Oh come, come, headmaster - private schools are pretend charities

Simon Jenkins

When Eton college was founded in 1440 by Henry VI it was to teach “70 poor and needy scholars” from Windsor. To this end it was lavished with holy relics, pilgrimage rights and the freedom to pardon sins. That is what I call charity.

Today Eton has almost 1,300 boys and if any are truly “poor and needy” it is because their parents must find fees of £26,490 a year. Its holy relics are its old boys and the pardon it sells is privilege. What it does, along with 2,500 other private schools in Britain, is respond to a demand from parents eager to buy social status and a good education for their children, uncontaminated by contact with those who use the state sector.

There is nothing wrong in this. Britain is a free country and any curb on the right to spend money on one’s children would be intolerable. But private fee-paying schools are not charities, even if some of the things they do are worthy.

Last week Dame Suzi Leather, chairwoman of the Charity Commission, reminded Britain’s 190,000 charities that they were supposed to deliver genuine public benefit, not merely “do good things”.

The commission does not accept the American idea that “not-for-profit” amounts to charity for tax-avoidance purposes. It spends much of its time chasing outfits, especially so-called social landlords, which merely channel surplus income into directors’ fees.

Likewise arts charities may benefit nobody but their staff and a few customers. Medical research charities can raise cash just to sustain doctors’ lifestyles and invest in profitable drugs. Payment of bonuses to senior staff through foundations and trusts is often a way of laundering corporate surpluses into the pockets of individuals. The truth is that Britain’s £38 billion tax-deductible charity sector is in large measure a middle-class subsidy. Leather’s admonition suggests a modicum of guilt on the part of the regulator.

Nowhere does the guilt bite deeper than into private schools, more than half of which are registered charities. An exclusive education is not a public benefit – if anything, the opposite. It is far from the dictionary’s “voluntary granting of selfless help to those in need”. Many schools are to help rich parents compete for university places with those in need. As for tax relief, it is anything but voluntary. Under charity law it is a compulsory donation to these schools from the taxpayer.

Needless to say there are no flies on Eton. It points out that more than 200 Etonians have their fees diminished by scholarships or bursaries, including king’s scholars honouring the founder’s wishes. Through the London borough of Brent and others, Eton makes its sports facilities available to outsiders and promotes joint activities with local schools and clubs. It probably does more on this score than most similar schools.

Eton claims that such “charity” costs it £3m a year. This is on top of the £5.8m that the state would otherwise have to spend educating its inmates if it did not exist. Against this, the £1.5m that it gets in tax relief is a good deal for the taxpayer. To this battle cry, the Headmasters’ and Headmistresses’ Conference and the Independent Schools Council all cry amen.

At one level this is like registering my car as a charity because it reduces my claim on public transport. Anyone can drum up some public benefit from what they do with their money and then demand tax relief for it. Is a farmer a charity worker because he keeps the landscape looking nice? Are religious sects charities, or opera houses, or artists? Is the Olympics, laden with wild fees and cost-plus contracts, a charitable enterprise?

The only sensible answer to most such questions is “no way”. The word charity has become monstrously abused. But as Lord Mancroft said of babies and monopolies, we see their virtues only when we have one of our own. For Eton or Winchester to parade as a charity would have 99% of the population hooting with laughter. Yet both rightly regard themselves as decent institutions doing good work for the young and striving to be nice to others.

Britain’s charities are a huge business, relieved of central and local taxes. But they are being nationalised by stealth. Almost 40% of their income is from the state, against just 27% from public subscription. Many aid charities are little more than government agencies and what the government finances it must account for to the public. But when the payment takes the form of tax relief – such as £1.5m to just one private secondary school – what form can that account take?

The government cannot deliver all communal needs. The marketplace often does so more efficiently and the voluntary sector more sensitively. Many people find public services so anonymous they prefer the concept of voluntary welfare, especially where the charity is small and donors can monitor where their money is going.

To this demand, charitable institutions offer diversity and choice. But they operate under a light regulatory touch – albeit now made heavier by the Charity Commission’s crippling 109-page code of practice. They avoid scrutiny over the sums they spend on overheads and expect tax relief for activities whose benefit to those in need can seem close to zero.

Push has come to shove over the £100m in tax relief to private schools. These are booming for two reasons, neither of which has to do with need. One is that there is more disposable income available to the middle and aspiring middle classes. The other is that the ending of state selective schooling in the 1970s confronted many parents, who had previously relied on grammar schools, with having their children educated alongside working-class ones in comprehensives.

This ending of state-sponsored educational segregation was itself intended to yield a public benefit. Britain (Tory as well as Labour) decided that allocating two-thirds of children to what were clearly substandard schools at the age of 11 was socially divisive and economically disastrous. If there was to be an educational divide in Britain, it should not be in the state system.

If this increased the social division of private education – to a degree unknown on the continent or in America – that was a lesser evil. But the resulting surge in private schools could not be considered charitable. It was an exercise of perfectly legal freedom by 7% of parents, by definition unlikely to be poor and needy.

This left hanging the question of charitable status for these schools. According to the commission, it is not met by the argument that schools compensate for state spending on education, any more than private health insurance should be subsidised for those opting out of the National Health Service. Not using a public service may relieve the state of a claimant, but it is not an act of charity to the needy.

Nor are bursaries to able pupils a public benefit. As Anthony Seldon, master of Wellington college, said last week, if schools conceded a quota of places to clever local children it might benefit those children, but the resulting creaming of talent from local comprehensives could not qualify as a public good. It might widen the social base of private schools to the edification of their inmates, but narrowing the social base of state schools would promote what Seldon called “social apartheid”. As with Margaret Thatcher’s assisted places scheme, the beneficiaries would tend to be the children of the less prosperous middle classes.

This leaves as “charitable” only the sort of joint projects and shared facilities proclaimed by Eton. Here the schools are on firmer ground, since they are offering not to remove bright children from the local community but to share some of their wealth with it.

They should be perfectly entitled to set such spending against the taxes they would otherwise pay as a normal trading company. For schools that continue with charitable status, involving tax relief of no more than 5%-10% of turnover, such local deals seem a reasonable quid pro quo to the taxpayer.

I believe that encouraging voluntary, philanthropic association is the only hope of restricting the power of the state. That is best achieved not through more grants – a gift to Whitehall control freaks – but through lighter touch tax relief.

That, in turn, means charities that wish to receive such relief acting fair. Private schools have pretended to be charities for too long and should now play the game.