Should Private Schools be Charities?

The Editorial in the Small Charities Coalition Newsletter of 16 October 2019 observed:

The suggestion has been made {at the recent Labour Party Conference}
that Private Schools are more like businesses and that their assets should be redistributed.

and followed it with a short on-line questionnaire asking:

What do you think?
Keep Private Schools Charitable
Remove the Charitable Status of Private Schools
Not Sure

Although obviously related, the issues of absorbing current “private schools” into the state system in order that their assets can be re-distributed (presumably throughout the state system) is NOT the same as the issue of removing their charitable status – not least because by no means ALL private schools are registered charities: they are already just “ordinary” commercial businesses.

The Editorial also asks “.... have you developed a partnership with a Private school? “.
And I have to answer “Yes”, and declare a “Conflict of Interest”.

One of our grandsons is currently a pupil at a large and well-respected Nth.London charitable private school, as formerly were our two sons (one of whom is our grandson’s father) previously.   In fact, our family has a long history of association with the school because our grandson’s maternal great uncle and great-grandfather were also pupils at the school – a 4-generation family association going back almost 100 years.   And I also have to say that, because of our personal interests and involvement in charity work, we have been very satisfied with the way that our grandson’s school has endeavoured to fulfil its charitable obligations, both through the provision of scholarships and bursaries to pupils whose families could not afford the fees (including ours) and in making its excellent grounds and facilities accessible to local community activities.

The question also implies (albeit probably unintentionally) that the issue of whether charitable status is warranted, or not, applies only (or, at least, primarily) to public schools – perhaps because of the recent self-interested and distinctly “uncharitable” attitudes of some high-profile public figures who were the “beneficiaries” of a private school education.   But the reality is that the blurring of the distinction between big “charitable” interests and big business interests is a much wider than just private schools, particularly in areas like health, social services and leisure.

The core of the issue is that the definition of “charity”, as applied in the Charities Act differs markedly from the general understanding of that word by the proverbial “person on a Clapham omnibus” – as was eloquently pointed out by none other than Lord Hailsham, who said:

“ … the words ‘charity’ and ‘charitable’ bear, for the purposes of English law and equity, meanings totally different from the senses in which they are used in ordinary educated speech or, for instance, in the Authorised Version of the Bible.”

The HM Revenue & Customs internal guidance manual on charitable status explicitly states:

You should not confuse the way in which a charity fulfils its objects with the charitable nature of the objects.   There is nothing to stop a charity charging a large amount of money for its charitable services.
....see the companion Charity Thought – “What is a Charity?

The issue is exemplified by Nuffield Health, a £900+M mega-charity which, ostensibly, is not a commercial business and so doesn’t make a “profit” to distribute to its “investors or shareholders”, as its 2017 Trustees’ Annual Report is keen to emphasise:

We are a trading charity:
....As a charity, we do not have investors or shareholders to answer to: our customers and patients come first.
We generate income by charging for the services we offer.

Nevertheless, in 2017 it was able to generate enough “surplus” (rather than “profit”) on its income from “charging for the {“charitable”} services it offers” to pay over £14M in “interest” (rather than “dividends”) to its “lenders and bondholders” (rather than to its “investors and shareholders”).   Nor is Nuffield Health a unique example – see the Charity Thought: “Charity Bonds Raise £33M

In short, private schools are not the only group of charities for which charitable status can be seen as a bit of a sham.   Nor are they invariably the worst offenders.
So any review of the charitable status of private schools MUST be within the wider context of what does and does not constitute charitable status across the charity sector as a whole, NOT as a political gimmick to take “pot shots” at contentious political opponents.

One consideration which warrants particular consideration, not least because of its wide-ranging implication for the whole of the charity sector, are the likely consequences of singling out private schools for the removal of their charitable status.   As with all such actions, the “Law of Unintended Consequences” must not be overlooked.

Some private schools, particularly the wealthier ones might simply decide to de-register as charities and become “commercial” schools as a way of avoiding being, effectively, taken over by the state.   They would inevitably have to put up their fees to cover the additional costs of not having charitable status (eg: becoming liable for full, rather than 80+% discount, on business rates).   But for many of their more wealthy clients, such increases in fees would be little more than inconsequential “small change”.   AND the schools would no longer be obliged to offer token bursaries and other such “charitable gestures” to protect a charitable status that they no longer had.

But many smaller private schools might well find that their clients could no longer afford the fees and so their children would have to transfer to the state sector.   That would impose an additional burden, and cost, on the already overstretched and struggling state sector.   After all, it is hardly realistic to expect parents, who are currently saving the state sector money by paying from their own pocket to have their children educated, to pay the state to educate their children instead when other children in the same school are getting their education free.   And that is particularly so when those parents are also contributing to the costs of the state education sector by paying their UK taxes like everyone else.

In short – singling out private schools for the removal of charitable status might have exactly the opposite effect to that intended – increasing, rather than removing, the social divide between those who can afford private education and those who can’t; increasing, rather than reducing, the costs of state education; whilst, at the same time, putting the most substantial private school resources even further beyond the reach of those less wealthy.

So how about a different approach?
Children of parents paying UK taxes (ie: who are entitle to free education in the UK) who are receiving private education are left where they are with the parents continuing to pay the school fees.   But the money that it would have cost the state to take that child back into the state sector is, instead, given to their current school to be used to fund bursaries for other children whose parents couldn’t afford the school fees.   There would, of course, have to be some state oversight of the now hybrid private/state-funded sector.   But since the most common reason for paying for their children to be educated privately is because of the perceived higher standard of private education compared to the state sector, the educational standards should not be a problem.

And in addition to the purely educational benefits, there is also the consequential benefits of the enhanced opportunities for social mobility in private schools providing education for children from more diverse financial/social backgrounds.

There is, of course, still the Law of Unintended Consequences intervening to make the system unworkable – eg: parents complaining that “poor” children (ie: from less wealthy families) are lowering the educational standard of the no-longer entirely private school and either taking their children away or refusing to continue paying and demanding that the state foot the bill as for other children, effectively causing the system to implode financially.

Or how about a different approach at the other end of the spectrum:  as befits the capitalist eutopia of a “low tax high income” economy, why not take education out of the state sector entirely ?   That would enable taxes to be lowered (no schools to be state funded) enabling take-home pay to rise so that parents could pay to have their children educated wherever they wished (and could afford!).   And the UK, being a “generous” nation, would inevitably step in to set up “real charity” schools where the children of low income families could be educated at low or zero fees.

Sounds a bit outrageously radical ?
Of course it is ! – the golden rule of “brainstorming” is NEVER to think that an idea is so unthinkable that it is unthinkable.   Because sometimes constructively thinking the unthinkable makes one realise that it (or something along similar lines) might not be quite so outrageous as it seemed at first

As the grandparents (and, previously, parents) of children who had the benefit of private education we are all too aware of the inherent inequities of the system.   But the emphasis has to be on educational equity for all, NOT educational equality.   In education, as in most other areas, there is no “one size meets all”.   There is as much inequity in an educational system which denies children the environment which is best for their abilities and circumstances to ensure that their achieve their potential simply because their parents can afford it as there is in an educational system which denies children the environment which is best for their abilities and circumstances to ensure that their achieve their potential simply because their parents can’t afford.

The inequalities and inequities of a private education system flourish in environments where there are inequalities and inequities in the distribution of wealth.   Attempting to dismantle an education system because it favours the wealthy is never going to succeed.   Inequality of wealth creates inequalities of power and influence.   And those with great wealth and power are always going to find ways of educating their children to aspire to, and achieve, similar wealth and power.   Breaking the incestuous cycle of education, wealth & power cannot be achieved by breaking just one element of the cycle.   The way to make the private education sector more equitable and equal is to use the “leverage” of the charitable status of many private school to promote greater social mobility – finding way of providing “private” education for more children from families who otherwise would not be able to afford it.

A similar, but slightly less “incestuous” situation occurs in other “charity” sectors where the bulk of the charity’s income comes from “charitable trading” – selling their “charitable” services to those who can afford to pay for it (with just token provision of services for “the poor and those in need” – eg: the health and social care sectors).

So, the answer to the question is “Yes”, some radical review of the “charitable” status of private schools is overdue – but ONLY as just one element of a radical reform of the whole spectrum of “charitable trading”.

After all – most commercial organisations (my local butcher, for example) deliver “public benefit” – if they didn’t they’d go out of business. Organisations like Nuffield Health and private schools meet the Charities Act criteria because their core activities happen to fit neatly within one, or more, of the charitable objects defined by the Charities Act.   I had intended to try to find a legitimate charitable purpose to get my local butcher registered as a charity – but escalating business rates forced him out of business.   Had he become a charity, the 80% discount on business rates that he would have then been entitled to might have saved him.   It is outrageous that Nuffield Health, and other, “charitable” hospitals get the charity 80% discount on their business rates while NHS hospitals do not.

So here’s another outrageous suggestion !
How about modifying the Charities Act to add the criteria that an organisation can only be charitable if either at least half of its income comes from charitable donations (ie: NOT from payments for goods or services from beneficiaries or from “commercial” – including local government – contracts to provide those goods or services) or at least half of its workforce are unpaid volunteers ?   Existing “charitable traders”, eg: Nuffield Health, and many private schools, would have to convert to another not-for-profit structure (eg: Community Interest Company, CIC), or become an ordinary commercial company (like the small local private school that another of our grandsons attends).   But those which remain would, at least, more closely resemble what the “ordinary person on the Clapham omnibus” understands to be “charities”.

 

Note: This Charity Thought represents the personal views of one of the Trustees of Small Charity Support.   But all the Trustees have authorised its inclusion on the Small Charity Support website.