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21 July 2003updated 24 Sep 2015 10:16am

Who’s paying Lord Snooty’s fees?

The scandal about public school charges is not that they're too high, but that they're too low

By Dan Rosenheck

An unexpected front has opened in the class war. The top public schools – Eton, Harrow and the rest – are to be brought to book not because they are bastions of privilege but because the fees they charge are too high. The Office of Fair Trading (OFT) is investigating claims – its officials have already visited Eton – that some schools meet annually to set tuition fees, prevent price competition and inflate their revenues. If found guilty, they face fines of up to £6m.

Unfortunately, all this misses the point. The OFT’s job is to bust cartels that overcharge and undersupply the public and unfairly pocket the excess revenue. But public schools don’t usually make a profit; many don’t break even. Eton itself lost about £5m last year. Moreover, the best schools all have vastly more applicants than places so that, even at today’s high prices, demand is not being met. If the schools are colluding to set fees, the levels are still far below what their actual market price would be if places were simply auctioned off to the highest bidder. You don’t need a semi-secret investiga-tion to demonstrate this. A cursory look at the schools’ books – which are available to anyone who requests them – shows that the Eton Group (including Eton, Harrow, Westminster, Rugby and other well-known names) isn’t exactly Opec, and that the OFT is wasting its time.

The real injustice – which does demand government attention – is that the fees are too low. The top boarding schools charge around £21,000 per year in tuition; but some of the wealthiest spend thousands more to educate each student. At the best-endowed of all, Eton, tuition fees constitute just two-thirds of total revenue: investment and property income add £9,744 per pupil per year. At Winchester, the gap between fees and spending is £3,337 per pupil. In other words, these schools subsidise the education of their pupils. They are charities, as their legal status suggests, but the charity goes to those who need it least. The beneficiaries are the very wealthy, who can afford to pay £21,000 per year but not the £30,000 an Eton education actually costs; and the fabulously wealthy, who could afford such education but receive it at cut-price rates.

Private handouts to the rich are bad enough, but the public school system is doubly regressive. Since the schools are recognised as charitable institutions, they pay just 20 per cent of the uniform business tax and enjoy relief on investment income and bank savings that would otherwise help fund government services: the total value, it has been estimated, could top £1bn, or more than £2,000 per pupil.

Public schools make financial aid available, but they dole it out in tokenistic fashion. Most of the money goes to children from rich families who pass scholarships – usually fee-paying prep school pupils who are coached for the exams – not to those who have the ability but whose parents can’t afford the fees. Eton returns just 11 per cent of its tuition revenue through aid, and four-fifths of that is allocated via scholarships awarded solely on merit. More than a third of Winchester’s aid goes to need-based bursaries, but these represent just 3 per cent of tuition revenues.

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Given the private nature of the public schools, the government can’t compel them to do anything. But it can wield a carrot-and-stick influence through tax policies. It could require public schools to eliminate all scholarships awarded solely on merit and replace them with need-based bursaries if they wish to retain their tax shelter. To be eligible for tax relief, every public school would be required to spend some specified percentage of its income on need-based financial aid. To meet this requirement, the schools would likely have to raise their fees for everyone else, thus chipping away at the insidious subsidy for the wealthy that some schools now offer, and serving the OFT’s goals by bringing tuition closer to its market price.

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At schools that do not have large endowments, those fees would probably be above the actual cost of educating a particular child. Given that most top schools have far more applicants than they can possibly accommodate, there is little doubt that the market would bear further price increases. The point would be that, instead of passing the profits off to shareholders, the schools, as charities, would redistribute the money to allow the less fortunate to share in the opportunity – a private form of progressive taxation.

Tax exemption should also be contingent on the schools actively trying to diversify their intake. They should be required to send representatives to state primary schools, informing students who might never have considered applying that the school will make sure they can attend if accepted, and offering free training that explains how to maximise their chances.

Whether the government should issue cheap bonds to help families to meet the schools halfway on tuition, or offer tax deductions for individuals who want to contribute to need-based scholarships – both of which have been suggested by conservative commentators – is another matter. The left doesn’t like the idea of siphoning off the top pupils into elite private institutions and would like the idea of diverting tax revenues to this end even less.

But 50 years ago, America’s top private boarding schools looked much like Eton and Harrow. By following the example of universities such as Harvard and Yale, which conduct admissions without regard to financial means and actively recruit underprivileged students, they have gone a long way towards remaking themselves in a truly charitable image. Andover, a US boarding school similar to Eton, spends nearly 30 per cent of its tuition revenues in need-based financial aid – almost 14 times what Eton manages. It’s not perfect justice, but it’s better than no justice at all.