School fees: a harrowing time for the bursars

Last year, schools were forced to stop co-operating over fee levels. Dick Davison looks at the fallout

It looks, on the face of it, to be a clear vindication of intervention by a government regulator. In September 2003, fees at independent schools in the UK went up by nearly 10 per cent, compared with 2002. And in the summer of the same year, the Office of Fair Trading (OFT) launched an investigation into claims that many famous schools, including Winchester, Eton and Harrow, were colluding in fixing their fee increases, in contravention of competition law.

The following year, 2004, saw fees rise on average by a more modest - though still inflation-busting - 5.8 per cent, to be followed by a similar rise of 5.7 per cent in September 2005.

So, well done the OFT? Not so, according to Jonathan Shephard, general secretary of the Independent Schools Council. There was a particular, one-off, reason for the 2003 raid on parents' wallets. Schools had to finance a compulsory 50 per cent rise in employers' contributions to the teachers' pension fund, and - short of a dramatic cull of their own staff - had little alternative but to pass the hit on to parents.

It is true that the increase in that year represented a spike in the graph of fee inflation which, though it had risen from the mid-1990s until 2002, had otherwise begun to tail off. Indeed, says Shephard, the OFT investigation may, bizarrely, have had the opposite effect from that intended. He says: "Our own analysis of fees is that after schools stopped exchanging information the variation in the level of fee increases reduced rather than increased."

In other words, when it comes to setting their fees, schools may have actually begun to behave even more like each other now that bursars have stopped comparing notes.

And they were comparing notes. After an investigation lasting more than two years, the OFT declared last autumn that 50 schools, mainly large boarding schools, had indeed been exchanging information about intended fee increases, in contravention of the 1998 Competition Act.

But crucially, when the competition regulator later published its provisional resolution - which imposed a £10,000 "fine" on each of the schools - it acknowledged the schools' adamant defence that the sharing of information had not in itself forced up fee levels. The pressures which drive up fees, say the schools, are the same for all of them, so annual fee rises inevitably follow a similar pattern.

Shephard points out that school-fee inflation since 1999 has almost exactly mirrored the percentage rise - about 45 per cent - in state-school spending. And it's easy to see why: the cost of employing teachers and other staff. Any decent independent school, in order to attract high-quality staff, has to match, if not better, the pay and conditions enjoyed by state-school teachers. Which means that every time teachers' pay goes up, or their salary scales are reviewed, or the cost of their pensions rises, independent schools feel they have to follow suit.

All of which sounds fine, but for two things. Fee- paying parents feel the increase much more acutely than the average taxpayer. And the independent school increases start from a much higher level because they employ many more teachers than equivalent state schools. Independent schools average a teacher-pupil ratio of about 10:1, compared with about 18:1 in state schools.

This presents schools with a dilemma. They know that their main attraction for fee-paying parents is their smaller classes; survey after survey confirms that. But unless they can significantly reduce their costs, for example by increasing their teacher-pupil ratios, they can see that families will be reluctant to cough up for ever higher fees. Only this month, Halifax Financial Services warned that recent increases in fees had put them beyond the pocket of many professional people.

Many bursars believe the OFT investigation has made resolution of this problem even more difficult. The bursar of one major public school said: "Bursars have always felt that one of their major roles was to keep fee increases under control. Such exchange of information as took place was overwhelmingly in the interests of sharing good practice in order to maximise operational efficiencies.

"Now bursars at different schools are prevented from discussing such things as salary and management structures, teacher-pupil ratios, and the financial management of many areas of school life - boarding provision, medical centres, catering, buildings and grounds, for instance."

Ironically, the Charity Commission - to which most accredited independent schools are also answerable - encourages such sharing of good management practice. It is the Charity Commission which will implement the charity legislation due to pass into statute this autumn.

It is likely to look for evidence that schools are taking steps to shift their scholarship policy towards one which directs financial assistance to families who really need it. Many schools have already made some progress, but the draconian code of practice imposed by the OFT means they cannot discuss proposed changes with other schools.

Ironically, too, the sharing of good practice is also standard in state schools and, in other respects, across the independent sector on academic matters through joint meetings of heads, heads of academic departments and directors of studies.

The schools' hope now is that, once the dust has settled on the OFT's investigation, the code of practice, introduced in its early stages, can be revised to permit sensible and desirable discussion of management and financial matters.

Meanwhile, many schools are now exploring other means of reducing costs. A conference last month, organised by school business experts MTM Consulting and lawyers Veale Wasbrough, examined strategic options for schools. These include mergers, federations, major reorganisation and working within larger groups of schools, like the United Church Schools Trust. The conference was hugely oversubscribed.

MTM Consulting's Melanie Tucker said: "Far-sighted schools now see that they have got to find ways of attacking their cost base if they are to remain affordable and ultimately to stay in business. Those who don't may be sleep-walking towards disaster, because parents cannot go on for ever meeting fee rises which exceed increases in their own income."

The warning is echoed by Shephard. Highlighting new pressures on the next generation of parents' budgets - student debt, rising property prices, the increasing cost of pensions - he says: "Schools will need to look more carefully at their costs, and may need to consider the benefits of co-operation with other schools to share costs. They may also need to look at technology as a potential cost-saver, rather than as an added cost."