Brian Monteith: When chasing justice delivers injustice

There was a welcome sign last week that the Scottish Government is not rushing to endorse the proposal that Scotland’s independent schools should lose the rate relief they currently enjoy as a result of having charitable status.

Readers may be aware that the Barclay Review, a report commissioned by the Scottish Government to consider the non-domestic rates system and make recommendations about its various reliefs had – quite out of the blue – proposed the rates relief provided to charities should no longer be available to independent schools. The justification given for this was to end a supposed unfairness in treatment between state and independent schools, because the state schools, not being charities, do not receive any relief but have to pay the full amount liable.

This argument must rank as one of the most disingenuous if not deceitful reasonings for a tax grab I have ever heard. The true history of non-domestic rates being charged to schools demonstrates why.

As I have argued before in these pages, the business rates issue surrounding state schools is a financial merry-go-round that creates a false sense of unfairness. State schools are given state money that they hand back to the state when the tax falls due. In the past, when state schools were not asked to pay rates, they were not given the money.

To provide greater transparency of local government finances, new arrangements were introduced to show comparative costs with the private sector across the various building uses. All local authority buildings were given a non-domestic rates liability. As independent schools already received rates relief as charities, the fact state schools suddenly had to pay rates did not mean they faced a new unfunded burden. They were not put at any disadvantage because the money was provided for them to pay the rates.

In effect state school business rates do not really exist, the schools are given the money for it to be taken away again. In such a system even the council does not have to raise the money to give to the school, because it receives it back, it is the nonsense verse of local authority finances, it is an absurdity, an anachronism waiting for reform.

To claim that because state schools “pay” 100 per cent of non-domestic rates but independent schools (after their 80 per cent charitable relief) pay only 20 per cent is absurd. The real truth of the matter is that the independent sector pays 20 per cent of its tax liability while the state sector pays nothing. If there is an injustice it is that the independent sector has to pay non-domestic rates at all.

If we look at this more deeply, what it also means is that parents who fund their children’s fees at independent schools pay their personal taxes to support state education that they do not use. While it is their choice, that these parents then pay an average of over £14,000 a year for a day school pupil means they are paying twice for their child’s education.

This is of great benefit to the Scottish Government and local councils (and of course the pupils that attend the state schools) because it means they are able to spend more money per pupil than they would if the 29,647 pupils attending 72 independent schools had to attend state schools.

Ending independent schools in Scotland would mean those 29,647 pupils attending state schools without any additional tax revenue to finance the teaching or provide the buildings and other resources required. Indeed a study found that independent schools in Scotland generated £455.7 million Gross Value Added value for the Scottish economy and supported more than 10,600 jobs – and save the Scottish Government an additional expenditure of £156m that it would have to find to cover the education services the independent sector provides.

The current system also means that parents are paying through independent school fees for the rates bill that independent schools are liable for, and were that liability to rise fivefold – as is proposed – then the fees would have to go up to meet that cost. The (surely?) unintended consequence of such a policy would be to make the independent sector more costly and out of reach of parents who already make great financial sacrifices so that their children attend such schools – making the schools more rather than less exclusive.

It should be remembered that independent schools are not profit making – like co-operatives, they recirculate all funds back into their operation to improve their facilities, teaching and keep their costs affordable. To do otherwise would mean them losing their charitable status. If, however, charitable status was to result in no benefits then some schools might find it more attractive to change their business model to become profit-making and far more exclusive.

The real injustice is that one group of schools has to find real money to pay its tax liability but another group of schools has its whole liability paid for on its behalf by those issuing the bill – it is in effect given 100 per cent rates relief.

There is of course an obvious and easy way to end this injustice and that is to give all schools, indeed all educational institutions, 100 per cent relief from business rates, whether they are charities or not, creating a level playing field for all. It would mean no schools in Scotland – be they state or independent – would need to pay business rates and for a government that repeatedly tells us that education is its number one priority that must be the right thing to do.

It would protect the state sector from having to take on additional pupils priced out of the independent sector that it does not have the resources for – and it would help ensure that in the truly meritocratic society we aspire Scotland to be, social mobility is actively encouraged.

It is not as if the Barclay Review does not recognise that rates relief can be granted as well as removed for it has recommended that childcare centres should not be liable through a 100 per cent rates relief.

The Scottish Government dos not need to take longer to put this issue to rest. It should come up with a proposal to remove state schools from their business rates liability altogether. It does not need this unhelpful distraction, there is enough to be getting on with in reforming the state sector after all.

l Brian Monteith is editor of ThinkScotland.org