Examination of Witnesses (Questions 20
- 39)
WEDNESDAY 9 JUNE 2004
MR STUART
ETHERINGTON, MR
STEPHEN BUBB,
MS MARY
MARSH AND
DR JOHN
LOW
Q20 Chairman: Is that what other
colleagues feel would be a sensible thing to do?
Ms Marsh: I have said myself that
I think it should be proportionate to size and I think that is
right. There is a tendency within the Charity Commission's
functioning at the moment to talk rather loosely about the largest
200 charities and address them in a rather different way and that
is more or less where the cut-off point comes; it is the over-ten-million
scale.
Q21 Chairman: And that is an informed
cut-off?
Ms Marsh: I am not saying that
that is definitely where it should be, but certainly the charities
which are carrying that kind of responsibility in terms of their
obligations to those who are stakeholders in those organisations
as donors or indeed the State. That is the other bit of this diversity
which we should not lose sight of, that the charities even within
that 200 group have a huge diversity of income streams, some of
them membership organisations and some of them, as my own, very
significantly voluntarily funded, but whatever it is, they are
managing large amounts of resource which have been given to them
through public means or civic means one way or the other and that
is a big responsibility. It was my point earlier about not making
assumptions about long-term public confidence and unless there
is clarity and transparency in the way in which we are held accountable
clearly to ourselves, but more widely, I think we are in danger
of losing that, so I think that is right.
Chairman: You have developed this issue
of public confidence marvellously, but let's just continue down
this track of regulation and the Charity Commission's role.
Q22 Mr Mitchell: You have already
helped us quite a lot with this particular aspect, but clearly
what we are trying to do is establish that the Bill has got the
balance right between flexibility and accountability, that the
regulatory regime is right and is an improvement. You might like
to comment further on that specific point as an overview, but
in addition to that it would be helpful for us to know your views
on the new threshold in respect of professional audits and compulsory
registration, whether or not we have got the level right and,
if not, what it should be and to what extent there is a risk of
abuse, in your judgment, by these changes.
Dr Low: The levels appear about
right, is the straight answer. They are probably too high for
some types of charity and too low for others, but it is very hard
to define the different types in a prescriptive way so they feel
about right, but there is no absolute in terms of the correct
level. We are rounding numbers to half a million or a million
and it is not an exact science.
Ms Marsh: But the raised thresholds
are clearly right.
Dr Low: They are right.
Q23 Mr Mitchell: And returning to
the big picture on regulation and a concern for all of us that
regulation should be effective, but not heavy-handed, do you have
comments on the Bill in general in that respect?
Mr Etherington: I just have one
point which is this relationship between advice and regulation.
I do not think anybody is against the Commission giving advice
which is within their competency to give. What I think they need
to be clear about and perhaps clearer about, though I do not think
that this necessarily can be developed in the Bill, but I am not
sure, is that they need to make it clear to charities, particularly
the smaller charities, when they are giving advice and when it
is a must-do because if you are not clear about that, the smaller
charities will interpret advice by the Commission as a must-do
and the potential creep if that is not always clear is enormous.
Whether this can be in the Bill or not, I am not sure, but the
Commission need to be absolutely crystal clear when they are advising
trustees of when it is a must-do and when it is a good practice
should-do.
Q24 Mr Mitchell: I think that is
a very important point and I do not know whether it can be dealt
with on the face of the Bill or not. There is one other point
I wanted to ask on the detail of this which is about the qualified
independent examiners who have a duty to examine the charities
with annual incomes of between £250,000 and £500,000.
Are there enough of these particular creatures around and is there
a sufficient availability of resource?
Dr Low: My personal experience
of dealing with charities of that size is that you would normally
go to an accountancy firm which would provide you with that type
of service at a fee which is appropriate. The idea that you find
lots of volunteers around who are qualified to that level is a
myth. You would actually be going to the firms and they would
be putting a product, a package together for the small charities
which was appropriate, so in that sense, yes, they are around,
but they are not volunteers, if that is the expectation.
Q25 Mr Mitchell: That would suggest
that this would be a sort of full-blown accountancy package, so
the availability is rather more than what is actually required
by the terms of the draft Bill.
Dr Low: I seem to remember paying
a few hundred pounds for an accountancy firm, one of the big names,
to run through the accounts of a charity of around £250,000,
under a thousand pounds for a very modest sweep of the accounts,
but appropriate in terms of the requirement in terms of the examination.
It was much safer, I felt, than using a retired bookkeeper which
had been the previous practice.
Q26 Mr Mitchell: Are there any other
points on the balance of regulation?
Ms Marsh: I just would like to
support the point which Stuart has made and which I have made
already in my written evidence about being absolutely crystal
clear about where you are issuing statements from the Charity
Commission which is compliance to the regulation as opposed to
the Charity Commission quite properly, as a robust regulator,
operating strategically within the sector, learning from its regulatory
experience and sharing that learning in the sector, promoting
that widely, but being very clear when what they are promoting
is the best-practice guidance which is not the equivalent of statutory
guidance in the public sector. I think it is that difference.
The word "guidance" is slightly tricky because of statutory
guidance which comes out of statute, so it is advice and promotion
of best practice which is what one will be looking for in that
heading of guidance.
Q27 Chairman: One of the things which
struck me in your evidence was that there seemed to be two different
points of view about this. The NCVO seem to be arguing that they
want to see rather less advice given by the Charity Commission
and a stricter focus on pure regulation, although I am not quite
sure how you can properly regulate without giving some advice
as to the terms and conditions, whereas ACEVO were arguing, on
the contrary, that it is very helpful for the sector to have as
much advice as possible from the Commission so that they know
the rules of the game. Now, which is it?
Mr Bubb: I think there is a difference
of emphasis. There is no difference of emphasis on the fact that
the primary function of the Commission is to regulate or that
there should be a clear understanding of the difference between
what is regulation, what you have to do and what is advice. I
think we do though see the Commission as being quite a powerful
tool to aid the sector in terms of better governance. I support
Stuart's point about the only changes which we would make would
be perhaps on proportionality because I do not think any further
changes, given the diversity of the sector, in terms of instructing
the Charity Commission in terms of the size would be helpful because,
as Mary said, it is not just a matter of the size of the charity
because you can have a charity with very few staff actually and
a huge turnover and endowments and vice versa, so given the way
that the sector has broadly moved in terms of service delivery,
it is probably not helpful to be too prescriptive. We will have
to rely on a reinvigorated Charity Commission to be working with
us. Let me give you one example where I think that the Charity
Commission could actually be really helpful to us. They did a
piece of work, research, a few years back on the recruitment and
retention of trustees, where trustees came from, and that was
a very revealing piece of work and actually fairly shocking in
terms of the fairly narrow field that we recruit from. Now, in
our view, they could have taken that further and said that on
the basis of that evidence, the sector probably needs to do something
about it. That might be advice very generally or it might have
been work with sector organisations to say that there are issues
here, real issues in terms of transparency and accountability.
I think to say that the Commission should not be involved in that
work would be wrong because it has got a huge resource there which
can help us bottom line in terms of governance and administration
and that is all around trust and confidence, so the advice from
the Commission, the advisory role, I think it is almost two sides
of the same coin.
Mr Etherington: Yes, that is our
position, and it seems to me that it depends what you mean by
"advice". Fifteen years ago, the NCVO and the Charity
Commission did a major piece of work on trusteeship which led
to a whole raft of practices and the engagements which I think
have improved the quality of trusteeships. At that time I think
it was two-thirds of trustees did not know they were trustees
and I think we are hoping that things have moved on a little bit
since then. We are certainly not against the giving of advice
which is within the competency of the Commission to give and using
the knowledge that they have in a more sophisticated way to work
with sector bodies in order to provide information. The slight
anxiety is this: that voluntary organisations and charitable
organisations are part of the civil society and their sophistication
with which they engage with the State apparatus is quite a complex
one, and we would not want to see spontaneous, citizen-led activity
stifled by a regulatory regime which actually, when it gave advice,
implied that you could or could not do certain things which had
the force of statute when it did not, so our anxiety is coming
from a slightly different position. Of course one wants to see
a good and robust regulatory regime and of course that regime
will give advice where it has the competency to give it and should
make it clear that it is giving advice, but our anxiety comes
from, if you like, the smaller end, the fact that we want to encourage
more charitable activity and we want to encourage more citizen
engagement through this type of activity and we do not want a
regulatory regime which actually prohibits that from happening.
That is why we are worried about the advice being interpreted
as regulation and having the potential to stifle citizen engagement.
That is where we are coming from and that is our anxiety.
Q28 Baroness McIntosh of Hudnall: Can
we relate this back to the Bill as drafted because you have now
put before us very clearly what your anxieties are about the way
in which the Charity Commission might operate, and in fact, as
I understand it, the way they operate at present, the distinction
between advice and regulation, and that is all very clear. What
I am not so clear about is whether you think that the Bill as
drafted addresses those issues and, if so, whether it does so
adequately, so, to put it in very simple terms, if this Bill is
passed in its current form, how will things be different in the
future from the way they are now?
Mr Etherington: I think I would
just return to a point which I made earlier, that the powers of
the Commission are being extended in this Bill, that they actually
are greater than the existing powers that they have. It is unclear,
if a charity basically felt that it had been inappropriately regulated
or was given advice which they had interpreted as regulation,
what it would do about that and there is actually nothing in the
Bill which talks about that and that is why I think this issue
about reasonableness, proportionality and judiciousness enforced
by an appeals tribunal which would give a charity the right to
say, "Well, actually we don't feel that you have acted in
a proportionate manner in relation to us and we actually want
to go to the appeals tribunal and establish whether or not an
independent tribunal feels that you have acted proportionately",
the emphasis is different between the two submissions. I do not
want to speak on behalf of Stephen, but one is about the use of
strategic regulation, particularly in large service-providing
organisations, and our concern is that there is no way in which
a charity has redress against a decision by the Commission which
is stifling citizen engagement by advice being interpreted as
regulation. There is nothing in the Bill which gives a charity
the right, if you like, to appeal against the behaviour of the
regulator and I think that, as this is a civil society, that is
an important component. If that clause were in, which is about
a reasonable and proportionate appeal mechanism, that would satisfy
us.
Q29 Baroness McIntosh of Hudnall: I
am still struggling a bit with this question about the interpretation
of advice because I cannot see quite how your concerns on that
issue are addressed by the suggestion which you have just made
to us because it seems to me that that is to do with the way in
which the Charity Commission conduct their own relationship with
the charities for which they are responsible. Is there something
which should be on the face of the Bill which specifically addresses
how the Charity Commission are to distinguish between advice and
statutory obligation because that seems to me to be where you
are focusing your concern? Does the Bill do that? Does the Bill
give you what you want?
Mr Etherington: No.
Q30 Baroness McIntosh of Hudnall: And
can it?
Mr Etherington: I think it could.
Dr Low: The Bill does give powers
to the Commission at the moment. The facility for appeal is limited
to only a very narrow aspect of the Commission's work. I think
it is actually very difficult, if you look at regulators across
government and the issue about a strategic light touch and how
that is to be implemented; it is a matter of considerable debate.
I believe that there are some changes to be made to the Bill which
would make it clearer and I believe would resolve some of the
genuine concerns which Stuart has, so I think changes are required,
but they are not far-reaching. I would like to see the appeals
process made much more available for the whole of the Commission's
activities, not just the very restricted areas in the Bill.
Q31 Mr Foulkes: I just want to go
one step back because you have used the word "we" on
a number of occasions and particularly Mr Etherington spoke about
the large service provider and a particular sector. It seems to
me that who you are talking on behalf of are the social service
charities in the United Kingdom. You were mildly disparaging about
NGOs, so I presume that you do not represent Christian Aid and
Oxfam and all of these organisations and I presume also that you
do not represent grant-giving organisations or education and medical
institutions. When you say "we" and make these points,
you are specifically talking about social service providers within
the United Kingdom? Is that right?
Mr Etherington: No, that is not
true. Our membership would include NGOs and I was just reflecting
on different levels of public confidence in particular depending
on what you call an organisation. Our membership would include
overseas development charities, it would include social care charities,
it would include smaller community organisations, it would include
lots of other umbrella organisations and ACEVO would be a member
of NCVO, but as would the Association of Charitable Foundations.
Q32 Mr Foulkes: They are a member?
Mr Etherington: They are, yes.
Q33 Mr Foulkes: So what you have
said, all your evidence so far would represent the views of the
international development organisations, the grant-giving organisations?
Mr Etherington: Yes.
Q34 Ms Keeble: All the organisations
which you are referring to, do they all have charitable status
because there must be a large number which operate in the independent
sector which are often organisations which have got different
constitutions, so are they all charities?
Mr Etherington: The majority of
them would be, but, for example, Amnesty, which is not charitable
because human rights currently does not have charitable status,
it has a charitable part, they would be members of NCVO.
Q35 Ms Keeble: So that is a well-known
one, but what percentage of the organisations in NCVO and ACEVO
are actually charities and those which are not are what?
Mr Etherington: The vast majority
would be charitable.
Q36 Ms Keeble: What—70%, 80%?
Mr Etherington: About 90%. I do
not know offhand, but it is roughly that sort of figure. For example,
only recently has amateur sport been developed as having charitable
status and it is spelled out on the face of the Bill which is
helpful. We would have the umbrella for amateur sports organisations
as membership of the NCVO and they would have a lot of members
who were not charitable.
Mr Bubb: The not-for-profit sector
is a growing part of our membership, although probably about 80%
are charitable. Many social enterprises, for example, are not
profit organisations, but they are not actually a charity.
Q37 Ms Keeble: They are companies
limited by guarantee?
Mr Bubb: Yes.
Q38 Ms Keeble: What percentage is
that?
Mr Bubb: That is about 10% now,
but there is an additional bunch which, for various reasons, have
not registered as charity professional bodies, but of course on
the social enterprise front it is run in parallel with provisions
for the CICs, community interest companies.
Q39 Chairman: Do you want to deal
with this point which we have skirted around to get to the nub
of this issue about how you see this business about advice and
regulation and what, if anything, you would like to see in the
way of commitments in this Bill?
Mr Bubb: By and large, actually
we are happy with the provisions on the Charity Commission and
the way that it will modernise the Charity Commission. I think
at the margins there are some changes which Stuart has outlined,
but I would not want to move away from the fact that we welcome
the fact that in the Bill one of the Commission's general functions
is to encourage and precipitate the better administration
of charities and I think that is an extremely important role given
the way that the sector is growing, so the advice and guidance
role is important, but within the context that the primary purpose
is regulation and it needs to be clear as to the difference between
advice and guidance and regulation, but in terms of the growing
need for accountability and transparency, the Charity Commission
can play a very important role. I think it would be difficult
to change the Bill significantly in terms of size, regulations,
et cetera, what they can and cannot do and I think we have to
work with that new Charity Commission in ensuring that they get
the balance right and that is a matter which we will do with our
work as a sector with the Charity Commission.
Chairman: I must say I am confused about
this, to be honest, because it seemed to me that you were all
making the case earlier that there was a sharp differentiation
to be made between smaller voluntary-run organisations and the
big boys, and I think we understand that, and I thought you were
arguing earlier that it would be no bad thing if that differentiation
in some way, shape or form, as yet unidentified, could be enacted
on the face of the Bill, but now suddenly Steve Bubb seems to
be arguing that that is neither possible nor necessary, so which
is it? This issue about advice versus regulation is actually an
issue, is it not, your principal concern, which is precisely Stuart's
point about the impact of regulation in terms of disincentive
to greater participation in civil society and the role which voluntary
and charitable organisations play?
Lord Phillips of Sudbury: But, Chairman,
Stuart and I think Stephen both endorsed the notion that on the
face of the Bill it talks about the appropriateness or proportionality
of the Charity Commission's involvement.
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