In a downturn, it’s survival of the fittest for private schools

When parents of pupils at Bolitho School in Penzance received a letter home in January, they were in for a shock. Expecting nothing more innocuous than notification of a parents’ evening, the letter instead came from the school’s chairman of governors, and gave the parents a stark message – the next victim of the credit crunch might be their children’s education.

Bolitho’s bank, HBOS, was trying to extrapolate itself from its well-documented financial troubles, and called in a £400,000 loan. The school, which teaches 350 children aged four to 18, faced certain closure unless it stumped up the whole sum, plus more to cover operating costs.

That’s when letters were sent home, as the school appealed to families to bail it out. Parents, desperate to avoid the closure of their children’s school, paid up, and the school’s pupils remain in their classrooms. But as the credit crunch bites Britain ever harder, Bolitho School’s story looks set to be repeated – perhaps with a less happy ending.

Like any other business, private schools will face a battle to stay afloat this year. The Independent Schools Council (ISC) reports that average annual fees at a day school have hit £9,069. A separate 2008 survey found that the cost of sending a child to private school in England has gone up by 43 per cent since 2003. Private schooling has always been expensive, but in recent years some schools have installed top-of-the-range facilities, with the resultant bills being passed on to parents through fees.

Now families have less money in their collective pockets, private education may begin to look like a luxury too far. Britain’s last recession, in 1991, led to independent schools losing 11,500 students in the following five years. At some schools, the impact is already being seen. Six closed their doors last summer. When one of them, St Peter’s School in Burgess Hill, West Sussex, closed in July, the head teacher Hugh Stevens said, “The state of the economy has of course played a part, with many of our parents affected.”

In December, a boarding and day school in Lancashire, the Moorland School, collapsed into administration, before a rescue package saved the school at the last minute. Last term a further two prep schools shut because of a slump in pupil numbers. Across the country, at least 25 private schools have been put up for sale, including a £3.25m primary school in the South of England, complete with computer laboratory and sports hall.

But for now, the picture is not as bleak as it could be. The best schools in The Headmasters Conference have actually seen increased pupil numbers. The ISC is keen to play down the effects of the credit crunch. And Jill Berry, who is president of the Girls’ Schools Association as well as head of Dame Alice Harpur School in Bedford, says that she and her fellow GSA headteachers have not yet seen a mass exodus, and are reporting “healthy numbers” at open days.

Many schools, however, will have to shift the emphasis of their glossy prospectuses to emphasize value for money. Sue Fieldman, of the Good Schools Guide, says fees are now a determining factor for many parents. “With the credit crunch, we find that the amount of the fees is becoming far more relevant,” she says. “If you have two schools more or less the same, if one is £500 cheaper, they are |going for that rather than the flash swimming pool.”

That’s where the so-called no-frills chains of private schools, such as GEMS, Cognita and The New Model School Company come in. The latter says it aims to provide “rigorous and effective teaching at a low cost”. The formula fits the climate: this year the company is opening two new London prep schools, with relatively cheap fees of £5,000-a-year.

Charles Robinson, a director at private school chain Cognita, which is chaired by former chief inspector of schools Chris Woodhead, says that open days have “never been busier”. While Cognita’s fees are not as cheap as some, they have a reputation for ignoring what Woodhead describes as “frills and frippery.”

“I am deeply shocked by the degree of waste within the independent sector,” Woodhead said last year. “Many independent schools are locked into a competition to provide ever more five-star facilities which actually have no education benefit at all.”

Cognita is looking to buy up to 15 more school properties in the coming year. Peers Carter, a founder of The School Transfer Company, which acts as a broker in school sales, says the very |fact that chains like Cognita are expanding is proof that the sector isn’t so “doom laden”.

He adds: “School owners are used to taking a long term view of their businesses and expect to take the rough with the smooth. Well-established private schools have been through previous financial downturns – many have even been around long enough to survive World Wars and the Depression.”

Yet many private schools will have to adapt to survive. At a time when the credit crunch is threatening to squeeze demand for private school places, the Government is making independent schools prove their public benefit if they want to retain their status as a charity, and the associated tax breaks worth more than £100m a year.

Independent schools may need to shift their student funding awards away from academically-determined scholarships towards means-tested bursaries. Certainly, they have to closely scrutinise costs. But, perhaps surprisingly, many in the education sector are celebrating benefits that come from a shift to a more frugal attitude. At the GSA, Berry applauds the fact that cutting back on spending may encourage schools to focus on the core values of education: learning and teaching, rather than swimming pools.

“Schools close down and merge every year, but this year will obviously see more financial pressures," says Berry. “The attitude that a school needs to build bigger and better facilities to keep up with its competitors can lead independent schools into a speed trap of their own making,” she says. “We need to step back, reign in spending, and try to keep fees down – that’s what parents want, and that’s what will help independent schools to stay strong in the recession.”