Education Matters 3 Feature: Is your School Ready for Public Benefit Testing?

From the reported results of the Commission’s pilot assessments of 5 selected Schools (www.charitycommission.gov.uk), it seems clear that, as with its charity registration process, the Commission seeks to assess activities undertaken in preference to purposes declared and pursued in determining whether a charity “operates for the public benefit … within its aims”.  Such a close focus on the public benefit content of a charity’s current activities instead of on that of the charitable purpose(s) it was set up for looks likely to incur a legal challenge as conflicting with sections 1 to 3 of the Charities Act 2006. The Act defines “charity” as an institution that is (a) within the High Court’s jurisdiction over charities and (b) established for exclusively charitable purposes (i) within those listed in s. 2 of the Act and (ii) shown to be for the public benefit “as that term is understood for the purposes of the law relating to charities in England and Wales” (s.3(3) of the Act).

The public benefit requirement that s.4 of the Act obliges the Commission to explain to the sector, and which must also inform its maintenance of an accurate and up-to-date register of charities, thus appears to be intrinsic to the declared Object (purpose) as such – not to how it is pursued or ‘furthered’. How trustees exercise their discretionary powers to that end will then be a question of the ‘propriety’ of the charity’s operational activities – meaning whether or not these are proper to its public benefit purpose. Such a secondary question will not then deny charitable status as such but will risk either possible taxation by HMRC (if taxable trading or ‘non-qualifying expenditure’ is involved) or else personal liability for any charity trustees defaulting on the ‘duty of care’ imposed on them by charity law. That makes quite a different message from the one given out by the Commission in its general and sub-sector guidance and now in these pilot-testing results.

For evidence of the public benefit content of a charity’s ‘aims’, we are told the Commission will look to three main sources (apart from any direct enquiry it makes of the charity trustees and staff from time to time): the charity’s published annual report and accounts, disclosures in the charity’s website/publications and any “recent reports by an independent third-party, such as an independent sector assessor or regulator”.

The Commission says any disclosures made for public benefit testing will need to go beyond a mere general description of the charity’s activities and give examples of work done (ie, “what it has done to carry out its aims which demonstrate the benefits of its work”), examples whose frequency and significance make them substantive enough as ‘evidence’. They must also not be anything accidental or fortuitous – or even outside the charity’s proper ‘aims’ (meaning its declared Objects or purposes), as the Commission found with one of the twelve pilot charities.

The Commission’s report says it follows the government’s ‘Better Regulation’ principles requiring regulatory activities to be “proportionate, accountable, consistent, transparent and targeted only at cases in which action is needed”. But it then goes on to say it is not ‘cost effective’ for it to “search out evidence of benefit where insufficient evidence was provided by the charity”, and that “the responsibility lies with the charity trustees to demonstrate evidence of benefit where that is not obvious or clear”. Does this mean that instead of the Commission assessing the public benefit content of independent schooling provided at a fee it has chosen the easy option of imposing that task on each school? That each one must do the research needed to explain and demonstrate to the Commission not only the public benefit content of its declared charitable purpose but also the propriety of the operational activities through which its trustees continue – as they no doubt always have done – to pursue their proper aim of furthering those charitable purposes.

Could this be why the Commission has now reinterpreted the performance-reporting disclosure recommendations of the 2005 Charities SORP (which make no mention of public benefit as such) by going beyond the strict wording of the SORP’s 2008 Regulations to ask for detailed Annual Report explanations of precisely what public benefit the charity’s activities of the year have sought to provide, how any necessary widening of public access to benefits is being tackled (including not only arrangements to subsidise the less well-off if prohibitively high fees are charged but also appropriate publicising of the opportunity to benefit) and how far any acknowledged ‘disbenefit’ or any actual private benefit is outweighed by the claimed public benefit?

This latter aspect is affected by the Commission’s “Serious Incident Reporting” regime imposed on registered charities with more than £25,000 gross annual income, in so far as the Commission will conclude that there is a ‘disbenefit’ if pupils are put at undue risk of detriment or harm as a result of trustees not having taken all ‘reasonable steps’ to protect them, eg, through CRB checks where the trustees are legally obliged, or merely entitled, to make them.

Schools wishing to avoid the effort and cost of ‘reinventing the wheel’ for the Commission in this way will thus be forced to collaborate by sharing such information with their peers.   

Of the five Independent School charities tested, the two (Highfield Priory and St. Anselm’s) with little or no means-tested bursary-funding arrangements in place were unable, despite all their other access-widening measures, to show a sufficient “totality of benefits provided for those unable to afford the fees, including people in poverty”. The Commission concluded that St. Anselm’s “is a charity but is not currently operating for the public benefit” but that Highfields “is capable of being charitable, subject to the public benefit requirement being met”. The subtle distinction between those two results may yet lead to further challenges to the Commission’s stance on public benefit. Meanwhile these two Schools are to be retested after implementing an agreed plan for widening access to benefit for a sufficient number of the less well-off. The other three (Manchester Grammar, Pangbourne College and Manor House School) were assessed as meeting the public benefit test.