Live and learn

The debate about whether independent schools should have the benefit of charitable status with the attendant tax advantages this confers has been reignited by Michael Gove's recent comments.

There has been much confusion over whether the Charities Act 2006 imposed some new public benefit requirement. In fact, section 3(3) of the Act makes it clear that the Charity Commission must look back to the principles established by existing case law to determine in any given case what 'public benefit' is.

It has always been the case that an organisation must have exclusively charitable purposes and that it must exist for the public benefit in order for it to be a charity. However, before the Charities Act 2006, charities for the relief of poverty, advancement of religion and advancement of education benefited from a presumption that they exist for the public benefit.

Section 3(2) of the Charities Act 2006 abolishes that presumption, creating a level playing field for charities. So, in legal terms the issue of whether any charity, including charitable independent schools, should have charity status now turns upon whether or not it can demonstrate that it meets the public benefit requirement. Hence a new statutory duty on charity trustees, including school governors, to report on the public benefit that their charity delivers.

The Act also imposes a duty on the Charity Commission to issue guidance on the public benefit requirement and it requires charity trustees to 'have regard' to that guidance. In January 2008, the Charity Commission published its top-level guidance, 'Charities and Public Benefit'. This was followed in December 2008 by supplementary guidance on 'The Advancement of Education for the Public Benefit' and 'Public Benefit and Fee-Charging'. School governors, as charity trustees, must pay heed to this set of guidance.

Michael Gove makes it clear that the new government will explore the possibility of offering independent schools legal alternatives to registered charity status, but at the same time he wants the Charity Commission to reconsider its approach to assessing public benefit. Gove should be applauded for turning the spotlight away from the independent school sector and onto the Charity Commission. There is a strong and growing consensus that the way in which the commission is applying the principles set out in its public benefit guidance does not reflect a correct interpretation of the prevailing case law on public benefit.
In the context of fee-charging charities, such as independent schools, the commission is placing far too much emphasis on the need to offer bursaries and subsidies as the primary way of meeting the public benefit requirement. This is borne out by the Charity Commission's decision to reject Odstock Private Care Limited's application to register as a charity and its pilot public benefit assessments which resulted in the commission concluding that two independent schools and two fee-charging care homes are failing to meet the public benefit requirement because on the commission's analysis they are not doing enough for those who cannot afford to pay the fees.

Undervalued benefit

It is clear from Pemsel's case [1891] AC 531 and Re Resch's Will Trust [1969] 1 AC 514 that public benefit can take many forms, direct or indirect, and that all forms can 'count'. However, the commission appears to focus too much on the importance of there being some direct benefits, such as non means-tested bursaries, and gives too little credit for indirect benefits such as opening up facilities to other schools and the wider community, supporting work placements, secondments and sharing knowledge.

In terms of independent schools, much of the press coverage has concentrated on the extremes: elitist schools at one end of the spectrum and the small independent schools at other end. However, most independent schools fall somewhere in between those two extremes. Yet the real benefit of what such schools have for years done, and no doubt will carry on doing, is undervalued.

For example, in 2004 Newcastle upon Tyne Royal Grammar School had the dubious pleasure of a Charity Commission review visit, and, particularly in relation to demonstrating public benefit, was able to breeze through it. Why? Put simply, it is because the RGS has always had an 'outward-looking' ethos. It actively seeks to attract pupils irrespective of their ability to pay, particularly from the state sector. The school currently has just under 100 pupils who benefit from its bursary scheme, 53 of whom have bursaries worth at least 95 per cent of the fees. To maintain and extend this, the school has been running a bursary campaign to raise further funds. Although its fees are lower than the national average, the school did not want to put the burden upon existing parents to pay extra to finance bursaries. To date it has been able to raise over £4.3m to fund bursaries.

Its current cohort of 1,270 odd pupils comes from over 240 feeder schools, of which nearly 200 are state sector schools. Consequently, nearly half of its pupils are drawn from the state sector. Some argue that this deprives the state sector of the brightest talent but that is not a charitable status issue, it is a political issue about how much we as taxpayers or parents are prepared to pay to give our children the very best education. The commission's guidance states that to be charitable the poor must be given the opportunity to benefit from what a charity does '“ something that resonates with the RGS's approach.

In addition to bursaries, the RGS opens up its facilities to children from the state sector in various ways. The Newcastle Science Enrichment Programme is based at the RGS, the local state primary school uses the RGS theatre for its Christmas shows, local comprehensive schools have used the theatre for productions, including as an integral part of a performing arts AS level, and so the list could go on. It also works collaboratively with other schools and some members of staff are governors of state schools. The input of RGS staff has helped sustain schools' athletics in the North East. This ethos of being outward looking flows right down to the pupils in terms of the community work they are encouraged to do, including volunteer placements in local nursery and primary schools. The sixth formers have been instrumental in a highly successful initiative to raise literacy and numeracy levels by helping children in local state primary schools in some of the more deprived areas of the city.

The RGS has also opened its facilities to the local community. Its theatre, sports hall, all-weather surface and swimming pool are used by a range of outside organisations. Moreover, the school, its staff and pupils make an enormous contribution to the local community through general charitable endeavours. The RGS has sufficiently wide charitable objects that extend beyond its main purpose of advancing education. Thus most of the benefits flowing from all of these initiatives should count towards the public benefit requirement.

Greater recognition

It is undoubtedly harder for smaller independent schools to demonstrate they meet the public benefit requirement. Typically such schools will not have the same pupil base; some have as few as 250 pupils and many do not have the resources to offer more than one or two bursaries. The Charity Commission needs to appreciate that in the current economic climate some schools simply may not be able to find the funds to offer any bursaries at all. Such schools should be encouraged to think outside the box about how to meet the public benefit requirement and given due credit for doing so. As Gove rightly points out, more credit should be given to independent schools that work in partnership with local state schools either by seconding staff to the state sector or by offering state school pupils lessons in subjects, such as classics, which may not be available at their own school.

Then there are those schools that already deliver significant public benefits much further afield. There is one independent school that, as part of a global citizenship project, has recycled computers, laptops, sewing machines, children's books, toys, hand tools, sports equipment, classroom white boards, clothes, shoes and blankets for the benefit of a township school in Lesotho.

The question is whether the Charity Commission will not only recognise that all these things count but also give them the due weight when determining whether a school satisfies the public benefit test. The Charity Commission's guidance states that to 'count' any benefits must relate to a charity's objects. Looking at the Lesotho project, I fear the commission may discount some of the benefit this project delivers because it may manifest itself as much in relieving the poverty of the township kids as it does in educating them.

However, a more enlightened approach would recognise that all the benefits from the project flow directly from the school's charitable objects, namely to educate its own pupils in global citizenship.

A change in approach

Many schools have geographical or other restrictions in their objects, so for benefits that are provided further afield to count it may be necessary for a school to broaden its objects '“ or indeed include an ancillary 'catch-all' charitable object. The advantage in having a general charitable object is that all public benefit from any charitable endeavours, even ancillary ones that may be unrelated to a school's main educational objects, could be brought into the equation. This may be worth exploring, if it could tip the scales in favour of being able to meet the public benefit requirement. But, in most cases, any change to a charity's objects would need to be approved by the Charity Commission and it remains to be seen how liberal the commission will be in authorising such changes.

The only way of ensuring that the public benefit test is correctly applied in any given case is for this issue to be brought before the Charity Tribunal. It is open to the Charity Commission or the Attorney General to use a new reference procedure introduced by the Charities Act 2006 to ask the tribunal to determine whether the principles enunciated in the commission's public benefit guidance and the way they are being applied reflect a correct interpretation of the law. The commission should be urged to have the courage of its convictions to make such a reference.

If the Charity Commission fails to refer this matter to the Charity Tribunal and refuses to listen to the calls to soften its stance towards independent schools, Michael Gove may want to try to persuade the new Attorney General to use his powers to make a reference. It is time that matters are brought to a head and we get conclusive view on what the law is, rather than let this debate rumble on and be the subject of continued politicking.