Click here to read our analysis

Independent schools are to be compelled to demonstrate how their charitable status benefits the poor, and to account for every penny they save through tax breaks valued at £88 million a year.

Bursaries, subsidised places, the sharing of lessons and sports grounds with state schools — all will come under close scrutiny, according to the draft guidance published by the Charity Commission today.

For more than 400 years public schools have benefited from a presumption in law that education is a charitable activity. But under the terms of the new Charities Act, which came into force last year, charities that charge high fees, such as private schools, opera houses and hospitals, must prove that they are of “public benefit” to justify their tax breaks.

Schools will, in effect, be asked to produce a balance sheet of the benefits — financial and in-kind — to the wider community, alongside the tax breaks they gain as charities.

Tax breaks are on average worth £225 per child a year to independent schools, or just under 2.5 per cent of their annual turnover. If a school were to lose these, fees would rise. Two years ago Eton received tax breaks of about £700,000, the equivalent of £500 for each of its 1,400 pupils. Turnover was reportedly about £30 million and the school claimed to be giving back £2 million a year.

Dame Suzi Leather, chairwoman of the Charity Commission, insisted that independent schools were being treated no differently from other charities in England and Wales that charge high fees.

“We are requiring all charities to give an account of what public benefit they give,” she said. “In the case of independent schools, we suggest that they quantify the public benefits they bring and set them alongside their tax breaks.”

Like all charities, independent schools benefit from not having to pay income tax or stamp duty, have an 80 per cent reduction on business rates and special VAT treatment, as well as financial support from gift aid. All schools will be asked ten questions to “explicitly demonstrate that their purposes provide public benefit”. This must be “clear and identifiable”, must contribute to society or local communities and benefit people on low incomes. “Not excluding people on low incomes does not mean providing some sort of ‘token’ benefit to a person or persons on a low income; it must be more than minimal or nominal benefit or benefit which occurs merely by chance,” the guidance states.

However, while insisting that every fee-paying school must show how it benefits low-income families, Dame Suzi urged them to be imaginative and said it was pleasing that many were moving away from academic scholarships to means-tested bursaries.

She promised, too, that each school would be viewed on its merits and not measured against those with large endowments, such as Eton and Harrow, which can pay out vastly higher sums than others.

“We recognise that one size doesn’t fit all and what we can expect of those with large endowments will not be the same as those who have less room to manoeuvre,” she added.

The commission accepts that public schools may argue that their benefits include educating 508,000 pupils who would be taught in the tax-funded state system, but that alone is not considered sufficient.

Jonathan Shephard, general secretary of the Independent Schools Council, said he could find “no quarrel with the principles set out”.

Times Recommends

• Oh no, Mr Darling: you have failed
• BBC survives dogfight over Kennel Club expose
• Where the Rosetta belongs can’t be set in stone