Private schools will be allowed to keep tax breaks worth £100 million a year after a major and unexpected victory in a campaign to protect their status as charities.

The Charity Commission has effectively scrapped plans to remove their charitable status by giving them five years to meet tough new criteria imposed by the Government.

Dame Suzi Leather, the commission’s chairman, said that the changes would be difficult to enforce “in the current economic climate”.

The announcement was welcomed by head teachers whose independent schools were ordered to offer more bursaries and strengthen links with state schools or risk losing the tax breaks.

The Conservatives have indicated that a Tory government would not enforce the law in its current form.

However, the move will infuriate Ed Balls, the Schools Secretary, who expected the Charity Commission to carry out the law with immediate effect. Ministers demanded that independent schools had to justify their status as charities by doing much more for the community.

Last night, critics of private schools accused the commission of bowing to an aggressive lobbying campaign.

Fiona Miller, chairman of Comprehensive Future, a campaign group for fair admissions policies in schools, said: “There’s a lot more that independent schools could do to benefit the wider community and they should be made to do it more quickly.”

Earlier this week, Andrew Grant, the chairman of the Headmasters’ and Headmistresses’ Conference (HMC), accused Dame Suzi of presiding over a witch-hunt against private schools.

However, Dame Suzi told the HMC in Liverpool yesterday: “We recognise developing partnership activities or building up a bursaries fund will take time.We also recognise that in the current economic climate it is more difficult. We know you can’t pull a rabbit out of the hat.

“The commission does not inhabit a parallel universe or stand aloof from the realities of running an organisation.

“We understand not all charitable independent schools have large endowments, that many parents find it difficult to pay the fees, that it is not always easy to bridge the divide between the educational sectors and build relationships with neighbouring schools.

“We recognise what many of you are up against.”

Sources close to the campaign questioned the timing of the announcement, coming only weeks after the Charity Commission’s annual open meeting where no time-frame was given.

The extra time to put their houses in order will please head teachers — the Tories have said they would revise the laws if they come to power at the next election. But Dame Suzi softened her stance and promised heads and other charities that the commission would enforce the law only in extreme cases.

“Only in the event of a charity being absolutely unwilling to formulate and implement workable plans for demonstrating that its purposes are for the public benefit would we take more robust action,” she said. “Where we judge that a charity needs an extended period of time to make the necessary changes, we will be prepared to give that charity time.

“We would not normally expect that period to be longer than five years.”

Two of the five schools assessed by the commission in its initial investigations failed because of lack of bursary provision. Mr Grant, who is also head of St Albans School, Hertfordshire, said: “She went much farther than we have heard before. It was good to hear public recognition of what many of our schools have been doing for years to share our benefits.”

John Dunford, general secretary of the Association of School and College Leaders, said he hoped the Charity Commission would look beyond bursaries to partnerships between state and independent schools.

He said: “I think it will give schools more time to develop sustainable schemes and I hope that the partnerships developed by independent schools and state schools gain recognition.”

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