Independent schools in Scotland should lose business rate relief, review recommends

The Barclay Review of Business Rates, which was commissioned by the Scottish government, says granting private schools the tax break is unfair on their state counterparts

Fettes College, an independent charitable school in Edinburgh
Fettes College, an independent charitable school in Edinburgh

Scottish private schools and arms-length external organisations set up by local councils should lose charitable relief on business rates, a government-commissioned review has recommended.

The Barclay Review of Business Rates, which published its conclusions yesterday, was established by the Scottish government last year to explore how the business rates system in Scotland could be improved.

Currently, charities are awarded an 80 per cent mandatory relief on business rates, with an optional 20 per cent at the discretion of the local authority.

The Barclay review recommends that private schools should not qualify for business rate relief because state schools are not given similar exemptions.

"This is unfair and that inequality should end by removing eligibility for charity relief from all independent schools," the report says. "They will of course still retain charitable status and other benefits will continue to flow to them from that status."

The review also recommends that ALEOs – organisations set up by local authorities to run former council services such as leisure or parking – should also lose charitable relief on business rates.

The report says: "If the council itself were still providing a service directly, it would pay rates, but by creating an ALEO rates relief becomes available and the cost of that relief is then met by the Scottish government.

"This allows councils to gain additional funding from the Scottish government outwith the usual funding arrangements, a fact that was acknowledged by councils themselves as one of the primary reasons they put services into ALEO status in the first place. This is tax avoidance and should cease."

Universities should continue to get charitable relief for their education and research functions, but should pay rates when buildings are used commercially, the report recommends.

Sports club relief should also be reviewed to ensure it supports affordable community-based facilities, rather than members clubs with significant assets, according to the report.

The report suggests that reforming charitable relief could save the government £45m a year in 2018/19 and 2019/20, and £50m in 2020/21 and 2021/22.

It also estimates that charitable relief for education and training organisations is worth £48.4m a year, and that the cost of charitable rate reliefs have grown at 6 per cent a year between 2010/11 and 2016/17.

In a statement, the Scottish government welcomed the report and said it would "respond swiftly to its recommendations".

Martin Sime, chief executive of the Scottish Council for Voluntary Organisations, said: "SCVO has long believed that arms-length organisations of local authorities and private schools are not genuine third sector organisations, so we welcome the group’s recommendations around removing charitable rate relief from ALEOs and independent schools."

But John Edward, director of the Scottish Council of Independent Schools, said: "Any sudden alteration to rates relief would have very serious consequences for the employment of teachers, support staff and third party suppliers – as well as those 30,000 pupils educated.

"A review of business rates should not be used to single out 0.3 per cent of Scotland’s charities for differential treatment, when the exception to the rule is not the independent school sector – rather the council-run one."

Gail Macgregor, resources spokesperson at the Scottish council umbrella body the Convention of Scottish Local Authorities "absolutely refuted any suggestions that councils have deliberately avoided paying rates".

She said: "We do not accept this. These are legitimate decisions and cannot be construed as avoidance.

"Councils are under significant financial pressure and seek to protect services. As part of protecting services councils need to make savings. If this option is removed from councils this will have a big impact on frontline delivery of much needed services such as leisure."

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