Charity Fallacy: Private Schools Estimated to Get £3 Billion a Year from Tax Exemptions

Charity FallacyPrivate Schools Estimated to Get £3 Billion a Year from Tax Exemptions

Sam Bright explores a new report that reveals how exclusive academic institutions skirt their charitable commitments while relying heavily on the taxpayer

Private schools benefit from tax exemptions to the tune of £3 billion every year, according to a new academic estimate.

The research suggests that the UK’s 1,300 private schools gained tax advantages as a result of their charitable status equating to more than 6% of England’s total state school budget – £47.6 billion – in 2020 to 2021.

These institutions are production lines to the top jobs in politics, public life and much of the rest of the economy. The Social Mobility Commission found in 2019 that 39% of the ‘elite’ had attended private school – including 29% of MPs, 39% of the Cabinet, 44% of newspaper columnists and 65% of senior judges. This is despite the fact that private schools only educate 7% of pupils.

As the new research points out, private school graduates also disproportionately attend university – particularly the most prestigious, with more than 31% of Oxford University students being privately educated in 2020. Since universities are subsidised by the government, the higher education of the privately schooled is effectively being paid for (through taxes) by those educated at state schools.

Even more fundamental are the tax exemptions enjoyed by private institutions.

The research explains how operating surpluses (profits) and capital gains (profits on the sales of investments including shares, land and facilities) are exempt from income tax, capital gains tax or corporation tax. Meanwhile, in England and Wales, private schools receive an 80% discount on business rates and can claim an extra 25% from the government on all donations received.

These tax exemptions were created in the early 20th Century and have not been amended since.

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In return, private schools must fulfil a charitable purpose, providing a public benefit with their resources – mainly in the form of fee remissions to relatively poorer students. However, the rules applied to these remissions are vague.

An Upper Tribunal case in 2011 set the basis for the charitable support required by independent institutions – stating that their duty is fulfilled if they provide remissions to those of “modest means” – defined as those who could not afford the school’s full fees. However, given the drastic inflation in private schools fees in recent decades – more than doubling in the last 25 years – these institutions are therefore able to deliver on their charitable requirements by offering financial assistance to relatively well-off pupils.

“The vast majority of children from families with more modest incomes are excluded by this fee spiral from enjoying such facilities – which should, by law, be available for public benefit,” according to the research, produced by academics at Cardiff Metropolitan University, Monash University, and Tampere University.

In 2018/19, UK private schools awarded fee remissions totalling more than £1 billion to 176,234 out of their 537,315 students, the research states.

Of this £1 billion, some £440 million – 44% of the total fee remissions – was means-tested. The means-tested £440 million was shared between 44,395 students – an average of around £1,000 a head. Just 6,118 – 1.1% of all private school students – received a full scholarship, and a further 2.1% received fee remissions in excess of 75% of fees.

A New Oligarchy

The inflation of fees has been partly propelled by the burgeoning wealth of Britain’s super rich – with the wealthiest 10% of households now holding 43% of all wealth in Britain, while the bottom 50% hold just 9%.

Britain’s private school system is also inflated by vast amounts of international wealth.

There are some 2,300 Russian children currently studying in UK private schools, and a report by Transparency International found that between 2004 and 2014 there were 327 “laundromat” payments – cash flows designed to hide illicit wealth – to independent schools in the UK, amounting to £2.8 million.

“Whether it’s those with Kremlin connections or individuals accused of corruption, sending children to private schools can be a stepping stone towards integrating into the British establishment and laundering reputations,” says Ben Cowdock of Transparency International. “Independent schools should be aware that they are exposed to high levels of risk and may even be accepting tainted funds.”

Currently, however, these schools are not legally obliged to report suspected money laundering, and their assets continue to multiply.

The Byline Intelligence Team has previously revealed that the top nine public schools in England – the so-called ‘Clarendon Schools’ – have increased their assets by 44% or almost £600 million in the past six years. The total consolidated assets (minus liabilities) of the nine schools rose from £1.36 billion to £1.96 billion between 2015 and 2020, the research found. All of these institutions possess charitable status.

The affluence of Britain’s elite private schools has attracted attention in recent months, after it was revealed that Chancellor Rishi Sunak and his wife Akshata Murthy had donated £100,000 to his alma mater, Winchester College, which is part of the Clarendon group.

Winchester has increased its net assets by more than £70 million – from £276 million in 2015 (equivalent to £312 million if inflation is taken into account), to £385 million in 2020. Over the course of the last decade, Winchester has seen its assets double from a base of £140.4 million (equivalent in real terms to £175.5 million). It costs £43,335 a year to attend Winchester, a boarding school that before September 2022 has only accepted boys.

Prime Minister Boris Johnson was also educated at an exclusive private school, Eton, which currently charges £44,000 a-year for attendance – comfortably more than the average full-time salary in the UK, which stood at £38,000 in 2021.

The published financial accounts of Eton and Winchester College show that they possess total reserves of £323,000 and £526,000 per pupil respectively.

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As highlighted by the new research, private schools are “subject to little or no accountability with regards to the effectiveness or equity with which they use this cash” – with these institutions tending to invest in new luxury facilities, thus further inflating school fees.

Eton’s science department, for example, was given a £20 million makeover in 2019, while the construction of an aquatics centre – boasting a 25-metre pool with a moveable floor – is currently underway.

St Paul’s, with annual fees at £40,000, recently completed a 10-year building project, costing £114 million. According to the high society magazine Tatler, the results are “fabulous”. They include an award-winning science building, a new drama centre with “possibly the best school theatre in the UK”, and a ‘rare books room’. 

This all signals a wider trend: elite institutions, with few formal regulations governing their conduct, serve an increasingly narrow elite that has seen its wealth and privilege swell in recent years in the midst of persistent economic and political crises suffered by the rest of the population.

As the institutions of democracy, academic learning and wealth creation are pooled by this elite, the country appears to be betraying its commitment – however distant – to meritocracy, and is instead moving closer to oligarchy.