The political debate over the role, status and taxation of independent (‘private’) schools in England shows no sign of abating. Two issues have attracted considerable attention in recent months: the prospect of VAT being added to independent school fees; and the charitable status of independent schools. In the first part of this research project – published in June 2023 – EDSK analysed the claim that adding VAT to fees would raise £1.6 billion a year, and found that such a policy was unlikely to raise such a significant sum and could end up raising very little money at all. This report – the second half of the same project – explores the issue of charitable status to understand why it has become so contentious in relation to independent schools and whether the suggestion that independent schools should be ‘stripped’ of their charitable status deserves consideration.
Getting the basics right
In any discussion of the charitable status and societal contribution of independent schools, it is important to recognise that the stereotype of these schools as large single-sex senior boarding schools is entirely unrepresentative of the sector as a whole. If you were to pick one of the 2,400 independent schools in England at random, you would be far more likely to encounter a co-educational primary day school with fewer than 300 pupils. Moreover, only half of independent schools even hold charitable status. These figures immediately raise questions about the general level of understanding of the independent school sector within political circles.
Further misconceptions are not hard to find, particularly in relation to the concept of charitable status. Some politicians and commentators clearly feel uncomfortable with the notion of an independent school being classed as a charitable organisation. In truth, the charitable status of some independent schools is unsurprising. There are two legal tests of whether an organisation is classed as charitable: first, it must have a ‘charitable purpose’; and second, it must be ‘for the public benefit’. In terms of the first test, ‘the advancement of education’ has been viewed as a charitable purpose since 1601 and remains codified in law as one of 13 permissible charitable purposes in the 2011 Charities Act. It is hard to imagine that any politician would relish the prospect of trying to argue that independent schools do not advance their pupils’ education. It is, though, the second test – on ‘public benefit’ – that has often been used to criticise independent schools, yet such criticisms are typically dogged by two fundamental misunderstandings.
First, it is perfectly legal for a charity to charge fees, as demonstrated by care homes, galleries, theatres, private hospitals and many membership organisations (e.g. conservation charities). Even if those fees are more than most families can afford then the trustees of a charity can meet their legal obligation to ensure that poorer families can access their services by, for example, offering fee reductions. On that basis, even if an independent school charges substantial fees to many pupils, offering bursaries to some pupils is likely to mean they are delivering what is legally required of them.
Second, the phrase ‘public benefit’ is widely misinterpreted. Critics often assume that charitable independent schools cannot offer such a benefit because they are too expensive for large sections of the public, but ‘public benefit’ does not translate as ‘everyone is able to benefit from it’. From a legal perspective there are two ways to offer a public benefit. First, a charity could benefit the ‘public in general’ if “the benefit of the purpose [in this case, advancing education] is not limited to people with a particular need or who have to satisfy some other criteria”. In other words, “if a [charitable] purpose does not specify who can benefit, it will generally be taken to mean that it will benefit the public in general.” Second, if a charity does not benefit the ‘public in general’, it may instead benefit ‘a sufficient section of the public’ based on a charitable need (such as ‘advancing education’) and there is no legal minimum for how many people must benefit to count as a ‘sufficient section’. Either way, charitable independent schools are certainly able to offer a ‘public benefit’. This conception of public benefit may be unsatisfying to some observers, but it is nonetheless how the law operates for all charities, including independent schools.
Are independent schools doing enough for students from poorer families?
Even if there are no legal grounds to question the charitable status held by many independent schools, these institutions should not ignore questions over their role within and beyond our education system. For instance, given the fees they charge it is reasonable to ask whether the financial support that these schools provide is reaching the most disadvantaged families. At first glance, the overall picture seems positive. The latest annual census from the Independent Schools Council (ISC) – an umbrella body for seven associations that cover the operations of around 1,300 independent schools in England – shows that 34 per cent of their pupils receive some kind of ‘fee assistance’ such as a bursary or scholarship, with around £1 billion a year being spent by schools on such assistance. Almost £500 million of this fee assistance is spent on means-tested bursaries, with the average bursary approaching £12,000. Nearly half of the pupils who receive a bursary have more than half of their fees remitted, with 18 per cent of bursary recipients paying no fees at all.
However, it is impossible to say from the publicly available data whether these means-tested bursaries are reaching pupils from low-income households because this information is not routinely collected. It is conceivable that low-income families are benefitting in some cases, but it is equally possible that the fee assistance may be going to better-off households. Most independent schools do not publish details of the households that receive partial or full bursaries, nor do they provide a breakdown of the level of fee assistance awarded to recipients. Of the small number of independent schools that publish the income thresholds used to make decisions about bursaries, examples can be found of families earning up to £150,000 a year who still qualify for some form of fee assistance even though they are in the top 3 per cent of the income distribution.
What’s more, the £500 million of ‘fee assistance’ distributed outside of means-tested bursaries raises other issues. By far the most common type of fee assistance is given to “eligible families”, which includes “HM Forces discounts, staff discounts, sibling discounts and clergy discounts.” Almost half of all pupils getting fee assistance are receiving this type of financial support – 97 per cent of which is not means-tested i.e. it is unrelated to financial needs and therefore may be going to middle- and high-income families. It is unlikely that many politicians or voters would consider fee discounts for siblings or the children of independent school teachers to be a charitable act.
As noted above, charitable independent schools must ensure that poor families are able to access their services, but the legal threshold is merely that charities must offer at least ‘minimal or token’ support to those who cannot afford the fees – a rather uninspiring benchmark. Moreover, there is no universal definition of ‘the poor’ in this context and guidance from the Charity Commission asserts that ‘the poor’ is a relative term that does not just mean the very poorest in society and can include people of ‘modest means’. Consequently, charitable independent schools do not appear to be breaking any rules if they hand out bursaries or scholarships to well-off families. Even so, 58 per cent of voters agree (and only 10 per cent disagree) that independent schools should lose their charitable status if they do not admit a high proportion of students from deprived backgrounds. Irrespective of the legal issues that such a policy might encounter, such strong feelings suggest that if charitable independent schools fail to reach the less privileged parts of society then it will embolden their detractors.
Are independent schools doing enough to support local state schools?
Aside from distributing bursaries and scholarships, charitable independent schools can contribute to society and provide ‘public benefit’ through partnerships with state schools and local communities. Such partnerships are voluntarily created and can take a variety of forms. These include seconding staff to, and sharing staff with, state schools (particularly for niche subjects such as Latin or subjects with acute staff shortages such as physics), sharing facilities (e.g. sports pitches and swimming pools), helping Sixth Formers prepare their university application, and inviting state pupils to participate in joint classes for drama or music or attend joint events on various themes such as science, careers and art exhibitions. The ISC census reports that their independent schools partner with an average of 11 state schools.
At their best, these partnerships can add value to local schools and the most disadvantaged members of society, particularly those initiatives aimed at young people who have faced the most challenging circumstances – for example, providing free boarding places for children or teenagers in, or on the edge of, the care system. That said, some partnerships present a less encouraging picture. According to the ISC, the most common type of ‘partnership’ created by independent schools is “playing sporting fixtures with or against state schools”, which is hard to describe as an entirely selfless and charitable activity. Similarly, the second most common ‘partnership’ is “having members of staff serving as [state school] governors”, which does not appear to require any commitment on the part of the independent school.
As with bursaries and scholarships, there are also problems with the transparency of these partnerships. A single census cannot cover every detail of every partnership. Nevertheless, even the more encouraging activities such as ‘seconding teaching staff’ could mean anything from going into a state school for a one-off lesson through to weekly lessons for an entire academic year, but it is not possible to determine this from a simple list of ‘activities’. There is also a lack of focus on the impact of independent-state partnerships in terms of whether the state schools and their pupils actually feel the partnership is useful. That is not to question the motivation of the independent schools, but in the context of ‘public benefit’ it cannot be assumed that the mere existence of a partnership is beneficial to local pupils and communities in the absence of supporting evidence. Furthermore, while some partnership activities may be inexpensive and relatively simple to arrange and sustain (e.g. hosting sporting events), others could require a far greater investment of time and money (e.g. collaborating on professional development programmes). Again, though, this crucial information about the level of investment in these partnerships is not available in the published data.
Conclusion
The political attention directed at the charitable status of some independent schools is evidently not underpinned by a commensurate level of understanding about what charitable status entails and why it applies to these schools as much as any other organisation. As it stands, charitable independent schools appear to be meeting their legal obligations, so any talk of ‘stripping’ them of their charitable status is both unhelpful and uninformed. Indeed, allowing a government to remove charitable status at will from any institution(s) that it deems to be unworthy of this title would surely be intolerable from a moral or legal perspective.
While it would be wrong (and almost certainly futile) for a government to attempt to forcibly remove charitable status from independent schools under current legislation, it would be unwise for these schools to disregard the debate over their impact on society. 50 per cent of the public feel that independent schools harm Britain as they ‘reinforce privilege and social divisions, give children from better-off families an unfair advantage and undermine the state school system’. An even higher proportion of voters want independent schools to lose their charitable status and tax exemptions. When one combines voters’ scepticism with the recent increase in political pressure, the independent school sector finds itself in an unenviable position. While many of the criticisms that they receive are misguided or simply inaccurate from a legal standpoint, there remains a widely held perception that these schools are not making a large enough contribution to our education system or local communities.
Charitable independent schools therefore face a simple choice. They could try to defend the status quo and use existing charity law to fend off any proposed reforms to their charitable status or tax exemptions, although this is unlikely to win over their critics and, if anything, could antagonise them further and leave independent schools at risk of even harder-edged reforms. Alternatively, charitable independent schools could engage with what the polling data shows that the public want from them: a greater commitment to supporting the poorest families and local state schools. While many means-tested bursaries are handed out every year and there are numerous examples of valuable partnerships between independent and state schools, the lack of transparency surrounding these activities will do little to assuage concerns that less privileged families and state schools are missing out.
Instead of becoming embroiled in pointless (and, most likely, unsuccessful) legal disputes, the main goal for policymakers should be to reinforce the good work already being done by many charitable independent schools while also demanding a greater contribution from those independent schools that are not offering enough benefits to the most deprived pupils and localities despite having the capacity and resources to do so. In addition, independent schools should embrace a fully transparent approach to their charitable activities. Instead of seeing this as a burden, the most proactive schools have nothing to fear from such openness and public perceptions are more likely to improve if voters can see tangible changes in the breadth and depth of support being provided. The following recommendations set out a route by which government could achieve these objectives in the coming years, with the aim of improving the lives of many disadvantaged families and communities – something that both policymakers and charitable independent schools can surely agree is a worthy ambition.
Recommendations
- RECOMMENDATION 1: Given the significant legal and financial risks associated with trying to remove charitable status from independent schools or charge VAT on independent school fees, these reforms should not be pursued by either the current or a future government.
- RECOMMENDATION 2: To ensure that charitable independent schools are accessible to families across the income spectrum, the 2011 Charities Act should be amended to include a legal definition of ‘public benefit’. This should include the condition that the fees charged by any charity (including independent schools) cannot be ‘unduly restrictive’ in terms of who is able to access their services – particularly the poorest households.
- RECOMMENDATION 3: The Charity Commission should issue new guidance alongside the proposed amendments to the 2011 Charities Act. The guidance would require charitable independent schools to report annually on how much financial support they provide to pupils (e.g. bursaries), how they determine who receives such support and the income of families that receive this support. The mainstream charitable schools with the highest fees would also be expected to provide the most financial support.
- RECOMMENDATION 4: To demonstrate their commitment to valued and sustainable partnerships with state schools and local communities, charitable independent schools should be expected to publish full and transparent details of the cost, frequency and scale of their partnership activities.