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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
- 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.
- Whether the imposition of VAT on private school fees constituted Thlimmenos or indirect discrimination contrary to Article 14 read with A2P1 and/or A1P1.
- 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.
- 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
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Thlimmenos v. Greece (2001) 31 EHRR 15 | Defines "Thlimmenos" discrimination: failure to treat differently persons whose situations are significantly different. | Used to characterise the claim that failing to exempt low-cost religious schools amounted to impermissible failure to treat significantly different situations differently. |
| Shvidler v. Secretary of State for Foreign, Commonwealth and Development Affairs [2025] UKSC 30, [2025] 3 WLR 346 (Shvidler) | Guidance on appellate role: when appellate courts should undertake fresh proportionality assessments versus review approach. | Cited as authority supporting a fresh appellate proportionality assessment because the case involved first appellate consideration of a new general legislative regime of societal significance. |
| A v. Head Teacher and Governors of the Lord Grey School [2006] UKHL 14, [2006] 2 AC 363 (The Lord Grey School) | Statement that A2P1 does not confer a right to education of a particular kind or quality beyond that prevailing in the state. | Relied upon to reject the argument that A2P1 guarantees access to a particular kind of religious education not provided by the state. |
| R (SC and others) v. Secretary of State for Work and Pensions [2021] UKSC 26, [2022] AC 223 (SC) | Guidance on intensity of review and structured approach to proportionality under Article 14. | Instructed careful scrutiny; the Court gave full weight to SC when conducting its own proportionality analysis. |
| Bank Mellat v. HM Treasury (No 2) [2013] UKSC 38, [2014] AC 700 (Bank Mellat) | Four-stage proportionality test (importance of objective; rational connection; less intrusive alternative; fair balance). | The Court applied the Bank Mellat four-stage test to assess whether the absence of a low-fee exemption was justified. |
| DH v Czech Republic (2008) 47 EHRR 3 | Example where statistical evidence supports indirect discrimination. | Referenced as an example of establishing indirect discrimination by showing disproportionate practical effect on a group. |
| SAS v France (2015) 60 EHRR 11 | Example of indirect discrimination where neutral measure had disproportionate impact. | Referenced as an example in explaining species of discrimination under Article 14. |
| R (SG) v Secretary of State for Work and Pensions [2015] UKSC 16, [2015] 1 WLR 1449 | Allocation of burden: in direct discrimination differential treatment must be justified; in indirect discrimination the measure itself must be justified. | Used to explain that Thlimmenos discrimination aligns more with direct discrimination and that the lack of exemptions must be justified. |
| R (DA) v Secretary of State for Work and Pensions [2019] UKSC 21, [2019] 1 WLR 3289 | Approach to justification in Thlimmenos-style claims. | Cited to support the proposition that what must be justified in Thlimmenos cases is the uniform nature of the rule (absence of exemptions). |
| Biao v. Denmark (2017) 64 EHRR 1 | Indirect discrimination: general policy with disproportionate effects on a group requires objective and reasonable justification; narrow margin where ethnic origin involved. | Distinguished: Court held Biao was materially different (serious interference, nationality/ethnic origin) and not analogous to the present general economic measure. |
| A v. Secretary of State for the Home Department [2004] UKHL 56, [2005] 2 AC 68 (A v. SSHD) | Importance of courts' role in protecting minorities and preventing unjustified discrimination; constitutional context of section 4 HRA. | Referred to when emphasising the court's role and the mandate to make declarations of incompatibility despite deference to Parliament. |
| Ghaidan v. Godin-Mendoza [2004] 2 AC 557 | Principles on democracy and protection of minorities. | Invoked to support the obligation of courts to protect minority rights notwithstanding majoritarian decisions. |
| R (Countryside Alliance) v. Attorney General [2007] UKHL 52, [2008] AC 719 (Countryside Alliance) | Distinction between goodwill and expectation of future income for A1P1 purposes. | Applied in analysing whether schools' complaints concerned present marketable goodwill (possession) or future income (not a possession). |
| R (Malik) v. Waltham Forest NHS Primary Care Trust [2007] EWCA Civ 265, [2007] 1 WLR 2092 (Malik) | Analysis of goodwill versus future income. | Used in support of the view that anticipated future income is not a "possession" under A1P1 absent present diminution in marketable goodwill. |
| R (Nicholds) v. Security Industry Authority [2007] 1 WLR 2067 (Nicholds) | Analysis relevant to distinguishing goodwill from future income. | Referred to as part of the persuasive domestic jurisprudence on A1P1 possessions. |
| Breyer Group v. Department for Energy and Climate Change [2015] EWCA Civ 408, [2015] 1 WLR 4559 (Breyer) | Clarified the distinction between marketable goodwill and mere expectation of future income. | Relied upon to conclude that the schools' losses were expectations of future income and not present possessions for A1P1. |
| Inland Revenue Comrs v. Muller & Co's Margarine Ltd [1901] AC 217 | Classic definition of goodwill. | Quoted to explain the nature of goodwill as the present value of what has been built up by past efforts. |
| Ian Edgar (Liverpool) Ltd v. United Kingdom Reports of Judgments and Decisions 2000-I | Strasbourg authority distinguishing future income from possessions. | Referred to in support of the exclusion of future income from A1P1 possessions. |
| Denimark Ltd v. United Kingdom (2000) 30 EHRR CD 144 | Strasbourg authority on possessions and future income. | Referred to in the same context as Ian Edgar in distinguishing future income from possessions. |
| Case Relating to Certain Aspects of the Laws on the Use of Languages in Education in Belgium (1968) 1 EHRR 252 (Belgian Linguistic) | First sentence of A2P1 guarantees access to existing education but does not require states to establish or subsidise education of any particular kind. | Applied to hold that A2P1 does not guarantee education of a particular kind and that the State is not obliged to subsidise or keep particular private institutions open. |
| Sahin v. Turkey (2007) 44 EHRR 5 (Sahin) | State obligation to afford effective access where it establishes educational institutions; limits on restrictions that would impair the essence of the right. | Used to explain that restrictions are permissible provided they do not impair the very essence of the right and are proportionate and foreseeable. |
| Konrad v. Germany (2007) 44 EHRR SE8 (Konrad) | Compulsory school attendance and margin of appreciation where state emphasises integration objectives. | Distinguished on facts: UK context differs because home schooling remains an available option. |
| Campbell and Cosans v. United Kingdom (1982) 4 EHRR 293 (Campbell and Cosans) | Interplay of first and second sentences of A2P1; denial of access to education where conditions conflict with parents' convictions. | Distinguished: in that case the first sentence was breached because school conditions conflicted with the second sentence; not analogous here because state schools must respect convictions and home schooling remains available. |
| Markin v. Russia (2013) 56 EHRR 8 (Markin) | Use of emerging consensus among contracting states to inform Convention standards. | Referred to when discussing relevance of international or European consensus in assessing the intensity of review. |
| Hirst v. United Kingdom (No 2) (2006) 42 EHRR 41 (Hirst) | Consensus among states can narrow the margin of appreciation even where the question is not purely "moral". | Considered but distinguished: consensus in VAT Directive is primarily economic harmonisation and not directly reflective of Convention human-rights standards. |
| Guberina v. Croatia (2018) 66 EHRR 11 (Guberina) | Where restriction affects a particularly vulnerable historically discriminated-against group, margin of appreciation is narrower and very weighty reasons are required. | Distinguished: Guberina concerned application of a rule to specific facts (disability) and is not analogous to a general fiscal measure in primary legislation. |
| Carson and Others v. United Kingdom (2010) 51 EHRR 13 (Carson) | Formulation that difference in treatment is discriminatory if it lacks objective and reasonable justification (legitimate aim and reasonable proportionality). | Cited for the standard to assess discrimination and justification under Article 14. |
| Julin v. Estonia (judgment of 29 August 2012) | Analogy to court fees: where denial of access because of fees can deny an effective right. | Distinguished: court fees may deny access to an essential forum; private schooling has state alternatives and home schooling. |
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.
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