In dealing with a contract review for one of my schools last week I came across one such firm, which I won’t name, who were completely uninterested in assisting me with a query I had on the contracts they had already arranged for the school.  The response from the ‘Account Manager’ was “I don’t get involved in this, if we looked at every bill for every customer we’d be here all day”.  I also queried her understanding of VAT on energy for independent schools which was met with a stony silence.

I made further enquiries with two other utility brokers and neither of them understood the rulings around VAT either.  In fact one broker told me that “all independent schools are charities and so they automatically qualify for 5% VAT.  I always get the forms sent out to them to complete for that”.  This statement is not correct and could very well lead to a school paying 5% VAT when they should be paying 17.5%.  The implications are clear; a VAT inspection would lead to a requirement to pay backdated VAT for up to 4 years as well as fines for breaches in the rules.  A costly mistake to make.

There are a number of times when VAT is payable at the lower level of 5% but applying for this should be done after careful consideration that the criteria has been met.  After extensive discussions with HMRC and Baker Tilly VAT specialist Rupert Moyle, Minerva have a full understanding of these criteria and can confidently advise in this area.

I know you are probably wondering why I would be suggesting that it not such a good idea to use a utility broker when I am a consultant myself.  The difference is transparency, expert knowledge and after sales care.  At Minerva we deal direct with the energy companies and do not charge any commission on the unit costs nor do we receive any commission from the energy companies themselves.  As a result you can be confident that you are getting the best deal.  Our fee payment is based on a % of the savings you make against the existing tariff and you will therefore only pay if the school is saving money.  In addition to this Minerva is keen to work in partnership with your school in any area, not just utilities, and this means we take customer care extremely seriously – we look after our clients so we can work with them again.

If you require any further information on this topic please don’t hesitate to get in touch.

Dr Sentance used the speech to explain how his view of economic prospects has shifted and why he voted for a small rise in interest rates in June.

Dr Sentance began by explaining that last year the economic backdrop was one of sharp falls in demand and rising unemployment, uncertainty about recovery prospects and a general expectation of persistent below target inflation. “A year on, however, the economic situation has changed,”.  He described a number of features of the current economic situation that he believes are very different from the expectations of last summer.

He argued that the world economy has bounced back strongly, and while uncertainties persist, “…worries about possible uneven-ness in the pace of global growth should not be confused with signs of a ‘double-dip’ recession”. In turn, he stated that he believes that “…the UK economy has also turned around since last summer”.  He pointed to a reverse in the downward shift in money spending as well as positive business survey outturns as evidence of a rebound. He also believes that expectations of large margins of spare capacity have not been borne out by the available data. And he suggested this may, along with the depreciation of sterling, help to explain the failure of inflation to drop back in the way the MPC expected a year ago.

Andrew Sentance concluded by saying: “In my experience, recoveries have momentum. While growth might not be totally steady and even across sectors, as recovery progresses, various mechanisms begin to operate which can give it added momentum”. He added: “A year ago, the predominant worry was that inflation could be significantly depressed by the impact of the recession. That risk did not materialise. And while I’m not yet worried that we face a major and serious risk in the opposite direction, I do think we need to adjust the policy settings we put in place to head off the downside risks to inflation identified in the immediate aftermath of the big financial shocks in late 2008 and early 2009″.  He also added that whilst there may be some nervousness about the economic recovery in the UK that this should not influence the MPC decision making.

Dr Sentance was keen to use the opportunity to give a message to the media about the choice of words they may use to report on the 0.25% Base Rate rise he would like to see.  Out go the words “rate hike” and “tightening of policy” due to the potentially negative feelings these could generate.  His preference being for language such as “slowing” or “normalisation of policy”.

He described the UK economy as a “patient coming out of intensive care and moving into the recovery ward” and that in this scenario a change in prescription (monetary policy) would be necessary.

Overall it was an extremely interesting speech which much food for thought.  He certainly makes a compelling argument for a gradual increase in Base Rate and one suspects it is only a matter of time before his MPC colleagues start to come around to his way of thinking.

If you wish to view the text of the entire speech this is accessible via the Bank of England website.

Concerns remain due to bursaries seemingly being the only real area the commission is giving any weight to when making the overall pass or fail assessment.  Any other activities deemed to be for the benefit of individuals and organisations outside of the independent school, such as shared facilities or public speaking events, seem to have limited impact on the overall decision as to whether the public benefit test is met or not.

BBC Online comments on possible legal action being taken by the Independent School Council (ISC).  The ISC is bidding for a judicial review of Charity Commission guidance with Chief Executive David Lyscom advising that they “had no alternative but to challenge the commission in the courts”.  He also raises concerns that there is no end to the uncertainty of the rules with the Charities Commission able to change their interpretation of them as it suits.

The ‘public benefit’ test was introduced as part of Labour’s 2006 Charities Act which places the onus on private schools to ‘prove’ that they offer benefits to the wider public in order to retain their charitable status and the tax breaks that brings.

It is believed that the tax breaks are worth around £100m per annum to the independent school sector.  However, and I think this is a fact that is oft overlooked, this should be offset with the amount of money the schools are saving the Government by schooling thousands of  children thus meaning that are outside of the state school system.

Even prior to his appointment as Education Secretary, Michael Gove has been a critic of the Charity Commission’s approach so it will be interesting to see if he takes action on this before the ISC have to embark on a long-winded and expensive legal battle.

Looks like this will continue to rumble on for some time to come.

Thank goodness that the PC brigade have been over-ruled on something.  I don’t know anyone who is happy that their children are having to participate in non-competitive sports days on the basis that no child should be made to feel bad for losing.  All this will serve to do is give us a country of losers!  We struggle enough in sporting success on national level – England football, British tennis champion (Mr Murray aside) – and so I am delighted that schools should be encouraging children in team working and striving to be the best they can be.

Of course in this sense the independent sector is ahead of the curve with a much greater percentage of school time being allocated to physical activity in addition to inter-schools competitions.

Using available space to generate revenue…..

I also wanted to make you aware of a recent article in FMX magazine which shows an excellent example of self-funded school St John’s in Marlborough making excellent use of their space in order to generate additional revenue for the school.  In these more challenging times any schemes to bolster income can only be positive and I would urge all bursars to continue to look at new and innovative ways of increasing school income from commercial activities.

Kinnarps are a Swedish based furniture company and Angus Kaye, who wrote the article, also gives some interesting insights in to the ‘much talked about’ Swedish free schools model.  On a more local level the Kinnarps Account Manager, who worked with the school to help more their ideas to realisation, is Steve Jones who was clearly an integral part of the success of the project.

Kinnarps are currently running a competition where you can win the school a FREE space plan or a Swedish picnic Pack!

And finally…….

If you have missed it, here is a link for the details of all of the schools who have registered their interest in becoming an academy.  This was apparently only revealed after a Freedom of Information Act request!

So a mixed bag of updates on the blog today.  Hope they’re useful

Having recently run a presentation with the Blake Lapthorn team I am aware of their indepth knowledge and expertise in the charity sector.  Whilst I have not personally attended the trustee induction course I am sure that it will be delivered to their usual high standards.  Whether attending this or another event, I believe it is absolutely imperative for trustees of independent schools to receive professional training in order to help them fulfil their roles as successfully as possible.  It will also ensure they fully understand their legal obligations which are often more onerous than trustees imagine when they take on the role.  I suspect that it is well worth a small investment to ensure your school has robust and effective governance.

The chain of events leading up to the appointment of KPMG is pretty typical of a failing school and one quote given is rather stating the obvious when it says that the solution lies in increased fees and lower costs.

The issue highlights the fact that there are no ‘quick wins’ when it comes to fixing the problems faced by a failing school.  Attempts by the school to sell off some property assets also failed and this is not uncommon with independent schools due to their charitable status and potentially the legalities behind why property has been gifted to them in the first place.

Whilst it is admirable that the parents wish to pull together some kind of rescue package, especially bearing in mind the emotion attached to the issue, I suspect it’s too little too late.  In any event you do have to question why the pupil numbers have halved and how quickly an annual deficit of half a million pounds can be turned around.

From my perspective the salient point here is that at the first signs of a downturn a school must act commercially and decisively to prevent a bad situation getting worse.

I could certainly identify at least one of every type from my last job which was based in a busy office.

Underlying the humour though there is a very important message.  The cost of waste in UK companies is typically 4-5% of turnover and can be as high as 10%.  With disposal costs rising and a greater focus on ‘green’ issues it has never been more important to continually review ways to reduce waste.  This can ultimately lead to greater efficiency and increased profitability.

Of course my home office is currently staffed with personnel of one so I couldn’t possibly reveal what sort of printing culprit works here!

Unsurprisingly, it does seem to be the smaller schools which have been hardest hit as they have limited options open to them to turn things around.

It may be stating the obvious but the key to survival is to act and act early.  In my experience independent schools leave things far too long before taking measures to address the issues they are facing, often believing that things will turn around.  When things are heading south the decisions to be made are always difficult ones and it requires a highly skilled and commercial Board of Trustees to make the right decisions and make them quickly.  Sentimentality has to be put to one side.  Commerciality is the order of the day.

I cannot emphasise enough how important it is to engage your professional advisors as soon as you have concerns.  The popular belief (perpetuated by the media) is that banks close down schools.  Ultimately that is possibly true but working closely with the bank from an early stage can ensure support and survival.  No bank wants to close down any business, especially a school, and they will work very hard with you to avoid this happening.  Similarly, ensure you have your lawyer and accountant on board too.  Many accountancy and legal practices have turnaround professionals who have knowledge and experience in assisting distressed schools.

So where can Minerva assist? Well firstly we have links with many professionals who can provide you with the right support and advice.  We can also help with negotations with the bank, should this be required.  On such an emotive subject an independent negotiator with knowledge of the banking sector can be invaluable.  However, the main way we can help is to ensure that things don’t get that bad in the first place.  Effective cost management is vital to a schools financial health especially at a time of dropping pupil numbers and rising costs.  Please engage with us and let us help you reduce your costs and improve your bottom line.

An article in The Scotsman today points to parents ‘holding off’ on placing their children into the independent sector and taking on a financial commitment in the region of £7-£9k per annum.

Whilst the article is based on Scottish statistics I think it’s safe to say that there is a similar pattern emerging in England and Wales and this is set to continue into the 2010/11 academic year.

Anecdotal evidence suggests that at the nursery, pre-prep and prep levels numbers for the next academic year look ‘light’.  Senior schools seem to be less affected as parents are more prepared to pay for independent education once their child reaches senior school age.

Interestingly, some of the larger and more traditional schools are reporting growth in numbers, many with waiting lists.  They seem to have an immunity to the issues affecting the rest of the sector.

Finally, I was delighted to see information on the new Festival of Education with the inaugural event being held at Wellington College, Crowthorne, over the weekend of the 3rd and 4th July.  The prospect of a debate between Germaine Greer and Kelvin Mackenzie (The Sun) makes me think the £35 ticket price will be excellent value!

Their success was, in part, down to strong relations with their suppliers and joint purchasing using the group expertise and scale.

All of this is perfectly achievable in the independent school sector through good supplier management, a focused procurement strategy and collaboration with other local schools to leverage better pricing from suppliers.

For further information on advice in these areas please contact Lorraine Ashover at lorraine@minervapcs.com.