This background briefing paper has been prepared for the benefit of journalists and commentators examining issues raised by the report of the government’s Strategy Unit (September 2002).

English law on charities is based on the Statute of Elizabeth (1601), reinterpreted subsequently by case law. It recognises four activities as charitable in nature: the relief of poverty, the advancement of education, the advancement of religion and ‘other purposes beneficial to the community’. This remains the cornerstone of the case for any school to have charitable status.

1. How many schools have charitable status?

Within the Independent Schools Council, whose 1,271 member schools educate 80% of all children educated outside the state sector, 1,052 schools (83%) have charitable status. There are, however, around 2,400 independent schools altogether in the UK; many of those outside ISC membership are likely to be privately-owned and therefore not charitable.

2. What is the collective public benefit argument for charitable status?

Taken as a whole, the 2,400 independent schools in the UK educate more than 620,000 children (571,000 in England, 9,500 in Wales, 32,300 in Scotland, 7,400 in Northern Ireland) at minimal cost to the public purse.

Those schools collectively provide a significant public benefit, relieving the state of the financial burden of educating hundreds of thousands of young people. Estimating the cash value of that saving is difficult, because published government figures for per capita costs in maintained schools leave out certain essential elements, e.g. on capital expenditure and administration.

The government’s own current figure for 11-16 year-olds is around £3,700. Taking this figure as a basis for calculation (primary costs are lower, sixth form costs higher) suggests a saving to the state in the region of £2.3 billion annually.

The government also has the benefit of the taxes paid by hundreds of thousands of parents towards the running costs of a state school system on which they make no demands. Again, it is difficult to get an accurate figure for the value of that benefit but a 1997 estimate suggested that it was in excess of £1.7 billion. (This is sometimes advanced as an argument for giving tax relief to parents who pay school fees. This is not an argument the ISC has ever supported.)

3. What are the financial benefits of charitable status?

They fall into three categories. Schools, like all charities, benefit from mandatory relief of 80% on business rates; their income on investments is tax free; and they do not pay corporation tax on any surplus.

Investment tax relief: most schools do not have substantial investments; many indeed operate solely on the income from fees paid by parents. Where schools do have endowed funds, or have recently established funds (to replace the assisted places scheme, for example), the income is used for scholarships and bursaries to extend access to children from less well-off families. To remove this benefit would, perversely, diminish schools’ ability to act in a charitable manner.

Corporation tax: Under the requirements of the Charity Commission, any financial surplus must be re-invested in the school. If a charitable school were required to pay corporation tax, it would quite legitimately manage its accounts in such a way as to minimise any such tax liability. It would be difficult, if not impossible, to judge the benefit currently derived.

VAT: European governments are required by EU directive to exempt from VAT “children or young people’s education, school or university education” and “tuition given privately by teachers and covering school or university education.” The exchequer actually gains from the independent sector’s VAT liability. Independent schools pay VAT on many goods and services but, because education is exempt, as opposed to zero-rated, the VAT paid is irrecoverable. (Maintained schools are able to recover VAT on their expenditure.)

Financial summary: A survey was carried out by ISC in 2000-1.

Member schools with charitable status: £000s £000s Estimated annual income from fees 2,964,000 Financial benefits of charitable status: Business rates 48,800 Tax relief on investments 29,300 Tax on appeals 3,800 TOTAL 81,900 = 2.76% fee income

4. What assistance do schools give with fees?

Member schools with charitable status: £000s £000s Estimated annual income from fees 2,964,000 Assistance provided by school: Scholarships* 92,600 Bursaries* 96,400 Other charitable 7,300 TOTAL 197,400 = 6.66% fee income

* Scholarships (limited to a maximum value of 50% of fees) are awarded for academic or other attainment; bursaries are given exclusively in response to financial need).

i.e. Schools disburse approximately £2.30 in fee assistance for every £1 received in benefit.

The 2002 ISC Census showed that 110,162 pupils in ISC schools – 22.1% of the total – receive some form of financial help from their schools. This proportion has climbed steadily in recent years, up from 15.8% in 1992.

5. How open are schools to their local communities?

ISC schools have participated enthusiastically in government-sponsored partnership schemes; the government’s Independent-State Schools Partnership Advisory Group has been chaired from the start by an independent school head (Chris Parker, HM Nottingham High School).

But partnership and co-operation have long been a feature of independent schools’ operations and are regularly surveyed by ISC. A new survey is being undertaken this autumn but the most recent survey, undertaken in 1997, entitled ‘Good Neighbours’, showed that the idea of joint activities and shared use of facilities was already widespread.

More than three-quarters (76.7%) of the schools were already undertaking joint activities in the community or with maintained schools. These included:

Community service	28% (of schools)
Games and sport	37%
Music	18%
Youth groups	12%
Drama	8%
In-service training	7%

The overwhelming majority (93%) of schools made at least one of their facilities available for outside use. E.g.

Facility Used by Community Maintained schools Music facilities 59.5% 22.8% Games pitches 74.3% 44.7% Sports halls 75.3% 31.4% Swimming pools 73.1% 42.9% Theatres/halls 79.7% 26.9% Residential facilities 62.2% 10.4%

6. Independent schools and community action

Tens of thousands of ISC school pupils are also regularly involved in community action projects which show the way to responsible citizenship. Nearly 600 schools, including more than 150 preparatory schools, responded to an ISC survey in 2001. Between them, they identified nearly 2,500 separate projects, an average of more than four projects per school.

The survey showed that:

• Help for the elderly, either in residential homes (51%) or in their own homes (25%), constituted the largest type of community service project.
• Nearly half of all respondents (48%) had projects involving helping in local primary schools.
• Large numbers of schools organised projects helping the disabled: 36% with children and 21% with adults.
• Three out of ten schools (29%) organised projects involving environmental work.
• Four out of ten (40%) had projects which brought outsiders in to use school facilities.
• In most schools, community action was voluntary and extra-curricular, but in nearly one in five schools (18%) it had a place in the curriculum, and in one in ten (11%) it was compulsory.