UK: Public Benefit: The Charity Tribunal’s Decision

What do I need to know?

The Independent Schools Council challenged the Charity Commission's public benefit guidance in the Upper Tribunal, and the Attorney General asked the Tribunal some related questions. On 14 October the Tribunal's decision was released.

The decision largely upheld the Charity Commission's interpretation of the law. In particular, organisations which are not capable of acting for the public benefit are not charitable, and organisations which are capable of acting for the public benefit but are not doing so are in breach of charity law. However, it identified certain passages in the Commission's public benefit guidance that were incorrect. These passages related to how charities which charge fees provide sufficient public benefit.

What has changed?

It is still the case that merely educating fee-paying children does not provide sufficient public benefit. The guidance previously required schools to ensure that they did not unreasonably restrict access on the basis of ability to pay. This has changed, and schools now need to ensure that they make a provision for the poor which is:

• more than minimal or tokenistic; and
• at (or above) a level which no reasonable board of governors would go below.

Although the new test does appear to be less prescriptive and therefore, from the perspective of schools who wish to understand their minimum legal obligations, less onerous, the extent of the difference between the previous and the current tests is unclear. The Tribunal did not define "reasonable" in the context of the new test but suggested that governors who exercised their powers properly would be acting above the minimum level of reasonableness. This is somewhat circular, and the Tribunal noted that its judgement would not provide the clarity for which the parties were hoping. It aimed to provide an accurate interpretation of the existing law, rather than state what the law should be.

As with the old test, the new test requires the governors of the relevant school to exercise their judgment, with the Charity Commission intervening only if the governors fail to provide a minimum level of public benefit.

What level of bursaries does my school need to provide to meet its legal obligations?

The particular circumstances of each school needs to be considered, and although previous guidance stated that wider public benefits than just bursaries can be considered, the new guidance is likely to place greater emphasis on these wider benefits. However, the Tribunal indicated that it was likely that the governors of a school will be acting improperly if, in the absence of other benefits for those in poverty, only 1% of pupils received means tested bursaries. It also indicated that it would be very difficult to argue that the governors will be acting improperly if 10% of pupils received means tested bursaries.

In some ways, the Tribunal's approach is little different from the Charity Commission's public benefit assessment reports, which appeared to expect a typical independent school to provide about 3% of its pupils with means tested bursaries. However, the Tribunal made a potentially important departure from the Charity Commission's approach when it stated that, for a school charging yearly fees of £12,500, a means tested 75% bursary would arguably not exclude the "poor". The Tribunal considered that a family which could afford an annual fee of £3,125 but no more would be poor in the relevant context, and therefore 75% bursaries should be given the same weight as 100% bursaries. This reasoning may encounter difficulties in practice, as poverty is a contentious and subjective topic.

What does it mean for other charities?

The decision applies to independent schools, but its ruling on various areas of charity law has implications for other charities.

Charities must continue to satisfy the Charity Commission that they provide public benefit. Any charities which only deliver benefits to members of the public who pay relatively high fees, and care homes in particular, should carefully consider the new test and the discussion by the Tribunal of means tested bursaries. However they should continue to have regard to the Charity Commission's guidance, because aspects of that guidance have only been overruled in relation to independent schools.

The Charity Commission is likely to amend its guidance for fee charging charities to clarify that fee charging charities can in some circumstances satisfy their public benefit requirement through the charity's activities other than its main activity. For example, an opera house may provide public benefit by hosting tours for schoolchildren, and this will assist it to demonstrate its public benefit provision despite the high prices for tickets to performances. However, the extent of this change in emphasis is likely to be contentious and is unlikely to be resolved immediately.

What happens now?

Governors of schools must continue to report on public benefit in their annual report. They must also have regard to the Charity Commission's guidance (as amended in the light of the judgment). The same is true for trustees of other charities. In the absence of clear guidance from the Tribunal or established practice on which to rely, charities which are unsure whether their public benefit provision is sufficient should seek professional advice.

The Charity Commission may appeal the decision, on the basis that in their view it is not clear that the Tribunal's interpretation of the case law is a more accurate statement of the law than the Commission's interpretation. This is a reflection of the difficult and insufficient body of case law in this area, which is largely based on old cases about wills.

If there is no appeal of the decision, then the Charity Commission will issue draft guidance and consult on it in the usual way. The new guidance is likely to be less prescriptive, and the Tribunal's answers to the Attorney General's questions may well provide assistance to school governors. In due course reports publicised by the Charity Commission into borderline cases will no doubt help establish a more detailed framework.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.