The independent sector would survive under a Labour government but schools would have to justify their charitable status. The Assisted Places Scheme is doomed.
Labour remained unmoved by last week's survey published by the Independent Schools Information Service from the Institute of Public Finance which showed that Labour would not save enough money by axing the scheme to lower infant class sizes.
Peter Kilfoyle, shadow schools minister, called the figures bogus and pointed to National Foundation for Educational Research costings suggesting the party's plan was feasible.
He told the Independent Association of Preparatory Schools' annual conference last September that the APS "remains essentially a subsidy to schools, with the social and educational justification tacked on to it". Reduction of class size in key stage 1 was a far more sound use of the limited money which would be available from scrapping the scheme, he added.
ISIS has noted a softening of Labour's traditional hostility to independent schools. Shadow education secretary David Blunkett told ISIS director David Woodhead two years ago that it would be inappropriate to levy VAT on fees. But "it was not inappropriate to examine the subsidy as we see it (charitable status) to private education".
Mr Kilfoyle said: "If, for example, there is a wealthy school, designated a charitable institution because hundreds of years ago it was set up with a charitable purpose, but it no longer operates as such, it seems to me that that is not a sustainable position for it when there are so many deserving causes. "
This has worried the sector because it sees education as a charitable activity and points out that for every Pounds 1 of benefit gained, schools give Pounds 1.99 to help pupils with fees. If charitable status were removed fees would rise, schools would be forced to reduce the number of bursaries and become more exclusive, says ISIS.
But Mr Woodhead is well aware that schools must be accountable for their charitable status and be seen as benefiting their local communities. However, he can cite numerous examples of close co-operation with state schools and local people, which Mr Blunkett has noted and is keen to see expand.
An ISIS survey in 1992 called Good Neighbours showed two-thirds of all independent schools shared some facilities with community groups, nearly a quarter shared them with state schools. About half were engaged in community service with one in 10 involved in co-operative arrangements with maintained schools. A survey by the Headmasters' Conference last year showed that nearly 10,000 students regularly took part in community service.
In Leeds Girls High, a Girls' Public Day School Trust school, some 80 Year 10 students spend an hour a week at Royal Park Junior School reading and talking to the mainly Asian pupils who don't hear much English at home.
Lynne Staveley, head of middle school, started the scheme five years ago when her students said they wanted more contact with the outside world. She was amazed when half the year group signed up. "I'm very proud of the girls. It has given them responsibility, commitment and a lot of maturity. They've said it has broadened their horizons and helped their social skills." The Office for Standards in Education praised the scheme when they made an inspection last year so Royal Park has made it an official part of its development plan.
The rival schools of Tonbridge and Sevenoaks have well-established voluntary service units and shared facilities with the towns and state schools. Wendy Stevens, a maths teacher who also runs the voluntary service at Sevenoaks, said two-thirds of the fourth and fifth year were helping old people, working with disadvantaged children or running charity shops.
Tonbridge is about to apply for lottery cash for a theatre in partnership with the local authority which will be used by other schools and community groups. Martin Hammond, the head, said this form of co-operation was "the way schools like ours ought to go".
Mr Kilfoyle agreed. "I believe that the distinctions between the independent and maintained sectors will become increasingly blurred."
He is setting up a panel of practitioners from the independent sector to discuss interchange of ideas and partnerships. "I've met many heads who have good ideas about education generally. We need to draw from all experiences to improve standards for everyone."
But he will need to take heed of Good Neighbours findings that local officials place obstacles in the way of closer co-operation and some state headteachers are hostile to the idea.
One independent school in six had been denied the use of local library facilities and one in eight said proposed initiatives had been frustrated, usually by education officers, although 21 per cent identified heads as the main culprits.
Dick Davison, deputy director of ISIS, said the ephemeral nature of many schemes caused problems as they often depended on the goodwill of two individuals. If one left, they could fold. "It's not a very secure basis for what Labour wants; it's all very ad hoc."
Labour and fee-paying schools: the way they were
1974: Labour's manifesto pledged to "stop the present system of direct-grant schools and withdraw tax relief and charitable status from public schools, as a first step towards our long-term aim of phasing out fee-paying in schools".
1976: direct-grant schools start to be phased out.
1979: Labour's manifesto reaffirmed its 1974 pledge on charitable status and phasing out public schools.
1980: a discussion document said an Education Bill would change the charity law in respect of fee-paying schools.
1981: the Tory Government introduced the Assisted Places Scheme.
1983: Labour's manifesto said the party would withdraw charitable status from private schools and all their other public subsidies and tax privileges.
1987: Labour's manifesto said it would stop diverting precious resources through the Assisted Places Scheme and would phase it out.
1991: Jack Straw told the Headmasters' Conference that he wanted to see their schools involving themselves more in the community.
1992: The manifesto made no mention of removing charitable status from independent schools.
1995: Jan 2: Tony Blair says VAT on fees not on the agenda after David Blunkett told The Sunday Times that it was being "actively considered".