Strategic Planning

Public domains

The public benefit requirements are exercising independent schools throughout the land. There is, of course, no one-size-fits-all solution. David Sewell and Sam Macdonald review the options and assess their viability

The long-awaited public benefit guidance, which had been promised for October 2007, was finally published by the Charity Commission in January 2008. This followed consultation on the draft guidance (reviewed in the October 2007 edition of this publication). The guidance links with the new rules brought in under the Charities Act 2006. These require all charities to demonstrate that their aims are for the public benefit, rather than that fact being presumed, as previously was the case for those charities advancing education, religion, or relieving poverty.

They also create an enhanced role for the Charity Commission in assessing public benefit, require the Commission to produce guidance on public benefit and require governors (as charity trustees) to take account of that guidance. However, the publication of the guidance is not the end of this saga, as in February and March 2008 the Charity Commission published draft supplementary guidance for each of the above three sub-sectors and also for fee-charging charities, consultation on which runs to July 11 (in the cases of education and fee-charging).

The guidance published in January caused a stir in the press, but was considered an improvement on the previous draft. In particular, the Commission seemed to have taken on board concerns about the stand-alone nature of their third stated principle: that people on low incomes must be able to benefit. This – in an improved form – is now part of a wider principle: that benefit should be available to a sufficiently large section of the community; a more accurate expression of the underlying law. In addition, the guidance appears to recognise the diverse character of charities and that what may be appropriate for one may not be suitable for another.

Finally, concerns that the Commission would adopt a narrow view of the scope of charitable objects – thereby ruling out some of the more imaginative initiatives that schools might wish to undertake – were relieved by what appeared to be a more enlightened approach, apparently recognising the central role schools often play within their communities.

However, confidence instilled by the guidance published in January was short-lived and the reception to the draft supplementary guidance is building up into a storm, with the outgoing chief executive of the ISC, Jonathan Shephard, criticising it heavily.

What is the meaning?
So what does the draft supplementary guidance say? For the purposes of this article, we shall focus on some key points that arise out of the education and fee-charging documents.

Emerging from the draft education guidance is an apparent hardening of the Commission’s view on the interpretation of objects. The document includes an annex that seeks to address the question: “what is the purpose of a school?”. This rightly stresses the importance of the language of a school’s objects. However, the suggestion here is that the Commission will adopt a narrow approach to interpretation, which runs against previous indications and seems counter-productive, if the aim is to ensure schools engage more broadly with the community.

Fee-paying advice
Various points emerge from the draft fee-charging guidance. Here, the Commission dispels the myth previously promulgated in the press that charitable schools can avoid the regulatory requirements by electing to opt out of the charitable sector and its related tax benefits. This is because the charity’s assets must always be used for similar charitable activities or aims.

The guidance notes the suggestion that charitable schools may be able to sell out to private groups, with the proceeds being used by the charity’s trustees to fund bursaries – perhaps to pupils at that school.

The guidance also questions the viability of this proposal, though undoubtedly it is possible and is a route some schools have already chosen to take. The guidance also notes that some have suggested that independent schools should be transferred from the charity register to a newly created category of not-for-profit institutions – but this would require significant changes in both charity and tax legislation.

The fee-charging guidance will be of crucial importance to independent schools. It is disappointing, therefore, that it lacks clarity on what amounts to a legal requirement and what represents the Commission’s view of best practice. Given the statutory requirement on governors to take account of the guidance, it is critical that this distinction is made clear.

Political push
The storm clouds have built up in part due to the Charity Commission’s apparent lack of understanding that most schools do not have or receive large endowments or grants, or have parents who are willing or able to pay a premium on fees, each to fund bursaries. The draft supplementary guidance, while stressing the need for charitable schools to be imaginative in how they demonstrate public benefit (which cannot be “token”), also appears to pursue a political agenda in pushing independent schools into more collaboration with state schools. This collaboration might be through teacher and pupil exchanges or through involvement with the new models recently introduced, such as academies and trust schools.

There is a strong sense in the guidance that bursaries will be viewed as the best way to demonstrate that access is open to all, regardless of the affordability of the fees. To help finance those awards, schools are giving consideration to means-testing all fee remissions, including those provided to staff.

It will be necessary for each charitable school to report on their public benefit in their annual governors’ report and annual return to the Charity Commission. They will have to explain the charity’s achievements, measured by reference to its aims and its objectives for the year.

This is an opportunity for schools to give examples of their involvement with the local community. Schools should keep a record of those links throughout the year and ensure that good use is made of newspaper articles, pictures and graphs as these tend to make more impact.

What’s right for one school...
Governors should bear in mind that each school’s assessment will be based on its own circumstances. No activities should be undertaken which would jeopardise the school’s financial viability or would not be for the overall benefit of its pupils. They should also resist political pressure, from the Commission or elsewhere, to provide public benefit in a manner that delivers on another agenda. Sponsoring an academy may be suitable for one school, but if governors believe that they can provide wider access to their educational provision by other means, they should be free to pursue their preferred course.

Where now?
It is important to bear in mind that the supplementary guidance is currently in draft and subject to consultation. In a number of respects, it is in need of amendment and improvement. The consultation period expires on July 11 this year. Schools are encouraged to consider submitting a response.

It is hoped that the final versions of these two important documents will emerge in the autumn, following something of a metamorphosis.

David Sewell is a partner at haysmacintyre and Sam Macdonald is a partner at Farrer & Co LLP.

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