Memorandum from BTCV (DCH 120)
SUMMARY
THE JOINT
COMMITTEE'S
THEMES
1 Flexibility/Accountability, Over Regulation,
Small Charities
2 Public Confidence, Giving and Volunteering
3 Charity Purposes, Public Benefit, Schools
4 Delivery of Public Services
5 Benefits/Costs, Funding the Commission
6 Trading
7 Fund Raising
8 Charitable Incorporated Organisation
OTHER POINTS
ARISING FROM
THE DRAFT
BILL
9 Amending Act
10 Section 18 Charities Act 1993
11 Role of Attorney General
12 Section 5—The Commission's Objectives
13 Section 6—Tribunal
14 Section 7—Registration
15 Section 9—Exempt Charities
16 Section 16—Power to Direct re Protection
17 Section 17—Power to Direct re Property
18 Section 21—Power to Enter Premises
19 Schedule 1—Appointment of Members of
the Commission
20 General Duty of the Charity Commission.
THE JOINT
COMMITTEE'S
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?
1.1 The balance between flexibility and
accountability within the draft Bill is broadly right. But we
think there are many areas within the draft which could be improved
and a small number of important issues which need serious re-examination.
1.2 The danger of over-regulation can be
easily avoided—regulate less! We do, however, defend the
need for strong regulation of the charity sector. Charity is very
important to society and it is in the public interest that this
most respected brand should have effective protection from real
charlatans. For this reason we support a strong Charity Commission
generally. However, we see that the Charity Commission sometimes
uses its existing extensive powers to abuse charities and trustees
who are doing their competent and honest best. When this happens
there is effectively nowhere to appeal. The idea that trustees
can effectively challenge the Commission in the High Court is
laughable. Only if Parliament provides an accessible and effective
means of appeal against the Commission's decisions and actions
will BTCV support any extension of its existing powers. By "accessible
and effective" we mean quick, cheap and simple, with the
power to not only reverse all judicial Commission decisions but
the power to award compensation where the Commission's interference
has been destructive.
1.3 Over-regulation of the sector comes
primarily from the Charity Commission rather than from Parliament
and providing effective statutory redress against occasional over-zealous,
bullying and unforgiving behaviour by the Regulator will be the
most effective way Parliament can avoid over-regulation. The Commission's
interpretation of existing charity law resembles the counting
of angels on the heads of pins. No doubt it keeps a lot of lawyers
in employment. In the CC series of advisory publications the Commission
uses the word "must" with precision to indicate what
they require of charity trustees if they are to avoid the wrath
of the Regulator. They use this word six hundred times in that
series of publications alone, which does not include the SORP.
We do not believe that there is a small or large charity in the
land which is always in compliance with all these requirements
or a single trustee who knows them all.
1.4 Smaller, voluntary-run charities don't
need more regulation. It is very obvious that the smaller a charity
the lighter must be the touch of statutory and regulatory requirement.
Very many people in the early years of experiencing charity trusteeship
can be easily intimidated by having their full legal responsibilities
and potential liabilities explained to them. Almost invariably
trustees are well motivated ordinary people doing their honest
best to serve their communities and coping with the complexities
of running their charities. Heavy handed regulation will cause
many more to refuse to serve than already do so. Broadly we think
the draft Bill gets the balance about right for small charities
but we also think that the Strategy Unit's threshold of registration
at £10,000 is more sensible than the £5,000 proposed
in the draft. We recommend the registration threshold be set at
£10,000.
2. Will the Bill improve public confidence
in charities? Will it encourage more giving and volunteering?
2.1 We think the Bill will overall contribute
towards improving public confidence in charities with resultant
encouragement to giving and volunteering. But we think there is
a serious weakness in the apparent failure to recognise that public
confidence in charities is linked to public and charity confidence
in the Charity Commission. And of the three duties of the Commission
(registration, advice and enforcement) there is almost no reform
of the least satisfactory area—enforcement. Indeed the Draft
Bill merely proposes to hand even more power to a part of the
Commission whose exercise of its existing powers is too often
lacking. This risks undermining the otherwise broad benefits the
Bill will bring.
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?
3.1 We support the proposed 12 heads of
charitable purposes. They will help eliminate some ancient obstacles
to the development of charity. We are particularly pleased to
see that environmental conservation is to be specifically recognised.
3.2 We feel passionately that public benefit
should not be defined statutorily, and even more passionately
that it should not be defined by the government of the day. It
should be left where it has always been—with the courts.
But the one objection to this is that the courts are beyond the
reach of most start-up charities and most decisions on registration
and charitable purposes are made in practice by a very conservative
Charity Commission which thereby tends to hold back the development
of charity in society. We can see that the proposed tribunal will
provide an accessible appeal against the Commission on matters
of registration and we support this. But it will not create case
precedents and there is a powerful argument for a suitors' fund
for when the Commission appeal to the High Court from the Tribunal.
3.3 We therefore propose that the Joint
Committee re-instate the proposed suitor's fund to pay for cases
of public interest to be taken to the courts. This need was acknowledged
(6.25) in the government's publication "Charities and Not-for-Profits:
A Modern Legal Framework". We recommend the establishment
of a suitor's fund under the control of the Tribunal within the
Bill.
3.4 We are not expert in the area of fee-paying
schools but believe they can demonstrate considerable public benefit.
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?
4.1 Not that we have noticed! But then we
don't think it is the purpose of this Bill to make such arrangements.
That is a matter for individual charities and government agencies
and there is no obstacle in statute of which we have been aware.
We have extensive experience of contracting with a wide range
of central and local government agencies.
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?
5.1 We don't think that we, or charities
in general, can answer the question about likely costs for the
Commission associated with the Bill except to say that we are
certain these costs will be trivial compared to the cost of not
regulating the sector responsibly. We do not think that the Bill
will require much increase, if any, in the Commission's budget.
Not even our proposal here that the tribunal should have the power
to award compensation will significantly affect the Commission's
budget as we believe that such a power will quickly curb the Commission's
excessive behaviour.
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?
6.1 We think the government and the draft
Bill are wrong in this matter and we recommend the Joint Committee
to re-consider it. In 3.34 of "Charities and Not-for-Profits:
A Modern Legal Framework" the government rejected unlimited
trading by charities on the grounds that it would be unfair competition
to commercial enterprises (because charities pay no corporation
tax and receive business rate relief) and because statutory exemptions
and concessions for tax "relieve smaller charities of any
administrative burden in conducting modest trading activity".
6.2 In defending the "level playing
field" with commercial businesses the government is referring
only to the field of taxation. Everywhere else the field is anything
but level. Commerce has greater access to loan funds, the driving
force of an owner/entrepreneur, and boards of paid directors.
Charities have the use of volunteers and a moral appeal to the
public. Hardly a level playing field!
6.3 Even between charities the field is
heavily contoured. The charity Marie Stopes International could
sell condoms by the gross, making a very large profit, as this
would also serve their charitable objects and hence be "prime
purpose" trading. But BTCV could not do this because for
us it would not be prime purpose trading but solely fund raising.
We would have to put such trading into a subsidiary trading company
with all the associated extra accountancy, governance and compliance
costs.
6.4 The government says that the statutory
exemptions and concessions for tax available to small charities
relieve them of the administrative burden of subsidiary trading
companies. This is true as far as it goes. But there's a yawning
gap between the exemptions/concessions and the scale of operation
which justifies a trading company. The existing arrangements are
a serious impediment to small charities growing into big ones
by making them even more dependent on government and other short
term funding.
6.5 Charities are already allowed to trade
on an unlimited scale for prime purposes and for non prime purposes
through a trading company. But this latter arrangement is merely
an artificial impediment to the successful development and independence
of charities. The fact is that any charity can already trade on
any scale (if necessary through a subsidiary)—but the sector
is currently lumbered with this piece of unnecessary red tape.
7. Are the proposals to regulate fund-raising
workable?
7.1 There are many other organisations far
better able than ourselves to advise you on this matter.
8. Are the specific proposals in the
draft Bill (such as the new corporate legal form, the Charitable
Incorporated Organisation) adequate, workable and beneficial?
8.1 We greatly welcome the new CIO form
and regard it as eminently workable. But we remain concerned at
the government's intention to review it in three years which,
in our opinion is too soon for proper evaluation. We are even
more concerned at the implied threat that all corporate charities
will then be forced to adopt this legal form whether it is good
for them or not. We think it essential that the CIO should have
both membership and non-membership forms.
OTHER POINTS
ARISING FROM
THE DRAFT
BILL
9. An Amending Act
9.1 Our one overarching reservation is that
it appears that the new Act will be an amending Act to the 1993
Act. If this is so and there is to be no Act of consolidation
it will make charity law much less accessible to the very people
(trustees) who are supposed to know and observe this law. We believe
that it is already the case that most charity trustees, especially
in smaller charities, have only a poor understanding of charity
law. We recommend the Joint Committee to either alter the draft
Bill to replace the 1993 Act or press for a consolidating Act
after this one is law.
10. Section 18 1993 Charities Act—Receiver
and Manager
10.1 We are disappointed that the draft
Bill does not propose any changes to this section. We have observed
how the Charity Commission sometimes puts a Receiver and Manager
into a well run charity which has innocently broken a rule and
merely needs a little guidance to overcome the problem. Instead
of offering that guidance under section 8 of the 1993 Act at a
cost to the Commission of thousands or tens of thousands of pounds,
the Commission will appoint a Receiver and Manager who may take
months or years to solve a minor problem, costing the charity
tens or hundreds of thousands of pounds and causing collateral
damage which can run into millions of pounds and sometimes cause
the unnecessary destruction of the charity.
10.2 We believe the Commission do this because
it saves a little on their budget and because it adds to the total
of charity funds the Commission has "protected" when
it comes to justify itself to the Public Accounts Committee. We
recommend that the Joint Committee amend the draft Bill to stop
this abuse by requiring the Commission to pay the costs of Receiver
and Managers and any other consultants they use. We do not believe
this will have significant impact on the Commission's budget because
costs will fall dramatically once the Commission has an incentive
to put an end to this gravy train.
10.3 We further recommend that section 18
of the Draft Bill be amended to place a duty on the Commission
to have due regard to the interests of the donors and the beneficiaries.
At present there is only a duty towards the material assets of
the charity. The human assets are routinely ignored and, as a
result, sometimes abused.
11. The Role of the Attorney General
11.1 The role of the Attorney General is
confusing. He is presented as a "protector of charity"
but our perception is that he is a protector of the Charity Commission
against the legitimate complaints of some charities and trustees.
We wondered if our lack of comprehension was due to our lack of
knowledge and so we consulted with senior figures in charity law.
Apparently our perception is similar to theirs. The role of the
Attorney General seems to be a historic hangover, and no-one wants
to mention to the emperor that he has forgotten to get dressed.
Now that we are to have a powerful Charity Commission with an
accessible tribunal and a back stop in the High Court we see no
purpose in involving the Attorney General in charity matters for
which his office seems to have no expertise. We recommend that
the Joint Committee redraft the Bill to eliminate the Attorney
General's role.
12. Section 5—The Commission's
Objectives, General Functions and Duties
12.1 1B—The Commission's Regulatory
Objects
12.1.1 In (3) 3. the Commission are to be
given an object to effectively impose on charities the requirement
that they "maximise their social and economic impact".
This is to attempt to force on charities generally the delivery
of the current government's own policies, contrary to the objects
of charities themselves. It is a back door attempt to subvert
charity to the purposes of government. They are not there to do
that and any attempt to do so will, we believe, lead to a progressive
and massive loss of public confidence in charities. By seeking
a short term gain, this small phrase will do more to undermine
the long term public confidence in charity, with its concomitant
giving and volunteering, than anything else in the Draft Bill.
12.1.2 For example, charities which own
or protect nature reserves or fine landscape are generally and
rightly opposed to any development with "economic impact"
and are not in the business of social benefit. Are they to be
forced to build housing estates on the land and run creches for
single parents? Does the Charity Commission know anything about
"social and economic impact"? We think not.
12.1.3 We recommend this objective be omitted
and likewise section 15 Cy-pre"s Schemes 14B (3) (c) should
also be omitted.
13. Section 6—The Charity Appeal
Tribunal
13.1 We welcome the proposed tribunal and
the proposal that the Commission shall answer for its own actions.
But we do not think this goes far enough. Unless the following
modifications are made we think it will have little advantage
over present arrangements.
13.1.1 It is not clear that the tribunal
will be able to award compensation to charities, trustees and
others who have suffered injustice and considerable resultant
costs at the hands of the Commission. We recommend that the tribunal
be given clear powers to award compensation. Only when the Commission
have to pay the cost of their occasional misbehaviour will they
stop doing it.
13.1.2 It is not clear that the tribunal
will be free to trustees or charities appealing to it. A major
problem in seeking redress from injustice by the Commission is
that it is almost invariably by individual trustees, denied access
to legal aid and paying out of their personal assets without access
to the charity's funds. In some cases they are people whose income
has been stopped by the Commission. This results in a serious
denial of justice. We strongly recommend that the tribunal be
free to applicants. This is especially important as the Attorney
General is to be permitted to intervene with the associated potential
for very large costs. We observe that, by contrast, the Scottish
Executive is proposing an appeal tribunal against OSCR (the Scottish
Charity Commission) which will be free to applicants.
13.1.3 We strongly recommend that the Tribunal
should be able to hear any case relating to the Commission's exercise
of its judicial powers over charities and not merely "certain"
issues. All directions, orders, investigations and Receiver &
Managerships must be subject to appeal, especially if, as proposed,
the High Court may be used only for points of law and not to appeal
the occasional inappropriate or improper behaviour of the Commission.
We further recommend that the Tribunal should be able to hear
appeals against non decisions of the Commission, for example when
they fail to take action on well founded complaints against charities.
14. Section 7—Registration of Charities
14.1 3A—Registration of Charities
14.1.1 Regarding 2(d), as stated at the
beginning of this document, we recommend that the income threshold
for registration be set at £10,000. This will reduce the
regulatory burden on very many small charities and the Commission.
14.1.2 Regarding 6, we recommend that the
word "may" be replaced by the word "shall",
thus permitting small charities to register if their trustees
judge it is in their charity's interest to do so. This is not
a matter in which the Charity Commission should second guess the
trustees. It will also have the effect of stopping the Commission's
practice of demanding of registered charities which slip below
the income threshold for a year or two that they justify why they
should be allowed to remain registered. For charities below the
compulsory registration threshold the issue of whether the advantages
of registration in their circumstances outweigh the disadvantage
of the extra bureaucracy is surely best left to their trustees.
15. Section 9—Changes in Exempt
Charities
15.1 We are concerned that this draft Bill
has failed to clearly grasp firmly to sound principle in the same
way as the Scottish Executive in their draft Bill to reform charity
law. It is quite wrong that charities should not be independent
but be effectively owned by other non charitable bodies, usually
through controlling the appointment of their trustees. The half
hearted recognition in the draft Bill of failure in this area
is unsatisfactory.
15.2 Determining a "principle regulator"
for such charities is window dressing. These principle regulators
are not knowledgeable of charity law—it's not their job.
15.3 Giving the power to the Commission
to investigate exempt charities if requested by the principle
regulator is a sop. Why would a principle regulator want to call
in the Charity Commission to expose the principle regulator's
own failure in regulating? It's hard enough to persuade the Charity
Commission to investigate charities which are connected to government
or with strong links to the establishment even in the face of
outrageous abuse within such a charity. Raising the extra hurdle
of needing to be requested by another body which has every incentive
not to call in the Commission guarantees that the existence of
exempt charities will continue to stain the reputation of charity
generally. We recommend that the Joint Committee firmly grasp
principle and do away with exempt charities in the interest of
the reputation of charity as a whole.
15.4 There is another area, not referred
to in the draft Bill, where the lack of independence of trustees
leads to problems. We recommend that the legal device that enables
an organisation, usually a local authority, to be the sole trustee
of a charity should be stopped. This has led to some local authorities
treating such charities as though they were the ordinary property
of the trustee. We believe the Charity Commission is well aware
of this abuse but has its hands tied at present.
16. Section 16—Power to Give Specific
Directions for Protection of Charity
16.1 This section of the draft Bill has
been introduced without any previous public consultation. The
Joint Committee may ask themselves why the clauses that enormously
strengthen the Charity Commission's powers are being introduced
now. Have the Commission just thought of them or are they trying
to avoid public scrutiny?
16.2 This proposed clause effectively gives
the Commission the power to take over and run any charity, bypassing
trustees completely by giving instructions directly to staff,
and completely negating the effect of section 1(4) on the opening
page of the 1993 Act which states that "the Commissioners
shall not themselves have power to act in the administration of
a charity". The proposed additional powers are arbitrary,
unconfined and undefined. They should have no place in an Act
of Parliament.
16.3 We recommend this clause be rejected.
It can only be used in the context of a section 8 Inquiry. Surely
in that context it would be sufficient to point out to trustees
that failure to take the advice of the Commission may lead to
a section 18 Receiver and Manager.
17. Section 17—Power to Direct
Application of Charity Property
17.1 Like section 16 above, this section
has been introduced without any previous public consultation.
Together with section 16 it gives the Commission carte blanche
to instruct any charity in the land how it should be run, irrespective
of what its trustees wish. This is excessive and we recommend
this section be rejected.
17.2 Behind our recommendations relating
to sections 16 and 17 is our belief that the Charity Commission
does not have the competence to run charities. Notwithstanding
occasional abuse and incompetence by the Commission in dealing
with individual charities, their staff are expert at identifying
governance problems in charities and finding solutions which overcome
individual problems. But applying all of those nostrums does not
add up to good governance, much less good management. As the Commission
are prohibited from running charities it is not surprising that
it lacks these more complex skills.
18. Section 21—Power to Enter Premises
18.1 This proposed section is premature.
It is not many years since the Charity Commission investigated
Iran Aid, a case in which we believe that had the Commission been
successful in their attempt to seize the records then 16,000 beneficiaries
of that charity would have been arrested and suffered the most
inhumane punishments. We do not yet have sufficient confidence
in the Charity Commission, the Commissioners or their investigations
staff to wish to see them trusted with this important power, and
we recommend that this section be omitted.
19. Schedule 1—Appointment of Members
of the Commission
19.1 In clause 1 Membership 1 (2) we note
that the Secretary of State will appoint the Chairman and Members
of the Charity Commission. We recommend to the Joint Committee
that this be amended to require the Secretary of State to consult
with key umbrella bodies of the charity sector before doing so.
There can hardly be an objection of principle to this proposal
as he is required to consult elsewhere regarding the appointment
of the Welsh Member. We have great hope that the recent appointment
of a widely respected person from the charity sector as Chief
Commissioner/Chairman will do much to enhance the progressive
decline in reputation of the Commission under previous career
public employees. We do not believe this is a personality issue
but it is very important that charities have confidence in the
independence from Government of Commissioners if charities are
to willingly accept the Commission's regulation.
20. General Duty of the Charity Commission
20.1 We think it essential that the Bill
includes a general requirement on the Charity Commission to use
its powers in accordance with natural justice, fairly and proportionately.
Andrew C H Brown
June 2004
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