Legal action to defend charity status pledged

Losing a concession worth £42.5m would lead to closures and large rises in fees. Lesley gerard reports

Labour will face a legal quagmire if it tries to abolish the charitable status of independent schools.

The private sector insists it will defend the financial advantages for more than 1,000 schools registered as charities through the British and European courts.

This special status is worth at least £42.5m to independent schools. Labour is also committed to phasing out the assisted places scheme for bright pupils from poorer backgrounds, which costs the exchequer £94m a year.

A 1991 study of 1,230 fee-charging schools showed that the concession which allows them to pay only 20 per cent of their business rates saved £20m a year. A further £22.5m accrued from tax relief on interest and income earned from bank deposit accounts and from covenanted donations to appeals for new buildings and other projects. The total charged in fees was £1.4bn and schools paid £57m in bursaries and scholarships, one of the ways in which the institutions justify their charitable status. Some schools also enjoy exemption from some VAT payments.

Independent schools say the loss of charitable status and assisted places would lead to closures. The best-case scenario, they say, would be an average increase of 8 per cent in fees and the loss of special bursaries and scholarships.

However, the way in which any future Labour government chose to implement such reforms would be crucial.

Sir William Goodhart, QC, outlined three options open to Labour in a report for the Independent Schools Information Service (Isis) in 1991.

To qualify as a charity an organisation must: "be for the relief of poverty, or for the advancement of education or religion or for other purposes beneficial to the community.''

According to Isis, Labour might redefine charity so as to exclude fee-charging schools and to require charitable independent schools to alter their roles in order to remain charitable within the new definition. private schools would either be integrated into the state sector as voluntary schools or wound up and have their assets "applied to other purposes." The independent sector would vanish.

The second option was to redefine a charity but without making schools change the way they operate. Some could become corporate bodies, others would continue as trust schools, but without charitable status. Finally, the definition of charity could be left unaltered, but a special clause could be added to deny fee-charging schools benefits given to charities.

As Labour has decided that it no longer wants to abolish private schools, the third option may be the most attractive to party policy makers.

Loss of charitable status will hit schools which rely on income from large endowments and donations harder than those which rely more on their fees.

The independent sector will argue it should survive, with charitable status, to preserve choice of a private and often single-sex education which low-income families can afford.