The future of independent schools

With unerring regularity, the British press tends to feature a diverse range of articles about this country’s independent schools, usually accompanied by a picture of a haughty young fellow wearing Eton uniform, or vast palaces perched amidst acres of lush playing fields, as if these are true representations of the entire sector. Their stories depict a fantasy-land of received pronunciation and privilege with eye-watering fees thrown in for statistical good measure to augment a dose of scandal or political machinations about VAT. 

The truth is that one of this country’s greatest and most venerable exports, independent education, is being denigrated to meet the needs of a broken economy and to raise the stakes of rudderless party politics. In my opinion, this is nothing short of gambling with the crown jewels. For context, around 6% (554,316) of school attendees in the United Kingdom go to a private school and many of these parents are the dual income earners who make considerable sacrifices to prioritise the sanctity of their child’s education above other trappings of family life, such as cars, clothes and holidays. Independent schools are diverse in terms of their size, location and provision. Many have specialisms to service aspects that the mainstream, maintained sector cannot meet consistently or effectively for its charges, such as Special Educational Needs, musical excellence, even religious ethos or a particular educational philosophy (e.g. Steiner schools).  

Contrary to popular opinion, the average size of an independent school is below 400 students on roll and the vast majority do not have large endowments or reserves to fall back on. Not every school owns its site and these institutions in particular have more reason than most to feel aggrieved by the misapprehension of the public school stereotype.  

Schools are not cheap places to run and costs are already rising thanks to increases in energy, pension and wages for staff. In many towns, the local independent school is a major employer. The idea that VAT on fees might be comfortably absorbed either by schools or parents is a misnomer for all but the very elite, fireproof bastions of the sector that such a policy is clearly designed to impugn.  

Instead, such a move will merely disenfranchise the smaller, more bespoke settings that operate on a lower cost base and service the needs of aspirational, middle income families for whom a move back to the state sector will be their only option if the school shuts its doors. Fee assistance in the independent sector is prevalent, with an estimated 30% of all pupils receiving some sort of help, whilst collaborative partnerships between state and independent schools rose by over a quarter last year and public benefit remains a strong motivation. Perhaps most poignantly of all, a fifth of independent school pupils (over 100,000), now receive some sort of Special Educational Needs support and it is not a co-incidence that there has been a 29% growth in the number of pupils with Educational Health and Care Plans in the same time frame.  

So, if the VAT policy comes to fruition, it is estimated that thanks to the likelihood of smaller schools closing and number of pupils migrating into the state sector, perhaps as many as 20% (and almost certainly this figure will include those children who require specialist teaching and learning), the extra strain may increase the tax burden by as much as £600m per year. It is Labour’s intention to use revenue from the VAT policy (which it estimates to be worth £1.7b)to enhance teacher recruitment. However, 900,000 pupils are already in classes of over thirty and it is well-documented that current teacher-recruitment targets are way short of the mark. The figures don’t add up in more ways than one.  Notwithstanding the ethical debate about paying for one’s education, the fact remains that this is a formative time for the independent sector. As we enter a Darwinian age, only the strongest schools (yes, size does matter!) and those most receptive to change will withstand the dual economic and political threat as well as a well-publicised birth rate decline which could see 10% fewer children of school age in the United Kingdom until 2032. Given there will be fewer pupils to furnish them, schools will have to be incredibly proactive just to retain their numbers on roll, let alone to grow them. Ultimately, there are three simple rules for a successful school business model:  

1. Increase revenue  

2. Cut costs  

3. Do both 

The time is prescient for School Boards to undertake genuine and robust stress-testing of their core product together with pragmatic financial benchmarking against a best, median and worst case scenario. Interestingly, the message does seem to be getting through to the powers that be. For example, the MTM Confidence Index published earlier this year showcased a significant number of trends for diversification as school leadership and Boards seem to have finally decided that necessity really is the mother of invention. 

Common themes include consideration of a move from single-sex to co-education, ways to extend the business model by offering new provision at the lower or higher end of an existing age range or active embarkation upon Merger & Acquisition discussions. This latter option has seen a huge jump in activity both within the boundaries of charitable mergers or for-profit acquisitions and at MTM we only see the likelihood of this accelerating further in the months ahead.  

Other points of reference are the cultivation of online schooling or international franchising, both of which are reasonably saturated markets and certainly not risk-averse. 

In 5 years’ time, I expect to see a leaner, meaner sector for independent schools. There is room for potential entry to the market for low-cost, no-frills schools in some locations around the UK but ultimately there will be a gravitational shift towards ‘through schools’ with a Nursery to Sixth Form provision. The big players will remain immune from the threats unless they are managed imprudently but virtually all ‘normal’ independent schools will have to be agile and reflective in order to remain viable to a shrinking core market.  

I expect to see, sadly, a growing number of smaller, standalone schools, predominantly of prep age range due to their specific vulnerability to the birth rate decline and lower fee pricing, to go by the wayside. Unless they have a specific niche to give parents a mandate to choose them, such as an outstanding educational feature like SEND provision which skilfully taps into a national growth market, things may go from bad to worse very quickly. Belmont School near Dorking, for example, announced recently that it was closing at the end of the term. That is just a two week notice period for parents and staff! If such a stark reality is emerging in leafy Surrey,  it can happen anywhere.  

Caveat emptor! Parents will be easily spooked by such horror stories and they will likely vote with their feet towards what they perceive to be larger, financially-buoyant schools or those owned by educational, for profit groups. Although the independent sector may be pruned in terms of numbers of its member schools, I envisage that the schools who do exist will be better and stronger. In other words, those that survive – may well thrive… 

If you would like to have an initial confidential conversation around your school strategy, please get in touch with Duncan on 01502 722787 or via email at duncan@mtmconsulting.co.uk.  Duncan will also be hosting a webinar on Mergers and Acquisitions on Wednesday 17th January 2024, details overleaf.