Schools under pressure?

With elections due before the end of the year, independent schools could find themselves under greater financial pressure. Chris Goldie reflects on what this means for development offices across the independent education sector and considers the potential impact on bursaries.

Whilst the potential removal of Business Rate Relief and the addition of VAT on school fees will present difficult challenges to the independent sector, the good news is that in September 2023, the Labour Party announced it would not attempt to alter the charitable status of independent schools. This means schools will still be able to reclaim Gift Aid on donations from UK tax-paying individuals and higher rate givers will still be able to reclaim their tax rebates too. Tax efficient legacy gifts will also continue to be available.

Thankfully, this protects one of the most powerful donor motivators, tax effective giving. It particularly encourages those with the capacity to make larger donations and means that now, more than ever, schools should be concentrating on securing major gifts.

Where to focus your efforts

At Gifted, we have been privileged to work with a wide range of independent schools. This experience, along with the information gathered when we delivered the IDPE’s 2022 Engagement and Fundraising Benchmarking Report and the more recent update, has given us an unrivalled insight into how schools fundraise. It’s also enabled us to advise all our school clients that as many as 60% of their parents are unlikely to contribute financially to fundraising efforts. This is simply because they don’t have money to spare. The majority of parents have chosen to pay for a private education because they want the best for their children. Consequently, they have decided not to spend on luxury items and, financially, have nothing left to give. It’s worth remembering that these are also the parents who will suffer most from the imposition of VAT on school fees. In contrast, those with more disposable income are likely to be less affected. In pure fundraising terms, it’s these parents – the ones with greater expendable income – who are also most likely to give and should be the focus of attention.

Fundraising effectively

We know from our conversations with Heads, Bursars, Governors and Development Directors, that there is a collective nervousness around the sector. Many schools have postponed or delayed major building projects, not only because of the increased financial challenges, but because building costs and interest rates have risen sharply in the last few years. Others are re-examining existing bursary policies, particularly if the bulk of their current bursary funds come from regular income. These concerns are completely understandable, but it only heightens the need for schools to fundraise effectively.

If regular income is to be stretched further to meet increased day-to-day costs, the only way to improve facilities and maintain or expand bursary programmes, is by boosting philanthropic income. To do so, the development office must deliver a fundraising strategy that has a laser-like focus on who is most likely to give, along with a keen understanding of the projects donors are most excited about supporting.

A key part of this picture involves schools re-examining what they currently do and how they do it. It means working harder at identifying major gift prospects and building stronger individual relationships. So, now is the time to share ambitions that are compelling and urgent, but also clearly resonate with the school’s most likely financial supporters.

Adapting quickly

At this stage, we can’t be certain about if or when any new government might introduce VAT on school fees. It is however, worth noting that the Labour Party has a stated policy to do so within a year of getting into power. If we assume an Autumn 2024 election, given the current opinion polls, it’s highly probable that the two key changes – VAT and business rates – will be in force by the start of the academic year 2025/26. Schools will therefore need to move quickly if they are to re-examine their approach to fundraising.

School leadership teams will also need to swiftly review expenditure and future development options. This will undoubtedly include a forensic assessment of how much they can afford to give back through bursaries, who should receive support and at what levels. We understand that some schools are considering whether they should ‘subsidise’ VAT inclusive fees so that parents of existing students can afford to keep their children at the school. Whilst we acknowledge this view, as fundraising consultants, we are advising that this approach will make philanthropic support for bursaries a less attractive proposition for many potential donors. In our experience what truly motivates givers is not fee subsidies, but transformational bursaries awarded to youngsters who genuinely need full financial support. Therefore, if development offices are to focus on their best prospects and their reasons for giving, an important priority will be to increase the annual number of 100%+ bursaries. Achieving this will depend on how far schools are prepared to invest in a robust, deliverable fundraising strategy.