Labour’s cunning plan to force public schools to prove they provide public benefit has failed, says Stephen Lloyd.

‘Confused’?

‘Surprised’?

‘Delighted’?

‘Outraged’?

‘Score Draw’?

How could a 130-page judgment, the fruit of extensive discussion and consideration, produce such varied responses?

Very briefly, the ISC case takes us back to the debates in Parliament in 2005/06 on the Charities Bill.  It began before the 2005 election; was lost because of it; reintroduced after it. The Bill got extensive Parliamentary air time, especially in the House of Lords.  But one vexed issued lurk behind all the debates – that old political hot potato, ‘should independent schools be charities?’

The government had a cunning plan a la Baldrick (pictured).  Revoke the presumption of public benefit. So all charities would have to prove public benefit – including public schools.  Then pass the hot tuber to the Charity Commission – get them to create public benefit guidance and monitor it.  Job done.  No spats between the Labour government and the right-wing press.

The cunning plan nearly imploded early on.  Some lawyers said revoking the presumption of public benefit made no difference to the law.  To fix this, the Charity Commission and the Home Office signed a concordat to say that it did.  But the concordat did not nail the issue – nor did the Act. And the Tribunal judgment never mentions the concordat.

The Charity Commission did what the Act told it to do.  It drafted public benefit guidance, in particular on fee-charging charities.  It consulted widely.  It revised and published the guidance which stated in particular that, ‘where a charity charges high fees that many people could not afford, the trustees must ensure that the benefits are not unreasonably restricted by a person’s ability to pay and the people in poverty are not excluded from the opportunity to benefit’.

Then it started doing public benefit guidance on high risk (ie possible low-public-benefit charities).  For some this was akin to Thomas Cromwell going round dissolving the monasteries in 1536.  In 2009 the Commission failed two prep schools on their public benefit assessment – this was because the schools were giving inadequate provision to poor people.  A year later the Commission revised its ruling as one of the schools had to increase the number of bursaries from 1.2 per cent to 4.8 per cent of the pupil roll and the other from none to 6.6 per cent. The cases had an impact. It was felt, particularly by the ISC, that the Commission was relying too much on bursaries as the key to whether or not independent schools were delivering public benefit and so they sought judicial review of the Commission’s guidance.

In its very detailed judgment the Tribunal concluded:

•    That educational charities must provide a benefit to the poor that is not token.
•    That educational charities must avoid gold-plating their services.
•    That wider benefits than bursaries can be taken into account.

The whole framework of Charity Commission guidance on public benefit was designed to deal with the independent schools issue.  This was the political heart of the 2006 Act.  But after hundreds of hours of professional time spent in Parliament, on correspondence and in the Tribunal at no doubt millions of pounds of cost, the Tribunal concluded that the public benefit guidance in relation to fee-paying schools was flawed.  The Commission has been told to try again.

What next?

So if this is all too difficult, where do we go now?  In the case of independent schools, the Tribunal is clearly of the view that determining public benefit must lay with the trustees.  The trustees need to act properly. They need to take account of the full range of their beneficiaries – not just those who can pay. But how do they do this? And how can they be seen to be properly discharging their duties as trustees? Under the public benefit guidance system they could follow the Charity Commission guidance, prescriptive though some felt it was.  Now they have to work it out on their own. No doubt they will seek professional advice to act as a protector to them in discharging their trustee duties. The cynic might say that the Tribunal decision was written by lawyers for the benefit of lawyers because ultimately the impact of this case is that lawyers’ interpretation of the law replaces Charity Commission guidance.  Alternatively, organisations like the ISC will write their own guidance and wait to see if it is challenged.

But what is the knock-on effect? What about those other charities which charge high fees eg hospitals and arts charities?  In light of the ISC judgment, trustees will have to look at the range of benefits they provide.  And again they will no doubt be consulting their lawyers for solace.

In any case the Charity Commission is operating with its hands tied behind its back.  It is under a duty to produce guidance under Section 4 of the Charities Act 2006, and charity trustees must have regard to any such guidance when exercising their powers or duties.  But with the huge cuts to the Commission’s budget, will it have the financial muscle to do much investigating to check whether charities are discharging public benefit?  This is particularly the case as the Tribunal is now a threat to its finances.  How many cases will go to it each year?  At what cost to the Charity Commission?  Given its one-third reduction in income plus the black hole of the Tribunal, the Commission’s abilities to act are severely constrained.

I suspect the long-term combined effect of the ISC judgment and the Charity Commission’s budget cuts will be a shrunken, cautious Commission.  The irony of all this is highlighted by the work of David Levin, headmaster of City of London School (CoLS), one of the top private schools in the country.  Mr Levin is worried about ‘the ghettoisation’ of London.  He does outreach work at Stepney Green Maths and Computing College in Tower Hamlets where 97 per cent of the pupils are of Bangladeshi origin.  At CoLS he has launched a £500,000 bursary scheme to get 60 pupils from poor backgrounds into the sixth form.  He is encouraging six more independent schools to do the same so there will be 112 bursary places in London next year.  He clearly thinks that bursaries are a good way of demonstrating public benefit!  

The ISC disliked the Charity Commission’s emphasis on bursaries.  But without the Charity Commission’s work post the 2006 Act, to recall all charities to their mission; to require them to grant access not just to those who could afford high fees but rather to share their bounty, would Mr Levin’s imaginative scheme have got going?  Possibly – there have always been enlightened people like Mr Levin.  Sadly there are also quite a lot of people who are less enlightened; who want the benefits of charitable status without the responsibilities.  The Tribunal’s decision in the ISC case puts the obligation of recognising that responsibility firmly on the trustees’ shoulders.  Will they be up to it?  Or will a future Labour government realise that its cunning plan failed and go for real reform?  If so, this could prove to be not just a score draw but a Pyrrhic victory for the ISC.

Stephen Lloyd is a senior partner at Bates Wells & Braithwaite