Private schools are heading for a crunch; Soaring fees were fine during the boom – but now no one can stop the race

August 14, 2013 6:45 pm

Private schools are heading for a crunch

By Jonn Elledge

Soaring fees were fine during the boom – but now no one can stop the race, says Jonn Elledge

If you wanted a single sentence to sum up why Britain’s world-renowned private schools deserve just a little bit of the sneering they attract, you could do worse than this gem. “Fees rose by 3.9 per cent last year,” the Independent Schools Council’s last survey breezily announced, “the lowest rise for almost 20 years.” Only 3.9 per cent? Well done. Have a gold star.This highlights that something has gone terribly wrong with the schools. They are still considered to be a jewel of the establishment, basking in a reputation most UK export industries can only dream of. Yet the price of their services has become detached from British parents’ abilities to pay for them. Over time, ever more of these parents are going to find themselves priced out. The sector may be going through nothing less than a car crash in slow motion.

Private schooling has always been expensive, of course – but it used to have a price tag that made some sort of sense if you were the kind of person to send your children to private school. According to MTM Consulting, average fees for day pupils rose 45 per cent between 1984 and 1991. That sounds like a lot when compared with the 18 per cent increase in median household income, but not when compared with the 44 per cent rise in that of the richest 10 per cent. Fees kept pace with incomes, and the number of pupils in private schooling grew.

Since 2000, however, fees have been racing away. In the decade to 2011, they rose by an average of 6 per cent a year, way in advance of the incomes of those paying them. In those 10 years, MTM found, upper- decile incomes rose by about 27 per cent. Fees rose 83 per cent.

This money was not being sucked up by shareholders: most schools are charities, so they are required to pour their incomes back into the school. This they did enthusiastically, bumping up salaries, cutting class sizes, throwing money at better facilities or overseas campuses. The dynamic looks like an arms race: “St Boggins has built itself an Olympic-sized swimming pool,” the thinking goes, “so if we are to compete, we must have one, too.”

During the boom, none of this mattered: schools could let costs soar, knowing that parents would continue to pay. Most, indeed, were terrified to charge anything less than their rivals, for fear of suggesting they were not quite as good. Far from competing on price, some schools were caught price-fixing.

This was all very well when we all thought we were rich, but we are five years into the crisis and the fee rises have continued: no one can stop the race. So far, the sector has largely got away with it. Interest rates are low and parents will do almost anything before taking a child out of school. Anyway, there is a steady flow of Russian and Chinese families willing to stump up. Even so, there are signs of stress: a stream of schools are tearfully locking their gates or, in a few cases, quietly reopening as state schools.

Bigger threats lie ahead. While parents inside the system will do all they can not to leave it, spiralling fees will make others less likely to sign up in the first place. It is probably significant that the only stage of private education to show marked growth recently has been sixth forms: a brief – that is, cheap – commitment for parents that leads directly to university.

The finances of the upper-middle classes are unlikely to get healthier. What happens when the generation that bought homes after house prices went crazy comes to choose schools? Or when they are helping with their parents’ care costs? What happens, come to that, when interest rates rise? Perhaps none of this will matter. Perhaps some growth spurt will come along that boosts upper-tier incomes enough to keep up with fees. But say it does not. Say incomes continue to lag further behind. What happens then?

Some schools may find it in themselves to restrict their fees: to stop trying to compete on who has the best concert hall and start to cut costs. But it is by no means clear that all schools have the acumen required to do that – and previous attempts at budget school chains have failed. Other schools will simply find they can no longer attract enough parents. These are most likely to be small, single-sex, rural and some way from London.

And the rest? They will trundle sleepily into the future, not really noticing how much they charge or who can afford their fees. Their student body will grow more international, their parents richer. Their ever more rarefied customers may be quietly delighted that their little darlings no longer have to mix with oiks. And the schools’ leaders will scratch their heads and wonder why everyone calls them elitist.