BYL & Anor, R (On the Application Of) v Chancellor of the Exchequer

Factual and Procedural Background

This appeal concerned challenges to legislation introduced by Parliament and enacted in the Finance Act 2025 that removed the VAT exemption for private school fees with effect from 1 January 2025 (the VAT measure). Two groups of claimants appealed the Divisional Court's dismissal of their judicial review claims: (i) children and parents associated with private schools serving the disadvantaged Charedi Orthodox Jewish community (Group One Claimants), and (ii) children, parents and four low-cost private schools following an Evangelical Christian curriculum (Group Two Claimants). The claimants alleged discrimination and breaches of Convention rights under Article 14 read with the second sentence of Protocol 1 to the European Convention on Human Rights (A2P1), and Group Two also relied on Article 1 of Protocol 1 (A1P1) and the first sentence of A2P1. The Divisional Court granted permission to apply for judicial review but dismissed the claims, holding any interference justified and proportionate. The appellate court (this Court) granted permission to appeal on substantive grounds and undertook a fresh proportionality assessment.

Legal Issues Presented

1. Whether the VAT measure and the absence of a carve-out for low-cost or faith-based private schools engaged A2P1 (right to education) and/or A1P1 (right to property) and engaged Article 14 (prohibition of discrimination) when read with those provisions.
2. Whether the imposition of VAT on private school fees constituted Thlimmenos or indirect discrimination contrary to Article 14 read with A2P1 and/or A1P1.
3. Whether any interference with Convention rights was justified and proportionate, including whether Parliament's decision not to adopt a low-fee exemption had an objective and reasonable justification under the four-stage Bank Mellat proportionality test.
4. Whether unincorporated international instruments or a European consensus (as reflected in the VAT Directive) limited the State's margin of appreciation or expanded the scope of A2P1 to prohibit educational taxes on private schools.

Arguments of the Parties

Group One Claimants' Arguments

• The measure disproportionately affects children from the Charedi community because the required form of religious education is not available in the state system; VAT will make schools unaffordable and risk closure.
• The Divisional Court erred in giving "considerable weight" to the Government's Pluralism Policy (that state schools can provide pluralistic curricula) as an objective justification for not exempting low-cost Charedi schools.
• The Divisional Court failed to require the Government to justify the absence of a low-fee exemption and ignored risks such as antisemitism in state schools when assessing justification.

Group Two Claimants' Arguments

• The VAT measure interferes with the schools' and parents' possessions (A1P1) by threatening school viability and goodwill and constitutes a tax contrary to the "public interest" threshold in A1P1.
• The measure interferes with the very essence of the right to education (A2P1 first sentence) and with the second sentence (state must respect parents' right to ensure education in conformity with religious convictions), particularly as Evangelical education is not available in the state system.
• International instruments and a European consensus against taxing education (VAT Directive) should narrow the State's margin of appreciation and influence interpretation of A2P1.
• The measure is discriminatory under Article 14 read with A1P1 and/or A2P1 and fails proportionality.

Government Parties' Arguments

• The Government gave objective and reasonable justification for the measure and for not exempting low-cost schools, relying on revenue-raising, fairness, competition and administrative concerns, risk of avoidance, and policy consistency that state education is suitable for all.
• The A1P1 rights of the schools and parents were not engaged because the complaint is of loss of anticipated future income, not a present "possession".
• The Court should afford weight to Parliament's assessment and, per Shvidler, limit fresh appellate intervention; however, this Court concluded a fresh proportionality assessment was appropriate.
• Evidence from officials (re-costing, administrative feasibility and an estimated £30 million loss if a low-fee carve-out were adopted at a specified threshold) demonstrated the practical and fiscal reasons for uniform treatment.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court undertook a fresh proportionality assessment consistent with Shvidler because these appeals involved the first appellate consideration of a new legislative regime of general application with significant societal impact. It applied the Bank Mellat four-stage proportionality test.

On A1P1 the Court found that the schools' complaints related to expectations of future income rather than present-day marketable goodwill; accordingly A1P1 was not engaged for the schools or, in any event, any interference would be justified. The Court relied on domestic and Strasbourg authorities distinguishing goodwill from mere future income (Breyer, Countryside Alliance, Ian Edgar).

On A2P1 the Court accepted the settled Strasbourg approach that the first sentence guarantees access to the state's established education system but does not guarantee education of a particular kind or require the State to subsidise private provision (Belgian Linguistic; The Lord Grey School; Sahin). The Court rejected the submission that international instruments or the VAT Directive prevented the UK from imposing VAT on private school fees.

On Article 14 the Court examined Thlimmenos and indirect discrimination principles. It concluded that the absence of a low-fee exemption was the feature requiring objective justification. Having considered the Government evidence and witness statements (including quantification of administrative burdens, risk of avoidance, market distortions and an estimated fiscal cost of approximately £30 million if a low-fee exemption were adopted at a particular threshold), the Court concluded that the Government had shown an objective and reasonable justification. Applying Bank Mellat it found: (1) a sufficiently important objective (revenue-raising and supporting state education), (2) a rational connection to that objective, (3) no less intrusive measures that would achieve the objective without unacceptably compromising it, and (4) a fair balance when weighing the measure's effects on claimants against the importance of the objective.

The Court gave particular weight to practical considerations (administrative feasibility, risk of tax avoidance, market distortion and lost revenue) and to the fact Parliament had considered the matter. It explained that the metaphors of margin of appreciation or intensity of review are not substitutes for applying the legal proportionality test.

Holding and Implications

APPEALS DISMISSED

Holding: The Court dismissed the appeals. It held that (a) A1P1 was not engaged in relation to the schools' complaints of future income loss, (b) A2P1 did not guarantee a right to private education of a particular kind or to state facilitation of access to it, and (c) any interference with Convention rights arising from the VAT measure and absence of a low-fee exemption was objectively justified and proportionate under Article 14 read with A2P1/A1P1.

Implications: The direct effect is that the VAT measure as enacted in the Finance Act 2025 remains compatible with the Convention rights relied upon by the claimants and will continue to apply to private school fees. The decision affirms that, in the present factual and legal context, practical and fiscal considerations (administrative burden, risk of avoidance, market effects and revenue loss) can justify the absence of a targeted exemption for low-cost faith schools. The judgment did not purport to establish a novel principle beyond application of existing Strasbourg and domestic precedents to the facts; it emphasised application of the Bank Mellat proportionality test and the court's duty to assess justification while affording appropriate respect to Parliament's policy choices.