2nd November 2011

“Our decision will not, we know, give the parties the clarity for which they were hoping.  It will satisfy neither side of the political debate.”

(Upper Tribunal –Tax & Chancery Chamber – 14.10.2011)

For at least the last 5 years most independent schools have been worrying as to how best to meet the public benefit requirement enshrined in the Charities Act 2006.  A minority of schools has not seriously addressed the issue.  Does that minority, reading the Upper Tribunal’s judgement, released on 14 October 2011, raise a cheer and say, “the Charity Commission got their public benefit guidance wrong, the Independent Schools Council got it right and we’re not going to have to trouble ourselves further with Public Benefit”?

Definitely not!  It is true that the Tribunal told the Commission to rewrite their public benefit guidance because in certain respects it was wrong or unclear but the requirement on all charities to provide public benefit has not disappeared.   Indeed, schools should not think that the Commission will cease to be interested in whether in practice they provide a proper level of public benefit in the light of their circumstances.

The trouble is that the “bright line test” as to what does or does not amount to sufficient public benefit is not apparent in the judgement.  What is clear is that the Commission’s guidance will be much less prescriptive so that it will no longer necessarily be a requirement on every school, irrespective of its size, type or location to fund bursaries for the poor; neither are “the poor” necessarily to be interpreted as “the destitute” - indeed, they may simply be unable to afford full school fees which the ISC estimated at £12,000 pa per pupil.

What is public benefit?

An organisation aspiring to be a charity must under the 2006 Act have a purpose that is for the “public benefit”.  In the absence of a clear definition from Parliament (as discussed further below), the Tribunal’s analysis of what public benefit means is helpful:

1                    The nature of the purpose has to be a benefit to the community, in other words “a good thing”; and

2                    The people who benefit from the implementation of that purpose have to be a sufficiently broad section of the public.

In looking at public benefit “in the first sense”, as the Tribunal put it, the purpose or object needs to be prima facie of benefit to the community at large.  Whilst there is no presumption that education of any sort is for the public benefit,  the Tribunal did conclude that mainstream education provided by schools in the independent sector was generally for the public benefit. However, the Tribunal specifically declined to consider political arguments as to whether the independent sector of education provided disbenefits to the great majority of schools in this country that are run by the State.

Public benefit “in the second sense” was also discussed by the Tribunal, which accepted that it was right as a matter of principle that a trust which excluded the poor from benefit could not be a charity.  It had been accepted by the Commission when amending their original draft guidance that the follow-on from that principle was not that the poor must be included in any benefit offered but rather that the poor should not be excluded.  The Tribunal went further and said that “poor” did not mean “destitute”, nevertheless a school which was established for the purposes of educating only those who could pay full fees would not be charitable.

How is non-exclusion of the poor proved?

In the Commission’s view the most obvious route to ensure that the poor were not excluded was to insist that all schools should provide means-tested bursaries, very possibly at the level of 100%.  The Tribunal took a different view and said that provided that the poor were not excluded and that more than “token provision” was made for them, the whole range of benefits which the school provides to the community was able to be taken into account in assessing whether the public benefit requirement (in the second sense) was met.

The Tribunal looked particularly at what provision might indicate a reasonable amount of public benefit provision, including:

1                    Scholarships and bursaries for the “not so well off”.

2                    Inclusion in certain activities of students from local state schools.

3                    Sharing of teachers or teaching facilities with local state schools.

4                    Providing know-how or teaching materials.

5                    Making facilities (e.g. playing fields, sports fields etc) available to students of local state schools.

Interestingly, the Tribunal declined to include in that list of wider benefits the availability of sports facilities to the community at large, including adults.  Nevertheless, it did acknowledge that other benefits to the community that are a consequence of the trustees advancing the objects of the school may be included.

Mention was made of “gold plating” and a suggestion was that schools at the upper end of the market should be careful about provision of 5-star facilities (en-suite accommodation perhaps?).  To the extent that very expensive facilities were provided, there was probably a need to demonstrate a real level of public benefit to a necessary broad section of the community.

The Reasonable Trustee

To avoid any doubt, the word “trustees” is intended to incorporate the governors or decision-makers for the charity, however they are named.  Where the Tribunal was very clear was that the provision of public benefit offered by a given school, was a matter for the Charity’s trustees and not for the court or the Commission to impose any generally applicable standards of “appropriate” or “reasonable” provision.

It is worthwhile quoting from paragraph 220 of the judgement: “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 [the trustees] and not for the Charity Commission or the court.”. Patently provision for “the poor” had to be more than minimal or “token” but the quantity and quality of that provision was for the trustees to decide “acting reasonably in an objective sense”.

Clearly what the reasonable trustees should do in relation to any particular school is to undertake “their own considered assessment in the circumstances pertaining to their charity”.

What if “reasonable provision” is absent?

If, say, a relatively wealthy school made only a token gesture towards the poor, would it still be a charity?  The Commission had suggested in its guidance that in such circumstances the organisation would be struck off the Register of Charities on the grounds that it failed to be a charity.  The more logical approach by the Tribunal is that the organisation would remain a charity but if necessary the trustees would be removed from office.

The Political Fudge

Effectively, though the Tribunal did not quite say so, there is an acceptance that Parliament’s handing to the Charity Commission the decision making on the public benefit issues extracted the then Labour government from another fight with the articulate and moneyed middle classes. Parliament declined to define public benefit other than by saying it was as known in law immediately before the passing of the 2006 Act.  Still less did it wish to discuss the fiscal reliefs enjoyed by charities in the UK.

The political argument over the existence of a private system of education in England and Wales is not going to be settled by the Commission or by the courts but must be played out in Parliament, if at all.  For many people the argument boils down to the fact that schools which are characterised, for the most part wrongly in our view, as “schools for the children of the rich” should not be receiving fiscal relief available to charities which some would say provide greater benefit to the poor or the disadvantaged.

The lesson perhaps is that the independent school sector needs to show how much it has benefitted and continues to benefit the community at large and specifically the children of those who are not able to afford school fees.  Politically it is no longer enough to say, “we are a charity therefore we are entitled to tax concessions”; it is clear that these days all charities, including charitable independent schools, must earn those reliefs.

So, what next?

1        The Charity Commission guidance will be re-written but it must surely be much less prescriptive.

2        Independent schools should continue to take seriously the provision of what they offer to those who cannot afford full school fees but it is for the trustees of each school to decide how that is best done, looking at the type of school, its financial viability and the local situation.

3        If, as is not impossible, the ISC or some other umbrella group should decide to write its own guidance for schools and wait for the Commission to challenge it, we would urge acceptance of the need to include those who in one way or another are less advantaged and they should do so because:

3.1  they are charities and many of them were founded precisely to provide an education for those who, at least to some extent, could not afford it; and

3.2  it would be politically dangerous to do otherwise, given that a future government might take a view that fiscal advantages enjoyed by independent schools did not offer a real return to society.

The Prime Minster has spoken particularly of the need for independent schools to support the growing number of academies now being formed.    In some instances  academies and free schools can be viewed by independent schools, particularly urban day schools, as potential competitors, so for some this suggestion  might stick in the craw. However, there are a range of ways in which the wider benefit could be offered to academies through having pupils, staff and governors visiting and supporting the state schools – or the reverse - and in some cases the independent school setting up an academy as part of its chain of schools

4        Although not discussed at all in the judgement, we remain of the view that those many schools which were founded as religious establishments and which have advancement of religion as a specific purpose will more easily be able to show public benefit because their purposes are so much wider than purely educational objects.  It may be that schools with a religious purpose would also be able to involve and claim public benefit for involving the local community, adults included, for precisely that reason.

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