Memorandum from the Charity Law Association
(DCH 34)
INTRODUCTION
1. The Charity Law Association (CLA) is
an association with over 700 members, who are principally solicitors
and barristers but also accountants and other non-professional
members. The current Chairman, Stephen Lloyd, and the Chair of
the CLA Working Party on the Strategy Unit report, Judith Hill,
will be attending to give evidence.
CONTEXT
2. The purpose of this paper is to give
the Joint Committee an indication of the points of greatest concern
identified by the CLA. A more detailed and technical submission
will follow by 28 June. This will be designed to deal, as well,
with lesser concerns and inconsistencies. We hope it will be useful
also in indicating where detail is needed to render the new law
workable in the context of the structure of the general law and
existing charity law provisions which are not to be changed.
GENERAL POINTS
3. The Bill, together with last year's document
"Charities and Not-for-Profits: A Modern Legal Framework",
reconstitutes the Charity Commission (the CC) as a statutory corporation,
grants it new powers and imposes new duties on it. This raises
two issues:
3.1 In our view, the Bill must contain a
provision obliging the CC to use its powers proportionately, fairly
and in accordance with the principles of natural justice. Such
obligations could be included as proposed new Clause 1D(2)(3)
of the Charities Act 1993 ("the 1993 Act"), inserted
by Clause 5 of the Bill.
3.2 It seems to us that the CC will need
significant additional funding if it is to obtain the state necessary
to discharge its duties (as increased) properly. We estimate,
for example, that an additional £250,000 per annum will be
needed to enable the Commission to carry out its rolling public
character review. We are surprised that the Regulatory Impact
Assessment does not appear to address the costs implications of
all aspects of the CC's increased role. More importantly, however,
it seems to us that in order to attract the right calibre of staff
it will be necessary for the CC to be in a position to pay higher
salaries. This can only be achieved if the CC is relieved of the
restrictions attaching to the levels of pay the Civil Service
can offer. Since this would have the additional affect of increasing
the CC's independence from Government this can only be a good
thing.
PART 1—MEANING
OF "CHARITY"
AND "CHARITABLE
PURPOSES"
4. The definition of "charity"
has changed since earlier publications, which proposed that a
charity should be defined as an organisation established to provide
public benefit and having one or more of the prescribed purposes.
In Clause 2(1) of the Bill, the public benefit test is to be applied
to the charitable purposes, rather than to the way the organisation
furthers those purposes. We are not sure that this is what was
intended.
PART 2 CHAPTER
1—THE CC
5. At present, the Charity Commissioners
are active in the work of the CC. The CLA is concerned that restructuring
the CC into a body with a Chief Executive accountable to the larger
board may lead to the Commissioners taking a more "non-executive"
approach and leaving day to day management to the Chief Executive.
In our view, this would be a retrograde step; the Bill could be
more explicit in prescribing the accountability and supervisory
elements of the relationship between the board and senior management.
6. The "social and economic impact
objective" is surprising. Social and economic impact is not
a part of charity law: many charities that operate for the public
benefit have little or no social or economic impact. Our concern
is that this is how the Parliamentary draftsman has sought to
translate "public benefit", which is a different concept.
We would like to see the reference to social and economic impact
removed and for the Commission instead to have some obligation
relating to public benefit.
7. We consider that the general duty set
out in new Section 1D(2)2 of the 1993 Act should oblige the CC
to have regard to the need to use its resources in the most effective,
efficient and economic way.
PART 2 CHAPTER
2—THE CHARITY
APPEAL TRIBUNAL
8. At present, the Tribunal will only be
able to hear appeals on specified decisions and, in relation to
some decisions, appeals may only be brought on specified grounds.
(For example, the right to appeal against decisions to institute
s8 inquiries and the investigation of company accounts only applies
where the institution concerned is not a charity.) We recommend
that the Tribunal be able to hear appeals against any decision
of the Charity Commission (including "non-decisions",
such as a decision not to make a scheme or order), on any point
of law, on any basis.
9. There seems to be no provision for the
CC to refer matters to the Tribunal for interpretation, which
could be useful. Equally, there seems to be no general right of
reference to the Tribunal (for example, by representative bodies)
which could also be useful.
PART 2 CHAPTER
3—REGISTRATION OF
CHARITIES
10. New Section 3(4) of the 1993 Act (inserted
by Clause 5) obliges the CC to remove "any institution which
it considers is no longer a charity". The Bill does not say
what should happen to the assets of an institution which has purposes
that once were valid charitable purposes but have ceased to be
so. At present, such institutions lose their assets. The CLA considers
this to be unsatisfactory.
11. Clause 11 obliges the "principal
regulator" of an exempt charity to increase compliance with
charity law by the trustees of exempt charities under his supervision.
However, by virtue of sub-Clause (4)(b), there will be no "principal
regulators" unless the Secretary of State designates a person/body
as such under Regulations. To ensure charity law compliance, we
consider that:
11.1 the Secretary of State should make
such regulations as soon as possible after the Bill comes into
force;
11.2 The negative resolution procedure should
be used to make these Regulations.
12. The CLA welcomes the extension (under
Schedule 5) of CC regulation to exempt charities. However, the
two most significant powers (to institute inquiries and to act
for the protection of charities) may only be exercised on the
invitation of the principal regulator. If an exempt charity has
no principal regulator (see our concerns in the previous paragraph),
these powers will be more apparent than real.
PART 2 CHAPTER
5—ASSISTANCE AND
SUPERVISION OF
CHARITIES BY
COURT AND
COMMISSION
13. In our view, the Bill presents an opportunity
to amend Section 8 of the 1993 Act to stipulate that the CC can
only open enquiries where it has reasonable grounds to do so.
14. It has always been axiomatic that the
CC should not take over the administration of charities and it
is right that this is reiterated in new Section 1(E)(2) of the
1993 Act (inserted by Clause 5). However, parts of Chapter 5 run
counter to this principle by empowering the CC to direct trustees
to act in a particular way or to apply property for particular
purposes (new Sections 19A and 19B of the 1993 Act, inserted by
Clauses 16 and 17 respectively).
PART 2 CHAPTER
8—CHARITABLE INCORPORATED
ORGANISATIONS
15. The CIO should be available as a structure
with both limited liability (as with a charitable company) and
a single tier of management (as with a charitable trust). There
should not be, as currently, a requirement for, or a necessary
assumption that there is, a membership (eg new Sections 69B(4),
69C(2) 69G(2)c of the 1993 Act and Schedule 5A(13) 3 and 14(1)).
In a single tier constitution, amendment could be by the trustees
by a specified special majority.
16. New Section 69H(4) of the 1993 Act,
contrary to the principle of easing reconstitution etc procedures
elsewhere in the Bill, requires a conversion to go through a new
registration procedure with the CC. The Bill could instead provide
for institutional continuity, subject to the adoption of an appropriate
new constitution. To provide flexibility provision might be made
for the conversion, in the same way, of a CIO to a company limited
by guarantee or registered friendly society.
PART 3—FUNDING
FOR CHARITABLE,
BENEVOLENT OR
PHILANTHROPIC INSTITUTIONS
17. The CC does not have (either at present
or under the Bill) power to enforce criminal sanctions against
professional fundraisers or commercial participators in breach
of their obligations under the 1992 Act. The CPS is uninterested
in prosecuting on these matters, meaning that this aspect of charity
law is not being enforced. This could be remedied by giving the
CC (or possibly Trading Standards?) power to prosecute defaulting
commercial organisations.
18. The Bill obliges all charities that
undertake public charitable collections to have a certificate
of fitness (COF) from the local authority in which they have their
registered address. In central London, local authorities may be
inundated by applications for COFs, possibly causing a logjam,
particularly given the local authority's obligations to consult
with the Police. The Bill does not oblige local authorities to
issue COFs within a particular timeframe.
19. Collections in public places will only
be allowed with a permit from the local authority (as well as
the COF). In London this means that charities will have to negotiate
with 32 London Boroughs, whereas they currently only have to deal
with the Metropolitan Police authority. This could have a severe
impact on their capacity to fundraise and augment fundraising
costs, which the Government is most anxious that charities should
keep down.
20. We urge that all registered charities
be automatically deemed fit to carry out public collections so
as to dispense with the need for the COF. The CC could note against
each charity's record on its website any complaints about fundraising.
Local authorities could refer to this and refuse to allow collections
by charities that have been so listed:
20.1 When a charity applies for a permit
to carry out a public collection;
20.2 When a charity notifies the local authority
that it intends to carry out a door to door collection—which
no permit is required.
This would simplify the law and make the whole
operation much cheaper.
June 2004
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