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Flow of Ideas: articles - Private Schools as Charities

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Chandos Book Publishing

Private Schools as Charities and New Labour’s Knowledge Economy




Glenn Rikowski, London, 9th March 2007

A paper produced for The Flow of Ideas


Preface

This paper was first written on 9th March 2007 and posted to Wavering on Ether, my MySpace blog. However, that blog has experienced some problems during the last few months, and given continuing and significant developments in the private schools sector I can see that this paper has a value that deserves wider recognition. The paper is as it was when I first wrote it, apart from a couple of additional references.

Glenn Rikowski, London, 15th June 2007



Introduction

The charitable status of the UK’s private schools, including such venerable institutions as Eton, Harrow and Winchester, has been contested for some time. Having charitable status provides such schools with significant tax breaks, whilst those fortunate enough to be able to go to these schools – with fees over £20,000 a year in some cases – receive a head start in the race to attain coveted places in elite universities. Basically, such schools bolster the social stratification system in the UK, partly at the expense of the taxpayer.

However, the Charity Commission, on the back of the Charities Act of 2006, has indicated that the charitable status of private schools has to be earned and justified (see Boone, 2007b). The charitable status of private schools confers:

“…exemption from income tax, stamp duty, reduces business rates by 80 per cent and gives institutions special treatment on value added tax. VAT alone is worth £200m to the charitable sector each year” (Ibid.).

This poses the New Labour government with a dilemma. It wants to nurture private schools as export and foreign exchange earners, whilst playing to the social justice gallery and the Left of the party – all within the context of generating a knowledge economy, of which these schools are an element.


New Labour’s Knowledge Economy

Insofar as New Labour has any kind of guiding economic and social philosophy, given the demise of the vacuous Third Way, it is the ideology of the knowledge economy. As Ruth Rikowski (2003) has indicated, at the heart of the knowledge economy is the notion that the most successful economies of the future will be those that most effectively exploit knowledge assets (p.160), which in turn implies increased investment in human capital – including skills, learning and education – for knowledge generation (p.161). According to Alex Callinicos (2006), the key features of the knowledge economy are as follows:

1. A shift is taking place from the production of physical goods to that of immaterial services;
2. Partly in consequence, production is becoming more “knowledge-intensive” – in other words, products are likely to sell thanks to both the increasingly sophisticated techniques used to make them and the ideas that they represent and that are used to market them, all of which relies on research by highly qualified workers;
3. The success of companies and national economies alike is therefore increasingly dependent, not on the physical plant and equipment that they have built up over years, decades, or even longer, but on their “human capital” – that is, on the skills, knowledge and imagination of their workforces. It is through successfully using these skills to supply what the world market wants that individuals, firms and whole countries can prosper (pp.8-9).

Education and training are clearly crucial in the formation of the “knowledge workers” required by the economy and for developing shills, capacities and positive attitudes towards the generation and application of knowledge in the knowledge economy. However, I would argue that education per se is actually an aspect of the knowledge economy in terms of its constituent services. There is education and training for the knowledge economy, and education and training services as elements of the knowledge economy. In the latter sense, educational and training services are commodities that can be internationally tradable.


Education and Training Exports

As I have argued elsewhere:

“Nurturing exports in UK education and training services is an aspect of New Labour’s economic policy of developing a knowledge economy. This policy was announced formally in 1998 with the fourth Competitiveness White Paper, Our Competitive Future – Building the Knowledge Driven Economy. In the knowledge economy, knowledge, rather than tangible commodities, becomes the principal commodity form” (Rikowski, 2003, p.7).

As I also explain (Rikowski, G. 2003, pp.6-7), the government has set in train a number of agencies and state support systems to encourage educational exports. Thus, the case of The Girls’ Day School Trust (which runs 28 schools in England) opening a high school in Shanghai in September 2008 (Marley, 2007a) is exactly the sort of thing the New Labour government’s policy on educational exports seeks to encourage. Other private schools (e.g. Dulwich College and Harrow) are also opening branches in China (Ibid.). Boone and Gorst (2007) report how Haileybury College is opening a franchise in Kazakhstan.


Charity Begins at Home?

Meanwhile at home, New Labour has been facing charges that the tax regime supporting private schools is unfair, as they receive tax breaks for helping the affluent get into top universities. Furthermore, if private schools are to become export earners, and in other ways acting like companies, then their status as charities is anomalous. On the basis of the Charities Act 2006, which became law last November, the Charity Commission has issued guidelines regarding what all charities (not just private schools) must do in order to continue to receive tax breaks, for:

“Under the 2006 Charities Act, for the first time all charities – including charities which advance education or religion, or relieve poverty – must show they are established for the public benefit. The Act gives the Commission, as the independent regulator, responsibility for raising awareness about the public benefit requirement and carrying out public benefit checks on charities” (Charity Commission, 2007, p.1).

The Charity Commission has issued draft public benefit guidance for charities, and is undertaking a consultation on the ‘four key principles of public benefit it has identified’ (Ibid.). These are:

1. There must be an identifiable benefit
2. Benefit must be to the public, or a justifiable section of the public
3. People on low incomes must be able to benefit
4. Any private benefit must be incidental (Ibid.).

As the Financial Times (2007) notes, on this basis:

“It will not be enough for private schools to rely solely on the argument that they are saving the state the money it would otherwise cost to educate the children at public expense - £2.2bn according to the Independent Schools Council. Instead, they will have to show that in return for the tax benefits, which the ISC estimates are worth £100m, they contribute to the community.”

The Financial Times is generally supportive of the new rules, ‘provided they are applied sensibly’. Jonathan Shepherd, general secretary of the ISC, believes that: “There is nothing to frighten the horses…” (in Marley, 2007b), and that private schools can meet the Charity Commission’s criteria for receiving tax breaks.


Fallout

One possible result of the move to ensure that private schools provide benefits to the public under Charity Commission rules might be that some decide to end their charitable status and become genuine for-profit companies. Pressures on them to do this have increased in recent months (see Rikowski, 2007). Certainly, some of the bigger, older and traditional schools such as Eton and Harrow might be able to establish brand status. This would fit in with New Labour’s plans to establish a strong, export earning private school sector. Secondly, private schools may rush to set up new profit-making franchises world-wide to offset either the tax breaks they would lose if they decided to ditch their charitable status, or the money expended on meeting the Commission’s public benefit criteria. Whether any profit or surpluses generated by their overseas operations would compromise their charitable status, or whether they would have to meet public benefit criteria for these foreign outlets, remains to be seen. Thirdly, some my join or be gobbled up by existing for-profit operators such as GEMS or the Cognita Group.

On a related note, it is ironic that New Labour’s flagship academy schools are faced with VAT charges if they hire out their facilities for more than 10 per cent of their opening time (see Boone and Hall, 2007). Furthermore, the Tories plan to increase the role of charities in education generally (Boone, 2007a). Thus, for various reasons, the charitable status of the UK’s private schools in the spotlight. If they are to become the export money-spinners that New Labour hopes for then a firmer legislative framework for them might still be necessary. New Labour has significant plans for the UK’s private schools: they are part of its ‘knowledge economy’; they train various elites (especially governing ones); and could become significant brands and export earners. For New Labour, they are under-exploited national treasures, ripe for further capitalisation.



References

Boone, J. (2007a) Tories focus on school reforms, Financial Times, 6th March, online at:
http://www.ft.com/cms/s/6ea95f3e-cb88-11db-b436-000b5df10621.html

Boone, J. (2007b) Private school tax breaks ‘at risk’, Financial Times, 7th March, p.3, and online at:
http://www.ft.com/cms/s/8886dba2-cc50-11db-a661-000b5df10621.html

Boone, J, & Gorst, I. (2007) Hertfordshire school to open international offshoot, Financial Times, 25th January, online at:
http://search.ft.com/ftArticle?queryText=Jon+Boone&y=7&aje=true&x=16&id=070125000752&page=2

Boone, J. & Hall, B. (2007) Brown pressed on academies VAT row, Financial Times, 23rd February, online at:
http://www.ft.com/cms/s/3283720a-c2e2-11db-9e1c-000b5df10621.html

Callinicos, A. (2006) Universities in a Neoliberal World, November, Bookmarks Publications: London.

Charity Commission (2005) Charity begins with public benefit, Press Release, The Charity Commission, 7th March:
http://www.gnn.gov.uk/environment/fullDetail.asp?ReleaseID=269200&NewsAreaID=2&NavigatedFromDepartment=True

Financial Times (2007) The public benefits of private education (Editorial), Financial Times, 8th March, p.16.

Marley, D. (2007a) Private schools go East to teach, Times Educational Supplement, 2nd March, p.19.

Marley, D. (2007b) Free places for needy – or else, Times Educational Supplement, 9th March, p.10.

Rikowski, G. (2003) The Profit Virus: The Business Takeover of Schools, Education Studies, School of Education, University of Northampton, February:
http://www.flowideas.co.uk/?page=articles&sub=The%20Profit%20Virus%20-%20The%20Business%20Takeover%20of%20Schools

Rikowski, G. (2007) Learning Investments: New Private Schools and New Labour Dilemmas on Educational Services Exports, 9th March, London, online at:
http://www.flowideas.co.uk/?page=articles&sub=Learning%20Investments

Rikowski, R. (2003) Value – the Life Blood of Capitalism: knowledge is the current key, Policy Futures in Education, Vol.1 No.1, pp.160-178, online at:
http://www.wwwords.co.uk/pdf/viewpdf.asp?j=pfie&vol=1&issue=1&year=2003&article=9_Rikowski_PFIE_1_1&id=195.93.21.68




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