Next year, when private schools must detail public benefit activities, some will shine

Sixth-formers at Millfield School in Somerset are being urged to contribute to a Leavers' Scholarship to fund bursaries for children from families who cannot afford the fees. Now in its second year, and modelled on American Ivy League fund-raising methods, the scheme is one of hundreds of initiatives launched after the 2006 Charities Act underlined the need for private schools to demonstrate the public benefit they provide in return for charitable status.

"It's an opportunity for everyone to put something back and help someone less fortunate than ourselves," says Tatiana Mountbatten, 17, granddaughter of the late Lord Louis Mountbatten and one of the chief fund-raisers. "Last year, more than half of the leavers contributed, paying £5 to £500 each. This year, the donations are rolling in and we're aiming to make the participation rate 100 per cent."

As one of the country's most prestigious (and expensive) independent schools, Millfield already earmarks one of the highest proportions of its income from school fees (13.5 per cent) to bursaries and scholarships. Last year, 778 out of the school's 1,260 pupils benefited from reduced fees at a cost of £4.5m.

According to the Independent Schools Council, one in three pupils attending one of the UK's 2,500 private schools gets help with fees, the vast majority receiving scholarships or bursaries from their school, which are worth a total of £300m. "There is a long history of social purpose in the independent sector, going back centuries," says Jonathan Shephard, the council's chief executive. "Independent schools have always been very much part of their communities, building links and running voluntary programmes, and helping out when families fall on hard times."

Many private schools increased their bursary provision after Labour abolished the assisted places scheme in 1997. "Over the last 10 years, increasingly schools have been moving money out of scholarships into bursaries, which are means-tested," he says. "They also publicise their community programmes more extensively."

The trend towards bursaries was given added impetus last March when the Charity Commission produced draft guidance to all charities on public benefit. Private schools took heart from it, but "B+ – a bit fuzzy round the edges" was Shephard's verdict. With specific educational-sector guidance still to come, some are nervous about how it will be interpreted.

Private-school heads argue that they already do a lot to widen access. At Dulwich College in London, over 350 boys get financial help, costing £2m annually. Scholarships are limited to 30 per cent of fees. Bursaries are higher (most are 40-60 per cent of fees). "When pupils apply, we make our selection based on the entrance exam and interview. Then we look at who needs a bursary to come here, and go down the list awarding money until we run out," says Graham Able, master of Dulwich.

He wants to offer even more bursaries, funded by increases in bequests, gifts, endowments and franchise schools overseas. The school has three international schools in China already, and a fourth will open later this year.

"The aim is to have enough of our own income so that, by 2017, we will be 100 per cent needs-blind. If a boy needs a bursary to come here, the money will be found." Parents who can afford the fees will still have to pay, however.

Another sought-after London school, St Paul's, has done away with monetary academic scholarships completely. Martin Stephen, its high master, says that he does not believe in paying parents for bright children. "We only award bursaries now, at a cost of over £600,000 a year and rising," he says. "Within five years it will be £1m. We look at children who would benefit from a St Paul's education, then we look at how they will pay the fees. I hope we are recreating the culture of direct-grant grammar schools."

The Cheltenham Ladies' College has also revised its bursary policy. Vicky Tuck, its principal, says that five years ago, the school only gave bursaries to a handful of girls who had won a scholarship and needed extra help, or whose parents' financial situation changed while they were in school. "We now offer entrance bursaries, which are rigorously means-tested," she says. "By this September, we shall have 60 such girls with us."

Most scholarships have been reduced in value to 10 to 20 per cent of fees, but she opposes phasing them out completely. "Scholars bring a great deal to the school," she says. "They raise the overall standard, and everyone benefits from having talented musicians and artists around."

Schools vary as to the level of parental salary they consider eligible for bursary support. For some, the cut-off is £35,000 a year; others will consider applications from parents earning up to £60,000. The size of mortgages is also taken into account.

As President of the Girls' Schools Association, Vicky Tuck is particularly conscious of the dilemma that schools with limited resources face if they cannot fund extra bursaries without increasing the fees, and the effect on parents who earn too much to qualify for means-tested help. "This is already a very expensive education," she says. "You don't want to price yourself out of the market. All schools have to have robust financial planning and control, and be both businesslike and ethical."

What is still unclear is whether the Charity Commission will require schools to offer more 100 per cent bursaries (for parents who are short of money, a 50 per cent bursary is about as useful as a one-way ticket to the moon).

According to the charity lawyer Julian Blake of Bates Wells & Braithwaite, the draft guidance says that schools should ensure that people on low incomes must be able to benefit. After consultation, the guidance was amended to suggest that people in poverty cannot be excluded from the opportunity to benefit. "This is a less contentious statement of the underlying law, and should help schools to refocus on their obligations," he says.

Aldenham School in Elstree, Hertfordshire, allocates around eight per cent of its annual income to fund bursaries and scholarships (£700,000 in 2007). Its headmaster James Fowler believes that it would be regrettable if schools were forced to go down the route of only giving 100 per cent bursaries, because it would severely reduce the number of boys and girls who benefit. "For every one family we could assist at 100 per cent, I would much prefer to assist four families with 25 per cent bursaries," he says.

He, too, is worried about the risk of admissions being polarised, with middle-class parents being squeezed out. "A needs-blind policy is simply not open to most independent schools, who are working on relatively tight margins and do not have large endowments. Their main expenditure goes on staffing, facilities and activities. There is not a lot of money swilling around."

Like many independent schools, Aldenham has a thriving community programme, including Saturday science lessons for local primary-school children, and football courses for inner-city youngsters, working with Arsenal FC.

Shared facilities and community linkups get the approval of Sir Peter Lampl, founder and chairman of the Sutton Trust, the educational charity set up in 1997 to help young people from disadvantaged backgrounds and improve social mobility. But he cautions against the Charity Commission conducting a sabre-rattling exercise, to get private schools supporting city academies. "This generates lots of publicity, but diverts attention from the real issue – which is that these schools are closed to the 90 per cent of families who cannot afford the fees," he says.

From March 2009, all independent schools will need to publicly record all their public-benefit activities, including community benefits, although it is unclear how much detail the Charity Commission will require. According to one bursar, it took nearly a week for him to collate all the information about this year's charitable activities as a dry run – and he discovered activities going on that even he didn't know about.

The facts

Only half of independent schools in England and Wales register as charities, but those that do get an 80 per cent discount on business rates. Any profits are exempt from Corporation Tax. They can also reclaim tax deducted from investment income, and on donations under Gift Aid – equal to a 25 per cent top-up on non-fee income.