Charity in British education is a confusing concept. How can Eton with investments totalling more than pound;100 million be a charity, its critics ask. For decades, the Labour party wrestled with schemes to end independent schools’ charitable status until Tony Blair came along and declared peace and partnership with all things private.

But, just as the schools were settling cheerfully into the comfortable world of New Labour, the Government decided to take another look at the vexed question of the definition of charity.

Private schools, which arguably built the Britain of the past, are under scrutiny by the Britain of the present. They are being asked: what are you doing to build Britain today?

The Government’s Strategy Unit has been scrutinising the charitable status of private schools as part of an investigation into voluntary organisations. In a report published this week it recommends that all charities should have to demonstrate just how they provide a public benefit.

Schools will face a Charity Commission audit, which will examine factors such as bursary levels and community involvement.

It is the most famous institutions that will bear the brunt of the examination as their high fees make them available to a smaller section of the public. Cheaper institutions, such as small prep schools, are felt to be less exclusive.

The root of the argument is, as always, money. Private schools have charitable status, which gives them relief from a host of taxes and charges. It is difficult to calculate exactly how much they gain financially, with estimates varying from pound;80 million a year up to more than pound;1 billion.

John Shuffrey, independent schools specialist partner at accountants Saffery Champness, explains: “The benefits are primarily tax benefits. The biggest and most significant is rates relief, which is typically up to 80 per cent.”

If private schools had to pay full business rates, those with large buildings or in highly rated areas could find themselves faced with hefty charges.

Removing charitable status could also mean schools would have to pay tax on any surplus they make and on investment income. Only ancient foundations such as Eton College tend to have large sums in the bank, so they would be hardest-hit by such a move (see “value of investments” box).

Other implications could be the removal of gift relief on donations to the schools; the possibility of VAT becoming chargeable on school fees; and even a one-off charge on the increase in value of a school’s property over the years. All in all, charitable status confers enormous financial benefits.

The schools say that, in return, they give great benefit to the country. But the question of what constitutes a public benefit is a vexed one.

At the moment, any body formed for the “advancement of education” is entitled to charitable status, along with those that advance religion and relieve poverty. All other organisations must demonstrate that their purposes are “for the benefit of the community” in order to be classified as a charity.

But there is a strong lobby for change. The National Council for Voluntary Organisations says that all charitable organisations should be required to provide evidence of public benefit.

How do private schools fit into this? They educate around 7 per cent of children. Does that represent a significant proportion? Average day fees are around pound;7,000 a year, rising to more than pound;15,000 for boarding. So are they accessible outside a narrow and restricted group?

NCVO says these are questions for the Charity Commission to address when considering what might be a universal measure of public benefit. But the schools have their own answer - they say they do plenty for the common good.

First, they say, they provide scholarships and bursaries. Scholarships are awards given for excellence, while bursaries are given to those in need. The Independent Schools Council says that more than one in five pupils in its member schools benefit from scholarships or bursaries.

Most schools give around 7 per cent of their income in scholarships and bursaries, although some give more, while others give as little as 4 per cent. But this does not mean that there are hundreds of children from council estates trooping off to the local private school.

Quite the contrary. It is rare for schools to give full bursaries (although see “needs-blind principle” box). Scholarships usually provide up to 50 per cent of fees, although they may be for as little as 10 per cent. Some schools offer means-tested bursaries, but more usually bursaries would be limited to part fees.

Parents whose children are already at a private school when they fall on hard times fare better. Many schools make full bursaries available, at least temporarily, to existing pupils if family circumstances change, especially those in exam years.

In most cases, therefore, a helping hand is available only to people who already have a certain amount of capital behind them. Even parents of a pupil with a 50 per cent scholarship to a pound;15,000-a-year boarding school will have to find pound;7,500 a year - not a sum which is readily available in the average family.

There are a few exceptions. Talbot Heath school for girls in Bournemouth, for example, uses 5 per cent of fee income for scholarships and 7.3 per cent for bursaries, with 57 per cent of students in the senior school receiving some form of assistance.

Every year a free place is given - one recent recipient was a child caring for an invalid father. “She could not be here were it not for the award,” says the head, Christine Dipple.

Ampleforth College, York, while it only gives full bursaries to existing pupils in cases of dire emergency, does give full bursaries to students from partner schools in eastern Europe. Pupils from Hungary, the Czech Republic, Poland, Lithuania and Russia have studied at the college with bursaries for a term or a year.

Another way that schools demonstrate that they are benefiting their communities is by getting involved with them. A common move is to make the school’s facilities available to the local public.

“Our sports centre is the only such facility in West Ryedale,” says Father Leo Chamberlain, headmaster of Ampleforth. “The local community has benefited greatly.”

Schools also form links with others in the maintained sector (see “working in partnership” box) and pupils may help at special schools for disabled children or read to the elderly.

But, while some schools may have ample opportunities to enrich life in their communities, the independent sector is keen to point out that this is not the case for all. At the Independent Schools Council, Dick Davison says: “We want to dispel the notion that the independent sector is like a rich, elderly relative.”

Not every school is an Eton or a Winchester, with millions of pounds behind it and fabulous facilities, he points out. “The vast majority aren’t anything like that.” He cites prep schools operating out of converted town houses as one example. However, those tend to charge low fees.

Some say the argument should centre on something more fundamental than bursaries. Father Leo says: “The essential case for charitable status is that education in itself is a public good. If a home for abandoned pets can be a charity, perhaps a school ought to be one, too.

“The essential public benefit is providing good schools, into which parents put money after tax - that is the fundamental case that should be argued.”

Others take a different view. “Any system which finds ways of dividing children up and ensuring they are not educated in the same establishment is bound to be divisive,” says Margaret Tulloch of the pressure group, the Campaign for State Education.

Perhaps, if we were to build a new society from scratch, we might look at Jeremy Bentham’s principle of pursuing the greatest happiness for the greatest number and decide that charities providing what is, in effect, better schooling for the rich would not fit in with our master plan.

As it is, however, we already have the schools and they are the envy of the world. Most private schools believe that they provide a true benefit to the public, both through community involvement, scholarships and bursaries, and the superb education which some offer. Whether this adds up to enough to warrant charitable status is a matter they may be required to prove in future.

VALUE OF INVESTMENTS

Value of schools’ investments pound;

(2001 unless stated)

Eton College 100,246,000

Rugby 20,986,000*

Harrow 14,895,000*

Charterhouse 7,076,375

Uppingham 5,088,361

King’s Canterbury 4,936,381

Cheltenham Ladies’ College 2,486,000*

Benenden 2,452,903*

* 2000

A few schools - mainly famous foundations - have large investments and endowments that can be used for scholarships, although income from these has suffered recently from stock market falls. The schools say that taxing investment income would make it more difficult for them to give scholarships and bursaries - and therefore make it harder for them to provide a public benefit.

THE ‘NEEDS-BLIND’ PRINCIPLE

“NEEDS-BLIND” admissions policies, to use a phrase borrowed from American universities, offer places to pupils on the basis of their academic performance with no reference to their financial status.

Belvedere School in Liverpool, a member of the Girls’ Day School Trust, famously embraced the principle when it joined up with the philanthropic Sutton Trust to become the UK’s first “open access” private school. About 40 per cent of the Belvedere’s intake receive full fee support, giving the school a very strong public benefit claim.

But GDST as a whole also feels it has a very strong case. Fees are around pound;5,000 a year, not much more than Gordon Brown says he wants to spend on every pupil in the maintained sector. Its central administrative function, which it likens to an LEA, keeps costs down.“I would say the public benefit is overwhelmingly the quality of the education and the fact that we offer it at cost price,” says chief executive John Boal.

The trust educates around 20,000 girls, of whom about 4,000 receive assistance. “About 20 per cent of places at a GDST school are essentially available on a needs-blind basis,” he says.

GDST would like to see more open-access schools in its portfolio and is keen to talk to other charitable trusts that could help to fund them. And John Boal would like to see even more concessions given to charities, with further tax exemptions to help them to run more efficiently.

WORKING IN PARTNERSHIP

ONE way in which private schools can demonstrate public benefit is by embracing the Government’s “partnership” ethos and teaming up with a local maintained school.

State and private schools are working together in Yorkshire, where Ampleforth College pupils are making music with their peers from a Leeds comprehensive.

Ampleforth, the country’s most famous Catholic school, has had formal links with state schools since 1998 under the Government-subsidised independentstate school partnerships grant scheme. The current tie-up, with Cardinal Heenan Catholic high school in Leeds, will see pupils work together on projects such as the use of ICT in composition. The schools’

choirs will also join forces for a BBC Radio 4 performance next month.

The state schools receive most financial advantage from the scheme, but head Father Leo Chamberlain insists that the project benefits both schools. “Education should not be riven by a kind of apartheid,” he says.

But such government programmes have some doubters. Stories circulate of state primaries in affluent areas receiving funds to build links with local private schools, despite the fact that half the pupils have brothers there. Perhaps schools that form partnerships with inner-city comprehensives are the ones really sticking to the spirit of the scheme.