Judicial review is a particular type of legal proceeding, described by Her Majesty’s Court Service as “the procedure by which you can seek to challenge the decision, action or failure to act of a public body such as a government department or a local authority or other body exercising a public law function”.  The claim for JR must be filed promptly and, in any event, not later than three months after the grounds upon which the claim is based first arose. The court has the power to extend the three month period but will only do so where it is satisfied there are very good reasons for doing so.

So, argued the Charity Commission, ISC is out of time: ISC is challenging the Commission’s guidance, which it published in instalments in 2008 (January and December) and the three month period elapsed early in 2009.

An open and shut case, you might think.  Well, not quite.

First and foremost, the Commission’s argument presupposed that what we are challenging is a decision taken by the Commission at a single point in time: the decision to publish the guidance.  But that is not at all what we are challenging. Our case is that the guidance is wrong.  It’s just as wrong today as it was when it was published.  And, under the Charities Act 2006, charity trustees are under a continuing statutory duty to pay regard to it.

There are other problems with the Commission’s analysis as well.  Before we had seen how the Commission would interpret and implement its guidance, it was very difficult to know whether the errors in the guidance would be significant or not.  The Commission took until July 2009 to publish its ‘public benefit assessments’ of five schools; many commentators, including ISC, were worried by what they saw.

Then there is the Attorney General’s reference, made only last week to the Charity Tribunal.  His reference ensured that, come what may, questions of public benefit and independent schools are going to be judicially scrutinised.  So arguing that our JR challenge was out of time is rather like rearranging deckchairs on the Titanic.

Finally of course there is the small matter of Dame Suzi Leather’s comments to Parliament last year that she would welcome a legal challenge.  It’s hard to square that eagerness with the legal firepower assembled yesterday to try to avoid this one.

Related posts:

1. Why Schools are Charities
2. Keeping up the good work
3. Let’s celebrate our sector’s role in the national education system

In order to understand why schools are charities, these preconceptions need challenging.  Take a typical dictionary definition of charity: “a system of giving money, food or help free to those who are in need because they are ill, poor or homeless … any organisation which is established to provide money or help in this way”.   This emphasises the role of charities in assisting people in poverty and carrying out altruistic works.  By this yardstick alone, almost no school would qualify.  But then neither would, for example, the National Trust; or the British Museum; or the RSPCA, RSPB or RHS; or, in fact, many of the other 190,000 or so registered charities in England and Wales.  So there must be something more to being a charity than simple philanthropy.

This short blog is not meant to be a full critique of the Charity Commission’s approach to public benefit issues.  Instead, it is intended to provide a straightforward answer, based on prevailing charity law rather than the Commission’s disputed guidance, to the question “why is an independent school a charity?”

What is a ‘charity’?
The Charities Act 2006 defines ‘charity’ to mean an institution which is established for charitable purposes only.   It is therefore immediately apparent that the legal definition is focused on an organisation and its purposes, and not ‘charity’ as a concept or value (as described perhaps most famously in 1 Corinthians 13).

What are ‘charitable purposes’?
The Charities Act has a similarly pithy definition of ‘charitable purpose’, incorporating two elements.  First, it must be a purpose falling within a prescribed list set out in the Act.  And secondly, it must be a purpose which is for the public benefit.  

The prescribed list of purposes includes “the advancement of education” so this part of the test is completely straightforward for schools.   The list also includes, for example, “the advancement of the arts, culture, heritage or science” and “the advancement of animal welfare” – which explains why the national institutions referred to above are also charities.  Significantly, the list separates out “the prevention or relief of poverty” as a distinct charitable purpose, emphasising the fact that dealing with poverty is not a necessary or integral part of all charitable purposes.

But it is really the second part of the definition – that the purpose must be for the public benefit – which has proved so controversial.

What is a ‘purpose for the public benefit’?
Crucially, the Charities Act does not define ‘public benefit’.  Instead, the Act expressly preserves the pre-existing meaning of ‘public benefit’.   In other words, its meaning is unchanged by the Act and must instead be drawn from case law.  The Act does make clear, however, that it should not be presumed that a purpose of a particular description is for the public benefit.  The Act also mandates the Charity Commission to issue guidance on public benefit.   This does not confer upon the Charity Commission law-making powers; merely the responsibility to publish guidance “to promote awareness and understanding”.

What is the meaning of public benefit in case law?
In general terms, ‘public benefit’ comprises two elements, and any organisation claiming charitable status must show that both these elements are intrinsic to the organisation’s purposes: that its purpose is of benefit, and that the benefit is offered to the public or a sufficient section of the public.  Indeed, the Charity Commission’s two general principles reflect this and are largely uncontroversial: that there must be an identifiable benefit or benefits and that the benefit must be to a sufficient section of the public.

In relation to the first element – the benefit – it is apparent that this may encompass both direct and indirect benefits.  In the case of a charity set up to run a school, for example, the direct benefit will be the education provided to pupils of the school.  But there will be other indirect benefits as well, such as the national benefit of well-educated members of society and maintenance of academic standards, and the savings to the taxpayer of not having to fund additional pupil places at state schools.

In relation to the second element – the public – it is important to note that ‘public’ does not mean everyone.  The Commission itself refers to “the public or a sufficient section of the public”, which is the right test.  From case law, one can draw two further elements, one quantitative and one qualitative, to determine whether purposes benefit ‘the public’.  First, the people who are offered the benefit must not be numerically negligible.  Secondly, they must not all form part of a group which might reasonably be regarded as a ‘private’ or ‘closed’ grouping rather than a ‘public’ or ‘open’ grouping.  So, for example, a school established to educate only relatives of a common ancestor, or children of employees of a single company, would be restricting those eligible to apply to a closed grouping of individuals.  By contrast, a charity set up to run a school for boys in Birmingham would have an open – and numerous – pool of potential pupils, and therefore would have a purpose which is for the ‘public’ benefit in both senses of the word.

In summary, therefore, in relation to a typical independent school:

o the principal or direct benefit is the education it offers to its pupils (although there will be many other benefits, both direct and indirect); and
o the public is the pool of potential pupils who are eligible to be considered for a place at the school.

What is the relevance of fees to public benefit?
None at all.  It is long established that charities may charge fees to recoup their costs and generate a surplus.  The majority of charities rely on revenue income, whether the revenue is directly levied on members or users of the charity, or indirectly channelled from other sources such as Government grants or contractual funding from statutory bodies.  Indeed, it would be very unusual for charities with high levels of operating or capital cost, such as schools, to rely solely on investment income generated from returns on historic donations.

What is the relevance of bursaries to public benefit?
Again, none at all.  There is no legal authority for linking fee remission to the question of whether a charitable purpose is or is not for the public benefit.

As was stated at the beginning, this paper is not the place for a full rebuttal of the Charity Commission’s approach to public benefit.  But it is useful to consider the major differences of approach:

Public benefit as an activities test rather than a purposes test: The Commission ignores the express language of the Charities Act linking public benefit to a charity’s purposes and instead looks at the charity’s activities to determine whether the charity is operating for the public benefit.  ‘Public benefit’ therefore becomes a subjective assessment of a catalogue of activities, some of which appear to carry greater weight or significance than others.  Of course, if the charity’s trustees are not operating the charity in accordance with its purposes, this is rightly a matter of concern – but it is not a public benefit issue determining whether the organisation is or is not properly registered as a charity.

Fees: The Commission believes that fees operate to exclude those who cannot afford them, and that exclusion is intrinsically anathema to charity.  It is particularly concerned that ‘people in poverty’ are effectively discriminated against by charities which recoup their costs by charging fees, and goes to great lengths to interpret existing case law so as to conclude that an organisation charging ‘high fees’ (defined so as to include all independent schools) has a high hurdle to pass to demonstrate that those who cannot afford the fees are not excluded.  However sympathetic one might feel about the social merits of its position, basic economics alone would lead one to question this stance: any organisation with bills to pay must have reliable sources of income to fund those bills, and charities are no different.  In fact, the social justice case is not particularly strong either, if the end result is to raise fees for all parents resulting in more lower- and middle-income families being unable to afford the increased fee burden.  Neither is the Commission’s position justified by case law.  Indeed, the precedent upon which the Commission relies expressly refers to the fact that the charity in that case was excluding those who could not afford its fees, with no adverse impact of its status as a charity.

Tax: The Commission unfailingly links the question of public benefit with the tax benefits of charitable status.  For the independent regulator of charities to imply that schools are only using charitable status as a tax-efficient wrapper for their activities is as misleading as it is untrue.  How charities are taxed is a matter for HMRC and the Treasury, not the Charity Commission, and many schools were founded as charities centuries before modern taxation started.  Interestingly, the Commission fails to acknowledge the estimated £235 million of irrecoverable VAT that schools pay to HMRC each year; a single statistic which more than outweighs the oft-quoted figure of £100 million of tax savings for charitable schools.

Savings to the taxpayer: The Commission takes a similarly unbalanced view towards the substantial savings to the taxpayer of the education of half a million children outside the state-maintained education sector.  Notwithstanding a direct reference in the Commission’s quoted precedent to the fact that the medical charity in question provided general benefit to the community as a result of relieving pressure on beds and medical staff at a local general hospital, the Commission disregards any analogous relief to places at, and teachers of, state schools resulting from independent schools. ISC has calculated the value of this relief to be of the order of £3–4 billion per annum.

Matthew Burgess
Deputy Chief Executive, ISC

1.) Cambridge Advanced Learner’s Dictionary
2.) Section 1(1)a Charities Act 2006
3.) Section 2(1) Charities Act 2006
4.) Section 2(2)(b) Charities Act
5.) Section 3(3) Charities Act 2006: “any reference to the public benefit is a reference to the public benefit as that term is understood for purposes of the law relating to charities in England and Wales
6.) Section 4 Charities Act 2006
7.) Re Resch (1969) 1 AC 514: “…such exclusion as there is, is of some of the poor – namely those who (a) have not contributed sufficiently to a medical benefit scheme or (b) need to stay longer in hospital than their benefit will cover or (c) cannot get a reduction of or exemption from the chanrges.”
8.) Re Resch (1969) 1 AC 514: “The general benefit to the community of (the private medical charity) results from the relief to the beds and medical staff of the general hospital, the availability of a particular type of nursing and treatment which supplements that provided by the general hospital and the benefit to the standard of medical care in the general hospital which arises from the juxtaposition of the two institutions.”

Related posts:

1. Private schools and charitable status
2. Keeping up the good work
3. J.R. Brewing