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Charity finance policy

What does Labour’s independent schools proposal mean for charities?

By David Ainsworth, Sector Specialist, CFG

Post byGuest blogger

It seems like forever ago but was actually only a few days, that the Labour Party proposed effectively abolishing independent schools.

We’ve previously heard about plans to remove some tax breaks from independent schools, or even to strip them of charitable status, but the most recent proposals went further than before. There are three suggestions:

  1. Strip independent schools of charitable status
  2. Ensure universities admit the same proportion of students from independent schools as they do from the wider population
  3. Nationalise all independent school endowments, investments and properties.

The implications of this suggestion are widespread. For independent schools, they are broad and very troubling. But for the wider sector, there are troubling issues, too.

All three suggestions are considered below, although the middle one is of relatively little impact for charities.

 

Charitable status

The first question I have here is how Labour might plan to strip independent schools of their charitable status. You could not do it within current law and would need to make new law. This would not be easy and would have implications for the whole sector.

Let’s start with the current law.

Broadly, the rule at the moment is that if you exist entirely for the public benefit, and you have no capacity for public profit, you’re a charity. Interestingly, the law is relatively soft on the amount of public benefit you must deliver, so long as an attempt is made, and it is also all but silent on how you might weigh disbenefits against benefits when considering status. There are also considerable ambiguities about what section of the public you must exist to benefit. In particular, how do independent schools justify the high fees they charge?

The public benefit of schools was subject to a court battle at the end of the last decade, which found that you were charitable if you provided education and offered “more than tokenistic” access to people in poverty. There is relatively little doubt that the law could be tightened up and clarified to address issues such as disbenefit and fees, and probably to move the emphasis from purposes to activities, as is currently the case in Scotland.

To cut a long story short: to remove charitable status from independent schools, government would have to create a tighter definition of public benefit, but this would present some challenges. It would not be able to remove education as a charitable purpose without stripping out all sorts of other charities – anything from nurseries to think tanks.

The focus could move to fees, instead, but this would potentially remove universities, too. It might be curtains for the Royal Opera House, too – if you’ll pardon the pun.

In practice, it looks likely you could change the law to remove schools, and leave in everyone else, and make some other improvements while you’re there. It’s questionable how much benefit schools get from charitable status anyway. Apart from business rate relief, there are few tax perks.

The bigger problem is that if schools stopped being charities they would lose access to their grounds. If your assets are charitable, and your organisation loses charitable status, it also loses access to any charitable assets – the buildings, the endowment, the equipment – which would have to be passed on to another similar charity. Which would be problematic, if other charities had also lost status.

The best bet, if it was really felt that schools should no longer be registered charities, would be some kind of carve out – a special arrangement allowing schools to de-register and transfer their assets into another legal form. There’s some evidence, according to conversations I’ve had previously, that this process is already starting.

 

University access

This is not really an issue for charities, but it is worth noting that it would be very hard to do. What, exactly, would count as an independent school pupil? If someone spends only their sixth form at independent schools, does that count? What about if they spend all their years apart from the sixth form?

This proposal is aspirational and probably unworkable, and is likely to be dropped.

 

Nationalisation

The really new, problematic proposal is to nationalise the charitable endowments of independent schools. This is something that all of us in the sector, whatever our views on education, might find it wise to resist. If one charitable endowment can be nationalised, so could others. Charitable assets are held in trust for the public benefit, and any government which decides to not just remove charitable status from an entity, but to take its money, too, is treading on dangerous ground. It is effectively taking charitable assets and ploughing them into the national debt. What if the government decided to nationalise the National Trust? Or the RNLI? Or Oxfam?

CFG is broadly of the opinion that people should have reasonable choice over how they educate their children, and can see arguments in both directions over whether particular forms of education should be charitable or not.

However, the summary removal of charitable assets is where we would draw a firm line. We would absolutely campaign against this proposal if it ever looked close to making it into law.

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