Public Administration CommitteeWritten evidence submitted by National Council for Voluntary Organisations (NCVO) (CH 29)
Established in 1919, the National Council of Voluntary Organisations (NCVO) represents over 8,500 organisations, from large “household name” charities to small voluntary and community groups involved at the local level. The framework set by charity law is relevant to all types and sizes of organisation, and for this reason it has always been a key policy area for us. The following submission to the Public Administration Select Committee’s Review of the Charities Act 2006 is based on our long standing role in charity law, including the lead we took in campaigning for charity law reform.
Our responses also draw from the more recent work carried out by NCVO’s “Charity Law Review Advisory Group” chaired by Baroness Howe of Idlicote. The Group undertook an independent review of charity law, targeting areas identified as being most relevant to ensuring that charities and the people who govern them operate effectively, within a clear and enabling framework, so that in all their activities—including the more controversial ones such as fundraising and campaigning—they engage with the public in a way that ensures trust and confidence.
Taking into consideration both the Advisory Group’s final report, and on-going discussions with NCVO member organisations, our general conclusion is that the Charities Act 2006 has proved to be a good piece of legislation: whilst the law would benefit from some rationalisation and minor modifications, the legal framework is robust and remains fit for purpose.
In particular, our paper highlights that:
the Act has helped simplify some of the administrative and governance procedures that charities are subject to;
the decision to establish a system of self-regulation of fundraising was the correct one;
the renewed emphasis on the public benefit requirement brought by the Act is a positive step, having prompted many charities to renew their charitable mission and strengthen their governance;
the Charity Commission is generally perceived as a modern, independent regulator;
the establishment of the Charity Tribunal is a beneficial development for the charity sector; and
the rules on campaigning by charities are reasonable and proportionate.
However, it also recognises that some key improvements need to be made to the current framework. In particular:
further legislation is necessary to clarify and simplify the definition of charity with regards to the public benefit aspect;
steps should be made to unify the existing differences between charity law and tax law, and between devolved jurisdictions, to have a single definition for the purpose of charity regulation/registration and for tax purposes throughout the UK;
the Charity Commission should focus its resources on enforcing charities’ compliance with legal requirements; and
self-regulation of fundraising needs to be strengthened in a number of ways to ensure a culture of responsibility and maintain public trust and confidence.
1. To what extent has the Charities Act 2006 achieved its intended effects of:
(a) enabling charities to administer themselves more efficiently and be more effective?
(i) There is general agreement that the Charities Act 2006 has overall proved to be a good piece of legislation. One of the general thrusts of the Act was clearly deregulatory, wanting to give charities greater flexibility so they could fulfil their purposes more efficiently. This can be seen in a number of provisions aimed at enabling trustees to work with less bureaucracy and simpler procedures. Individually these provisions could appear modest and of little effect, but when considered all together they have had a positive impact on the work and efficiency of charities.
(ii) Unfortunately other pieces of legislation and regulation affecting charities continue to represent an obstacle to the smooth carrying out of their activities: we have long lamented the fact that charities are subject to a number of different, but overlapping regulatory regimes, depending on their geographical scope, the activities they carry out and their income level. In addition to the generic reporting requirements that derive simply from being a charity, many organisations are involved in service delivery and therefore have to comply with further monitoring and reporting as outlined in the contract or funding arrangement. There has also been a considerable increase in the number of licensing rules with which charities have to comply.
(iii) Taken together, all this adds up to significant complexity in the system, causing considerable costs and bureaucracy, the burden of which can be too high for many voluntary sector organisations, especially the smallest.
(b) improving the regulation of charity fundraising, and reducing regulation on the sector, especially for smaller charities?
(iv) NCVO shares the majority view that Parliament’s decision to defer statutory regulation of fundraising in favour of allowing the sector to develop a self-regulatory framework was the correct one. Statutory intervention could restrict fundraising activities and therefore stifle charities’ ability to gather public support. It would also have the disadvantage of causing higher costs to both charities and tax-payers, and would provide less flexibility to adapt to changing circumstances. Self-regulation therefore continues to be the most appropriate way to ensure an operating framework in which charities are encouraged to fundraise effectively and responsibly.
(c) providing a clear definition of charity, with an emphasis on public benefit?
(v) This is an area where five years may not be enough time for the relevant legislation to bed down, given the complexity of applying principles of public benefit across the wide range of charitable purposes. The Act certainly served to bring the public benefit of charitable status to public attention, and more importantly emphasised its centrality to the duties of charity trustees. However, doubts remain about its practical effect for charity trustees, and the relative simplicity which the NCVO and others were hoping for has not been achieved. NCVO’s Advisory Group has concluded that further legislation is highly desirable to clarify the law. In particular, it would be helpful for the legislation to set out the main principles by which public benefit is to be judged, as has been done in the Scottish legislation.
(vi) At the moment there is too much uncertainty surrounding what public benefit actually means in charity law terms. While most trustees would think of a requirement to demonstrate “public benefit” as a need to show that their charity’s activities have a beneficial impact on the community, the legal concept involves complex and highly technical aspects which relate to the charity’s purposes and, in many cases, the nature of its beneficiary class. And because there is no codified law on public benefit, the position has to be inferred from case law which is neither comprehensive nor fully consistent.
(vii) Further confusion arises from the following:
the different definition of charity for tax purposes set out in the Finance Act 2010; and
the lack of consistency with English law in the Scottish and Northern Ireland jurisdictions, which both have separate definitions of “charity” (with significant differences both with regards to the specified heads of charity available and also the public benefit requirement).
(viii) NCVO’s Advisory Group found that, while some might argue that these differences are small, they are sufficient to cause considerable difficulties for charities, especially those working on a cross border basis. There is strong reason to believe that the vast majority of charities would welcome legislative changes to unify these differences and give a single definition for the purpose of charity regulation/registration and for tax purposes throughout the UK, and that this would help to reduce the extent to which resources are applied to technical compliance issues as opposed to a charity’s real work.
(ix) We have therefore recommended that the Government, the devolved administrations, the three regulators and HMRC should work towards agreeing on a single definition of charity and a single public benefit requirement for the whole of the UK, which would also apply for tax purposes.
(d) modernising the Charity Commission’s functions and powers as regulator, increasing its accountability and preserving its independence from ministers?
(x) NCVO agrees with Lord Hodgson’s conclusion that there seems little need to revisit the constitutional arrangements put in place by the 2006 Act. The Act significantly modernised the status of the Commission and increased its accountability by:
recreating it as a body corporate, rather than a body of individual commissioners;
introducing a clear statement of the objectives, functions and duties of the Commission;
creating the Charity Tribunal, able to hear appeals against legal decisions of the Commission; and
introducing a number of practical and legal mechanisms designed to ensure that the Commission is accountable to both Parliament and the public at large.
(xi) In particular, the more specific statement of the purposes of charity regulation have helped the Commission present its aims and activities more clearly to charities and the public, and have provided a clearer framework of accountability.
2. What should be the key functions of the Charity Commission?
(xii) NCVO has always maintained that the Commission’s primary role is that of independent regulator. The key statutory functions to perform this role are:
determining charitable status and registering charities;
setting the framework of accountability of charities; and
ensuring charities comply with the legal requirements deriving from their constitutions and charity law.
(xiii) We therefore agree with Lord Hodgson on the point that, although the Commission has for some time operated as both a regulator and a “friend” to the charity sector, it should focus on enforcing charities’ compliance with charity law. Although we understand that the Charity Commission’s provision of individual advice is valued by many within the sector, the existence of a strong and effective regulator is the overriding priority.
(xiv) At a critical time for the sector, and in the context of significantly reduced resources, the focus must be on the Commission’s ability to provide robust and effective regulation that is necessary to our organisations. This is a competency that cannot be replaced by, or delegated to any other body. On the other hand, it is more appropriate that functions such as enabling charities to maximise their impact, and championing their work, are carried out by the sector itself, where there is a wealth of experience in promoting effectiveness and innovation, as well as championing the interests of charities.
3. How should the Charity Commission be funded?
(xv) After considering alternative funding options, we have concluded that the current arrangements (whereby the Commission negotiates its own budget directly with Treasury) should remain as they are.
(xvi) Following the cuts to the Commission’s budget in the last Spending Review, there has been a lot of debate about additional forms of income generation, such as introducing fees for registering new charities and filing annual returns, or imposing penalties. NCVO is strongly opposed to any of these measures: it would be counterproductive to put more obstacles in the way of charities being created or to charge existing charities for complying with a legal requirement. Levying penalties also raises serious concerns, such as the potential conflicts of interest for the Commission and a negative impact on the perception of its independence, liability of trustees, not to mention the costs of setting up such a system. Furthermore, it would be naïve to assume that any income thus generated would not be effectively lost by a correspondent reduction in funding on behalf of Treasury. So there is the danger that the overall resources of the Commission remain the same, but the burden is transferred to charities.
4. Is the current threshold for registration with the Charity Commission set at an appropriate level?
(xvii) NCVO believes that the current threshold is appropriate, and there shouldn’t be any further increase. The current level strikes the right balance between allowing registered status (and the associated charity number) to those organisations that see it as a valuable benefit, and avoiding bureaucracy for the smaller charities that have limited capacity to cope with the registration and reporting requirements.
(xviii) However, we also note that the £5,000 level was set with the understanding that voluntary registration would be made available for charities below this amount. We are therefore concerned that the relevant provision is not yet in force.
5. How valid are concerns that there are too many charities?
(xix) NCVO has always maintained that the arguments about there being too many charities are neither valid nor compelling. Charitable impulse is often individualistic and independent: the creation of a charity is in most cases a personal response to a tragedy, or taking action about something the individual feels passionate about. This is why the majority of charities are small, local, volunteer-led and connected to their communities.
(xx) Also, the more charities there are, the more opportunities there are for people to contribute to their communities. So, if the government’s vision of a Big Society is to be fulfilled, people should be encouraged to engage in community activity, and the benefits of choice should be highlighted. It appears contradictory to be saying that new initiatives should be stifled or that the proliferation of voluntary endeavour should be avoided.
(xxi) NCVO would therefore strongly oppose the suggestion that has sometimes been made, that the Charity Commission should refuse registration if an organisation does not offer anything “new”, and push towards its amalgamation with already established organisations: the right to organise and come together is a fundamental one in our society, and a power to prevent people from setting up a charity would run counter to this.
6. Exempt charities, such as academy schools, are regulated by principal regulators, rather than the Charity Commission. How well is this system working?
(xxii) NCVO’s Advisory Group has already highlighted its concerns over the recent trend of extending exempt charity status to more groups of specialist charities.
(xxiii) Registration as a charity with the Charity Commission gives donors and the general public a degree of certainty and comfort about an organisation. It is generally understood by the public that registered charities are established for purposes accepted as charitable, are run for the public good by trustees acting solely in the interests of the charity’s objects/its beneficiaries, and are properly regulated, with accounting and other information about them readily available.
(xxiv) Exempt charities do not appear on the Charity Commission register and have different reporting requirements from registered charities. For example, they are not required to automatically produce or publish an annual report under the charity accounting framework, or to report on public benefit. Placing more and more groups of charities outside the Charity Commission’s jurisdiction would therefore lead to a meaningful reduction in their accountability and transparency, and would be detrimental to the integrity of the legal framework that supports public trust and confidence in charities.
(xxv) There is also growing anxiety in the charity sector about how this movement could negatively impact the preservation of its independence: for example, having regulators that are either part of the sector themselves or part of Government would inevitably involve conflicts of interest in the management of the charities concerned.
7. There has been an increase in the number of organisations that operate for the public good such as social enterprises and mutuals, which are not charities, and are not regulated by the Charity Commission. What impact may this have on the public perception of what a charity is, and how charities are regulated?
(xxvi) It is important that public perception of charities recognises and understands the uniqueness of what a charity is. It must always be made absolutely clear to the public that registering as a charity and the charitable status thus acquired are subject to a number of legal requirements that are unique to the charity brand, the key one being that a charity operates solely for the public benefit and not for profit.
(xxvii) But the voluntary sector has always been characterised by, and praised for, its diversity. In particular, the changes in society and the economic and policy environment, especially over the past decade, have led to a whole new range of activities and arrangements being embraced. It is therefore necessary that different legal forms are available for organisations to choose from, so that the most appropriate model is adopted and differing needs can be accommodated.
8. How successful has the introduction of the Charity Tribunal and its replacement, the First-Tier Tribunal (Charity), been in making it easier to challenge decisions of the Charity Commission?
(xxviii) The Tribunal was one of the most important innovations arising from the Act. It has a number of advantages compared to an administrative court, especially following the Tribunals and Courts Enforcement Act 2007. In particular:
it has very wide case management powers, which can help ensure flexibility and facilitate improved access to justice; and
its operation costs are relatively moderate, in particular the new centralised system means that costs are spread across different tribunals because the judges serve on a number of jurisdictions.
(xxix) Furthermore, one of the real benefits of the Tribunal is that is it a court that can effectively specialise in charity law, and will therefore develop a body of expertise that will not only enable it to achieve its aims in the longer term, but also be beneficial to the sector. Indeed it should be acknowledged that, despite the low number of cases heard so far, the Tribunal has dealt with some significant issues affecting charities, including the two landmark rulings clarifying the public benefit requirement.
(xxx) It may also be too early to draw conclusions on the issue of caseload, and certainly to predict that it will always be so. On the contrary, there are signs of further progress, for example in the increased number of litigants feeling comfortable enough to bring a case without legal representation. It is therefore reasonable to conclude that the key issues have been a lack of familiarity by charity practitioners, and a perception by clients that using the Tribunal process would be costly and long.
(xxxi) This leads us to share Lord Hodgson’s prediction that, if the adjustments recommended as a result of the review are implemented, the Tribunal will be able to fully establish itself as the low cost and accessible forum for justice that was originally envisaged.
9. How successful is the self-regulation of fundraising through the Fundraising Standards Board?
(xxxii) NCVO agrees that the self-regulation system developed by the sector has been an effective approach in encouraging charities to comply with good practice. However, public trust and confidence are our priority concern, and we understand that they have been negatively affected by frequency of practice and sometimes aggressive behaviour.
(xxxiii) Therefore further efforts are necessary to ensure a truly successful fundraising framework: one where fundraising is effective in gaining support, and is also undertaken responsibly and in a way that doesn’t antagonise the public. This is an area where we recognise that the sector itself needs to take stronger action, by not only tightening up the self-regulatory framework, but also developing an better fundraising culture, where the key consideration is the relationship with the public and maintaining its trust and confidence.
(xxxiv) Some key changes that would help improve the current system have already been identified. These are:
the FRSB membership model needs to be addresses, as currently compliance is “self-selecting” because organisations are only members by choice, and the number of charities that have signed up to membership remains relatively small, so there are obvious concerns about “free-riding” and about non-member charities not behaving properly bringing the whole sector into disrepute;
the FRSB should be equipped with the ability to issue more effective sanctions for non-compliance; and
a clarification is required both within the sector and the general public about the respective roles and responsibilities of the FRSB, IoF and PFRA and their interaction.
10. Are the rules around political activity by charities reasonable and proportionate?
(xxxv) NCVO’s Advisory Group carefully considered the regulatory framework in which charities carry out campaigning activities, and concluded that the existing legal and regulatory framework provides a reasonable and proportionate balance between upholding charities’ freedom to campaign whilst also ensuring that they operate for the public benefit, are not party political, and are transparent and accountable in what they do. This balance means that charities can speak with an independence of voice, which gives the public and donors confidence in their work.
(xxxvi) In particular, the Charity Commission’s guidance on campaigning and political activity by charities sets out sensible and balanced rules, making it clear that:
a charity cannot exist for a political purpose nor have political activity as any of its charitable purposes;
nor can a charity undertake political activity that is not relevant to supporting its charitable purposes;
any charity can become involved in campaigning and in political activity which further or support its charitable purposes, unless its governing document prohibits it;
political campaigning, or political activity, as defined in the guidance, must be undertaken by a charity only in the context of supporting the delivery of its charitable purposes and, unlike other forms of campaigning, it must not be the continuing and sole activity of the charity;
when campaigning, charity trustees must comply not only with charity law, but also with other civil and criminal laws that may apply and, where applicable, with the Code of the Advertising Standards Authority;
any claims made in support of a charity’s campaign must be well founded on robust and objective research; and
charities should exercise caution and pay particular consideration to the consequences of working with politicians in order to protect their reputation and ensure public perceptions of neutrality.
(xxxvii) This provides an appropriate framework in which charities are able to campaign, whilst ensuring they do so legitimately and responsibly.
(xxxviii) Therefore, there is no need for any additional regulatory or administrative requirements in this area, as such a change would cause a disproportionate regulatory burden on charities and restriction on their ability to campaign, with the risk of substantially curtailing their contribution to civil society.
September 2012