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charitable independent schools and the public benefit

Following an appeal by the Independent Schools Commission, the Upper Tribunal has ruled that parts of the Charity Commission's public benefit guidance will need to be re-written.  The Tribunal provided a detailed 116 page judgment that goes a long way towards explaining the law on public benefit; it fails, however, to provide any hard and fast rules and states that, beyond a certain low threshold being met, it is for the trustees to decide what is right in their charity's circumstances. 

The Charity Tribunal's decision is welcomed in that it helps us to understand the public benefit requirement and how schools and the wider charitable sector must respond to it.  The decision itself contains a useful and interesting analysis of the legal background to the issues, which will also help to inform our understanding of charity law post the Charities Act 2006.  This decision is the first major decision in charity law for many years and has wide-ranging implications for the sector.

summary and practical guidance for charitable independent school governors

Governors are recommended to review their school's approach to the public benefit requirement in the light of the Charity Tribunal decision and the revised public benefit guidance to be published by the Charity Commission. 

The key points arising from the decision can be summarised as follows.

  • Governors, not the Charity Commission, must decide how best to run their school and deliver their constitutional obligation to provide a public benefit.
  • Bursaries are not always the best or only way to meet the obligation to provide a public benefit.
  • A school will not lose its charitable status if its governors fail to meet the obligation to provide a public benefit.
  • The governors must look at what they would do in all the circumstances of their particular school to act in the interests of the community as a whole.  They must ask what provision should be made other than the provision of education to fee-paying students once the threshold of benefit, going beyond the de minimis or token level, has been met.
  • A school that excluded the 'poor', apart from temporarily, would not be operating according to its charitable purposes.
  • 'Poor' does not mean destitute.   

Practical pointers that have emerged from the decision are set out below.

what can be taken into account in providing a public benefit?

  • Scholarships and bursaries (including those that offer only a partial remission in fees) for the 'not so well off'.  Specifically:
    • for a school providing mainstream education, full scholarships to 10% of its intake might be sufficient but 1% would probably be too low
    • a specialist school, providing education not generally available might be able to argue differently on the basis that the school is more expensive to run
    • the provision of examination-based scholarships and means tested bursaries will be significant factors.  The provision of means tested bursaries might carry more weight than examination-based scholarships. 
  • A range of direct, indirect and identifiable wider benefits that the school provides to the community including:
    • arrangements under which students from the local state schools can attend classes in subjects not otherwise readily available to them
    • sharing of teachers or teaching facilities with local state schools
    • making available (whether on the Internet or otherwise) teaching materials used in the school
    • making available to students of local state schools other facilities such as playing fields, sports halls, swimming pools or sports grounds
    • identifiable benefits to the community at large flowing from education at the school such as those arising from a schools citizenship education programme.

Note that making examination papers available online, providing limited teaching to children at local state schools and making playing fields available are probably not enough on their own to satisfy the public benefit test.  However, a substantial contribution to an associated academy would be.

what will not be taken into account in providing a public benefit?

  • Opening the facilities such as playing fields, sports halls, swimming pools or sports grounds to the community at large (always assuming the schools constitution permits this) will not be taken into account.

Note that schools that can afford to provide extravagant facilities will have a greater task to demonstrate a real level of public benefit. 

factors in assessing who is 'poor'

  • Funding by an employer as a private benefit can be brought into account when assessing whether a pupil is 'poor'.
  • Funding from a grant-making charity would not.  So a 'poor' person receiving a charitable grant is still 'poor'.

background

Although the public benefit test existed before the Charities Act 2006 ('the Act') came into force, it had never before been enshrined in statute.  The Act also removed the presumption that educational charities, amongst others, were automatically to be considered to be 'for the public benefit'.  In line with its duty under the Act the Charity Commission issued guidance setting out the principles that charities have to fulfil in order to satisfy the public benefit test.

The Independent Schools Council ('the ISC') sought judicial review of the Charity Commission's public benefit guidance due to its effect on fee-paying schools.  In particular, the ISC questioned the impact of the following two principles:

Principle 2(b) Where benefit is to a section of the public, the opportunity to benefit must not be unreasonably restricted…/by ability to pay any fees charged; and

Principle 2(c) People in poverty must not be excluded from the opportunity to benefit.

the decision

The Tribunal decided that Principle 2(b) of the Charity Commission's guidance, as detailed above, is too prescriptive and obscure and is wrong in a number of respects.  They also decided that the explanation of Principle 2(c) in the guidance ought to be amended.

The Tribunal helped to define 'public benefit' to some extent by identifying two aspects of the concept, which must both be satisfied in order to be a charity.  They are:

  1. the nature of the charity's purpose itself must be beneficial to the community.  In that sense, the advancement of education would generally be seen to be for the public benefit as long as it satisfies the de minimis test explained below, and
  2. those who may benefit from the carrying out of the purpose must be sufficiently numerous.

 

In order to satisfy aspect 1, the Tribunal agreed with Principle 2(c) of the guidance to the extent that they considered it must be right 'as a matter of principle' that an entity cannot be a charity if its objects exclude the poor.  The Tribunal stated that any provision of a benefit for the poor must be more than merely token or de minimis but, other than this, benefits need not all be for the poor in order to be considered to be for the public benefit.

The Tribunal was unable to define the term 'poor' as it said it will vary depending on the type of charity and will necessarily be decided on a case-by-case basis.  They did confirm, however, that it does not mean destitute and where the trust is not for the relief of poverty it may even include 'people who might be seen as quite well off' in some cases.  Therefore the Tribunal confirmed that an institution may be a charity where it charges for its services without providing any subsidies as long as the cost is within the ability of the not-very-well-off to meet.

Further than this minimum provision for the poor, it is for the trustees of the charities (who will usually be the governors in the case of independent schools) to decide how the actions of the charity should be undertaken to provide for the public benefit.  This is a fact-sensitive decision and will be based on the circumstances of each particular charity.  The Tribunal confirmed that 'there will be one or more minimum benefits below which no reasonable trustees would go but, subject to that, the level of provision and the method of its provision is properly a matter for them and not for the Charity Commission or the Court'.

guidelines for independent schools

The Tribunal was unable to answer the Attorney General's questions on whether hypothetical schools in a number of specific circumstances would satisfy the public benefit test.  However, they did provide some specific guidelines for independent schools to consider.

Governors must ensure that policy decisions regarding access to the school are rational and justifiable in the promotion of the public interest and are not capricious.

Although direct benefits, such as bursaries, are the primary focus for the public benefit test they should not be the only focus.  They confirmed that other benefits such as arrangements for sharing teachers or classrooms with local state schools and making teaching materials available online should also be taken in to account.  Based on their classification of 'poor' the Tribunal could see no reason why the provision of bursaries to students who can pay some, but not all, of the fees should not be seen as being for the public benefit.

Independent schools who offer 'luxury' facilities should consider whether these can really be justified as either part of, or properly ancillary to, the advancement of education.  The Tribunal suggested that these schools should carry out a stringent examination of these facilities and that it will be even more incumbent on these schools to demonstrate a real level of public benefit.

wider implications

Although the Tribunal made clear that the decision itself is confined to the context of educational charities, it recognised that it may have wider implications for other charities, especially ones that charge fees for their services.

The Charity Commission has confirmed that it will amend its public benefit guidance to reflect the Tribunal's decision but that it is likely to consult widely before new guidance is issued.  It is not possible for us to surmise at this stage what this new guidance may include but, based on the decision, it is very unlikely to be able to provide prescriptive rules as to what will and will not satisfy the public benefit 'test'.

In the meantime the Charity Commission has told governors of independent schools to continue as they are to make 'whatever provision for people who can't afford the fees seems right and appropriate to them, provided it is more than minimal or tokenistic' and to report on it through their Trustees' Annual Report in the usual way.

The Charity Commission has suggested that, until new guidance is issued, trustees should look at the Tribunal's decision for guidance, in particular paragraphs 217 – 220 of the decision, which is outlined briefly above.  View the full decision online here.

Some governors are likely to be relieved with this judgment as it allows them to decide for themselves what provisions should be made for the public benefit, almost without constraint.  However the Charity Commission has stated that, although it welcomes the decision, it recognises that some schools will be disappointed that no specific thresholds can be set making it difficult for trustees to know with any certainty whether or not they can be considered to be acting for the public benefit.

Blake Lapthorn's Charities group acts for a number of independent charitable schools as well as institutions in the further and higher education sectors.  In the past year Blake Lapthorn has advised in relation to the conversion of over 40 schools to academy or free school status.

For more information, contact Elizabeth Davis in the Charities group on 023 8085 7011 or email elizabeth.davis@bllaw.co.uk.

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