Charities Bill

26 June 2006

The Independent Schools Council (ISC) represents 1,272 schools educating more than 500,000 children. 1,054 ISC schools are charities. Although ISC schools include a small number of ‘famous name' boarding schools, most ISC schools are day schools with names which are not known beyond their local communities. 25% of pupils at ISC schools come from postcodes with average or below average incomes. Using standard measures of social deprivation, it is likely that 330 ISC schools have a higher percentage of children from "hard-pressed" areas than the top 200 comprehensive schools. Most ISC schools have little in the way of endowments and are dependent, as are other fee-charging charities (for example retirement homes), on fee income. Despite this, 24% of pupils at ISC schools received help with fees from their school, and this proportion is growing.

ISC supports the Charities Bill which follows exhaustive work by the Strategy Unit at 10 Downing Street, a further exhaustive investigation by the Joint Committee of Peers and MPs, and by the House of Lords. It is one of the most carefully considered pieces of recent legislation.

In common with the Charity Law Association and with other charitable sectors, ISC believes that the Charities Bill reaches the House of Commons in a good and workable state, and does not need significant amendment.

Independent schools will need to demonstrate that they provide public benefit, and we support the change to the law which removes the presumption that educational and other charities provide public benefit.

Charitable status underpins the social purpose of charitable schools. New and well-funded commercial providers have entered the education sector, and the largest and best-funded, Cognita, is on record as saying that independent schools should not co-operate with the maintained sector. That approach is entirely rejected by the Independent Schools Council: our mission is to work in partnership with Government and the maintained sector as part of the educational provision for the United Kingdom. There are many hundreds of successful existing partnerships, not only through the ISSP (Independent/State Schools Partnership) but also

operating through individual co-operation at local level. Charitable status encourages and safeguards partnership with the maintained sector. This is particularly important in reversing the decline in the number of pupils gaining qualifications in mathematics, the hard sciences, and modern languages: reversing this decline is socially and economically essential . We believe that the public would prefer a socially engaged independent sector, committed to partnership with the maintained sector, to the alternative of a non-charitable independent sector, disengaged from society. The choice was well put in the House of Lords by the Cross-bench peer, Lord Best:

"There are now private companies promoting purely profit-making, fee-charging independent schools. ... Such schools will take their fees and do not accept a responsibility toward the wider community-no bursaries for those from less affluent households, no support from specialist teachers for the comprehensive school down the road, no opening up of facilities for pupils of state schools, no underlying tradition and ethos of educational service to the educational community"

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The remainder of this note deals with issues in Question and Answer form.

Q. What are the fiscal benefits of charitable status for independent schools?

The annual fiscal benefits of charitable status for ISC schools were surveyed in autumn 2004. They amounted to £99 million:

equivalent to 2.4% of fee income. In return, ISC charitable schools now give £286 million in fee reductions, and another £26 million in other charitable activity, making a total of £312 million. This is a direct return of more than £3 for every £1 gained from charitable status. Additionally, ISC charitable schools pay around £200 million in irrecoverable VAT; this is a charge which is recovered by maintained sector schools. ISC charitable schools are, therefore, significant net tax contributors. By educating 440,000 UK -resident children at no cost to the state, ISC charitable schools save the Exchequer over £2bn. For each £1 of fiscal benefit from charitable

status, ISC charitable schools return a total of £25. The great majority of this spend being funded by fees. Parents sometimes question why they should subsidise the education of others, and the reply is that, as charities, this is part of our social purpose.

Although a very few ISC schools have substantial endowments, the majority have little or nothing in the way of endowments and are dependent on income from fee-paying parents, who have already paid, through taxation, for the education of their children by the State. The latest benchmarking survey by Horwath Clark Whitehill assesses average investment income as only 1.8% of fee income.

Q. Is indirect public benefit through savings to the taxpayer enough to meet public benefit requirements?

Indirect public benefit is not enough on its own to ensure charitable status. There are many reasons (see below) which support the charitable status of independent schools, of which indirect public benefit, though a very large benefit, is only one. Savings to the taxpayer, however large, will not be enough on their own to make a school (or hospital, or retirement home) charitable.

Q. Should there be a statutory definition of public benefit on the face of the Bill?

The Charity Law Association is strongly against a statutory definition because it wants interpretation of public benefit to develop organically through case law, rather than to be set out inflexibly in statute. This is also the view of the majority of evidence given to the Joint Committee of Peers and MPs. The view of the Charity Law Association is that no statutory definition would even remotely be able to encompass the enormous range of charitable activity: such a definition would be unworkably long and would itself need to be reinterpreted through legal cases, causing uncertainty and expense to charities.

Q. Is there a danger in restating existing law on the face of the statute?

The danger is considerable. The presumption is that, other than in a Consolidation Act, statutes do not merely resta te existing law. That means that, even if public benefit principles were capable of being comprehensively encapsulated and put on the face of the Bill, the presumption of a change to the law would remain, meaning that the courts would need to re -interpret the law. Both the Draft Bill and the Bill as now published say that public benefit is "as that term is understood for the purposes of the law relating to charities in England and Wales". In other words, public benefit is as set out in case law, and the concept and definition of public benefit will continue to develop as case law develops. That is the preferred option for most charities: the flexibility of case law is preferable to any statutory definition.

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Q. What is the role of the Charity Commission?

The Charity Commission, as regulator, will require charities, including schools, to audit the public benefit which they provide, and to demonstrate that they provide sufficient public benefit. We support this role, and are keen to work with the Commission to develop guidance for schools.

Q. What charitable purposes and public benefit do charitable schools in the independent sector provide?

• Education itself has long been (and remains) a charitable purpose and a public good. Educating 440,000 UK-resident children is a

public good. It would be contrary to common sense to say that education was charitable unless it was provided by a school.

• The independent sector saves the public purse over £2bn per year by educating children whose education would otherwise have to be provided by the State. Parents who pay fees for their children's education also contribute to State education through

taxation.

• Through bursaries and scholarships, independent schools provide £286m per year in help with fees. That compares with fiscal benefits from charitable status of £99m. 32% of children at ISC schools receive help with their fees. With all charitable benefits provided by our schools estimated at £312m per year (help with fees, plus grants, prizes and external charitable activity), schools give back more than £3 in charitable benefits for every £1 received.
• Unlike other charitable sectors, ISC charitable schools benefit the state financially rather than depend on it. Many charities are dependent on public funding for as much as 40% of their income. Conversely ISC charitable schools, through help with fees, other charitable benefits, irre coverable VAT (amounting to £200m per year), and indirect savings to the Exchequer through removing students from state education provision, give back £25 for each £1 of fiscal benefits from charitable status.
• Independent schools offer particular excellence in art, music, sport, mathematics, ‘hard' sciences and in modern languages, providing a significantly high proportion - in some cases more than 50% - of A grades achieved at A-Level in these subjects

nationwide despite educating just 17% of A-Level students. This excellence - often achieved with children who would not get to a state grammar school - is not fully understood. People generally understand that the independent sector obtains good exam results, though they assume, wrongly, that the children are all academically gifted. What is less understood is the extent to which independent schools sustain the UK's economic future by producing a very high proportion of pupils achieving A grades at A Level in difficult subjects. In 2005, the independent sector produced 43% of the A grades achieved in A-Level mathematics by candidates from schools. For physics the figure was 44%; for biology, 43%; for chemistry, 46%; for economics, 58%; for modern languages, 58%; and for classical studies, 72%. These are areas of study under threat in UK universities, and so the contribution of the independent sector in providing pupils with solid groundings in these subjects - both through its own pupils and through sharing tuition with the maintained sector, is vital.

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• Independent schools provide numerous non-financial benefits to the community. ISC schools offer use of their facilities to maintained schools and to the local community. Further time and resources are devoted through schemes such as

Independent/State School Partnerships; the establishment of Academies; other 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.

• Independent schools help to increase social mobility by educating children who would otherwise not have the opportunity to reach their potential. This is directly counter to the widespread and wrong belief that independent schools educate a self perpetuating class. The reality is that 40% of parents of children at independent schools are first-time buyers, that 25% of pupils at independent schools live in areas where incomes are at or below the national average, and that most schools are keen to repair educational disadvantage, though (for the majority of schools) there is little income beyond fees paid by parents who have already paid, through taxation, for the education of their children.

Q. Will some schools lose charitable status once the Bill becomes law?

Loss of charitable status is very much a last resort. The job of the Charity Commission is to ensure that all charities, including independent schools, meet the public benefit requirement. If a charity is not doing enough, the Commission will ask it to do more, and can then move to increasingly severe sanctions, including replacing the trustees. It would therefore require both the initial

trustees and the replacement trustees to be intransigent before charitable status was removed. We are advising schools that they need to prepare for the public character checks which the Charity Commission will undertake. There are some charities - some retirement homes, for example - where the charitable purpose is clear but where public benefit may be difficult to demonstrate. In these cases, the best solution may be for the institution to continue in being as a not-for-profit organisation, and it would be useful for a route from charitable status to not-for-profit status to be available.

Q. What would be the effect if charitable status were removed from independent schools?

It is in the public interest that independent education should be provided by charitable bodies, motivated by a philosophy of goodwill toward the wider community in which they exist, than by profit-making companies that turn their backs on the maintained sector and wish to operate in a way that polarises society between the rich and the rest. Charitable status underpins the social purpose of

independent schools and integrates them into society. There is a real risk that purely commercial schools will concentrate on fee-paying parents and ignore the local community.

Jonathan Shephard

General Secretary, Independent Schools Council

30 Orange Street London WC2H 7HH

020 7766 7070 www.isc.co.uk