Four private schools 'to lose charity status'

Published on Monday 27 October 2008 21:22

FOUR of Scotland's leading independent schools will be stripped of their charitable status unless they make major changes to the way they operate, The Scotsman has learned.

The country's independent schools are anxiously waiting to find out whether they can keep their status, as the charity regulator prepares to report on its investigations today.

It is understood four schools under inspection will today be told that they have failed to meet the criteria of charitable status.

The schools subject to reports today include Merchiston Castle in Edinburgh; Hutchesons' in Glasgow; Lomond in Helensburgh; and St Leonards in St Andrews.

Across Scotland, 11 private schools have undergone a thorough inspection by the Office of the Scottish Charity Regulator (OSCR) to see whether they benefit the public enough to be classed as charities, giving them thousands of pounds of tax breaks each year.

It is understood the four independent schools will not have their charitable status renewed unless they satisfy the OSCR that they meet the criteria. If the regulator decides a school's fees are too restrictive or its facilities are not open to the public, the schools could face being struck off the charity register.

The cost of losing charitable status would be massive, as a school would also lose entitlement to tax and rates rebates worth a total of 4.5 million to the sector, raising the prospect of an increase in fees and a reduction in scholarships.

Last night, education sources said schools would be "desperate" to retain their charity status and would work closely with the regulator to avoid expulsion.

Judith Gillespie, of the Scottish Parent Teacher Council, said it was "right and proper" that independent schools demonstrated they were acting in the public interest.

"The regulators require a dimension of public good," she said. "There has to be some concept that the public are getting some benefit. Having charitable status cannot be just a way of avoiding tax."

The inspections took place as part of a rolling review of all charities by the OSCR, which is inspecting 19 other "priority" charities, including membership groups and care providers.

Each school will receive an individual report on its performance, which is based on an examination of paperwork, from its founding documents to current financial-assistance packages for parents, and on how much the community can use its facilities.

If the OSCR deems the school unfit for charitable status, it will be given a deadline by which to improve the situation, or it will lose its right to call itself a charity. Although the regulator cannot remove the school's lucrative tax cuts, HM Revenue and Customs is likely to strip the organisation of those if it falls off the charities' list.

Headteachers were expected to have been given 24 hours' notice before the reports were made public, but there were concerns last night that many of the schools were being kept in the dark and would not find out until one hour before the regulator makes the report public.

"The report will not reach us until Tuesday morning," one head said. "We've heard nothing. They've said we'll get a recorded-delivery letter tomorrow, just one hour before it's released to the press."

Colin Fox, the leader of the Scottish Socialist Party, launched a scathing attack on the private-school sector, pointing out that a quarter of Edinburgh's secondary school children and some 20 per cent of its primary children went to private schools – the highest proportion in Britain, which Mr Fox said was a "disgrace".

He went on: "It's about time that the ice cracked under these institutions. They are not charities – charities are supposed to benefit the common good, not those who can afford them. If this report starts the process of removing their charitable status, then all the better."

But Liz Smith, MSP, the Scottish Tories' education spokeswoman, said it was crucial that independent schools retained their charitable status.

"There are a lot of rumours flying around, but I believe this report will actually be a boost for the private sector, because it will show most of the 11 schools looked at are providing excellent bursaries.

"The others, I am sure, will be able to improve their bursary schemes to meet the requirements.

"I am a great believer in private education. Much of it is based on foundations from the 18th and 19th centuries to further good education in Scotland. Charitable status is essential for them to continue. It is important the education they provide benefits as many people as possible."

In 2005, MSPs were scathing about the benefits of independent schools, branding them elitist and questioning why they were entitled to tax and rates relief.

Members of the Scottish Parliament's communities committee went on the offensive as they debated whether or not independent schools should continue to be entitled to charitable status.

A number of MSPs said ordinary Scots would be "astonished" that private schools were classed as charities in the first place.

Supporters of private schools say the sector pays some 7.5 million a year to help less well-off children attend private schools but receives only 2.5 million annually in rates relief.

Last year, the High School of Dundee won the right to retain its charitable status in a test case – the first independent school in Scotland to undergo the new test for charitable status.

The charity watchdog ruled that the school qualified because bursaries of up to 100 per cent were available to help parents pay fees of up to 8,304 a year. It also ruled on the basis that about 13 per cent of pupils at Dundee High received some kind of financial support.

Many schools have been expanding their bursary and scholarship schemes in order to meet the new charitable-status test.

A spokesman for the OSCR refused to comment yesterday and said the decisions would be announced today.

Shake-up threatens to put earnings before learning

PRIVATE schools in Scotland currently retain their charitable status under a loose quid pro quo arrangement with the state.

The Office of the Scottish Charity Regulator is a watchdog that has the power to decide whether or not an organisation seeking charitable status has a "public benefit".

In return for Her Majesty's Revenues and Customs tax and rates rebates, worth a total of 4.5 million to the sector – including not paying the normal 40 per cent business rates and VAT on their costs – around 50 schools registered as charities have to demonstrate the "public benefit" nature of their work by giving the community access to playing fields, sports halls, science laboratories or conference rooms.

Another kind of bonus is on offer in the form of 100 per cent bursaries and competitive scholarships for pupils living in the area whose families cannot afford the fees.

The sector pays around 7.5 million a year to help less well-off children attend private schools.

However, if a school were to lose its charitable status this raises the very real prospect of fees going up and scholarships going down. Private schools estimate that they will have to put up their fees by between 5 and 8 per cent if they lose charitable status.

For those with children at George Watson's College, for example, this could mean an extra 400 to 500 a year.

Parents of Fettes' pupils could be asked to find an extra 1,000 or more every year to keep their children at school.

Scottish schools could also be forced by the Inland Revenue to pay a form of capital gains tax on all of their assets.

Some of Scotland's top private schools, which own major tracts of prime land in Edinburgh and Glasgow, have total assets worth tens of millions of pounds. Any schools stripped of charitable status are under no obligations to keep the philanthropic ethos they have nurtured for generations.

They could quite easily close off all their grounds and facilities to the public, and could become limited companies, with profit, rather than education, their priority.

The schools could decide to concentrate purely on those who can pay the most, targeting the Far East and eastern Europe by selling a "Scottish education" abroad. This in turn could deprive Scottish children of the chance to get the best possible start at home.

Old argument centres on potential public benefit versus claims of narrow elitism

SCOTLAND'S private schools have come under the spotlight over their charitable status in recent years.

MSPs have hotly debated the issue, branding independent schools "elitist" and questioning their entitlement to tax and rates relief.

In January 2005, members of the Scottish Parliament's communities committee went on the offensive as they discussed whether or not independent schools should continue to warrant charitable status.

The committee was examining the Scottish Executive's Charities and Trustee Investment (Scotland) Bill, which set out a new test for any organisation seeking charitable status. The bill stipulated that bodies wanting to be registered as charities must prove a public benefit.

Christine Grahame, an SNP MSP, was one of the most outspoken critics, saying ordinary Scots would be "astonished" private schools were charities in the first place. She once challenged private schools to justify their charitable status "against a clear view that you are elitist".

The main function of the charity regulator, the OSCR, is to determine a body's charitable status based on certain criteria, such as its public benefit and the potentially restrictive nature of any fees it may charge.

Shortly after its inception, universities, care homes, private schools and the Royal British Legion were among almost 1,000 organisations that faced tough new tests to prove they deserved their lucrative charity status.

In 2004, critics had warned that plans to reform Scotland's charities would bring financial ruin to many of them, as 25,000 voluntary groups faced vetting by the OSCR.

The OSCR was created as part of the Scottish Executive's Charities and Trustee Investment Act (2005), which aimed to boost public confidence in the charities sector after a string of high-profile scandals.

In 2003, an inquiry revealed Breast Cancer Research (Scotland) had given only 1.5 million to charity out of the 13 million it had raised. The Moonbeams children's cancer charity also had its accounts frozen amid concerns over its finances.

The Court of Session later permanently removed the Moonbeams directors after they failed to answer claims only 70,000 of almost 3 million went to sufferers and their families.