PRIVATE schools have criticised controversial proposals which would leave them with a £5 million annual bill for business rates.

Education leaders said the charge, recommended in a major review commissioned by the Scottish Government, would have "serious consequences" for the employment of teachers and staff and would have an impact on tens of thousands of pupils.

They warned it would put private schools at a competitive disadvantage in the UK and globally and would substantially affect the work individual institutions do to offer bursaries and provide other community benefits such as the use of facilities.

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The introduction of business rates to the independent sector, where fees are an average of £14,500, is one of 30 recommendations aimed at boosting growth, cutting administration and increasing fairness in the system.

Read more: How much does it cost to go to a private school?

Former RBS chairman Ken Barclay, who headed up the review, said he found “no strong appetite for a significant overhaul” of the tax, which is levied on shops, offices, bars, hotels, factories, and public buildings, and helps fund council services.

But he said that council leisure facilities should also be liable for business rates while there should be targeted reductions in bills to help retain shops in town centres.

Business leaders broadly welcomed the changes but opposition leaders said it was a missed opportunity for "bold reform" of the existing system.

Private schools, including those which charge fees of more than £30,000 for boarding pupils, have previously enjoyed relief on business rates because they are classed as educational charities.

Schools argue they provide a public benefit because their fees are used partly to invest in bursaries to support pupils from poorer backgrounds. Facilities such as sports grounds are also offered for use by surrounding communities.

However, the Barclay Review found it was unfair that private schools enjoyed business rates relief while state-run schools did not.

As a result, the report recommends schools in the independent sector have their charitable relief on business rates removed by April 2020.

The review states: "Independent schools that are charities benefit from reduced or zero rates bills, whereas council schools do not qualify and generally will pay rates.

"This is unfair and that inequality should end by removing eligibility for charity relief from all independent schools. They will of course still retain charitable status and other benefits will continue to flow to them from that status."

The report says the recommendations "may be controversial", but says there is a precedent in Northern Ireland where the established position "is that certain educational, cultural and public sector bodies are prohibited from receiving charitable relief".

But John Edward, director of the Scottish Council of Independent Schools, said the findings of the Barclay Review ran "completely contrary" to the charity test the Scottish Parliament has required all private schools to undertake.

He said it would put Scottish independent schools at a competitive disadvantage in the UK and globally and would substantially impact the work schools could do to offer bursaries and other community benefits such as the use of facilities.

He added: "It would set independent schools aside from all other charities for no sound legal, political, educational or economic reason and, most of all, it would most likely cost the Scottish taxpayer and Government more than they seek to raise.

“The charity test for Scottish independent schools is the strictest in the world. Our high-attaining schools have worked incredibly hard over 12 years to meet that test.

"Any sudden alteration to rates relief would have very serious consequences for the employment of teachers, support staff and third party suppliers as well as those 30,000 pupils educated."

Liz Smith, education spokeswoman for the Scottish Conservative Party, also criticised the recommendation.

She said: "Fees would rise, probably by a substantial amount, thereby making these schools unaffordable for a very large number of parents.

"In Scotland, it would mean a very large proportion of those who attend independent schools would have to move to the state sector at the taxpayers’ expense.

"At a time when local authorities are screaming from the rooftops about not having the finances to look after their existing pupils, that would not be a popular move."

In a separate recommendation the review suggested Scottish universities should have to pay business rates on commercial activities such as the hire of its venues and student accommodation out of term time.

The Barclay Review said the core functions of universities including education and research should continue to be eligible for charitable relief to reflect their key role in supporting economic growth.

But it adds: "University residential properties, when occupied by students during term time, are not liable for council tax. However, universities may rent out halls of residence or self-catering flats commercially outside of term times.

"For those periods they compete with nearby hotels and hospitality businesses, but without paying rates. Again, for fairness and equity, these commercial elements of the university should be liable for rates where they compete with the private sector.

"This should also be the case for commercial activities such as renting out venues for conferences and other functions."

A spokesman for Universities Scotland, which represents principals, said: "The Barclay Review is a substantial piece of work and our members will reflect on what these proposals will mean for their financial health.

"At this stage it would be difficult to assess the potential impact of these proposals, but it’s important to remember that the long-term sustainability of some events spaces and halls of residences is predicated on commercial revenue outside of term-time."

In each case, it will be for the Scottish Government to decide whether to implement the recommendations at once or to adopt a phased approach over a number of years.

However, the Barclay Review suggests a phased removal of these reliefs would reduce the savings to be made "which could not then be diverted to introducing measures which support both public and private sectors equally".