Page last updated at 23:16 GMT, Friday, 17 July 2009 00:16 UK

School charity test or class war?

By Mike Baker

pupil with books
Having charitable status bring tax benefits

So, after a long wait, we finally have an idea what independent schools must do to retain their charitable status.

This week the Charity Commission issued reports on the first batch of test cases since the law was changed to require private schools to show they are bringing "real benefit to the public".

Two of the first five schools failed this public benefit test, triggering strong and rather hyperbolic reactions.

One newspaper said private schools would be "forced to raise fees"; another said it would "price middle-class pupils out of private schools". A Daily Telegraph columnist branded it nothing less than "class war".

On closer analysis, much of this reaction seems overdone.

Famous names

Of course, for the schools that failed the test this is serious. They will have to address quickly what they must do to hold onto the significant tax advantages of charitable status.

That does not necessarily require them to put up their fees to fund large numbers of bursaries. However, they will have to do more to share their facilities and expertise with a wider range of children, not just those who can afford to pay the fees.

But the bigger picture is that most large independent schools - and certainly most of the famous names - will sail through the public benefit test.

Charities in other spheres - such as care homes - have to do more than just show they are removing some people from the publicly-funded system

The first well-known test case was Manchester Grammar School. Like many illustrious schools, it started out as a charity. In its case it was founded by the Bishop of Exeter in 1515.

Today it educates almost 1,500 non-boarding pupils, who pay fees of almost £9,000 a year. The school provides bursaries to 14% of its pupils while 8% of all pupils pay no fees at all.

The school also shares sports facilities with other local schools and puts on lectures and poetry workshops, and provides pre-university coaching for pupils from other schools. The emphasis is on sharing with others some of the real benefits its own pupils receive.

As such Manchester Grammar is, in the words of the assessors, "a charity and is operating for the public benefit".

Economies of scale

By contrast, one of the schools that failed the test was St Anselm's in Derbyshire, which was founded as a private preparatory school in 1888 but only applied to become a charity in the late 1960s.

St Anselm's has 239 pupils and charges secondary-age day pupils £14,580 a year, considerably more than their Manchester counterparts. Just 0.8% of pupils receive a bursary to help with fees and none of them receives a completely free education.

Overall less than 1% of its fee income goes on providing means-tested bursaries. A further 3% of pupils receive scholarships, but these are not operated on a means-tested basis.

The school did make some of its facilities available on a limited basis to outside bodies. But this provision was not extensive and the Charity Commission assessors deemed it insufficient.

Clearly St Anselm's is not on a level playing field with Manchester Grammar; it is much smaller, does not have the economies of scale, and has fewer schools nearby.

But the assessors say they took this into account and felt that St Anselm's was not doing enough to justify charitable status.

And, of course, charitable status does bring important advantages in terms of VAT, tax on operating surpluses and capital gains, and gift-aided donations.

Overall it is estimated that charitable status provides £100m a year of taxation benefits. That is why the Charity Commission says it is reasonable for charities, including schools, to prove they are providing a public benefit.

Founding spirit

Of course, some argue that simply providing education amounts to a public benefit since these pupils would otherwise have to be educated at the state's expense.

However, charities in other spheres - such as care homes - have to do more than just show they are removing some people from the publicly-funded system.

For example, I am a trustee of an educational charity that provides help to gifted and talented children. Some children pay to come on its residential courses but the charity does all it can to ensure that help is targeted at those who will benefit most, irrespective of their ability to pay.

That seems to be the essence of what a charity does. This also ensures that the charity stays within the spirit of the aims of its founders.

The same argument would seem to apply to many independent schools, especially those which were established to provide for the children of the poor in the days before state education existed.

So, this looks less like "class war" and more like a genuine effort to establish what is, or is not, public benefit.

Of course, some private schools are private enterprise businesses. They have no charitable status so are fully entitled to do their own thing.

The issue of private education has always been controversial and ideological. But the issue here is not whether private education should be abolished or promoted.

Nor is it about whether it harms or helps state education. These are discussions for another sphere.

Finally, it has been argued that the first five judgements have established that the key to charitable status is the proportion of pupils who receive means-tested bursaries.

Understandably, schools wish to know whether they need to provide 5%, 10% or 15% of places to qualify as charities.

But the first assessment reports make it clear that there is no quota and each case is taken on its own merits.

And while that may provide less clarity, it is surely as it should be since private schools vary enormously in size, shape and aims and any quota or rigid rule would soon be found to be unfair.

Mike Baker is a journalist and broadcaster specialising in education.

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