Memorandum from Nuffield Hospitals (Charity
No 205533) (DCH 81)
1. INTRODUCTION
Nuffield Hospitals is the leading group of charitable
hospitals in the UK, with an income in the calendar year 2003
of £409,517,000.
We welcome elements of the Bill, in particular
the new statement of charitable purposes.
However, we are concerned about indications
from some influential quarters that charities such as ourselves,
which charge for services that are expensive to provide, may not
in future satisfy the test of public benefit. We would strongly
resist any suggestion that our services do not provide sufficient
public benefit. The fact that the "profits" made by
a charity go back into improving services which by definition
are for the public benefit, rather than being paid out as dividends,
is the fundamental distinction between the charity and profit
making sectors, and so it is right that those profits are not
subject to taxation. If the Government is serious about allowing
the charity sector to become a vehicle for public service delivery
then any reform of charity law that effectively prohibits charities
such as Nuffield Hospitals from charging reasonable fees for the
provision of services ought to be resisted.
We also have concerns that a number of provisions
in the draft Bill will increase the regulatory burden on charities
and make trustee recruitment more difficult, whilst we also doubt
the usefulness of the Charitable Incorporated Organisation ("CIO").
We set out below our specific comments having
reference to the issues that the Joint Committee has indicated
it will be concentrating on.
2. FLEXIBILITY
AND ACCOUNTABILITY
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?
Powers and objectives of the Charity Commission
We are concerned about the open-ended objectives
placed on the Charity Commission to encourage charities to maximise
their social and economic impact and enhance the accountability
of charities. These seem to us to be open-ended commitments the
pursuit of which is likely to divert charitable funds into increased
regulatory compliance without a matching gain in accountability
and efficiency in the use of charitable funds.
There is no concept of a standard to be achieved.
To take the example of the compliance objective the Commission
will need to collect information about the extent of compliance
and will then apparently have to devise ways of achieving an ever
increasing degree of compliance. We can only speculate that the
combined effect of this will become a strong disincentive to voluntary
trusteeships.
We have similar concerns about the Commission
requesting information and responding to requests for information
from Ministers by effectively passing the request, and hence the
costs of compliance, directly onto charities.
To help avoid the danger of over regulation
we would prefer to see a balance struck by:
(1) the definition of objectives in a finite
way; and
(2) the imposition of a general duty on
Ministers and the Commission to have regard to the effect on charities
of pursuing their objectives and of using their powers and the
need to use charity resources in the most efficient and economic
way.
Remuneration of trustees
We welcome the proposal to allow trustees to
be remunerated for services provided to the charity. However,
in the case of the very largest charities, such as ourselves,
we feel that the duties imposed on trustees are sufficiently onerous
that there is a case for extending the remuneration provision
in respect of these charities to allow payment to trustees for
acting in that role. We feel that this would be an aid to trustee
recruitment and retention. We comment on this further below in
relation to public service delivery.
Altered regulatory model for the largest charities
We would go on to say that there is an increasing
difficulty in making a common regulatory model fit the entire
range of charities in the sector. We would say that one solution
for this would be to liberalise certain rules for the very largest
charities, perhaps balanced by a more onerous reporting requirement.
The division between the largest charities with the altered regulatory
regime can perhaps be formalised by giving the Commission a power
to divide the register into two or more sections.
Organised in this way there would be more flexibility
for the charities sector as a whole. For example, a regime might
be developed in regulations for charities with particular criteria
to be allowed to remunerate their trustees, carry on trading activities
and do other things under a general licence from the Commission.
A small number of such regimes might be developed over time adapted
to the different needs of, for example, grant making foundations
or membership-based organisations. The key step at this stage
though is to facilitate this by allowing the register to be divided
into classes and giving the Commission power to grant authorisations
by class.
3. IMPROVING
PUBLIC CONFIDENCE
Will the Bill improve public confidence in charities?
Will it encourage more giving and volunteering?
We do feel that, provided the initiatives are
properly resourced, the fact that an increasing number of charities
are brought under the ambit of the Commission should increase
public confidence in the sector.
However we are concerned that the general tendency
to increased regulation may inhibit trustee recruitment and retention.
For example, we feel that the creation of a criminal offence for
breach of the provisions on trustee remuneration is disproportionate.
4. NEW CHARITABLE
PURPOSES
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?
Descriptions of charitable purposes
We welcome the new list of descriptions of charitable
purposes set out in clause 2 of the Bill, particularly the inclusion
of the advancement of health and the relief of those in need via
the provision of care and accommodation. We are satisfied that
Nuffield Hospitals' current objects and activities fall squarely
within these descriptions of charitable purposes.
Public benefit and public character
We agree with the decision not to include a
statutory definition of public benefit in the Bill, and would
urge the Committee not to attempt to do so. We feel that there
are significant advantages in keeping public benefit as a concept
derived from case law rather than statute, in order to render
it flexible enough to accommodate the whole diversity of the charity
sector, and to give it the scope to evolve over time.
With regard to the proposed systems of ongoing
checks on the public character of charities that charge high fees
for their services, we would clearly need to see the statements
from the Commission as to how they propose to carry out these
checks before commenting in detail. However we are concerned by
the initial indications that the Charity Commission views the
removal of the presumption of public benefit for charities in
the first three current heads as potentially giving it the scope
to write a significantly tougher public character test, on the
basis that the courts should no longer feel bound to follow the
existing case law. This seems to us to contradict the guidance
to the draft Bill, which indicates that references to public benefit
in the Bill are to the existing concept in English charity law.
With regard to Nuffield Hospitals' own position,
we would strongly resist any attempt by the Charity Commission
to challenge the proposition that our services do not display
the requisite degree of public character. Whilst the fees charged
for some of Nuffield Hospitals' services are high, they do no
more than reflect the cost of the service plus a reasonable margin
to generate cash for reinvestment. The Bill should make explicit
that charging for services is not a bar to charitable status.
With the availability of health insurance to
spread the cost of treatment over time, and our very significant
contracts with the NHS, we believe that Nuffield Hospitals' services
are both affordable and accessible to a sufficiently broad cross
section of the public (who are given a choice in how they obtain
their healthcare that is itself of value) that our charitable
status ought not to be called into question. If the Government
is serious about allowing the voluntary sector to become a vehicle
for public service delivery then any reform of charity law that
effectively prohibits charities such as Nuffield Hospitals from
charging reasonable fees for the provision of services ought to
be resisted.
5. DELIVERY OF
PUBLIC SERVICES
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?
We already play a very significant role in the
delivery of public services through our contracts with the NHS,
and intend to continue to do so. However our ability to do so
could only be hampered by a reform of the public benefit test
that prevented us from charging reasonable fees for services.
The strength of Nuffield Hospitals' ability
to play a significant role in public service delivery, is due
in significant measure to the caliber of the individuals we have
been able to recruit to the board. We found that we could not
recruit trustees with the knowledge, skill and experience needed
to help run a multi million pound business without offering remuneration.
We have to compete through board level competence as in every
other aspect of our business. We believe that this is likely to
be a key issue for other providers of services.
We suspect the issue is more acute for trading
charities which do not necessarily have the kudos associated with
charities which some might regard as more glamorous. And, given
the choice between a remunerative non-executive directorship on
a FTSE 350 board or an unpaid trusteeship on a charity board,
many good candidates choose the paid position. We have found that
since our trustees became remunerated their commitment to the
Charity has increased significantly, as measured by an increase
in the number of board meetings, board committees, and hospital
visits undertaken by our trustees. We believe that many charities
of our size would similarly benefit from improved governance and
accountability stemming from the right to pay trustees.
6. BENEFITS AND
COSTS
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?
We feel that the Charity Commission will require
a very significant increase in funding, as it seems to us the
additional tasks (administering the public character tests, performing
the role analogous to Companies House for the CIO, regulating
increasing numbers of exempt and excepted charities) will required
large numbers of staff with proper technical (especially legal)
support.
7. TRADE
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?
We would suggest that the freedom to carry out
significant non-primary purpose trading without a subsidiary company
should be one of the freedoms given to the largest charities such
as ourselves, as suggested above. It is the large charities that
will invariably be incorporated in any event, thus protecting
the trustees from personal liability, and which will have proper
management systems in place to manage the commercial risks involved.
8. ADEQUATE,
WORKABLE AND
BENEFICIAL?
Are the specific proposals in the draft Bill (such
as the new corporate legal form, the charitable incorporated organisation)
adequate, workable and beneficial?
Charitable incorporated organisation
We do not see any particular merit in the proposed
new legal form, and do not currently foresee any circumstances
in which Nuffield Hospitals might convert to a CIO. A CIO would
not permit its trustees to achieve anything that they could not
do through the medium of a Company Limited by Guarantee (CLG).
Indeed the trustees of a CIO would have their discretion fettered,
eg through the Charity Commission's effective oversight of mergers
and amalgamations, and by all amendments to their constitution
needing the Commission's scrutiny before becoming effective, in
ways that those of a CLG currently do not. We also do not believe
that the interaction of the new provisions with the Companies
Act and the Insolvency Act have been fully thought through.
Extension of Section 29 of the 1993 Act
We do not agree with the proposal in the draft
Bill. We feel that it will encourage officers, employees and agents
of the charity to bypass the trustees in matters of administration.
If any of these persons have a legitimate concern about the management
of the charity or the conduct of the trustees, then there are
other avenues for this disquiet to be legitimately expressed.
This provision does not add anything constructive to the current
"whistleblowing" legislation.
Search warrants
We feel that the powers of entry given to the
Charity Commission under the proposed new Section 31(a) of the
1993 Act represent a significant extension of the powers granted
to it pursuant of a Section 8 inquiry. We feel that, at the very
least, the written records kept by the authorised person should
also include the identities of any people accompanying him.
Charity Appeal Tribunal
Whilst we welcome the setting up of the Charity
Appeal Tribunal, we feel that the scope for appealing against
a decision by the Charity Commission to institute an inquiry should
be extended to include the ground that there was no reasonable
basis for instituting the inquiry. The need for this additional
check on the Commission's ability to start an inquiry is heightened
by the more invasive powers that will be available to them once
the Bill is passed.
June 2004
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