Private Schools Under Threat To Lose Their Charitable Status

Private schools’ charitable status could be under threat now that the new Charities Act 2006 is coming into effect.

Anna Roderick, member of the Charities and Social Enterprise Team  said  “The new Act took a long time to get on the statute books but it is certainly beginning to make its presence felt.

“One of its most controversial issues, the change to the rules on public benefit and their impact on fee-charging charities, particularly independent schools has been debated widely in the press.”

The new Act will only give or maintain an organisation’s charity status if its purpose is for the public benefit.

Despite significant pressure during the Act’s passage through Parliament there is no test for or definition of public benefit. The Act specifies that the term, “public benefit” is to continue to be interpreted as understood for the purposes of existing case law.

However the Act also imposes a new obligation on the Charity Commission to publish guidance on the issue of public benefit and for charity trustees to take these obligations into account when exercising their powers and duties. This makes the Commission responsible for determining what is actually meant by “public benefit” and whether or not a charity is doing enough to satisfy the new test.

The most controversial part of the Charity Commission’s definition is that a charity must not exclude entirely those who are less well off from the benefits it offers. The impact from this on the region’s independent schools could be fundamental and was fuelled by the comments made by Dame Suzi Leather, Chairwomen of the Charity Commission, in The Times on Saturday 18th August.

Dame Suzi said, “Same as every other charity in the land, they will have to show that they bring public benefit….including to people on low incomes….There’s a level playing field for everyone now”.

So, how are such schools expected to prove their public worth? Some argue that saving the taxpayer the cost of educating a significant proportion of children in the state sector is reason enough to justify their tax breaks (estimated to be around £100 millions a year). It seems unlikely that Dame Suzi will agree. In The Times she cited the example of St. Paul’s boys school in London which is trying to build up a sufficiently large bursary fund so that, within 25 years, it can offer places purely on grounds of merit and without taking in account parents’ ability to pay. A tough act to follow!

There has been a huge barrage of reaction from the independent school sector to her comments. What seems certain, however, is that whatever one’s personal views on the topic, the trustees of independent schools ignore the new Act at their peril.

Anna Roderick adds “Although the Commission promises to take an incremental approach to the introduction of the new public benefit requirement when it comes into force early next year, Dame Suzi leaves little room for doubt that, when it comes to independent schools, the Commission will be looking for hard evidence rather than hot air.

“To help independent schools and other charities prove their public benefit we have launched a ‘Public benefit audit’ service tailored to charities of all types which we intend will help charity trustees and senior managers identify the public benefit currently provided by their organisation and what action they need to take to ensure compliance with the new law.”

Published 20/08/2007. The author of this article is James Evans