lord Grey School is that A2P1 primarily guarantees access to the state system and does not constitutionalise state subsidy for private alternatives. The Court also rejected a distinction between “targeted” educational taxation and neutral taxation as lacking support in authority (para 144).

(4) A1P1: why private schools’ claimed losses did not amount to “possessions” interference

The Court applied the Strasbourg-informed domestic line distinguishing goodwill from mere future income expectation. The VAT measure might reduce demand and threaten viability, but—on the evidence—it was framed as lost future income rather than present-day diminution of a protected asset. Parents were under no legal obligation to keep purchasing private education, reinforcing the conclusion that their A1P1 rights were not engaged (paras 105–108).

3.3 Impact

(1) Fiscal measures and Article 14: evidence-heavy justification will often be decisive

The judgment signals that challenges to broad-based fiscal reforms under Article 14 are likely to turn on the quality of governmental evidence on administrability, avoidance risk, and revenue integrity. Here, the Court treated those practical considerations as weighty, even while acknowledging the serious effects on certain minority communities (paras 80–82).

(2) A2P1 remains a limited guarantee: no indirect route to subsidising private education

The Court’s rejection of “educational tax prohibition” arguments stabilises the proposition that A2P1 does not prevent government from altering the cost environment of private education, provided access to the state system is preserved and the state system respects convictions in the Convention sense.

(3) A1P1 and regulated markets: “future income” claims will face a high threshold

By reaffirming Breyer/Malik/Nicholds principles, the Court reinforces that business models affected by legislation do not automatically translate into protected possessions—particularly where harm depends on third-party choices and there is no enforceable entitlement.

(4) Appellate practice: “fresh proportionality” for major legislative regimes

The judgment operationalises Shvidler by treating major new regimes as paradigm cases for fresh appellate proportionality assessment. This may increase the practical importance of Court of Appeal judgments in shaping the proportionality landscape for new national policies.

4. Complex Concepts Simplified

  • A2P1 (right to education): protects access to the education system the state provides; it does not guarantee a right to a particular type of education (including religious “infused” private schooling), nor require the state to subsidise private choice.
  • Article 14 (non-discrimination): does not stand alone; it operates “in conjunction with” another Convention right. Differential impact is not enough—government can defend it by showing a legitimate aim pursued proportionately (“objective and reasonable justification”).
  • Thlimmenos discrimination: discrimination can occur not only by treating different groups differently, but by failing to treat significantly different situations differently (here: the claim that low-fee faith schools required an exemption).
  • Indirect discrimination: a rule neutral on its face can still discriminate if it disproportionately harms a protected group.
  • Proportionality (Bank Mellat): a structured inquiry asking (i) sufficiently important objective, (ii) rational connection, (iii) less intrusive alternative, (iv) fair balance between rights impact and public benefit.
  • A1P1 “possessions”: protects existing property-like interests (including, sometimes, goodwill), but generally not mere expectations of future income without an enforceable claim.
  • “Margin of appreciation” / “discretionary area of judgment”: not a separate legal test; shorthand for the respect courts may give to legislative/executive choices, especially in socio-economic policy, while still applying structured proportionality.
  • Unincorporated treaties: international instruments not made part of UK law cannot be enforced by UK courts as such; they may inform Convention interpretation only within limits identified in SC.

5. Conclusion

The Court of Appeal upheld the VAT imposition on private school fees against challenges brought by low-fee Charedi Orthodox Jewish and Evangelical Christian communities. The Court reaffirmed three central propositions:

  • A2P1 does not confer a right to state-facilitated access to private education, nor a right to tax exemption for religious schooling.
  • A1P1 is not engaged by legislation that mainly reduces expected future income where no enforceable entitlement is shown.
  • Under Article 14, even where a measure has a serious disparate impact on certain minorities, the absence of a low-cost carve-out can be justified where the state demonstrates, with evidence, that exemptions create unfair cliff-edges, avoidance risks, administrative burdens and material revenue loss—and the Court will test this through structured proportionality rather than “margin” rhetoric.

Methodologically, the judgment is also significant for applying Shvidler to confirm that appellate courts will often conduct a fresh proportionality assessment for major new legislative regimes of general application.