Joint Committee on the Draft Charities Bill

Joint Committee on the Draft Charities Bill First Report

3 Public benefit

Current position

61. Currently, in order for a body to be a charity in law, it must meet two criteria: (i) it must have exclusively charitable purposes; (ii) it must be for the 'public benefit'. We have dealt in chapter 2 above with the changes to charitable purposes. We now turn to the Bill's effect on public benefit.

62. 'Public benefit' is not defined in statute law and its legal meaning is derived from a series of court cases over many years. There is no straightforward definition in case law. According to the Government's Strategy Unit, public benefit means that a charity's purposes must: confer benefit, as opposed to harm; benefit either the whole community or a 'significant' section of it; and confer only incidental private benefit.[78]

63. At present, a charity whose purpose falls under the first three heads - the relief of poverty, the advancement of education and the advancement of religion - is presumed to be of public benefit and does not have to demonstrate this unless some positive reason for doubt is presented.[79] The only change made by the draft Bill in this context is to remove that presumption. Much of our inquiry has been taken up in trying to establish what the consequences of that change will be. The draft Bill does not contain any new statutory definition of public benefit; it provides that judgments about public benefit will continue to be based on principles determined by the courts; and it assumes that the Charity Commission will continue to decide how to apply the public benefit test.

64. On the basis of the evidence we have received, the main difficulty which arises in this area is how schools and hospitals which charge high fees demonstrate adequate public benefit when access to the services they provide is limited in this way. The draft Bill does not explicitly purport to change the charitable status of such organisations. This is not necessarily the most important issue facing the charity sector but it does appear to be an area of great uncertainty about how the draft legislation will work in practice. It has also been the subject of much controversy over many years with some arguing strongly that the fact that wealthy independent schools enjoy charitable status - and the tax advantages it confers - is incompatible with any common sense view of what it means to be a charity. Since the purpose of the Bill, according to the Minister, is to protect the charity brand, it is important that any new law on charity must properly deal with the issue of public benefit.

65. In tackling the issue of public benefit we have asked these questions:

a) What difference will be made by the removal of the presumption of public benefit?

b) How will the Charity Commission operate the public benefit test in future?

c) Does public benefit need to be more clearly defined?

66. In assessing the evidence we have received on these points, we have assumed that this issue will not arise the day after the Act comes into effect but when the Charity Commission first has to consider a specific case. This could happen when a body applies for charitable status and there is some doubt about whether it meets the public benefit test. Perhaps more likely, it could occur when the Charity Commission reviews the charitable status of an existing charity. Although the final decision in such cases could be made by the new Charity Appeal Tribunal (subject to appeal to the courts), the initial approach of the Charity Commission in either situation will be critical. The Commission has set out how it plans to conduct this exercise.[80]

The Government's proposals for reform

67. The Strategy Unit review found that there were a number of weaknesses in the way that charitable status is determined.[81] It considered that all charities ought to provide public benefit, so the presumption of benefit for the first three heads should be ended.[82] In addition, it considered that a new definition of charitable status needed to be developed which, inter alia, would clarify what constituted a charity and would emphasise the "public character" of charities.[83] By public character, the review seems to have meant "public benefit" in the sense, roughly, of not excluding people from benefits for reasons unconnected with the purpose of the particular charity.[84] In particular, the review said that to demonstrate public character, charities which charged high fees (such as some independent schools) would need "to make significant provision for those who cannot pay full fees".[85]

68. The Strategy Unit recommended that "charity be redefined in law, based on the principle of public benefit", although it rejected the idea of achieving this through a statutory redefinition of public benefit. It considered that there would be advantages in continuing to rely on case law and that a statutory definition would introduce uncertainty.[86]

69. The Government in its response to consultation on the review also rejected the idea of a statutory definition of public benefit but said it accepted the "recommendation for a new definition of charity based on the principle of public benefit, and intends to provide for it in the proposed Charities Bill".[87] The new definition, the Government said:

"… would rule out organisations which … were not demonstrably for the public benefit (eg because the services or benefits they provided were not open to a wide enough section of the population, or because they were run for private benefit)".[88]

Draft Bill changes

70. The draft Bill says that for a body to be a charity, it must:

a) fall within the 12 (rather than current four) charitable purposes listed in the Bill at clause 2(2);

b) be for the public benefit "as that term is understood for the purposes of the law relating to charities in England and Wales" (clauses 3(1) and 3(3)).

71. Clause 3(2) says that "it is not to be presumed that a purpose of a particular description is for the public benefit". This abolishes the presumption of public benefit under the existing law for the relief of poverty, or advancement of education or religion.[89]

72. Thus, on the face of the draft Bill, the only clear change is the removal of the presumption of public benefit. The definition of public benefit does not appear. It will continue to be determined by case law.

Difference made by the removal of the presumption

Evidence

73. The NCVO told us that "all organisations with charitable status should be required to demonstrate that they provide public benefit on an on-going basis, not just at registration".[90] They told us further:

"It is crucially important that the Charity Commission make it clear that they will use the public character checks to apply the common law definition of public benefit as established under the fourth head to all existing charitable activities. We should not assume that those organisations which are currently charitable should retain charitable status… otherwise we face the real danger that there will be two classes of charity in England and Wales, that is those charities which did not have to demonstrate public benefit because it was assumed under the old Act and would not now have to apply it and those charities which had to demonstrate public benefit under the new Act. So my view is strongly that we should be reassured by the Commission that they will apply such checks to existing charitable activity for which the public benefit test was not applied because it was assumed. That is a critical point in this Bill".[91]

74. The Minister confirmed this, when she told us:

"If the Government did not intend the removal of the presumption of public benefit to particular classes of charities to have no impact at all, if that had been the intention of the Government, we would not have bothered to do it. We believe that it is necessary for it to have an impact".[92]

75. Throughout our public evidence sessions we received conflicting advice on how much difference the draft Bill would make in practice. The Charity Commission, dealing with the issue of independent schools, told us:

"The existing case law would need to be applied to the modern context in which charities now operate and in light of the new legislation. The exceptions to general public benefit principles …. are part of current case law and organisations have been recognised as charities on that basis over significant periods of time. The removal of the presumption of public benefit as proposed by the legislation would probably not change this. The Commission would not be able simply to over-ride these exceptions given that they have been specifically addressed by the court and allowed to stand".[93] (emphasis added).

76. This interpretation left the draft Bill in the ludicrous position of promising to bite on the public benefit bullet without having any teeth to do so. For witnesses such as NCVO and ACEVO this view taken by the Charity Commission, as the body charged with interpreting and implementing any new law, caused some consternation. The NCVO said that this was "a critical issue that the Committee need to clarify".[94] This position was based on an interpretation of the law which was supported by some of our witnesses and disputed by others. Most significantly and perplexingly it became clear that the Home Office and the Charity Commission saw things differently.[95] This is deeply unsatisfactory. For a matter of such public importance and interest to produce such total confusion at the heart of the draft Bill is nothing short of farcical.

77. The Charity Commission's interpretation of the law was supported by Professor Peter Luxton, Professor of Property Law at Sheffield University and author of The Law of Charities (OUP, 2001)[96] and the charity law barrister, Hubert Picarda QC, who told us: "Mere reversal of the 'presumption' of public benefit cannot change the declared law on this point".[97] On the other hand, the Charity Law Association (CLA) believed "that the necessary public benefit tests are present within the existing case law … does not prevent the tests being applied to independent schools in the same way as they will be applied to all other charities. There is therefore no need for any further provisions on this matter to be included in the Bill".[98] The Minister told us that the Home Office also disagreed with the Charity Commission's interpretation of the Bill in this regard.[99] She said further:

"Our view, in common with the large majority of practitioners in the field, is that - I have had legal advice on this - the Commission has … full scope to apply the same public benefit criteria to all charities which charge fees…"[100]

78. We have not rehearsed the full legal arguments again here because, as we finished taking evidence, a joint position was agreed between the Home Office and the Charity Commission. That statement is set out in the box on the next page.

Extract from a letter to the Committee from the Home Office and the Charity Commission
The current law on public benefit would be preserved by the draft Charities Bill, except that the presumption of public benefit for charities for the relief of poverty, the advancement of religion and the advancement of education would be removed.
The law provides that public benefit is determined on a case-by-case basis. Although in every category of charity public benefit must be present, the courts have not adopted the same practical measures of public benefit for different categories of charity. Different standards are required for different charitable purposes.
The Charity Commission will continue to follow that approach of the court when determining public benefit in any particular case. The Commission will have regard to the social and economic context within which an organisation operates, as well as to the relevant charitable purposes and activities of the organisation.
As with the law on charitable purposes, the law on public benefit will evolve and develop over time. The removal of the presumption of public benefit will provide a basis for further development of the law.
In considering specifically the impact of fee charging on public benefit, we further agree that:
The Commission will apply the broad principles indicated by the court in the case of Re Resch. These principles are that:
a)  both direct and indirect benefits to the public or a sufficient section of the public   may be taken into account in deciding whether an organisation does, or can, operate for the public benefit;
b)  the fact that charitable facilities or services will be charged for and will be provided mainly to people who can afford to pay the charges does not necessarily mean that the organisation does not operate for the public benefit; and
c)  an organisation which wholly excluded poor people from any benefits, direct or indirect, would not be established and operate for the public benefit and therefore would not be a charity.
The Commission will apply these principles in judging whether or not a charity is meeting the public benefit requirement. It will apply the general principles in cases of all fee-charging charities, whatever their particular charitable purposes and however long they have been established.
The "schools cases" referred to in the Commission's earlier evidence to the Joint Committee will not prevent the Commission from carrying out public benefit checks on schools and will not prevent the overarching principles above from being applied to schools. As with any other legal case which impacts on public benefit, the schools cases are to be considered as part of the overall framework which also includes: -
i.  the principles referred to above;
ii.  the nature of the particular charitable purpose;
iii.  the particular circumstances of the organisation; and
iv.  the current social and economic conditions under which the organisation operates.
Finally, we agree that fundamental to all this is the fact that the law on public benefit will evolve and develop over time. This evolution will have regard to both the particular charitable purposes and the social and economic changes in society. It is in this context that the Commission will, in considering the application of the principles which apply to fee-charging charities, including independent schools, be mirroring the court's approach and encouraging the law to develop as appropriate in pace with modern society.

Interim conclusion

79. The work of the Committee was compromised by the failure on the part of the Home Office and the Charity Commission to sort out their differences on this key point during the course of our evidence sessions. The process of pre-legislative scrutiny of this draft Bill has revealed a schism between the two bodies most closely involved which goes to the heart of the purpose of the Bill. In the course of our inquiry the Home Office and the Charity Commission have come to an agreement to resolve their differences on this point. That agreement will doubtless be tested in debate when the real Bill appears. Whether this matter should be left to a concordat between the Home Office and the Charity Commission or whether the draft Bill should provide for some more formal expression of how public benefit should be defined and how the test should be applied is an issue we turn to in paragraph 94 below. First, we set out some of the evidence we have heard on how the Charity Commission would operate checks and then on the issue of independent schools and hospitals.

How the Charity Commission would operate public benefit checks on existing charities

80. We received evidence from a number of bodies expressing concern about how the Charity Commission would actually go about applying the checks and what criteria they would use in deciding whether charities had met the public benefit test. Volunteering England and the Association of Charitable Foundations both stressed that there would need to be transparency about how the Commission arrived at its judgements in testing public benefit.[101] Governance Works told us that they would welcome criteria on the face of the Bill which would give guidance to the Commission in policing public benefit if the Bill should become law. They told us:

"As it stands, it feels as if there could be some confusion out there in practice. We are talking about quite a wide sector, particularly those organisations that are newly established charities might feel that they are unclear about how they are going to be measured up against this test".[102]

81. The Charity Commission told us:

"Once the proposed legislation has been enacted the Commission would look at the position of existing charities, including those registered under a presumption of public benefit where concerns have been raised, or where there is the potential for concerns to be raised, about whether they meet public benefit requirements. The Commission would look initially at the fee charging sectors. The Commission would undertake this exercise to assure itself that these organisations have a public character or, in other words, provide a benefit to the public".[103]

82. When asked about fee-charging schools, the Charity Commission said:

"We will outline, in consultation with the relevant sub-sector, ways in which charities might demonstrate public benefit in the way of putting flesh on the bones of what we set out in paragraph three of the consolidated paper we submitted to you. Being realistic we are likely to start with fee-charging charities and in all probability schools, but I think as it is something that is for the Commissioners as a Board to decide, that ultimately they would make that decision. We would then fully consult on ways of meeting public benefit within of course the legal framework we have outlined. We would actually take a statistically valid sample charity from that sub-sector and we would assess the extent to which they are meeting public benefits against the criteria we have outlined and consulted on. We will then publish that in the form of a report. We already do regulatory reports of this nature and we would use those results, which of course would have best practice as well as failures to meet standards, as a basis for making the individual assessments, the individual checks, as it were."[104]

83. The criteria which would be applied by the Charity Commission were set out in their evidence:

a) "whether any individuals or other organisations (other than those who should properly benefit from the charitable services) are significantly benefiting or profiting from the charity;

b) where the charitable services are available only to a charity's members, any restrictions on who can be a member which are inconsistent with the charitable purposes;

c) physical access to buildings and land, where that is relevant to delivery of the charitable purpose;

d) where the level of fees charged for services may have the effect of excluding the less well off, whether there is alternative provision for access to services for those unable to pay; and

e) whether the charity confers any indirect public benefit (e.g. relief of the public sector)".[105]

Fee-charging schools and hospitals

84. The importance of the requirement of public benefit, and the difficulty of applying any test of public benefit, became very apparent from the evidence we received in relation to independent schools and hospitals. The draft Bill makes no explicit provision for any change in the charitable status of schools and hospitals which charge fees and therefore limit public access to a certain extent. Although we have taken evidence about schools and hospitals at the same time, their situations are different. Some medical charities are funded in part by government contracts while most of the funding for independent schools comes in fees from individuals.

85. Thirty years ago the Education, Arts and Home Office Sub-Committee of the Expenditure Committee said:

"We believe that our recommendation to make a test of public benefit the overriding consideration with that of education accords, both with the spirit in which many of our sixteenth century public schools were founded and with a widespread public feeling today that charitable activities should not be manifestly devoted to privilege or exclusiveness. We would therefore expect that our new test of "purposes beneficial to the community" would only admit to charitable status those institutions which manifestly devote the education they provide towards meeting a range of clear educational needs throughout the whole community." [106]

86. The main points which have been made to us are set out below. The Socialist Education Association told us:

" 'public benefit' can only be justified if it can be applied unequivocally to the central purposes of a charity, which each applicant must be obliged to demonstrate and maintain. There can be no blanket awards based on a few inessential additions to their main activities. If private schools are not prepared to open the opportunity to attend them to all children equally, irrespective of parental income or deemed ability (which would be a true public benefit) they should not be regarded as a charity. The private sector's role in the provision of education in this country is significant for many reasons. Few of them currently have much to do with charity. Until all of them face up to the true nature of the role they have chosen to play, and stop trying to safeguard privilege for the already privileged as well as £100+ million per annum in public subsidy, those that do not provide genuine 'public benefit' should be denied charitable status." [107]

87. We took oral evidence from the independent schools sector and a private hospital on 30 June and that evidence, together with much written evidence, is published with this report. Among the points made to us on behalf of educational and health charities were:

"Education is a charitable purpose. It has been a charitable activity for more than 400 years and it remains so in this draft Bill. I think that most people, the general public, would actually prefer schools to be in the hands of charitable institutions rather than to be run for profit. In terms of what we do, we educate nearly half a million children and that is in itself a public good because education is a public good. We use endowments, fees and other sources of revenue to widen access, and really the important point … is the extent to which schools, independent schools, extend the access to their benefits beyond the class of people who can afford to pay full fees. We are doing that more and more and I personally see this Bill as entirely beneficial to the extent that, if there is any need for a wake-up call, it will provide a mechanism to ensure that schools actually do provide public benefit, it will be audited, and to the extent that they need to provide more, then the Charity Commissioner, as regulator, will be able to ensure that."[108]

"I have become a headmaster of a new school in September. The loss of charitable status would increase the costs of that school by £335,000 a year. That is unequivocally £335,000 which that school would not be able to spend on the community, on bursary places, on widening access and on giving places on purely merit grounds."[109]

"There is a financial benefit from charitable status. As a fundraiser, there is a tremendous benefit to the charity which I run in enabling it to raise money to fulfil its charitable purposes. It is a huge asset".[110]

"My plea almost to you is that in looking at charity status, you will not cut across the fundamental ethos of what is beginning to happen. There is a dialogue beginning to occur between this Government and the independent sector …. we have a more stable platform in which to see how these innovations can spread across the sectors..... suddenly the academy movement became available and it was utterly different from anything else which had been available to us, but, and it is a very important "but", we do not have a foundation and, therefore, for every academy we have to raise £2 million. We did not know whether we had the story to raise it and we went to two or three charities to see whether they were prepared to support us and, they did. Therefore, many people are supporting us in what we are doing, but out of charitable foundations, so they are dealing charity to charity, and they are paying their money to the Church Schools Company, not directly to the city academy. Our charitable status is, therefore, absolutely crucial for our standing in what it is we are trying to do…. there is an enormous possibility here. It will grow, but it needs nurturing and it needs help".[111]

"We [Nuffield Hospitals] have been a charity for approaching 50 years. It is not a current loophole that we used to become a charity. As a provident association they do enjoy certain tax benefits. We believe that the public feels more comfortable in purchasing health care services from a not for profit company…..: I cannot deny that we do enjoy the benefits of charitable status. We believe that we have used those benefits wisely over the last 50 years. We have made investments into communities that a pure for profit provider of health care services might not have made".[112]

88. On the other hand we heard from Dr Anthony Seldon that:

"There are two very different kinds of independent school. There are the small minority which are very wealthy which are doing extremely nicely and which … I do not think are very innovative. They look after themselves and they pay lip service to odd charitable things, but they are a self-perpetuating oligarchy and ….. they have great wealth, and I think they should be doing much more, not the least charitable and not the least creative and innovative, to play a responsible part in our one nation, and there are the rest. I would say that the rest are about 97 per cent, like Brighton College, and we are passionate about being involved in the local community and our parents are drawn from a very broad cross-section and they make huge sacrifices. They remortgage their homes and grandparents pay, both parents go out to work and I just want to break down this notion of a monolithic independent sector".[113]

89. He went on to argue that:

"I think that we are one country. I think that the perpetuation of a socially divisive education system is not conducive to social integration, but I would also say that our grammar schools and our socially elitist comprehensives often have parents who are far more affluent than in many single sex day schools for girls, e.g. the girls' day school trusts and other schools with low fees, low margins, a very broad intake of parents. We have to distinguish. My general point is that to those schools to whom much is given much should be expected and we should break up this monolithic vision. Yes, I would be prepared to say that certain schools which are very richly endowed, who have very affluent parents who can pay the full fees, should be doing the most because they are the kinds of people whose children go on to elitist universities, go on to elitist jobs and I think that in 2004 that is wholly inappropriate".[114]

90. Under questioning it became clear that there was mixed evidence about whether the independent sector as a whole was demonstrating consistent public benefit. Whilst many independent schools were performing a variety of public benefits some were not. Nuffield Hospitals struggled to make any convincing case for being a charity or receiving the tax advantages that go with it.

91. When these points were put to the Minister, she said:

"The charity community …..believe, as I do, that the removal of the presumption of public benefit from particular classes of charity, including education, promotion of religion and so on... will mean that every charity needs to show that it benefits the public, that it meets the kind of criteria where guidance about public benefit and fee charging charities, for example, is met and they are enthusiastic about that being the case which is a change from the present situation. I think that will encourage a tradition which has started [of] fee-paying schools putting more emphasis on their contribution to wider society rather than traditionally they have done and this will accelerate that process. If it does that it is a good thing."[115]

92. We welcome the steps being taken in parts of the independent school sector to demonstrate a higher degree of public benefit in return for the tax advantages of charitable status. It will be for individual fee-charging institutions to demonstrate adequate public benefit if that status is to be retained. In this context there are perhaps 1,000 independent schools and a smaller number of private hospitals out of a charitable sector of about 150,000 charities in all.[116]

93. It must be expected that some fee-paying institutions which apply in future for charitable status may fail to satisfy the public benefit test at the point of registration. When the Charity Commission starts to conduct its rolling programme of public character checks, it is likely that some schools and hospitals which are currently charities will be unable to demonstrate adequate public benefit and could lose that status. In practice, loss of charitable status would only occur if, after negotiations with the Charity Commission, the institution concerned refused or otherwise failed to demonstrate adequate public benefit. If it was a case of refusal, the Commission would have the right to replace trustees.

A clearer public benefit test?

94. The debate about the charitable status of fee-charging schools and hospitals has focused attention on whether the draft Bill should contain or provide for a more explicit test of public benefit. If those institutions were removed from the charitable sector, this would be less prominent an issue. Some people believe it is difficult to equate charitable status with fee-paying schools and hospitals and feel such institutions should no longer have charitable status. Others disagree.

95. We have considered some alternative arrangement under which the tax exemptions of fee-charging schools would be retained, but they would no longer be considered charities. This has its attractions, not least in removing the confusion and controversy surrounding the charitable status of private schools but is radical and we have not been able to take evidence on the full implications. There are also considerable definitional problems in determining which schools and hospitals should be removed: for example, how should a fee-paying school for children with special educational needs be dealt with? Furthermore, a solution which leaves independent schools in the charity sector and encourages them to make charitable contributions to the community may have something to recommend it. Nonetheless we believe that the Government should consider reviewing the charitable status of independent schools and hospitals with a view to considering whether the best long term solution might lie in those organisations ceasing to be charities but receiving favourable tax treatment in exchange for clear demonstration of quantified public benefits.

96. Short of this radical proposal we have considered a number of possible alternative solutions for resolving the uncertainty about how the public benefit test will work for all charities:

a) to include a definition of public benefit in the Bill

b) to include non-exclusive criteria for assessing public benefit in the Bill

c) to include a provision for the Home Secretary to issue non-binding statutory guidance

d) for the explanatory notes with the Bill (which may be cited in court when interpreting the legislation) to set out the Government's intention in removing the presumption of public benefit.

97. We have commissioned from one of our specialist advisers, Professor Jean Warburton, an illustrative definition of public benefit which could be set out on the face of the Bill. This appears in the box below. But the majority view of those who gave evidence to us was that to have a definition of public benefit entrenched in statute would create inflexibility in an area where charity law needs to move with the times.[117] It would also, as the Charity Law Association pointed out, introduce uncertainty as to how that definition would be interpreted in practice.[118] The NCVO, for example, were strongly in favour of leaving the detailed definition of public benefit to the courts:

"We are pleased that clause 3(3) of the draft Bill states that public benefit will continue to be determined by reference to common law; this will ensure that the law has the flexibility both to accommodate the diversity of the sector and to evolve over time. It also ensures that the definition of public benefit remains free from political interference".[119]

A possible statutory definition of the 'public benefit' test
(1) The section applies in connection with the requirement in section 2(1)(b) that a purpose falling within section 2(2) must be for the public benefit if it is to be a charitable purpose.
(2) The requirement is satisfied if, and only if, the following three conditions are complied with:
a)  the purpose is intended to provide benefit [in the sense of common good or social value]: and
b)  the purpose is directed to the public or a sufficient section of it; and
c)  any private benefit is incidental to the purpose and reasonable.
(3) In determining whether the requirement is satisfied in relation to any such purpose, it is not to be presumed that a purpose of a particular description is for the public benefit.
(4) Subject to subsection (3), the three separate conditions in subsection (2) are to be interpreted in the context of the public benefit as that term is understood for the purposes of the law relating to charities in England and Wales.

98. As for the inclusion of non-exclusive criteria in the Bill, the Charity Commission told us they thought this would be an acceptable solution.[120] However, the Minister told us:

"…we should not put the criteria on the face of the Bill. I think even having non exclusive criteria on the Bill has some substantial risks in it. I think the idea of non-statutory guidance agreed between the Home Office and the Charity Commission might be one of the kinds of ways forward to get beyond the points that people have raised here because we are not trying to increase confusion… If a mechanism which provides more clear understanding of how that can work through the form of something like non-statutory guidance might be a sensible way forward I think that would be helpful".[121]

99. We have not received evidence specifically on the merits of having statutory guidance from the Home Office on the definition of public benefit. We understand that this would mean guidance issued by ministers which would be binding on the Charity Commission.[122] It could be subject to parliamentary approval. Of the options we are considering for a more explicit definition of public benefit under statute law, this is the one which gives most flexibility. But it carries the risk of leaving the way open to periodic interference by the government in the definition of what is charitable.

100. We have also considered whether the explanatory notes with the Bill should be clearer about the consequences of removing the presumption of public benefit. The relevant section of the current explanatory notes gives no clue about the intended consequences. As we have already noted, the Minister has told us that the removal of the presumption is intended to have an impact.[123]

101. We conclude that while a detailed statutory definition of public benefit would be too inflexible, nonetheless that there is a need for a more explicit definition of public benefit in connection with the Bill.

102. We therefore recommend that the basic principles for a definition of public benefit should be those set out in the recent concordant between the Home Office and the Charity Commission (as in the box after paragraph 78) and that those principles should be replicated either in non-exclusive criteria included in the Bill or in non-binding statutory guidance issued by the Secretary of State.

Loss of charitable status

103. It is a possible consequence of the Charity Commission carrying out checks on the public benefit requirement that a small number of institutions will lose charitable status. Wilsons noted that the draft Bill did not deal with the question of what happens to the assets of charities which lose their charitable status and that this was a matter of concern to those charities potentially subject to public benefit checks.[124] Bates, Wells & Braithwaite similarly sought clarity in the draft Bill as to what would happen to the assets of institutions which are no longer charities.[125]

104. It is established law that property held by unincorporated charities or on trust when charitable status is lost is applied cy-pres, i.e. directed to be used for the next nearest charitable purpose. The law in relation to the corporate property of charitable companies that lose charitable status is not settled. It is arguable that such property can continue to be held by the company after it ceases to be a charity and not used for other charitable purposes.[126]

105. We recommend that the real Bill include provisions to clarify the effect of the loss of charitable status on the assets of a charity. The Government should consider whether the Bill should contain provisions enabling the Charity Commission to agree that trustees in such circumstances can elect to retain their assets and continue to run the organisation, as a not-for-profit organisation without charitable status, for the original purposes.

78 Private Action, Public Benefit; September 2002, para 4 Back

79 Private Action, Public Benefit, September 2002, paras 4.5-4.7 Back

80 See p198 Back

81 Private Action, Public Benefit, September 2002, paras 4.8 and 4.9 Back

82 Private Action, Public Benefit, September 2002, para 4.18 Back

83 Private Action, Public Benefit, September 2002, para 4.10 Back

84 The Review was not perfectly clear on what it meant by public character but the key characteristics and the identification with public benefit are discussed at Private Action, Public Benefit, September 2002, para 4.18 Back

85 Private Action, Public Benefit, September 2002, para 4.26 Back

86 Private Action, Public Benefit, September 2002, para 4.18 Back

87 Charities and Not-for-Profits: A Modern Legal Framework, para 3.12 Back

88 Charities and Not-for-Profits: A Modern Legal Framework, para 3.16 Back

89 Explanatory Notes, p105 Back