Public Benefit Test For Charitable Independent Schools

On 14 July, the Charity Commission published the long-awaited results of the first pilot assessments conducted by the Commission earlier this year on 12 charities as to whether they provide sufficient public benefit to justify retaining their charitable status.

The assessments arose out of new regulations contained in the Charities Act 2006 which require all charities to demonstrate on an ongoing basis that they supply sufficient benefit. The charities assessed included several independent schools, care homes and religious organisations.

Two independent schools and one care home charity failed the test and have been ordered by the Commission to come up with an action plan within 12 months to improve public benefit.

Whilst this has been seen by many as primarily an issue of concern for charitable independent schools, the issue affects all charities. However, the pilot assessments concentrated largely on charities charging high fees, as the public benefit provided by such organisations was seen by the Commission to be most controversial. The Act requires charities to demonstrate that the opportunity to benefit from its services must not be unreasonably restricted by the ability to pay any fees charged, and people in poverty must not be excluded from the opportunity to benefit.

This issue has particular importance for the south west given the large number of charitable independent fee charging schools and charitable care homes based in the region.

One of the charities assessed was a care home based in Cornwall, Cornwall Old People’s Housing Society, which passed the test.

The key area in which the charities failing the test fell down was that in the Commission’s view, the organisations did not devote sufficient resources to allow people who would not normally be able to afford the fees, and people in poverty, to access the core services provided by the charity.

In the context of the independent schools, considerable emphasis was placed on the amount of income and/or reserves devoted by the charity to means-tested bursaries and free places, and how widely the charity publicised the availability of this financial support. Less emphasis was placed on the other, less direct ways in which a school could provide opportunities for children whose families would not normally be able to afford the fees, for example by allowing schools in the state sector and the wider community to use the school’s facilities.

Charities should be reassured that there will be no automatic ’red card’ and immediate loss of charity status for organisations that fail the test, and the Commission will work with trustees to improve the level of public benefit and allow time for this, so actual loss of charity status is likely to be quite rare.

The publishing of the reports represents a welcome clarification of sorts of the public benefit rules, as many charities have been concerned about a lack of clarity as to what they will need to do on a practical basis to pass the test.

Having said this, there will now be pressure on charities which feel they are unlikely to meet the criteria to either increase fees or undertake additional fundraising to create the necessary resources to enable them to offer more reduced fee or free places. This is much easier said than done in the current economic climate where, for example, some independent schools are already experiencing a reduction in fee income due to falling pupil numbers, and maintaining donations from members of the public and corporate bodies even at current levels is proving very difficult if not impossible for many charities.

It is therefore vital that all charities, not just schools and care homes need to have an understanding of the criteria and an action plan to enable them to demonstrate they will pass the test.

The Charity Commission assessment report scan be accessed as follows:
http://www.charity-commission.gov.uk/publicbenefit/pbassessreports.asp

Published 14/07/2009. The author of this article is James Evans