Memorandum from the Charity Commission,
29 September 2008
As promised, we have enclosed an update on our
public benefit work, which includes a summary of the responses
we received to our sub-sector consultations, as well as some information
about how we will be taking forward public benefit assessments.
You might also be interested to know that we
have recently published a report about our compliance work, Back
on Track, which gives a thematic overview of our approach. We
are also about to launch an improved version of our online Register
of Charities, which will make it easier to see at a glance how
individual charities are raising and spending funds. I have enclosed
an anonymised example of a charity's entry and some explanatory
notes so that you can see how the system will look.[2]
I know this is an area of our work which the Committee asked about
last time we appeared, and I hope when you see the new system
you will be pleased with the improved accountability and transparency
it brings. We'd be very pleased to arrange an interactive demonstration
for the Committee at any convenient time.
If you have any queries in advance of the session
please get in touch. Otherwise, we'll look forward to seeing you
on 9 October.
ANNEX A—PUBLIC
BENEFIT: BRIEFING
FROM THE
CHARITY COMMISSION
TO THE
PUBLIC ADMINISTRATION
SELECT COMMITTEE,
SEPTEMBER 2008
INTRODUCTION
1. The Charity Commission is established
by law as the independent regulator and registrar of charities
in England and Wales.
2. The Charities Act 2006 requires organisations
to pass two tests if they are to be charities: firstly that their
purposes are recognised as charitable, and secondly that their
purposes are for the public benefit. The law had previously presumed
that charities with the purposes of relief of poverty, or the
advancement of education or of religion, were for the public benefit.
The Charities Act 2006 removed this presumption, so for the first
time the law requires every charity to demonstrate, explicitly,
that their purposes are for the public benefit.
3. The Act does not contain any new definition
of public benefit or suggest how charities should meet that requirement.
It does give the Charity Commission the new objective of raising
awareness and understanding of the operation of the public benefit
requirement, and requires the Commission to consult on any guidance
for trustees on public benefit it produces, to which charity trustees
are required to have regard when running their charity.
THE COMMISSION'S
APPROACH TO
PUBLIC BENEFIT
4. There is a clear relationship between
the many reputational, financial and social benefits of charitable
status and the need for charities to be for the public benefit.
Charities are precious, and play a vital and unique role at the
heart of our society, but like all bodies in which the public
places its trust, they should be accountable to everyone for what
they do. That is the essence of the public benefit test. It also
fits squarely with the Commission's statutory objectives as set
out in the Charities Act 2006, particularly the objective to enhance
the accountability of charities to donors, beneficiaries and the
public.
5. We understand that we have a responsibility
to articulate and explain the concept of public benefit in a way
which is consistent with the law and clear to the public. Our
aim is to ensure both that charities are for public benefit and,
beyond that, continue to increase the value they bring to the
communities they serve. Our decisions on public benefit must take
account of existing case law, and follow the approach of the courts
in taking account of the context of modern conditions; many of
the cases which do exist were decided decades ago when social
and economic circumstances were very different.
UPDATE SINCE
PREVIOUS PASC APPEARANCE
6. After extensive consultation, the Commission
published guidance on public benefit for trustees in January 2008.
This guidance sets out the general principles which apply to every
charity.
7. Changes made as a result of responses
received to the consultation included:
— Some responders said the guidance
was too long and detailed, and some raised questions around the
language and terminology used, so we sought to make the guidance
more succinct and clear. The four principles of public benefit
were rewritten into two main principles, for clarity, and expanded
with important additional points. The two main principles are
now:
— there must be an identifiable benefit
or benefits; and
— benefit must be to the public, or
a section of the public
— Some responders didn't like the use
of the term "disbenefit" in reference to any potential
negative impact that a charity's aims might have. Instead, we
have referred to something that may cause "detriment or harm".
If there is more detriment than benefit, then an organisation's
aims would not be charitable.
— Some responders, particularly from
religious charities, were concerned about the use of the term
"modern social conditions" and what this might mean.
We have worked hard to emphasise that it is not in the remit of
the Commission to look into traditional, long-held religious beliefs
or to seek to modernise them. We changed the wording of the guidance
to refer to "changing social and economic conditions".
This might mean altering the wording of a charity's objects so
that they have relevance for today. For example, the Commission
might agree to alter the wording of the objects of a charity which
was established for the provision of "marriage portions for
poor maids", to "the relief of poverty of women".
— Some responders disliked the term
"people on low incomes" preferring the term "the
poor". Responders considered this to be a more relative term
than "people on low incomes". They also felt that the
term "people on low incomes" didn't work well outside
the UK. The revised guidance now uses the term "people in
poverty", and makes clear that the meaning of this in individual
cases will be considered in the context of the organisation's
aims, who those aims are intended to benefit and where it carries
out its aims.
— At the request of responders, we
have also expanded the section of guidance on reporting requirements
and how the Commission will assess public benefit.
8. The new descriptions of charitable purposes
and the public benefit provisions in the Charities Act 2006 came
into effect on 1 April 2008.
CURRENT POSITION
9. We have run a series of consultations
on draft supplementary guidance on the public benefit of those
charities most directly affected by the changes in the Act—that
is charities established for the prevention and relief of poverty,
the advancement of education, the advancement of religion and
also fee-charging charities, which were highlighted during debates
on the Charities Bill.
10. The consultations on religion and poverty
closed on 30 June 2008 and those on education and fee-charging
closed on 11 July 2008.
11. We had 675 responses to the consultations,
as follows:
Education: 165
Fee charging: 189
Religion: 263
Poverty: 58
12. A summary of responses is appended to
this submission.
NEXT STEPS
13. Going forward, there are initially three
strands to the Commission's work on raising awareness and understanding
of the public benefit requirement:
(a) Producing guidance
(b) Carrying out assessments
(c) Giving examples to charities of
how to report on their public benefit
(a) Producing guidance
14. We aim to finalise the guidance on which
we have just consulted by the end of this year. We feel that this
timescale is necessary in order for us properly to consider and
take account of the responses we have received to our consultations,
given their volume, range and complexity.
15. Along with the consultations discussed
above, we are also currently consulting on charities advancing
moral or ethical belief systems. We also plan, in 2009, to produce
and consult on further draft supplementary guidance for certain
types of charities for whom the changes in the Charities Act 2006
have particular consequences. These include professional bodies
and think tanks (which are usually registered as charities advancing
education) and human rights charities (advancing human rights
was recognised as a charitable purpose by the Act).
(b) Carrying out assessments
16. Our general guidance on public benefit
(section H, appended for ease of reference) sets out our approach
to assessing public benefit. This will include assessing the public
benefit of new charities as they apply for registration, as well
as assessing the public benefit of existing charities.
17. A charity must continue to meet the public
benefit requirement throughout its life. We set out in our general
guidance the steps we would take in order to assess the public
benefit of existing charities. As well as carrying out public
benefit research studies and working with professional and umbrella
bodies, we said we would select a number of registered charities
to provide a more detailed explanation of how they consider their
charity meets the public benefit requirement. Having undertaken
a detailed assessment of the public benefit of each of these charities,
we will publish the results in a report summarising the outcomes
of the assessments. We hope this will assist other charities in
understanding the public benefit requirement.
Selection of the first group of charities for
assessment
18. In the general guidance we set out the
sorts of charities which we might select for detailed public benefit
assessment. These include:
— Charities affected by a change in
the law (eg. those that no longer benefit from a presumption of
public benefit)
— Charities about which public benefit
concerns were raised during the debate on the Charities Bill (such
as fee-charging charities)
— Charities where changing social conditions
have had an impact on their ability to demonstrate that their
aims continue to be for the public benefit
— Charities that either persistently
fail to meet the public benefit reporting requirement or whose
public benefit reports indicate difficulties in meeting the public
benefit requirement; or
— Charities selected on the basis of
a random sample
19. Following these criteria, for our first
group of charities to undergo detailed public benefit assessments,
we have identified: five independent schools; four religious charities;
and three residential care homes.
20. We have also applied criteria which
encompass the following:
— A wide range: selecting a variety
of charities which are sufficiently different in order to enable
us to test the effectiveness of our public benefit assessment
checklist in section H of our public benefit guidance;
— Geographical spread—in particular
picking charities from across England and Wales and looking for
a balance of urban and rural areas;
— Testing out difficulties that were
identified in the responses to the feedback to our guidance on
public benefit—for example, in relation to religious charities
and those charities that charge high fees;
— A range of sizes by income and/or
reserves; and
— Avoiding duplication—we should
avoid charities that OSCR have worked with. Although many of the
charities selected by OSCR operate only in Scotland, there are
some which operate throughout the United Kingdom.
21. We aimed to select a mix of charities
in order to both provide examples of good practice, and to test
key aspects of our guidance and its legal underpinning by looking
at a range of charities some of which are likely to find it more
difficult to demonstrate public benefit.
22. By the time of our session on 9 October
we will be in a position to share with the committee the names
of the first twelve charities to undergo assessments.
Working with charities that are not meeting the
public benefit requirement
23. Where any of these charities are not
meeting the public benefit requirement we will take further action
when necessary.
24. In some cases:
— We may decide the trustees are acting
in breach of trust. If so, we will take any necessary regulatory
action that may be needed to ensure the trusts are complied with
(such as giving directions to, or appointing new, trustees); or
— We may decide that it is not possible
for the organisation's aims to be carried out in a way that is
for the public benefit. If so, we may need to ensure that the
charity's assets will be applied in future for the public benefit;
or
— We may decide that the aims were
never in fact for the public benefit and that the organisation
was mistakenly registered as a charity. If so, we will either
ask the trustees to restructure the organisation, or restate its
objects so that they are for the public benefit, or we may remove
it from the register.
25. It is important to stress that we will
be carrying out a great deal of discussion and consultation about
how it is to be expected that particular types of charity meet
the public benefit requirement. This will inform our more detailed
decisions on the public benefit of individual charities.
26. No charity will be expected to make
changes to their objects, or the way they carry out their aims,
overnight. We will take reasonable account of how much time and
resources might be needed by a charity in its particular circumstances
to make any necessary changes in order to meet the public benefit
requirement. Similarly, we will not take any regulatory action
without having first discussed the matter fully with the trustees
and their advisers.
Appeals against our public benefit decisions
27. If trustees, or other persons affected,
are unhappy with our approach to public benefit in a particular
case, there are means of redress available. Public benefit assessments
can be judicially reviewed. Additionally, there are various procedures
available to challenge a decision we make as a result of a public
benefit assessment. In some cases the first step will be an internal
Decision Review. However, a means of independent redress is available
for any decision we make, in some cases via the High Court and
in others via the Charity Tribunal (which is now up and running).
We think it is important that there is a means of challenging
our decisions in this area externally, and that case law can be
developed in this way.
28. However, by seeking to work constructively
with charity trustees and by undertaking extensive public consultation
on our public benefit guidance, we would hope such circumstances
would be rare.
29. Of course, alongside challenges to our
legal decisions, we have procedures in place to handle complaints
about our standards of customer service Again, alongside internal
procedures it is possible to seek an independent review via the
Independent Complaints Reviewer (ICR), Jodi Berg. Incidentally,
the ICR has recently reviewed our internal complaints procedures
against the Public Administration Committee's When Citizens Complain
report, and has found that we meet the recommendations.
(c) Giving examples to charities of
how to report on their public benefit
30. Whilst the assessments are ongoing and
we are working on finalised supplementary guidance, we will be
providing further information for charities by way of examples
of how they might report public benefit as part of trustees' annual
reports. We already provide samples of charity reports and accounts
on our website, and these are being updated to incorporate reporting
on public benefit. We hope these examples will give all charities
a clearer idea of what we are looking for in their reporting to
us.
LOOKING AHEAD
31. The public benefit provisions in the Charities
Act 2006 and our implementation of them will be subject to formal
review by the Office of the Third Sector in 2011. This commitment
was made during the passage of the Charities Act 2006. Furthermore,
the Act itself requires the Secretary of State to carry out a
review of its operation after five years.
ANNEX B—RESPONSES
TO PUBLIC
BENEFIT CONSULTATIONS
ON DRAFT
SUPPLEMENTARY GUIDANCE
Following an extensive public consultation,
which culminated in the publication in January 2008 of the Charity
Commission's general guidance on public benefit, the Commission
has carried out four further public consultations on draft supplementary
guidance on the public benefit of charities established for the
prevention or relief of poverty, the advancement of education,
the advancement of religion and also fee-charging charities.
This document summarises the feedback the Commission
has received to those consultations.
The Commission will publish a fuller analysis
of the responses, together a commentary on how comments made in
the responses have been addressed, when it publishes its revised
supplementary guidance.
The Commission received a total of 675 responses
to these consultations, as follows:
Religion: 263
The majority of responses were from:
— charities advancing the Christian
religion, or other Christian organisations or individuals (constituting
around 70% of the responses)
— charities or other organisations
advancing other religious or non-religious beliefs (including
for example Judaism, Islam, Humanism, Druidism, and Spiritism)
Education: 165
The majority of the responses were from:
— educational establishments and their
representatives (charitable independent schools, colleges and
universities, constituting around 60% of the responses)
— educational organisations, voluntary
sector bodies or groups with an interest in education
— professional bodies, trade associations
and learned societies
Fee-charging: 189
The majority of the responses were from:
— educational establishments or their
representatives (constituting over 70% of the responses)
— other fee-charging charities (including
those concerned with the arts, health, preservation and conservation,
residential care, religion, and professional bodies)
— voluntary sector bodies and bodies
with an interest in education
Poverty: 58
The majority of responses were from:
— poverty charities (many of which
work internationally)
GENERAL COMMENTS
— Overall, general comments on the
draft guidance were positive, with respondents making complimentary
comments about its clarity, helpfulness and style.
— However, respondents also said that
the guidance would benefit from being simplified and shortened.
— Particular issues on the overall
guidance raised by some respondents were:
— concern about the amount of guidance
on public benefit respondents perceived that charity trustees
would have to have regard to;
— questioning of whether our draft
supplementary guidance properly formed part of the Commission's
statutory guidance on public benefit to which charity trustees
must have regard;
— a call for even greater clarity about
which aspects of the draft guidance represent a legal requirement
and those aspects which are best practice advice.
— A few responders disliked our use
of the term "aims" when referring to an individual charity's
purposes, although they recognised that this term is defined in
our guidance as meaning a charity's individual purposes.
RELIGION
— There were a variety of comments
about how we define what is a religion in our draft supplementary
guidance. Although some alternative definitions were suggested
or preferred by some, on balance the characteristics of a religion
outlined in our draft guidance were agreed. A number of responders
were more concerned with our giving reassurance that particular
religions are included within the definition (than with the definition
itself) and confirmation that the terminology used in the definition
does not have to be used by charities advancing religion when
describing or referring to their beliefs or practices (such as
using the term "God" rather than "supreme being").
— Many responders wished to see more
positive statements in our draft guidance about the inherently
beneficial nature of religion (akin to what we have said about
the generally accepted benefits of education).
— Many responders were concerned about
the distinction made in our draft guidance between the religious
and the pastoral/secular work of charities advancing religion.
Many commented that it is difficult to make such a distinction.
Some also expressed concerns that charities advancing religion
might be required to undertake secular work in order to meet the
public benefit requirement, or that only the benefits of secular
work might be taken into account in any assessment of public benefit.
— A number of responses were concerned
about the effect of our guidance regarding charities advancing
religion operating overseas where the activities are legal in
England and Wales but not in the country of operation (such as
proselytising in countries where it is illegal to do so). Some
consider that the end justifies the means and some make the point
that staff or volunteers who may be put at risk in such circumstances
do so voluntarily.
— Despite reassurances given in our
draft guidance, some responders remained concerned about the effect
of the Charity Commission considering public benefit in the light
of current social and economic circumstances, and the extent to
which public opinion might influence our decisions on public benefit.
— Many responders wish to see a more
positive treatment of proselytising in the guidance, and the extent
to which charities advancing religion can promote particular viewpoints
or interpretations of religious beliefs or doctrines (such as
attitudes towards homosexuality), or restrict membership based
on the need to comply with behavioural norms in line with religious
teachings.
— However, a number of responders were
also keen to ensure that charities advancing religion are treated
equitably with non-religious or secular charities, and that charities
advancing religion are not given greater freedoms to campaign,
for example on political or other issues, than would be permitted
for non-religious charities.
— There were also a number of responders
who stressed the importance of what the draft guidance says about
the need to balance the benefits of advancing religion (recognising
the importance of allowing people the freedom to practice their
religion) against any detriment or harm that might also arise,
particularly where religious beliefs are advanced in a way which
incites hatred or violence or is coercive.
EDUCATION
— Perhaps not surprisingly there was
a great deal of overlap between responses to our consultation
on education and our consultation on fee-charging.
— There appears to be a broad agreement
with how we defined in our draft guidance what education is (particularly
stressing the importance of educational merit, structure and process),
with some offering helpful suggestions about the range of activities
advancing education might cover, and the different legitimate
or innovative ways of advancing education (such as the educational
values of blogs).
— Some responders commented on the
extent to which education has to be neutral, with some preferring
a less restrictive approach particularly where there is a general
consensus regarding a particular issue (such as the benefits of
promoting peace, or healthy eating). However a number of responders
also sound a note of caution that care would be needed to ensure
that propagandist or political viewpoints are not promoted under
the guise of advancing (charitable) education.
— Many of the responses specifically
addressed the charitable status of independent schools, particularly
our discussion about what is the purpose of a school. Many of
these responses advocate a broad interpretation of this—suggesting
that schools were a community resource—not just a place
of learning for children, and they said that this interpretation
was significant in that it allowed for the recognition of the
benefits of community activities undertaken by schools in any
public benefit assessment.
— There were some responses regarding
the extent to which charities advancing education can restrict
the benefits to children of people in particular professions (eg
doctors, missionaries, members of the armed forces etc), or educating
members of a particular profession, or restricting benefits based
on academic ability—views differed about whether such restrictions
could be regarded as a sufficient section of the public.
FEE-CHARGING
— Significant challenges were made
in a number of responses (such as the responses from the Charity
Law Association and the Independent Schools Council) to the legal
basis of our fee-charging guidance (and therefore the legal underpinning
for principles 2b and 2c in our general public benefit guidance
which our fee-charging guidance expands upon). Those responses
question the correctness of our interpretation of the relevant
case law and the effect of the Charities Act on the existing legal
position. In particular:
— questioning the extent of the Commission's
role with regard to interpreting the law on public benefit and
issuing guidance;
— questioning whether the Commission
should produce guidance on fee-charging, since that is not linked
to any particular charitable purpose;
— arguing that fee-charging either
has no bearing on public benefit (and that taking fee-charging
into account amounts to a public benefit test based on activities
not purposes), or that it has a bearing only where fees are set
with the aim of generating profit rather than pursuing a charitable
purpose; or enhancing a service beyond meeting a charitable need
resulting in higher fees which makes the service less accessible;
or where fees are set on a deliberately exclusionary basis rather
than the level required to deliver the services to the appropriate
standard;
— arguing that there is no legal basis
for saying that restricting benefits only to people who can afford
to pay the fees charged amounts to an unreasonable restriction
(especially where the fees reflect the costs of providing the
service);
— taking issue with a suggestion that
benefits might be weighted—where direct access benefits
should be looked for first and count for more than more indirect
benefits, although there was no consensus view on this; and
— arguing that our guidance is directed
towards "social engineering", or fulfilling a political
agenda, rather than promoting awareness and understanding of charity
law.
— The approach was not universally
challenged by all responders. Some responders (such as the National
Council of Voluntary Organisations and the Education Review Group
) were supportive of our approach.
— A number of responders wished to
see specific guidance aimed at charitable independent schools;
others were concerned that the fee-charging guidance had been
"hi-jacked" by issues specifically concerning fee-charging
educational charities.
— Many fee-charging charities said
they would welcome further guidance on setting fee levels, determining
what is affordable and on means testing (whether provided by the
Charity Commission or which the Charity Commission could signpost
from its fee-charging guidance).
POVERTY
— Many responses, particularly from
poverty charities working internationally, advocate a wide interpretation
of poverty (beyond just financial hardship), or a wide interpretation
of what charities can do under the prevention or relief of poverty,
in order to reflect the broad range of activities undertaken by
them which are directed (ultimately) towards the prevention or
relief of poverty (such as addressing human rights, environmental,
or governance issues for example).
— Our draft supplementary guidance
suggested that poverty and financial hardship are the same. There
appears to be a general consensus in the responses that there
is a difference, in that poverty is a condition that people experience
on a longer-term basis, whereas financial hardship can be a temporary
condition. A person might experience financial hardship but would
not be classed as poor. For example, someone who is asset rich
but cash poor (such as an elderly person who owns their own home
but cannot afford to heat it).
— Although recognising that the Charities
Act now allows charities to focus on the prevention of poverty
(tackling its root causes) without also having to relieve it or
its consequences, there seems to be a general view that it is
difficult in practice to distinguish between the prevention of
poverty and the relief of poverty.
— The responses recognise that there
are many different ways of preventing or relieving poverty which
are not necessarily about providing financial assistance, (eg
providing education), or which are concerned with tackling the
consequences of poverty (eg ill-health).
— There were a number of concerns expressed
by single employer benevolent funds. Charity law permits them
to restrict their beneficiaries to employees (or former employees)
where the charity's purpose is to relieve their poverty, many
also have activities that extend beyond poverty (such as health
and welfare issues) where charity law does not permit such a narrow
restriction. These respondents asked for clarification, for benevolent
funds, on this aspect of the public benefit requirement.
— There was little support in the responses
for retaining the current anomaly within charity law that allows
poverty trusts to be set up for members of a particular family;
although some respondents also recognised that the Charities Act
did not explicitly change this anomaly.
2 Public Administration Select Committee, Oral and
Written evidence, Charity Commission Annual Report, HC
1156-i, Ev 10. Back
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