November 2013 – Private schools and “public benefit” The Scottish Charity Regulator’s stance

Author: Mitchells Roberton
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  • Charities in Scotland are regulated by the Office of the Scottish Charity Regulator – known as “OSCR” for short. OSCR was a body created by the Charities and Trustee Investment (Scotland) Act 2005 (“the 2005 Act”). So it is relatively new.

 

  • One of OSCR’s functions is to “encourage facilitate and monitor compliance” with the provisions of the 2005 Act. Recognition of a body as a charity by OSCR is of importance for many reasons. One of the most important is that recognition as a charity will generally lead to the body being accepted as charitable for tax purposes with all the tax-breaks that involves.

 

  • As part and parcel of its functions under the 2005 Act OSCR has been conducting a review of private schools to see whether they do indeed qualify as “charities” in terms of the Act. It published its report on its review of the third batch of fee-charging schools last month. The purpose of this Note is to indicate OSCR’s stance on the question of fee-charging schools qualifying as charities under the 2005 Act.

 

The 2005 Act and the “public benefit” test

 

  • In order to qualify as a charity one of the things a body must do is provide “public benefit”. The notion of “public benefit” is expressly prescribed in the 2005 Act as follows:

 

“(1) No particular purpose is, for the purposes of establishing whether the charity test has been met, to be presumed to be for the public benefit.

 

(2) In determining whether a body provides or intends to provide public benefit, regard must be had to–

 

(a) how any–

 

(i) benefit gained or likely to be gained by members of the body or any other persons (other than as members of the public), and

 

(ii) disbenefit incurred or likely to be incurred by the public,

 

in consequence of the body exercising its functions compares with the benefit gained or likely to be gained by the public in that consequence, and

 

(b) where benefit is, or is likely to be, provided to a section of the public only, whether any condition on obtaining that benefit (including any charge or fee) is unduly restrictive.”

 

  • In the context of private schools two particular points are made about those provisions.

 

  • First, under the pre-2005 Act law, the provision of “education” was presumed to be charitable. That presumption no longer applies: the 2005 Act test says that no particular purpose (such as e.g. “education”) is to be presumed to be for the public benefit.

 

  • Secondly, where a benefit is provided to a section of the public only (e.g. those choosing to attend fee-charging schools) OSCR is expressly required to consider whether the charging of fees is “unduly restrictive”.

 

The public benefit test in England and Wales

 

  • It is worth noting that the public benefit test in England and Wales is expressed rather differently. There, in particular, section 4 of the Charities Act 2011 provides that “any reference to the public benefit is a reference to the public benefit as that term is understood for the purposes of the law relating to charities in England and Wales.”

 

  • In other words, for England and Wales, the pre-existing charity law is still relevant whereas, in Scotland, it is not. Scotland starts afresh with what the 2005 Act lays down without reference to the pre-existing charity law.

 

  • The distinction here, between Scotland on the one hand and England and Wales on the other, may not generally make much difference in practice. But there is, nevertheless, a distinct difference in emphasis which might occasionally be important.

 

OSCR’s October 2013 decisions on the “third batch of private schools”

 

  • As part of the most recent phase of OSCR’s rolling review of charities to see whether they meet the 2005 Act charity test, OSCR reviewed nine fee-charging schools and publicised its decisions on these last month. Eight were assessed as meeting the charity test: one (Loretto School in Musselburgh) did not. Loretto will now be given the chance to put measures in place to ensure that it does meet the charity test.

 

OSCR’s Policy statement – considering restrictive conditions (e.g. fee-charging)

 

  • On one view some might question whether a fee-charging school can ever meet the “public benefit” test. After all, it might be said that the level of fees charged by most fee-charging schools are such that they will always be “unduly restrictive” in that they generally exclude all those (i.e. most people) who cannot afford the fees. But the public benefit test in the 2005 Act does not go so far and OSCR do not view it as doing so.

 

  • OSCR’s policy statement on these matters says (emphasis added):

 

“The issue is whether any condition is unduly restrictive: in other words, whether it is excessively restrictive, or restrictive in contradiction of general moral or legal standards or is not justifiable. The fact that a (prospective) charity provides benefits that will be charged for and will be provided mainly to people who can afford and choose to pay the charges does not necessarily mean that the organisation is not set up for and does not operate for the benefit of the public.”

 

  • That then is OSCR’s general stance on the matter. This Note now looks at one particular example from an earlier phase of OSCR’s rolling review of fee-charging schools where: a particular school, Hutchesons’ Grammar School in Glasgow, fell short on the public benefit test; was given directions by OSCR as to the matters to be addressed; and subsequently was confirmed by OSCR as having successfully addressed those matters so that it could be confirmed as meeting the charity test.

 

A particular example in practice – Hutchesons’ Grammar School, Glasgow

 

  • Hutchesons’ Grammar School, a large independent school in Glasgow, is governed by Hutchesons’ Educational Trust (Scottish Charity No. SC002922). Following a review by OSCR, OSCR issued various directions to the school as to the measures it should take to ensure it met the public benefit test. Subsequently OSCR reported as follows. 

 

“Hutchesons took the following main actions to comply with the direction we [i.e. OSCR] issued to it:

Activities for which fees are charged:

  • provided means-tested bursaries in session 2011-12:
  • at 4.9% of fee income (2.1% in 2007-08)
  • to 9.9% of the school roll (2.6% in 2007-08)
  • provided 100% means-tested bursaries:
  • to 2.2% of the school roll (less than 2% in 2007-08)
  • amended criteria for means-tested bursaries resulting in a wider spread of bursary provision.

Activities providing public benefit in furtherance of the school’s charitable purposes for which no fee is charged:

  • use of new specialist sports facilities (athletics and hockey) by local school-age teams
  • one-day conferences and events for pupils and staff from other Scottish schools and overseas schools
  • joint environmental and other projects with local schools
  • marking of public examinations, hosting placements for student teachers and also other smaller scale and one-off activities
  • provision of Advanced Higher tuition, although this has been taken up on a very limited basis
  • mentoring and classroom assistant work by Hutchesons’ sixth-year pupils weekly in three state primary schools, by agreement with the local authority education department
  • provision of Saturday morning Primary maths masterclasses under the auspices of the Royal Institution.”

 

  • These measures were (more than) sufficient to allow OSCR to find that the school had met the public benefit test.

Note: This material is for information purposes only and does not constitute any form of advice or recommendation by us. You should not rely upon it in making any decisions or taking or refraining from taking any action. If you would like us to advise you on any of the matters covered in this material, please contact Neil Mackenzie: darb@mitchells-roberton.co.uk

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