Tribunal overturns Charity Commission guidance on public benefit

Commission’s approach branded "obscure or wrong" in key areas

The Independent Schools Council (ISC) is delighted that the Upper Tribunal has today overruled the Charity Commission’s approach to public benefit and discredited controversial parts of the Commission’s statutory guidance as "obscure or wrong".

Today’s ruling brings welcome clarification of the law, and ensures responsibility for public benefit decisions is taken away from the Commission and returned to governors.

Our purpose in initiating these legal proceedings was to establish the right principles which apply to the establishment and operation of independent schools as charities. The Commission’s guidance, and the action it took based on the guidance, was prescriptive and interventionist. It failed to provide sufficient clarity for trustees on the underlying principles of public benefit relevant to schools. And, as confirmed by today’s ruling, it was wrong in key aspects.

Today’s ruling assists the many thousands of school governors who give their time and expertise freely and willingly to run some of the best schools in the world. It establishes three principles of enormous significance for schools:

• It puts governors firmly back in the driving seat on decisions relating to public benefit. [See extracts 8 and 9 in the attached list of citations from the judgment]
• It breaks the link, established in the guidance and doggedly pursued by the Commission in its assessments, between bursaries and public benefit. Bursaries remain important but not to the exclusion of other activities which reach out beyond the school gates. [See extracts 10 and 11 in the attached list of citations from the judgment]
• It lays to rest any notion that the Commission can threaten independent schools with the loss of charitable status based on the Commission’s assessment of whether the school is doing enough to meet its public benefit requirement. [See extract 5 in the attached list of citations from the judgment]

The ruling expressly recognises that schools are no different to many thousands of charities which provide high value services and have no option but to recover their costs through levying fees. [See extract 7 in the attached list of citations from the judgment]

Matthew Burgess, ISC’s General Counsel, said today:

"Today’s ruling takes public benefit decisions away from the Commission and hands them back to school governors, and for that reason we warmly welcome it."

"The ruling liberates schools to innovate and be creative in their charitable provision. The Commission’s former approach, now discredited by the Tribunal, had the effect of reducing the public benefit of independent schools to a crude calculation of fees and bursaries. The Tribunal has recognised the crucial independence of schools to pursue a panoply of public benefit strategies, free from the apprehension of failing to measure up to an artificial arithmetic benchmark."

"We have never sought to impugn the significance of school bursaries; quite the reverse. We take pride in the major financial contributions that independent schools make to widen access and participation via bursaries. The number of children benefiting each year from means-tested assistance in ISC schools has not only risen year on year, but will soon overtake the number aided by the former Assisted Places Scheme. The crucial difference, of course, is that the money funding the current 39,308 bursaries (more than £260 million) is coming out of the pockets of schools and parents, and not the taxpayers."

"And we also celebrate the many thousands of interactions that occur daily between independent schools, state schools and the communities they serve. Nine out of ten ISC schools are already engaged in partnership activities with state schools and the wider community."

"Each school is in the best position to determine what it can do to fulfil its charitable objectives in the public benefit, and today’s ruling emphasises the independence and autonomy of each school to take the best decisions it can, free from the threat of intervention by the Commission."

Ends

Notes for editors

A total of 164,105 pupils at ISC schools (33%) receive help with their fees. The value of this help totals more than £660 million per year.

More than 80% of total fee assistance comes directly from the schools themselves: ISC schools provide more than £550 million of assistance with fees annually. Over £260 million of assistance is in the form of means-tested bursaries: schools give approximately twice as much assistance in the form of bursaries as they do in scholarships.

956 schools out of 1,234 (77%) are engaged in partnerships with state schools and 1,096 schools (89%) are engaged in partnerships with either state schools or with the community.

All figures are in respect of the academic year 2010/11 and are sourced from ISC’s Census, available online at http://www.isc.co.uk/Publications_ISCCensus.htm

ISC Mission Statement
The Independent Schools Council (ISC): working with its members to promote and preserve the quality, diversity and excellence of UK independent education both at home and abroad.

Additional information
ISC represents the eight leading independent schools associations in the UK, collectively educating more than 500,000 children in more than 1,200 schools in the UK and select British schools overseas. In total, there are around 2,600 independent schools in the UK.

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Andrew Hamilton
Telephone: (office) 020 7766 7062 (mobile) 07825 806017
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Email: andrew.hamilton@isc.co.uk
Website: www.isc.co.uk

Extracts from the Tribunal’s ruling

"… we conclude that principle 2b of the principles of public benefit on which the Guidance focuses is wrong. As the Charity Commission states in Fee-Charging, that principle and principle 2c overlap and we conclude that principle 2c, at least as explained in the Guidance, is also wrong. It follows that, as explained above, various passages in Public Benefit and Fee Charging which are based on those principles are themselves obscure or wrong in a number of respects. The Advancement of Education for the Public Benefit will also be affected by what we have said about the principles, although principles 2b and 2c are not themselves discussed there." [para 235]

"It follows from those conclusions that the Guidance should be corrected. Mr Pearce did submit to us that if we came to the conclusion that the Guidance was indeed wrong, we should nevertheless conclude that the Charity Commission had taken a reasonable view of the law in framing it as they did and should refrain from quashing any part of it, leaving it to the Commission to amend or withdraw the Guidance as they saw fit to reflect this Decision. Although we have every sympathy with the Commission in the difficulty of the task it faced in producing guidance on this area of law, we do not think it right that we should simply leave matters to the Charity Commission to correct without granting the ISC any relief at all." [para 236]

"We see the resulting legislation as something of a compromise, capable of meaning different things depending on the point of view of the reader. It is our function to decide what, as a matter of proper statutory interpretation, the 2006 Act does mean, a task which we must approach without any predisposition to any particular political view-point." [para 18]

"The irony of our analysis, however, is that the 2006 Act itself really makes little, if any, difference to the legal position of the independent schools sector. But what the 2006 Act has done is to bring into focus what it is that the pre-existing law already required, and what the law now requires by way of the provision of benefit and to whom it must be provided." [para 88]

"The status of an existing registered charity and the duties of the trustees have not been changed by the 2006 Act. As to status, either it was entitled to be registered before the 2006 Act or it was not. If it was, its purposes must have been for the public benefit as that term was then understood and, since we are dealing with schools where there is no presumption made under the pre-2006 Act law for the reasons we have given, it thus fulfils the public benefit test under the 2006 Act. Accordingly, whether such a school is a charity within the meaning of the 2006 Act does not now turn on the way in which it operates any more than it did before. Its status as a charity depends on what it was established to do not on what it does." [para 191]

"…a trust which excludes the poor from benefit cannot be a charity. There is no case which decides that point, but we consider it is right as a matter of principle, given the underlying concept of charity from early times … it is highly unlikely, we think, that there is in fact any school which does, as a matter of its constitution, restrict access to those whose families can afford to pay fees." [paras 178 and 186]

"But the schools with which we are concerned are in a very different position. Those schools cannot as easily admit one person as another. Who a school is able to admit depends on the financial state of the school, the size of its endowment and the way in which those running the school choose to prioritise expenditure (eg on providing scholarships or keeping class sizes down by employing more staff) and the facilities which it provides. It is necessary for all of the schools to charge fees. They do not, it seems to us, choose the majority of their students because of a preference for students who have as a characteristic an ability to pay fees; they do so because they cannot afford not to choose such students. And, of course, the charging of fees does not, as we have seen, per se preclude charitable status." [para 210]

"Although it is necessary that there must be more than a de minimis or token benefit for the poor, once that low threshold is reached, what the trustees decide to do in the running of the school is a matter for them, subject to acting within the range within which trustees can properly act. That is something entirely different from imposing on the trustees the view of anyone else about what is "reasonable"." [para 229]

"This is all a matter of judgment for the trustees. There will be no one right answer. There will be one or more minimum benefits below which no reasonable trustees would go but subject to that, the level of provision and the method of its provision is properly a matter for them and not for the Charity Commission or the court. We deliberately avoid using the word "reasonable" … It is not for the Charity Commission or the Tribunal or the court to impose on trustees of a school their own idea of what is, and what is not, reasonable. The courts have never done that in the context of their supervision of trustees of private trusts and the same should apply to charities. There is nothing in the 2006 Act (including the duty to issue the Guidance) which changes that position. But trustees are under the ultimate control of the courts. There is always a range of actions which they can take in a given situation. There is, of course, a limit outside which they must not step. But the identification of that limit is not based on a test of reasonableness." [para 220]

"When it comes to considering whether a school which is a charity is operating for the public benefit in accordance with its charitable purposes, the primary focus must be on the direct benefits which it provides. Scholarships or other forms of direct assistance to students are therefore important. Account can certainly be taken of other direct benefits such as [arrangements under which students from local state schools can attend classes in subjects not otherwise readily available to them] and [sharing of teachers or teaching facilities with local state schools]. Account can be

taken of [making available (whether on the internet or otherwise) teaching materials used in the school] since they are clearly available to the whole community … we consider that [making available to students of local state schools other facilities such as playing fields, sports halls, swimming pools or sports grounds] are to be taken into account in deciding whether a school which is a charity is operating for the public benefit." [paras 201 and 202, cross-referring to para 196]

"Once provision is made for the "poor" which is more than de minimis or merely token, we see no reason why an identified wider benefit should not be taken into account in deciding whether, overall, the way in which the school is being operated is for the public benefit." [para 230]