Joint Committee on the Draft Charities Bill
15 June 2004
(1) The Independent Schools Council (ISC) represents the seven leading independent schools associations in the United Kingdom, collectively educating 508,000 children in 1,278 schools.
(2) 83% of ISC schools (1,061 schools in total) are charities, including all but three schools in membership of HMC (Headmasters' and Headmistresses' Conference), GSA (Girls Schools' Association) and SHMIS (Society of Headmasters and Headmistresses of Independent Schools). 90% of pupils in ISC schools (456,000 out of 508,000) are in schools which are charities.
(3) ISC schools see themselves as part of the overall provision of education in the United Kingdom. As a matter of policy and practice, ISC is firmly committed to developing partnerships between the maintained and independent sectors, and to delivering benefits to the maintained sector, to local communities, and to the wider public.
(4) ISC welcomes the draft Charities Bill and its mission to provide clarity and stability for all charitable sectors. There is a long-standing tradition of ISC schools benefiting the community as well as their own pupils, and ISC is committed to fostering that tradition in partnership with schools and with the Charity Commission.
(5) Public attention tends to be focused on the very few ‘household name' schools which, because of their history, have substantial endowments. It is important to realise that the majority of ISC schools have little or nothing in the way of endowments, and are dependent for most of their income on fees. They are small undertakings: more than half of all ISC schools have an annual turnover of £3 million or less. Even the largest schools are, by normal business standards, no more than medium-sized enterprises. As charities, all surplus income is applied to charitable purposes.
(6) The evidence in this paper is sent on behalf of all the ISC Associations and their schools. In the knowledge that this evidence is being sent, schools and Associations which would otherwise have submitted evidence are relying on and support the evidence from ISC.
Evidence
(7) The evidence is concentrated on the question in the Press Notice issued on 13 May 2004, namely "Do fee-paying schools which are charities demonstrate adequate public benefit arising from their activities". The answer is yes, and overwhelmingly so.
(8) ISC schools which are charitable educate 456,000 children, 440,000 from the UK. On the Government's own figures[1], this saves the public purse £1.98bn each year, and frees this amount for spending elsewhere in the education sector, including on maintained schools, on pre-school provision, and on university and higher education
(9) The education of 456,000 children is in itself a public good
(10) ISC schools add educational resources, both in quantity and in diversity, which would otherwise not exist
(11) The fiscal benefits of charitable status to ISC schools are estimated at £88 million. The £1.98bn saving to the public purse from the existence of these schools is 22.5 times the value of the fiscal benefits of charitable status
(12) Access to the education provided by ISC schools is extended, through means-tested bursaries and scholarships, to children whose parents would not otherwise be able to pay the fees. 31.5% of children at ISC schools receive help with their fees: 23% of them from the school itself
(13) Many ISC schools actively raise funds to increase their ability to educate children from less well-off families, and charitable status helps them do this. ISC schools give £2.30 in assistance, more than half of it through means-tested benefits, for every £1 gained through charitable status
(14) The excellence of the education in ISC schools, at many different levels of ability, is in itself a public good. The OECD Programme for International Student Assessment (PISA) report in 2001 compared combined reading literacy scores in 27 countries. UK independent school pupils achieved the best results in the survey by a wide margin[2]
(15) Because ISC schools are acknowledged as world leaders in education they contribute hundreds of millions of pounds to the UK balance of payments - £283m in 2003[3] - by bringing in fees from abroad. They also enhance the image of the UK worldwide, and enhance international understanding by educating children from many different countries
(16) 12% of children in ISC schools have special educational needs[4] including dyslexia, dyspraxia, and special needs as gifted children. Providing for these needs is in itself a public good
(17) ISC schools include specialist schools for children who are deaf, or blind, or who have exceptional musical gifts or performing talents. These schools provide education which would not otherwise be available
(18) ISC schools offer use of their facilities - sports facilities, swimming pools, theatres - to maintained schools and to the local community
(19) ISC schools are engaged in a range of partnership activities with the maintained sector and with local communities to extend benefits to them and to the public at large. The appendix to this evidence gives examples of the contribution made by ISC schools in Manchester
(20) Partnership activities include making teaching and learning materials available on the internet; the provision of teaching in specialist or minority subjects where provision is lacking in the maintained sector; special tuition for children from maintained schools who are seeking places at leading universities; and specialist tuition in music, drama, and the arts. ISC schools are active in the Independent/State School Partnerships (ISSP) scheme, and are giving time and expertise to help set up City Academies
(21) ISC schools use their own resources to recruit people into the teaching profession and to induct and train them. They actively assist teachers in achieving Qualified Teacher Status, which qualifies teachers to move to the maintained sector. Through the ISC Teacher Induction Programme ISC inducts more newly-qualified teachers than any other body in the UK
(22) ISC schools add to diversity through encouraging and funding research and innovation. The results of initiatives in ISC schools act to stimulate debate and to raise standards
(23) ISC schools offer diversity in the size and character of their schools, which include co-educational and single-sex schools; faith schools; large schools, small schools; specialist schools, and boarding provision. This diversity gives parents a breadth of choice which is not widely available in the maintained sector. More than half of all girls educated in single-sex schools in the UK are educated in the independent sector.
Costs and benefits
(24) ISC schools give back directly £2.30 for each £1 gained by charitable status, and indirectly benefit the public purse by £22.50 for each £1 gained by charitable status. These cash benefits are in addition to the educational benefits provided to the pupils in ISC schools and to the wider community
(25) Unlike schools in the maintained sector, independent schools - charitable and non-charitable - suffer the burden of irrecoverable VAT on buildings, maintenance and on other costs. The amount of irrecoverable VAT paid by ISC schools which are charitable is estimated at £170 million per year. This is almost double the amount of the fiscal benefits from charitable status
(26) Fee-paying parents of children at ISC schools, if they live in the UK, have paid through taxation for the state education of their children. Their choice of an independent school means that they pay twice to educate their children
(27) The argument, sometimes raised, that charitable status is a tax subsidy from the poor to the rich does not survive examination. Sixteen million UK adults pay no income tax. The education of their children is, as it should be, paid for by people who are better-off. It is, though, clear that they do not subsidise the education of other children[5]
(28) Charitable status widens access. It enables schools to increase the availability of means-tested bursaries for children from less well-off families. More particularly, charitable status encourages schools to launch appeals to fund means-tested bursaries and encourages potential donors to give to these appeals. If charitable status were removed, there would be fewer donations, fewer bursaries, and reduced access to children from less well-off families
(29) Independent schools which are charitable deliver enormous public benefit over and above the very real benefit of educating their pupils. ISC is happy to work with Government and with the Charity Commission to advance and facilitate co-operation with the Government, the maintained sector, and with the wider public.
Footnotes:
[1] Chancellor of the Exchequer, Budget Speech, 17 March 2004; Prime Minister, Speech to National Association of Head Teachers, 3 May 2004.
[2] Knowledge and Skills for Life: First Results from PISA 2000, Table 7.13, OECD 2001
[3] ISC survey of member schools January 1999
[4] ISC Annual Census 2004
[5] Institute for Fiscal Studies: A Survey of the UK Tax System, Stuart Adam and Jonathan Shaw, November 2003.
Definition of public benefit
The other question addressed by this evidence is whether the phrase ‘public benefit' is best left undefined in the Bill. The answer is yes, for the following reasons:
(30) The Bill as it stands modernises and clarifies charity law. It removes the presumption of public benefit, and thereby requires charities, from all sectors, to demonstrate public benefit. The Charity Commission is given the regulatory function to determine whether an institution is a charity, together with the power to do anything necessary to perform its functions. It therefore has the authority to inquire into the public benefit provided by charities. This provides a clear mechanism for monitoring public benefit and, where necessary, for bringing charities back to their charitable purposes
(31) With that context, a statutory definition of public benefit is unnecessary. Case law provides guidance to all charitable sectors on the nature of public benefit. Case law also provides flexibility: courts can develop the law in the light of changing circumstances. Existing case law will be made subject to the removal of the presumption of public benefit. That single change is all that is needed for public benefit to be safeguarded for all charitable sectors
(32) A statutory definition of public benefit would introduce uncertainty for all charities because any definition would need to be interpreted by the courts. Even a provision which aimed merely to restate existing law would tend to have the opposite effect: there is a presumption that statutes change the law. There would be a compelling argument that any statutory definition had changed the law, and considerable scope for argument on the nature and extent of the change. The process of interpreting a statutory provision would, in all probability, take a number of years, with charities meanwhile unsure of their position and expending charitable assets on legal fees
(33) The Bill gives the Charity Commission clear regulatory objectives and wide powers, including powers to give advice and guidance; to give specific directions for the protection of any charity; to direct the application of charitable assets; to enter premises and to examine accounts. The Charity Commission will have an important function in developing law and practice over time. It will be hindered in this function by a statutory definition of public benefit, because unexpected "hard cases" will arise which will need litigation. That will waste time and resources for charities and for the Commission, and will delay the development of charitable activity.
APPENDIX 1: ISC SCHOOLS IN MANCHESTER
This case study looks at five Independent schools in Manchester, educating nearly 3,900 children. All of them are ISC schools, and all are charities. In many different ways they benefit not only their pupils but also the wider community.
Manchester Grammar School (MGS)
MGS is one of the UK's leading academic schools for boys. Although its fees, at £2,147 a term, are within the reach of many parents, the aim of MGS is that its education should be available to pupils regardless of means. In the past seven years, MGS has raised £10 million for its bursary fund from sponsors across the political and social spectrum. Out of a total of 1400 pupils, 231 receive help with their fees from school funds. Help is means-tested, and the average level of assistance is 80% of fees. Parents with an income of £31,250 or more do not qualify for assistance; at £11,300 or below, assistance is 100% of fees.
For many years, MGS has fostered links with local maintained schools. Currently it gives maths master-classes at a city academy, and runs an Oxbridge access scheme, helping sixth formers from maintained schools with tuition and with interview techniques.
Over 40 young people from disadvantaged schools took part in a production of Romeo and Juliet directed by MGS's Director of Drama and staged at the school. As well as making its expertise, staff, money and facilities available, the school raised £31,000 in sponsorship money for the production, which received rave reviews.
In sport, the school's football pitches have been offered to the Manchester City FC youth team, and the school has long been a centre of cricket excellence (former England captain Mike Atherton attended a local primary school before joining MGS). Its community action programme is a beacon for other schools in the North-West.
Manchester High School
Manchester High School is high-achieving academic school for girls, producing some of the best results in the country. As a day school, its fees, at £2,247 a term, are within the reach of many parents. To widen access, the school has raised over £1 million for its bursary fund and now supports nearly 100 girls in the senior school on bursaries, at an annual cost to the school of £360,000. Other students are helped by external charitable trusts.
Manchester High School has an extensive record of partnership activities and co-operation with local schools. Its link with Medlock, an inner city primary, is now six years old. Originally supported by Government funding, and then by the Sutton Trust, the link has been funded by the school and the LEA for the past four years. Sixth-formers from Manchester High School learn mentoring skills in order to support underachieving Year 6 pupils from Medlock, both in the primary school and at the High School, which offers the use of its laboratories and other facilities. At a second inner city primary school, Claremount, sixth form girls act as classroom assistants on a weekly basis. A bid for partnership funding with Altrincham College of Arts has just succeeded: the £46,000 music project will broaden the musical experience of girls from the High School and increase the uptake of music at Altrincham.
William Hulme's Grammar School
This co-educational school is probably the most ethnically integrated school in the city. 65 per cent of its pupils come from ethnic minorities, speaking 19 different first languages. 40 per cent of pupils receive assistance with fees from the school or from other trusts. The diversity of its ethnic mix comes from the school's wide catchment area: maintained schools with more restricted catchment areas tend to keep children within their own ethnic communities. The school's contribution to ethnic cultural development operates in sensitive areas: for example in persuading Muslim families to send both their boys and their girls to the school. Sports facilities, including the swimming pool, are available to the local community.
Withington High School
This girls' school was placed equal second in last month's Financial Times Survey of the 1000 best schools in the country. All bursaries at the school are means-tested, with 90 out of 540 senior girls receiving help under the school's own assisted places scheme, and with other pupils supported by trusts, including the Ogden Trust, the HSBC Education Trust, the Greater Manchester Educational Trust and the Peter Kershaw Trust. The school is about to launch a bursary appeal to extend financial support and expand its outreach programme with local state primary schools. The Charities Committee, made up of Sixth Formers, organises regular events involving the whole School in a variety of fund raising events for charities in the UK and overseas.
Two bids for Government ISSP funding have just succeeded. One is a music-based project in association with the Northern Chamber Orchestra, Trinity High School and a number of local state primary schools. The second is a two-year arts-based project in association with Whalley Range High School, the Manchester and Whitworth Art Galleries and local Craftswomen.
There are long-standing links with a local inner-city primary school - sixth form pupils visit as classroom assistants and the head of classics runs after-school Latin classes with Year 5 and 6 pupils.
The school's facilities are regularly used by local sports, music, and drama groups; and a number of means-tested bursaries are available for summer holiday courses, all of which are open to the local community.
Chetham's School of Music
Chetham's is one of England's four specialist music schools, educating exceptionally gifted young musicians from all backgrounds. Nearly 90 per cent of its pupils (260 out of 290) receive assistance with their fees under the Government's Music and Dance Scheme. The school also gives bursary assistance, mainly to overseas students, helping to enhance Britain's international cultural reputation.
Chetham's takes its music out into the community through a musical outreach programme of workshops and performances in local schools, and through its own concerts. Chetham's is also the choir school for Manchester Cathedral. Every two years, Chetham's undertakes a major community education musical project: the most recent, featuring an opera written for children in the Terezin concentration camp, involved over 2,000 local children in workshops, drama and music projects and performances. The NSPCC is involved as a sponsor for the forthcoming 2005 project.
APPENDIX 2: LETTER FROM ISC TO JOINT PARLIAMENTARY COMMITTEE
Andrew Kennon
Clerk to the Joint Committee
Scrutiny Unit, Room G10
7 Millbank, London SW1P 3JA
15 June 2004
Dear Andrew
Joint Committee on the Draft Charities Bill
It was good to meet, however briefly, at the end of the Joint Committee hearing on Wednesday 9th June, and I look forward to giving evidence, if called, on 30th June. May I through this letter correct one statement made during the course of Wednesday's hearing, and also comment on one major issue of substance raised during the hearing.
The statement
In a necessarily brief preamble to a question, Lord Phillips indicated that independent schools were saying, in their written evidence, that indirect public benefit - i.e. saving money to the taxpayer - was enough to secure charitable status. That is not the view of the Independent Schools Council. Our written evidence contains a long list of reasons which support the charitable status of independent schools, of which indirect public benefit, though a very large benefit, is only one.
Indirect public benefit is not conclusive in either direction. It is entirely possible for an institution which increases the cost to the taxpayer to be charitable. An example would be a new venture, established under one of the heads of charitable activity, which operated for the public benefit and was funded by the taxpayer. Conversely, an institution which restricted its benefits solely to a narrow class (either by status or by wealth), and without allowing the chance of participation beyond that class, would not be charitable, regardless of the saving to the taxpayer.
Applying the principles of Re Resch [1969 1 AC 514], which is the leading case on this area of charity law, indirect public benefit is a factor to be taken into account, but, as I have said earlier, is not conclusive in either direction.
The issue
It is probably simplest if I set out the relevant section of a short briefing paper to the Governing Council of the Independent Schools Council. The section sets out the issue and our view of the issue. The Joint Committee is of course welcome to see the full document.
The main issue
The main issue for all charitable sectors is whether "public benefit" should be defined on the face of the Bill. The Draft Charities Bill adds new heads of charitable activity; removes the presumption of public benefit; and requires all charities to be for the public benefit. In the Draft Bill as published, the meaning of "public benefit" is expressed rather than defined: the Bill says that the meaning of public benefit shall be as the term is understood for the purposes of the law in England and Wales. In brief, that means case law. The choice, therefore, is either starting from existing case law, which can be allowed to develop, or introducing a definition on the face of the statute.
NCVO were very clear that a statutory definition could quickly become "sclerotic", and that there should therefore be no statutory definition. Their view was that case law provided flexibility to adapt to changing circumstances. The same view is held by ISC.
Andrew Phillips (Liberal Democrat Peer; distinguished charity lawyer) then read - without either approving or disapproving - extracts from a briefing from the Charity Commission, in which the Commission expressed doubts as to their ability, because of existing case law, to review the public benefit of independent schools even after the removal of the presumption of public benefit. Stuart Etherington of NCVO questioned whether Home Office lawyers shared that view: our understanding is that they do not. Nor indeed, so far as I am aware, has the view now being expressed appeared at any time in the Charity Commission's own publications.
Andrew Phillips asked whether, if the Charity Commission were correct in their view, there would need to be a public benefit definition on the face of the statute. Stuart Etherington said yes, otherwise there would be no point in the Bill.
The Charity Commission argument
The Charity Commission argument is flimsy in the extreme. It is based on an 1827 case (Earl of Lonsdale's case [1 Sim 105]) in which the Vice Chancellor said that a school for the sons of gentlemen could be charitable. The Charity Commission are saying that this means that a school limiting its intake solely to a narrow class, whether by rank or wealth, will be charitable despite the removal of the presumption of public benefit, and that therefore the Commission will be unable to perform its regulatory function of reviewing public benefit. There are a number of reasons why the Charity Commission argument is weak. Taken together, the argument does not carry any weight at all:
The Lonsdale case comes from early in the 19th Century, before charity law had properly developed to the point at which charitable objects were treated as distinct from public benefit. For that reason alone, the issue of public benefit was not even discussed and accordingly the case is weak
The statements about charitable status are obiter dicta. Obiter dicta are statements in a judgment which are not central to the decision in the case, do not form part of the decision, and are not authority
The statements are ambiguous. As I read them the Vice Chancellor is doing no more than referring back to the preamble to the Statute of Elizabeth, which lists objects deemed to be charitable at that time. He was not altering or developing the law, and indeed could not be doing so through obiter dicta
The issue of charitable status was not argued before the court: the lack of argument weakens the already obiter dicta still further
There are only two later cases which refer to the Lonsdale case. In neither of those cases are the issues fully discussed. In both cases, although the question of whether the school was a charity was relevant, the issue before the court was a different one and the question of public benefit was simply not explored. Very significantly, the Lonsdale dicta have not been mentioned at all (in court) since Re Resch [1969 1 AC 514], which is the leading case on this area of charity law
It is in the highest degree unlikely that dicta from the Lonsdale case would stand against the Privy Council judgment in Re Resch. Lord Wilberforce gave the judgment of the court (i.e. there is a single judgment expressing the decision of all the judges). His judgment carefully reviews charitable law, including the requirement of public benefit, and makes it clear that limiting benefits solely to a narrow class would not be charitable. Resch is the leading case on this area of charity law and there no real doubt that Resch would beat Lonsdale, not on a points decision but by a walkover.
The Joint Committee will be promoting legislation for the real world rather than for a parallel and hypothetical universe. At the very most, in the real world, a school determined to provide no public benefit beyond a narrow class (and no such schools exist) could just about get a case on its feet which raised Lonsdale as a very feeble defence against regulation by the Charity Commission. No competent lawyer would advise trustees to make this attempt. For any case to get anywhere near the door of the court you would need trustees with deep enough pockets to pay, out of their personal wealth, the costs of a case which was doomed to failure. Personal wealth would be needed because trustees could not use charitable assets on such a frivolous exercise. Kenneth Dibble, Director of Legal Services at the Charity Commission, has expressed the clear (and accurate) view that the Commission would win any such case. Precisely so. It would be regrettable if, for the sake of a vanishingly remote possibility, hypothetical to the point of non-existence, the Joint Committee replaced the flexibility of case law with the sclerotic alternative of statutory definition."
Could I perhaps add two sentences from the Charity Commission's publication RR8 - The Public Character of Charity. They run as follows, and are on page 2 in bold type:
"The public character of charity is upheld by ensuring that an organisation benefits the public as a whole, or a sufficient section of it. Whether this is the case can only be decided on a case by case basis."
Please could you treat this letter as part of the written evidence from the Independent Schools Council and bring it to the notice of the Joint Committee.
Yours sincerely,
Jonathan Shephard
General Secretary, Independent Schools Council