A new era for independent schools?

The UK’s independent schools are facing several challenges. In a new era of financial pressures, how can the sector maintain its financial health – as well as use this period to adapt and ensure its longevity?

Given the macroeconomic challenges of the last few years, independent school operators face numerous financial headwinds. These include inflationary pressures on repairs and maintenance costs, staff salary and pension contribution increases, the introduction of VAT on fees along with the loss of charitable status. As a result, many are considering ways to increase revenue and cut costs to help prevent parents (who may be struggling with rising living costs) having to absorb increases.

Fees have already risen by 8% in 2023, compared to 3% in 2022, according to ISC data. This is believed to be largely responsible for new independent school pupil enrolments falling by 2.7% this academic year,the biggest margin since 2011. Without a proper strategy in place, independent schools are in danger of entering a vicious circle – increasing fees to off-set the income lost from pupil numbers decreasing, leading to fewer families being able to afford attendance, leading to further fee increases to maintain income. A number of recent closures have been related to the pressures of recent years, but if VAT breaks on fees and schools’ charitable status are removed, the pace of closures is likely to accelerate. Consequently, more children may transfer to state schools: an estimate from the Institute for Fiscal Studies puts the number at approximately 40,000, costing the state £300 million annually.

So what possibilities are available to independent schools to weather the financial storms?

Many schools have changed their admissions policies: Sherborne, Stamford, Abingdon and Abingdon Prep Schools have already made, or announced plans, to make year groups co‑ed. Others have increased their age catchment including adding nurseries to act as feeder ‘pre‑prep’ facilities. More dramatically, if there’s another local independent school with similar values and culture also facing challenges, a merger may be an option. This could bring with it economies of scale and opportunities to reduce operating, marketing and fixed costs – as well as the chance to share property assets and accommodation.

Other schools are looking to diversify income through maximising the use of their assets outside of school hours for ancillary trading purposes. This could bolster trading income on a more consistent basis.

Looking to the future, specialising in a specific educational area may be a consideration. It is well‑documented that demand for special education needs and disabilities (SEND) places is increasing. The ISC has noted that pupils with SEND in the schools it represents increased by approximately 8% between 2022 and 2023 to one in five pupils. 2023 also shows a 29% increase in the number of pupils with an Educational Health and Care Plan. The Conservative government pledged £1 billion towards the sector between 2023/24.

Alternatively, the British independent schools sector remains popular for international pupils. With the weaker pound potentially making fees more affordable than they were previously, ensuring this market is catered for and marketed towards may be an option. By the end of 2022, we had seen an 85% increase on the five-year average of the amount of office space being taken in the greater London area by education institutions. These were largely universities and other higher education providers – many of which are facing their own financial challenges. Having a ‘shop window’ and some teaching space in the capital can attract international students and act as a gateway to campuses further afield. Where the higher education sector has led, some independent schools may wish to follow.

Despite current challenges, parents are likely to see removing children from their current education environment as a last resort – but pupil numbers are likely to reduce at future key school entry points. In the short term, many independent schools will either have to cut costs or increase revenue by

increasing the number of pupils. Exploring various alternative avenues, discussed above, to strike a careful balance between these opposing strategies is the key. If successful long-term, this may give independent schools stronger foundations to withstand future unknown challenges.