Memorandum from the Higher Education Funding
Council for England (DCH 137)
BACKGROUND
1. The Higher Education Funding Council
for England ("HEFCE") is the body with statutory responsibility
for the administration of funds to support higher education ("HE")
and research in England.
2. Under Government proposals, outlined
in Chapter 4 of the Draft Regulatory Impact Assessment to the
Draft Charities Bill (the "Bill"), HEFCE is the proposed
"principal regulator" in relation to those higher education
institutions ("HEI") which are presently exempt charities.
As a principal regulator, the Government intends that HEFCE assumes
the obligation to do all that it "reasonably can" to
meet the new "compliance objective"[36]
in relation to the HEI exempt charities for which HEFCE would
take responsibility.[37]
3. At the present time, HEFCE funds higher
education, research and related activities in 131 HEIs, as well
as in 162 further education colleges.[38]
In providing such funding, HEFCE also monitors institutions' management
and governance arrangements and financial health.
4. HEFCE is, at once, both extremely well
versed with the sector, and uniquely placed to assume principal
regulator functions in regard to charity law in respect of HE
sector exempt charities.
5. However, the assumption of charity law
functions with respect to HEIs has the potential to change fundamentally
the established relationship between HEFCE and the institutions
to which it provides funds. Under the Government's proposals,
HEFCE will become all of provider, administrator, assessor and
legal watchdog.
6. As such, it is crucial for HEFCE that
the Bill clearly delineates between the charity law regulatory
responsibilities of HEFCE, as principal regulator, and those of
the Charity Commission (the "Commission"), both for
reasons of legal certainty and to maintain clarity and trust in
the relationship of HEFCE with HEIs.
7. The written evidence that follows contains
HEFCE's submissions on suggested amendments to the Bill. Such
amendments would more clearly define the relative roles of principal
regulator and the Commission, reflecting both the Strategy Unit
proposals regarding exempt charities,[39]
and the regulatory realities of the HE sector (as a major sub-sector
of exempt charities).
SUBMISSIONS
8. HEFCE requests that the Joint Committee
recommends that Section 11 of the Bill obliges the Commission
to consult the principal regulator in the exercise of all Commission
powers in relation to exempt charities.
8.1 It is the intention of the Bill that
the principal regulator will assume the compliance objective in
relation to those exempt charities assigned to it by statutory
instrument.
8.2 The Bill does not, however, provide
for investigative powers or enforcement powers (such as suspending
a trustee or making orders in relation to the administration of
a charity) to be exercised by the principal regulator. Rather,
these will continue to be exercised by the Commission, on the
request of the principal regulator.[40]
HEFCE therefore envisages that the principal regulator will play
an important role in monitoring for compliance, requesting information
and regulating any enforcement action taken by the Commission.
8.3 It is contradictory to this scheme therefore
that further provisions in Schedule 5 to the Bill allow for autonomous
enforcement action in relation to exempt charities by the Commission
(that is, action without consultation with the principal regulator).
8.4 Amendments made to the Charities Act
1993 (the "1993 Act") by the Bill have the effect of
re-introducing exempt charities under the direct regulatory enforcement
powers of the Commission[41]
through the removal of exceptions in the 1993 Act for exempt charities.
8.5 In addition, the Bill introduces new
powers of the Commission to make schemes for the application of
property cy-pre"s[42]
and to make orders to direct property (including land, which is
of particular importance to HEIs) to be applied for the purposes
of the charity.[43]These
new powers will apply to exempt charities.
8.6 Although these amendments reflect the principle
of greater regulation for exempt charities, the Draft Bill introduces
a high degree of uncertainty as to the operation of the exempt
charity regulatory system. In leaving open the possibility of
autonomous enforcement action by the Commission the Draft Bill
undermines the concept that a principal regulator is designated
as such by virtue of its existing expertise regarding the sector,
and the relevant regulatory mechanisms that it may already have
in place.
8.7 In particular, where sector-specific
knowledge is expedient, HEFCE is in a strong position to assist
the Commission, and should be consulted as a matter of charity
law. For example, in relation to the new power of the Commission
(contained in the Bill) to apply cy-pre"s schemes,
the desirability of applying property for purposes close to the
original purposes, and the social and economic impact must be
considered.[44]
Such factors concern sector specific knowledge and it is important,
both for the effective functioning of regulation of the exempt
charities, and the nature of the relationship between exempt charities,
the principal regulator and the Commission, that the Bill recognises
as such and provides the principal regulator and the Commission
with a clearer delineation of functions.
8.8 A further example where consultation
between the principal regulator and the Commission is required
relates to the proposed amendment to Section 17(7) of the 1993
Act. The Bill, in Schedule 5, paragraph 5, imposes a prohibition
on exempt charities on the use of charity monies in the preparation
or promotion of a Bill in Parliament (without the consent of the
court or the Commission). In situations such as HEI mergers, an
act of Parliament is often required, and moneys applicable for
the purposes of the HEI charity may be spent on the preparation
or promotion of the Bill. Obtaining the Commission's consent in
such a situation would be greatly facilitated through consultation
of the Commission with HEFCE, with its knowledge of the sector
and the implications of expending (or indeed, not expending) monies
for such purposes.
8.9 HEFCE also believes that a requirement
to consult with the principal regulator is crucial in relation
to the exercise of Commission enforcement powers under Section
18 of the 1993 Act. Commission powers under Section 18 range from
the power to make orders in relation to trust property, to the
power to remove trustees. The Commission is only free to use these
powers following the initiation of an inquiry under Section 8
of the Act. For exempt charities, the Section 8 inquiry can only
be initiated at the request of the principal regulator. However,
once an inquiry is initiated (and the principal regulator may
request as such for any number of reasons), the entire range of
Section 18 powers becomes open to use by the Commission. HEFCE
is concerned that the substantial powers of the Commission under
Section 18, in particular the power to remove trustees, should
be subject to the obligation to consult with the principal regulator.
In the case of the HE sector, trustees of HEI charities are usually
members of the board of an institution. The removal by the Commission
of such senior personnel would have a large impact on the sector
as a whole and justifies consultation with HEFCE in its sector-specific
regulatory capacity.
8.10 HEFCE requests that the Joint Committee
recommends the inclusion of a sub-section in Section 11 of the
Bill, requiring the Commission to consult with the relevant principal
regulator before the exercise of Commission powers in relation
to an exempt charity. The inclusion of such a sub-section would
more clearly delineate the function of the principal regulator
and lead to more efficient regulation of the exempt charity sector.
9. HEFCE requests that the Joint Committee
recommends that the word "promote" is substituted for
the word "increase" in the compliance objective contained
in Section 11(3) of the Bill.
9.1 The Draft Bill creates an obligation
on the principal regulator to do all that it "reasonably
can to meet the compliance objective in relation to the charity".[45]
The Draft Bill defines the compliance objective as "to increase
compliance by the charity trustees with their legal obligations
in exercising control and management of the administration of
the charity".[46]
9.2 Although the word "increase"
is used in relation to the functions of a number of statutory
bodies,[47]
such examples demonstrate that "increase" is used in
relation to considerations to be taken into account in the exercise
of a function, rather than an objective in itself.
9.3 HEFCE is concerned that an obligation
on principal regulators to "increase" compliance per
se is unworkable, in so far as it does not adequately define
the limits or nature of the statutory duty. Indeed, the obligation
could be considered to be ever-increasing.
9.4 Recent legislation passed by the Scottish
Parliament contains an obligation on a public office to "promote
compliance"[48].
Further, a large number of public bodies in England have a statutory
duty to "promote".
9.5 HEFCE is of the view that the word "promote"
better represents the nature of the compliance objective to be
assumed by principal regulators. It imposes an obligation on a
level similar to that of "increase", whilst avoiding
the difficulties in relation to whether the statutory obligation
could be interpreted as being of an ever-increasing nature.
9.6 HEFCE requests that the Joint Committee
recommends that that the word "promote" is substituted
for the word "increase" in the compliance objective
contained in Section 11(3) of the Bill.
June 2004
36 The compliance objective is presently defined as
". . . to increase compliance by the charity trustees with
their legal obligations in exercising control and management of
the administration of the charity." (Bill, Section 11(3)). Back
37
Bill, Sections 11(2) and 11(3). The exempt charities for which
HEFCE will be principal regulator shall be specified by the Secretary
of State by way of statutory instrument (Bill, Section 4(b)). Back
38
Figures correct as at September 2003. Back
39
Private Action, Public Benefit: A Review of Charities and
the Wider Not-For-Profit Sector. Prime Minister's Strategy
Unit, September 2002. Back
40
Bill, Schedule 5, s2 and s6. Back
41
By virtue of Schedule 5 to the Bill, exempt charities will become
subject to the Commission's powers to: require a charity's name
to be changed (1993 Act, s6); call for documents and search records
(1993 Act, s9); exercise the same jurisdiction and powers as are
exercisable by the High Court in charity proceedings (1993 Act,
s16); give directions about dormant bank accounts (1993 Act, s28);
authorise charity proceedings (1993 Act, s33); and order a disqualified
person to repay sums received (1993 Act, s73). Back
42
Bill, Section 15. Back
43
Bill, Section 17. Back
44
Bill, Section 15, inserting Section 14B(3). Back
45
Bill, Section 11(2). Back
46
Bill, Section 11(3). Back
47
See for example: Milk Development Council Order 1995, Section
3(2)-("The Council shall exercise their function in such
manner as appears to them to be likely to increase efficiency
and productivity in the industry . . ."); and Countryside
and Rights of Way Act 2000, Section 87(1)(b)-("It is the
duty of a conservation board, in the exercise of their functions,
to have regard to . . . the purpose of increasing the understanding
and enjoyment by the public . . ."). Back
48
Public Appointments and Public Bodies etc (Scotland) Act 2003,
Section 2(3)(c). Back
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