SCVO Policy Brief

OSCR’S Rolling Review Phase 1a Decisions – 28 October 2008

Background:

· the new regulatory regime for charities under the Charities and Trustee Investment (Scotland) Act 2005 (the ‘Act’), places a duty on the charity regulator OSCR to maintain a register of charities and to regularly review it to ensure that those charities on the register satisfy the requirements set out in the Act, including the 'public benefit' test.

· OSCR completed its first pilot 'rolling review' in July 2007, where it looked at a cross-section of charities, including one fee paying school.

· All charities passed the charity test, including the High School of Dundee.

· OSCR found that it passed the public benefit test, despite charging annual fees up to £8,300. OSCR considered that these fees were not 'unduly restrictive'.

· SCVO's position at the time was that we need to clarify what 'unduly restrictive' means. Can a school be considered to be providing a 'public benefit' if its education is too expensive for the majority of the population to access?

· What does the Act say? Section 7 of the Act says a body meets the charity test if its purposes fall into one of the prescribed charitable purposes AND it provides public benefit in Scotland or elsewhere.

· How do we interpret the public benefit test? Section 8 of the Act says that three things must be considered: 1) what if any benefit is to be had by private members (as compared to the public); 2) what disbenefit might there be to the public; and 3) 'where benefit is provided to a section of the public only, is there any condition of obtaining that benefit (including any charge or fee) that is 'unduly restrictive'?'

· The second rolling review and consultation on charity test guidance was accompanied by a welcome announcement in March 2008 that OSCR would commission research on the affordability of fees and charges imposed by charities. The aim was to provide an evidence base to support the second round of review decisions, particularly on the difficult issue of what 'unduly restrictive' means (as this is inevitably raised by the presence of a number of fee paying schools included in the review).

Decisions in Phase 1a of the Rolling Review

· This second rolling review looked at a total of 30 charities, including 11 fee paying schools.

· Of the 11 fee paying schools, OSCR found that 4 did not meet the charity test. They are Lomond School, Hutchesons Educational Trust, Merchiston Castle School and St Leonard’s School. The remaining 7 schools, including Gordonstoun (with fees for secondary students of £19,000+per year) passed the charity test.

· These remaining schools satisfy the test largely because of the structures they have put in place to increase access by reducing their fees. This is done mainly through a combination of means-tested bursaries and scholarships, supported by the schools and (in some cases) through outside organisations.

· OSCR looked at three main indicators in order to measure the extent to which these schools have addressed the issue of fee levels which might be considered to place an ‘unduly restrictive’ condition on public benefit.

· They are 1) the total value of means-tested agreed fee reductions and 2) what percentage of the school’s total income that represents; 3) what percentage of the school roll are receiving both means-tested and other financial support.

· OSCR stated that it will not require specific percentages, but rather will look at each school’s practices in the round. However, on a review of the assessment of schools which passed the charity test, some guidelines begin to emerge: Taking the example of Gordonstoun, there are 13.4% of pupils in receipt of some level of means-tested support; while the total financial support (means-tested) represents 8.8% of the charity’s annual income (for 2006-07). At the opposite end of the spectrum, St Leonard’s School, which failed the charity test, had less than 1% of its pupils receiving some form of means-tested financial support, which represented 0.5% of their annual income.

· The 4 schools which did not pass the test have been given a 3-stage direction by OSCR. They are required to confirm within 3 months that they wish to remain on the register; then within the first year, provide a plan setting out the changes they intend to implement in order to comply with the requirements; finally, put these changes into practice within a further two years.

SCVO’s Position

• SCVO is disappointed that OSCR has not provided clearer guidance on the interpretation of public benefit, and specifically on the two elements of 1) disbenefit; and 2) conditions which are ‘unduly restrictive’. There is no mention of the issue of disbenefit other than a simple statement that none was identified. SCVO regrets that OSCR’s approach to this important aspect of the public benefit test has not been set out more clearly.

• It is SCVO’s view that these decisions will damage the public perception of charities, charitable purpose and the extent to which the public should benefit from them. SCVO believes that by definition charities should be mainly engaged in activities which are for public benefit and that any benefits which are not fully accessible to the public form only a small minority of the activities engaged in. We believe this is also the public’s view of charities, and was the guiding spirit behind the legislation. OSCR’s decisions on the fee-paying schools in effect says that a charity may retain its charitable status while only a very small portion of its activities are in fact for public benefit. This is counter-intuitive and ultimately damaging to the sector because it devalues the meaning of the term.