Memorandum from Stone King, Solicitors
of Bath and London (DCH 86)
A. INTRODUCTION
As solicitors acting for a large number of charities—from
small start-ups to the Top 3,000, exempt and non-exempt, grant-making
and service providing—we broadly welcome the Bill, the provisions
of which have been trailed by the Strategy Unit and Government
and put out to extensive consultation. Our comments below are
therefore inevitably negative in tone in that they concentrate
on those clauses which we fear would either be unworkable or would
not enhance the efficient operation of charities.
B. JOINT COMMITTEE'S
THEMES
Before commenting on specific clauses which
concern us, we would like to comment on the Bill in relation to
the Scrutiny's Committee's stated themes:
1. Does the draft Bill strike the right balance
between flexibility and accountability? How can the danger of
over-regulation be avoided? How will this affect smaller voluntary-run
charities?
There is a danger of under-involvement rather
than over-regulation by the Charity Commission, in that the huge
majority of "smaller charities" could be left without
advice or guidance from the Charity Commission if the Commission
took literally its objective of social and economic impact. Unchecked,
might the Commission become the Top 1,000 Charities Commission?!
There are of course worries about the new powers of the Commission
(eg to enter premises and remove documents) but the Commission
can in our experience be called to account.
2. Will the Bill improve public confidence
in charities? Will it encourage more giving and volunteering?
We believe the Bill of itself will neither improve
public confidence in charities nor encourage more giving and volunteering,
but it may help to prevent the development of a climate in which
abuse can occur and we are pleased that trustees who, without
being aware of it, had fallen into breach of trust, could obtain
relief from liability.
3. Are the 12 new charitable purposes the
draft Bill proposes for a charity satisfactory—should there
be additions or deletions? Is the phrase "public benefit"
best left undefined in the Bill? Do fee-paying schools which are
charities demonstrate adequate public benefit arising from their
activities?
The range of organisations seeking charitable
status has outgrown the four heads of charity and the change to
12 heads is sensible provided that the Commission is not restrictive
in it interpretation and takes the "analogous purposes"
seriously in developing the law. We believe "public benefit"
is best left to the Courts, the Charity Commission and, effectively,
to the Appeals Tribunal to define and develop. From our experience
independent schools and hospitals probably do demonstrate adequate
public benefit, but this must be answered on an individual basis.
4. Are there aspects of the draft Bill which
would permit the charity and voluntary sector to play a greater
role in the delivery of public services if they wished to do so?
Not really, but the Bill does not appear to
prevent the sector from doing so.
5. What are the likely benefits and costs
of the draft Bill? What level of funding will be necessary for
the Charity Commission to carry out its additional tasks effectively?
The likely benefits are an increased ability
to target faults, the introduction of the CIO and increased flexibility
in the evolution of charities. We are not aware of the Commission's
funding arrangements but it would worry us if they were not sufficiently
funded to continue to assist small charities.
6. Is it right that the draft Bill does not
include the recommendation in the Strategy Unit consultation paper,
Private Action, Public Benefit, that charities should be allowed
to trade as part of their normal activities without the need to
set up a trading company?
Yes, because of the need for discipline to separate
charity & trading money, otherwise the trading company could
wag the tail of the proverbial dog.
7. Are the proposals to regulate fund-raising
workable?
We are doubtful whether local authorities will
consider the proposals workable because of the extra cost in issuing
certificates of fitness and permits to collect.
8. Are the specific proposals in the draft
Bill (such as the new corporate legal form, the Charitable Incorporated
Organisation) adequate, workable and beneficial?
The CIO is definitely beneficial, although we
would like to see confirmation from the Commission that it does
intend to register small CIOs. The Commission will need to be
equipped to act in its CIO registration role; the efficiency of
the Companies Registry is a good benchmark for the Commission.
C. COMMENTS ON
INDIVIDUAL CLAUSES
1. Clause 2—meaning of charitable purpose
We do have a concern that the Charity Commission
might tend towards the dogmatic in its approach to the registration
of charities which are at the "cutting edge". We must
ensure that the Commission will consider novel purposes with an
open mind.
Once the human rights issue referred to in the
Explanatory Notes regarding the Recreational Charities Act 1958
has been resolved, we would like to see the provisions of the
1958 Act consolidated with the Charities Bill.
2. Clause 4—The Charity Commission
We are uncomfortable with the third regulatory
objective stated as the new section 1B(2)(3) (social and economic
impact). Whilst we recognise that this is a worthy objective for
the Charity Commission as a department of government, it will
inevitably colour the Charity Commission's judgement in relation
to constitutional changes and operational decisions of charities
under review or investigation. (See also clauses 12(3) and 15(3)(c)).
This introduces an additional element of charitable status which
is present in neither the definition of charity in clause 1 nor
the definition of charitable purpose in clause 2.
In the new section 1D(2)(2) (the Charity Commission's
general duties) there is an implication that the Commission should
not be concerned with small charities. The Commission must not
abdicate its responsibilities towards small charities under the
auspices of conserving its resources.
3. Clause 7—registration of charities
We are happy with the new section 3A(2)(d) (registration
of charities) and the compulsory registration threshold of £5,000.
However, we are concerned that the public should still appreciate
that unregistered charities are nevertheless charities.
4. Clause 11—general duty of principal
regulator in relation to exempt charity
We would like to see included an obligation
on the Commission to monitor principal regulators' compliance
with this clause and take charity law much more seriously.
5. Clause 12—application of cy-pre"s
by reference to circumstances
The restriction of "appropriate considerations"
to the spirit of the gift and social and economic circumstances
is too narrow. Other circumstances may be relevant, for example
legal, scientific or technological developments. For instance,
charities for the advancement of learning in certain sciences
can be dramatically affected by the emergence of new learning,
rendering their objects outmoded or even obsolete. Also, advances
in medical science or methodologies do not seem to come within
the scope of social or economic changes but may require charity
objects to be amended.
6. Clause 14—application cy-pre"s
of gifts made in response to certain solicitations
The requirement in the new section 14A(2)(b)
that an appeal for funds must be accompanied by a statement that
property given will be applicable cy-pre"s if the stated
purposes fail unless the donor makes a "relevant declaration"
creates an unnecessary confusion for donors who are unlikely to
understand the concept of "cy-pre"s". The statements
usually employed in appeals are currently adequate for cy-pre"s
purposes—for example: "This appeal is to raise funds
for X Hospital for its proposed maternity wing. If for any reason
this project does not go ahead, your donation will be applied
for other charitable purposes at Hospital X."
The provision for repayment would in our view
disapply Gift Aid and could therefore be a disincentive to charitable
giving.
The wording "significant social and economic
impact" in the new section 14B(3)(c) is too narrow and it
would be better to say "make a more effective use of its
resources". As mentioned before, we do have a concern about
the reference to social and economic impact.
7. Clause 20—power to give advice and
guidance
We think it is a useful addition, as set out
in the new section 29(6), that the Charity Commission can give
advice or guidance relating to a class of charities or charities
generally. However, our concern is that if the Commission publishes
advice on its website which applies to a class of charities, it
must be made clear that this is advice provided under section
29, because at law charities are protected if they follow such
section 29 advice.
8. Clause 27—remuneration of trustees
etc providing services to charity
Condition C set out in the new section 73A(5)
is convoluted and is likely to be unhelpful to charities with
a small number of trustees. We feel it would be better to use
the wording already used by the Charity Law Association in its
model documents, namely that "no more than [number or proportion
up to one half] of the Trustees are interested in such a contract
in any financial year".
Goods supplied appear to be linked in the Bill
to the provision of services. Goods supplied by a trustee with
no link to the provision of a service could be equally beneficial—for
example, a charity trustee who owns a DIY shop providing materials
to the charity at cost price. We would like to see the supply
of goods by Trustees being given equal status to the supply of
services.
9. Clause 28—disqualification of trustee
receiving remuneration by virtue of section 27
We are extremely concerned that the new section
73C(4) turns a trustee, who, for example, forgets to leave the
room whilst his remuneration is being discussed, into a potential
criminal with the penalties set out in that section. We believe
the existing law is adequate in the breach of trust provisions
and the new section is disproportionate to the mischief it seeks
to remedy.
10. Clause 30—power to transfer all
property
The use of the word "designated" to
refer to special trust land may be confusing to charities and
their accountants. The word "designated" is often used
in charity accounts to show funds which have been set aside at
the trustees' discretion, for example as a building repairs fund.
The procedures set out in this section for an
unincorporated charity to pass a resolution to transfer its property
seem convoluted. Would not the administration be made easier if
a draft resolution were sent to the Commission for it to approve
in 60 days which would then enable the trustees to pass the resolution
as approved?
11. Clause 33—power to spend capital
Similar comments apply here to the use of the
word "designated".
We think that the decision to exclude land held
on special trusts is unequitable in that a charity should not
be precluded from spending any of its capital simply because it
holds some land on special trusts. An alternative could be to
allow a charity to spend capital other than such land.
Permanent endowment was developed by the Courts—and
perhaps by some benefactors—to protect charities by preventing
the spending of their capital base, but charities are now accountable
through substantial legislation policed by the Charity Commission
and do not in our view need the fetters of permanent endowment
as well. We believe that permanent endowment has often been created
accidentally by donors. We consider that the presumption of the
existence of permanent endowment in the Charities Act 1993 should
be turned on its head so that the presumption becomes that it
should not exist unless it has been expressly requested by the
donor.
We would also like to see some mention of the
total return approach to investments in this clause; the concept
is after all supported by the Charity Commission.
12. Clause 34—merger of charities
We welcome the provisions that gifts which take
effect after the registered termination date take effect as a
gift to the transferee. However, we feel these provisions should
apply equally to incorporation of existing unincorporated charities
(eg as CIOs, Royal Charter corporations or companies limited by
guarantee) to ensure consistency.
13. Clause 40—certificates of fitness
The Scrutiny Committee might wish to ask whether
local authorities will have the resources to issue certificates
of fitness and permits to collect. If they do not, public charitable
collections will become an expensive nightmare for all concerned.
For example, do the inquiries the local authority has to make
under the new section 66E (determination of applications and issue
of certificates) include Criminal Records Bureau checks—if
so, this could deter small-scale voluntary fundraising.
14. Schedule 6—charitable incorporated
organisations
We feel that the use of the word "amalgamation"
should be changed to "merger" to make it consistent
with the rest of the Act. We also have a concern that the Charity
Commission has insufficient resources to run a registration service
for CIOs to a standard equivalent to Companies House.
15. Grammar
The Charity Commission is referred to inconsistently
throughout the draft Bill in that it takes both the singular and
the plural tense. It should be singular in its new form.
June 2004
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