Charity Commission rules must not threaten universities' charitable status

Every time a doctor heals a sick person, an architect designs a building that does not fall down or an artist makes something beautiful, society benefits. Universities make society a better place. And if we all benefit, they should be allowed to keep their charitable status.

Someone should tell the Charity Commission this. It claims that a change in the law aimed at fee paying schools should apply to universities that increase their fees.

UK universities are charities and a recent change in charity law in England and Wales means that in order to qualify as a charity an organisation must demonstrate the public benefit it delivers, rather than operate under a presumption of that benefit.

The Charity Commission has produced guidance which says that organisations will pass the public benefit test if the opportunity for people to benefit is not restricted by an ability to pay and if the organisation does not exclude people in poverty.

Parliament last week voted to raise the cap on English university tuition fees to £6,000, and to £9,000 where commitments to widen participation have been made.

So if the Charity Commission guidance is followed, then some have argued that universities that raise their fees and risk preventing poorer students attending could lose vital charitable status.

Can we be sure that this is what the Commission believes? We could hardly be surer, thanks to comments made by Charity Commission chair Dame Suzi Leather to the press.

"[Universities] have to ensure that there is a way of people who can't afford those fees benefiting in a material way from that charity's activities," she said. "So in principle they're no different from charitable independent schools."

The Charity Commission should take a wider view of what 'public benefit' is. Society so self-evidently benefits from some of its members having a university education that they should be considered to meet the test.

You don't have to directly access university education to benefit from it: to read clear information in newspapers; to get good legal advice; or to benefit from scientific advances. These are the fruits of university educations, and they improve life for us all.

The law change was designed to affect fee paying schools, and that should be the limit of its power.

But even the guidance's application to schools is being challenged. The Independent Schools Council (ISC) has asked for a judicial review of the Charity Commission's guidance, with a hearing expected in May 2011.

That will look in particular at whether there is a positive obligation on school trustees to take steps to provide benefits to the whole of the beneficial class, and whether the Charity Commission is right to disregard what it calls 'wider' benefits – like providing public access to facilities at the school such as swimming pools.

It could result in a revision of the Charity Commission guidance.

Even if the Charity Commission applies its guidance to universities, though, they should be considered to pass the public benefit test as defined by the Commission.

This is because the existence of bursaries and of loans to be repaid once students are no longer poor means that they do have an opportunity to access university education. Even if numbers of poorer students fall, this is not necessarily fatal to universities' cases. The test looks at the opportunity for poorer students to benefit, not whether there is actually sufficient take-up by poorer students. 

Even if they are paying £9,000 a year, this is not the full cost of most university educations, and this must count in favour of an argument that fee rises do not exclude poorer students.

One thing that remains unclear is where students from overseas stand. Foreign students, who are not eligible for loans and bursaries, now make up a significant proportion of students in the UK and it is not clear how the 'opportunity to benefit' test extends to them.

There have been many debates in recent weeks about the fairness of increases in caps on fees, but the Charity Commission should be encouraged to take the wider view that when it comes to public benefit, universities clearly pass the test set by law.

By Janet Hoskin, a partner in the tax team of Pinsent Masons, the law firm behind OUT-LAW.COM. The views expressed are Janet's and do not necessarily represent those of the firm. This article also appears on the website of Third Sector.