Memorandum from Charities Advisory Trust
(DCH 187)
GENERAL COMMENTS
ON THE
QUESTIONS POSED
BY THE
JOINT COMMITTEE
ON THE
CHARITY BILL
In our opinion the Bill will neither improve
nor detract from public confidence in charities. It will not encourage
giving or volunteering.
We wish to comment specifically on three aspects
of the Bill:
— Firstly—the new definition
of charity.
— Secondly—the un-workability
of the regulations on fundraising.
— Thirdly—the issue of trading
by charities.
NEW DEFINITION
OF CHARITY
We are concerned that the phrase "public
benefit" is too vague, and subjective and may lead to a great
deal of litigation. It cannot be argued that commonsense will
prevail: it is always the zealots, and those with vested interests
who have time for litigation.
Hitler claimed his policies were for public
benefit, as do suicide bombers. What is to stop an individual
bringing a case to prevent any charity helping individuals in
Israel, on the grounds that anything that helped the survival
of the State of Israel was against public benefit? Or those who
believe aid to Zimbabwe bolsters the regime they abhor, so should
be stopped on the grounds of public benefit?
Whilst the looseness of the definition neatly
sidesteps the removal of charity status from public schools and
hospitals, but it opens up a can of worms. It would be better
to remove the charitable status from private schools and hospitals,
on the grounds that they bring no public benefit, rather than
get into prolonged litigation on what will be enough to get them
through the public benefit test (50% of free places? Use of the
playing fields for two evenings a week?). We believe public schools
and private hospitals, to which access is restricted by the ability
to pay, harm society.
The exemption from tax means that society suffers.
Either the rest of the population have to pay higher taxes, or
there is a reduction in services. Since the rich enjoy the benefits
of these two types of institution disproportionately, the State
is giving institutional support to inequality. This is surely
against public benefit in the contemporary state (it is suitable
in oligarchic societies, not modern day democracies).
I would argue that it is undesirable for a cohesive
society, for children to be educated in schools with equal access.
There may be different types of school, to suit different types
of children, but not on the basis of parental ability to pay.
If parents choose to educate privately they should not be subsidised
to do so by the general taxpayers.
The provision of "private hospitals"
has the effect of robbing the health service of staff, whose costly
training is undertaken at the state's expense. If people want
private medicine they should pay its true cost, and not be subsidised
by the general taxpayer.
Charity is, in the public mind, there to help
the poor and needy. As it functions today it is being exploited
to subsidise the rich. The introduction of the notion of public
benefit is welcome, though its imprecision seems to open the floodgates
to legal dispute. Those with vested interests in the status
quo will put up the strongest resistance—and this will
be at taxpayer's expense.
UN-WORKABILITY
OF THE
REGULATIONS ON
FUNDRAISING: (CLAUSE
35; 1-4)
The change in the regulations on fundraising
and commercial participation will make no difference without provision
for enforcement.
Every year we flag up the breaches—Christmas
cards purporting to be sold in aid of charity lack any information
as to the amount going to charity. We tell the Charity Commission—they
can write to the benefiting charity, but cannot enforce. Trading
standards officers feel powerless. The police have other ways
to spend their time.
Let us have clear lines of responsibility for
enforcement, otherwise do not bother to regulate. If people can
break the law with impunity it encourages bad behaviour.
ISSUE OF
TRADING BY
CHARITIES
We were relieved that the Bill did not extend
the powers of charities to trade. We repeat here our arguments
for not allowing charities to trade (except in pursuit of their
primary purpose):
"There is firm, factual information on trading
by charities. The Charities Advisory Trust's `Charity Trading:
a statistical analysis' shows that trading income rarely produces
significant income for charities. There is evidence that there
have been quite substantial losses through trading. Figures for
1995-2000 (incl) show trading income as a proportion of income
for the top 200 charities, by income, was on average less than
.25%. Ten per cent of charities made losses."
"Currently, charities trade through a subsidiary
company. The tax concession available to them would be available
to any company, which donated its profits to charity. By allowing
tax concessions enjoyed by charity to include trading, creates
a privileged status, far from the level playing field that the
EU requires.
There has been considerable hullabaloo around
the preferential treatment on rates, VAT and tax of charity shops
selling donated goods. Imagine the, justified, outcry if charities
do get concessions when selling like for like items.
The device of the wholly owned trading company
has much merit. It isolates the trading activity so it is easier
to see if it is profitable or loss-making. Investment (subsidy)
in trading is easier to identify. Before the new SORP, there were
many instances of charities trading very substantially, say in
excess of £1 million, within the charity, and in many cases
the true trading costs were not identified.
It would be regressive to return to this situation.
Our experience in analysing charity trading accounts is that when
charities trade without using a separate trading company, costs
are not fully apportioned to the trading activity, so that the
profit levels are artificially enhanced. SORP and the arms-length
trading company have given charity funds greater protection.
Recommendation: trading subsidiaries be
retained."
We would like to share with the committee our
concern that the Government's gung-ho approach to social enterprise,
is encouraging charities to risk/waste charitable funds on activities
they claim to be primary purpose trading.
We have come across instances of charities seeking
funding from charitable trusts for activities that should, and
could, be structured to cover costs. Charities use their ability
to attract subsidy as a soft option. We believe this will bring
charities into disrepute, deservedly. We are happy to give specific
examples if requested.
IN CONCLUSION
We would like to draw the committee's attention
to the fact that the Government's many initiatives to support
the sector infrastructure, and the increased funding available
to the sector from Government and lottery sources, has coincided
with a fall in charitable giving.
June 2004
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