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:
- 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
- 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.
