Memorandum from the University of Cambridge
(DCH 308)[157]
INTRODUCTION
1. The University of Cambridge is a common
law corporation which exists as a place of education, religion,
learning and research. It is authorised by the Lord Chancellor
to act in relation to charitable, ecclesiastical and public trusts
as a trust corporation. It is an exempt charity pursuant to the
Charities Act 1993, sections 3 and 96, Schedule 2, paragraph (b).
COMPLIANCE OBJECTIVE
2. The University notes that, in its report
"Private Action, Public Benefit" (September 2002), the
Prime Minister's Strategy Unit proposed that the "main regulators"
of exempt charities, such as universities, should "assess
compliance with charity law as part of their usual monitoring
processes". The Strategy Unit stated that the aim would be
to introduce the requirement to abide by charity law principles
"with a light touch, using existing forms and reporting mechanisms,
so as to minimise any additional regulatory burden". Moreover,
in its response, "Charities and Not-for-Profits: A Modern
Legal Framework" (July 2003), the Government recognised that
universities are already highly regulated, referring to the conclusion
of The Better Regulation Task Force in 2002 that higher education
institutions were in some respects overburdened with bureaucracy.
3. The University contends that the proposed
objective of principal regulators to "increase" compliance
by trustees of exempt charities (clause 11(3) of the draft Charities
Bill) is at odds with the stated aim of the Strategy Unit. The
use of the word "increase" implies that current state
of compliance on the part of exempt charities is generally inadequate,
when there is no evidence to support this. In addition, it would
impose a constant and unwelcome duty on the part of principal
regulators to obtain progressively greater compliance. It would
necessarily oblige a principal regulator continuously to disturb
the existing level of compliance on the part of an exempt charity,
whether or not that level is regarded at any one time as adequate.
4. The University proposes that the word
"increase" in clause 11(3) of the draft Charities Bill
be replaced with the word "assess" (adopting the specific
wording of the proposal of the Strategy Unit report, paragraph
7.94). Alternatively, the word "promote" (cf section
1 of the Charities Act 1993) would seem better to reflect the
intentions of the Strategy Unit, as well as to address the concerns
of the Government and of higher education institutions themselves
with regard to increased regulatory burden.
CHARITABLE PURPOSE
5. The University welcomes the proposed
inclusion of the "advancement of education" within the
statutory definition of "charitable purpose".
6. In this context, the University notes
the reference in the Charity Commission's "Commentary on
the Descriptions of Charitable Purposes" (16 June 2004) to
the "advancement of education" as covering "education,
training and research in specific areas of study and expertise,
and broader education in the development of individual capabilities,
competencies, skills and understanding".
7. The University draws attention to the
introduction in 1999 of a specific stream of Government funding
to support knowledge transfer in the university sector, as a complement
to the traditional priorities of teaching and research. The Government
has more recently announced that it will consolidate this funding
as a permanent third stream of financial support for universities
and the Lambert Review of Business-University Collaboration (Final
Report, December 2003) recommended the continuation of this investment.
Third stream activities encompass a broad range of interaction
between universities and business—from collaborations with
SMEs through to contract research, licensing and spinouts.
8. In light of the official recognition
and encouragement of third stream activities as a legitimate and
proper endeavour within the higher education sector, the University
proposes that knowledge transfer in its widest sense be expressly
recognised as falling within the "advancement of education"
as a charitable purpose or that it be specified as a charitable
purpose in its own right.
TRADING ACTIVITY
9. The University regrets that the Strategy
Unit's recommendation to enable charities to undertake trading
activity (beyond that which is in pursuit of its charitable objectives
and subject to a specific statutory duty of care and appropriate
amendments to tax legislation) has not been adopted in the draft
Charities Bill. Allowing trading within charitable entities would
have removed a significant administrative burden placed by the
requirement to establish trading subsidiaries. The University
believes that a provision to the effect of the Strategy Unit's
recommendation would provide it and other charities with a welcome
degree of flexibility as to their arrangement for income-generating
activity and would facilitate the diversification of revenue streams.
The University notes that the recommendation was supported by
the overwhelming majority of respondents to the Government's public
consultation process.
10. The University believes that the Government's
concerns with regard to unfair competition, arising from the tax
advantages enjoyed by charities, are misplaced. The Strategy Unit's
recommendation would do no more than give direct effect to what
the vast majority of charities already in practice achieve through
the cumbersome structures of trading subsidiaries donating their
profits. The University accordingly proposes that the Strategy
Unit's recommendation (4.47) with regard to trading companies
be adopted in full.
11. If tax-free trading within a charity
is not acceptable, an alternative would be to allow non primary
purpose trading within a charity to take place, subject to the
normal tax regime applying above the existing tax exempt threshold,
or preferably a higher threshold (in the region of a profit level
of, say, £100,000). The purpose of this would be to allow
charities to undertake activities which are either small in scale
or do not generate significant profits, such that any tax liability
will be less than the administrative costs of undertaking the
activity through a subsidiary company.
12. This is particularly germane to the
university sector where, because of the breadth of expertise within
each institution, it is commonplace to find a wide range of small
scale trading activity, none of which generates a significant
profit, but which would incur disproportionate expense, if they
were all to be transferred to a subsidiary. In many cases, the
additional expense of the subsidiary, along with the requirement
on the charity under transfer pricing rules to identify and recharge
(at cost recovery level) those costs incurred in the charity,
would consume the small profits derived from each individual activity.
Individual charitable institutions should therefore be free at
least to decide whether it is more cost effective to trade within
the charity and incur a small tax charge or to incur the administrative
costs of transferring activity to a subsidiary.
July 2004
157 This submission was supported by the Conference
of Colleges of Oxford University. Back
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