Local News

25 June 2012

No cause for complacency

Henry Briggs, senior partner of the Birmingham office of Haines Watts, Chartered Accountants and a former school governor, looks at how year on year fee rises might turn many parents away from the private sector.

The recently published ISC Census results from research conducted in January 2012, gives an initial overview which could be summed up as ‘All's well in the private fee-paying schools sector’. For the first time since 2008 pupils in their member schools have risen, - the ultimate test of the health of the sector - and this is at a time when fees have also gone up by an average of 4.5%. But is there more to the statistics than meets the eye?

Parents committed to the private education of their children must dread the annual letter from the Chair of Governors explaining why the fees must rise next year and what good value they represent. Before a Governing body have reached the decision, they will be watching what their competitors are doing (or are likely to do) and will have seen the bursar's sensitivity analysis of the overall results to different fee rises. Interestingly, unlike businesses, they will have little in the way of price elasticity sensitivity analysis, because the immediate result of fee rises is rarely a fall in demand at schools. Parents are locked in, at least until their children move to another stage.

Although the ISC census concludes that fee rises in 2012 were ‘below the rate of inflation’, they are referring to the Educational component of the Consumer Price Index (‘CPI’) which rose by 5.1%. In fact, the average fee rise of 4.5% does not compare favourably with the overall CPI to January 2012 of 3.6%. Average earnings are not keeping pace with inflation either. The increase in means tested bursaries may be partly due to the scare over public benefit, but also may show that these rises are really beginning to hurt.

Looking beneath the headline rise in pupil numbers tells another story. The increase, an uninspiring 0.1%, masks several factors. London and the South East accounts for a rise of 1.2% and the regions show a fall of 0.7%. The rise in non British pupil numbers by my calculations gives a rise of 0.29%. So, overall a rise in overseas pupils and a fall in UK based ones. If we take the decline in boarders of 0.2%, assuming the overseas pupils are boarders, then there is a drop of UK based boarders of more than twice the statistic. The fall in boarders is made up for by an equivalent rise in day pupils, which could be the ‘cascading’ effect of recession, with parents trading down to affordable fees within the sector. Fee sensitivity may be difficult to measure, but this is evidence it exists.

There are two other interesting factors coming out of the survey. One is the decline in capital expenditure, which has not kept pace with inflation. Could the schools' arms race for more and better facilities finally be over? The other is that schools are growing in size and have been for 25 years. Both of these might indicate that managers have realised that to stop the inexorable rise in fees ahead of earnings, economies must be made both in costs and scale.

There is little sign yet that the growth in state funded Academies and Free schools are affecting fee paying schools, but again, Bursars would be wise to look over their shoulders. In April 2012 there are 1,776 Academies in existence. There are a further 1,945 seeking conversion. So they are growing exponentially. Very few private schools have converted, usually those failing schools have been shored up by ‘parent power’, reluctant to allow their schools to be taken into the state sector. They may not survive long. Free schools are still few in number - possibly only 50 by September 2012. But these and the Academies are going to have a big effect on education in the UK. One shorter term beneficial effect on fee paying schools may be to drive away teachers' national pay scales and keep salaries down. But these schools are modelling themselves on successful private schools and they don't have to charge parents. The ‘cascading down’ of parents from boarding to day schools may carry through to a state sector if it starts to deliver comparable education. In turn, this has repercussions for the taxpayer in an era of cuts.

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