Annex 1
COMMENTS ON THE THEMES IDENTIFIED BY THE
JOINT COMMITTEE
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?
We think that the balance is right. The draft
Bill reflects the recommendations proposed by the Strategy Unit[27]
which covered a range of issues aimed at modernising and clarifying
charity law and status, emphasising the delivery of public benefit
and developing greater accountability and transparency to build
public trust and confidence in the sector.
Our approach to regulation is to follow better
regulation principles by focussing our priorities and resources
where we believe that we can make most difference to charities
and their beneficiaries and where there is greatest risk. We provide
information and advice[28]
to encourage self-reliance by enabling charity trustees to make
decisions and to act in the best interests of the charity and
its beneficiaries with the minimum of bureaucracy within the legal
framework. We aim to provide the freedom to make decisions and
the tools which enable the sector to develop and achieve their
aspirations. We act in a way that is proportionate to the issue
and to the risk of harm involved and we take account of the capacity
of organisations to comply with requirements for change. The draft
Bill takes the same approach. It will support what we do now and
enable us to develop how we use our legal powers to protect charity
assets and to ensure that the charitable sector deserves the confidence
of those who support it and those who benefit from it.
2. Will the Bill improve public confidence
in charities? Will it encourage more giving and volunteering?
Taken as a whole the Bill supports a regulatory
environment better fitted to the modern day needs of charities.
Some proposals remove unnecessary bureaucracy freeing funds and
effort to be focussed directly on the purposes of the charity
and helping charities to adapt. Others promote greater transparency
and accountability enabling the public to make more informed choices
about how they support charities and enabling the Commission to
act effectively to ensure that maladministration and abuse is
stopped and charity assets are used effectively to achieve the
objectives of the charity.
The draft Bill proposes four regulatory objectives
for the Commission. The first of these objectives requires us
to seek to increase public trust and confidence in charities.
One of the recommendations made in the Strategy Unit Review not
requiring legislation was to look at what indicators could be
used to measure our impact. We are already examining how such
indicators can be developed and in particular ways in which we
can measure public confidence and monitor changes in public confidence.
This may include using other measures of activity within the charitable
sector such as Home Office studies of volunteering. We have also
commissioned research to examine what drives public trust and
confidence in charities and our relationship to that and we hope
to be able to use this to enable us to identify and measure changes
in public trust and confidence in the future.
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?
We think that the descriptions of charitable
purposes set out in the draft Bill are helpful in that they describe
the scope of charity more fully and clearly than the existing
four heads of charity established in case law. We are pleased
that the draft Bill will enable us to continue to consider whether
new purposes are charitable. In order for charity to develop in
response to social and economic changes it is essential that the
law provides flexibility for the Commission or the courts to judge
whether purposes which might not have been contemplated at the
time the legislation is made are sufficiently similar that they
should be accepted as charitable. This is the approach we have
taken in recent years and which has enabled us to accept as charitable,
purposes such as the promotion of human rights, the promotion
of equality and diversity and the promotion of religious tolerance.
In our view the phrase "public benefit"
is best left undefined in the Bill. A statutory definition could
have unintended consequences and make the law more rigid and less
adaptable.
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?
The role of charities in the delivery of public
services was not a specific object of the Strategy Unit Review
but a number of the recommendations leading to legislation are
likely to be helpful.
The draft Bill provides:
— mechanisms for which will enable
charities to more easily change the way they are run. This may
enable those that wish to do so to achieve their charitable aims
through involvement in the delivery of public services. Such changes
may be:
— within the existing charity,
— by merging with other charities and,
— in certain circumstances, by redefining
their objects.
— a specialised charitable corporate
form, the CIO which will be a more suitable vehicle for involvement
in public service contracts than some existing forms. The CIO
has the advantages of limited liability for trustees and the avoidance
of dual regulation by both Companies House as well as the Commission.
— support for trusteeship by making
it simpler for trustees to obtain relief from liability for breach
of trust and to pay trustees for services they provide.
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?
The Bill should bring a range of benefits to
charities and the public. Many proposals are intended to address
issues raised by the sector's experience since the 1992 Charities
Act.
(i)
Benefits for charities and trustees
The draft bill eases the regulatory and administrative
burden, particularly for smaller charities. For example through
proposals on:
— simplification of the scheme making
process,
— expenditure of capital,
— changes to the registration threshold,
— raising thresholds relating to audit
of accounts.
(ii)
Benefits for other stakeholders.
Some proposals are aimed at increasing the accountability
and transparency of charities. Potential donors, for example,
should be better able to make informed decisions about requests
for help. Relevant proposals include those relating to:
— providing a clearer framework for
the licensing and control of public collections,
— exempt charities (all will become
subject to specific regulation in respect of charity law) and
excepted charities (who will be required to register above an
income threshold ).
(iii)
Public and sector confidence.
This is addressed by the proposals listed above
and others including
— a modern definition of charity providing
greater clarity,
— increased accountability and transparency
for the Commission, and
— the creation of a new Tribunal.
COMMISSION COSTS
Funding for the Commission has to be agreed
with Treasury. We are currently discussing funding for the next
three years as part of the Spending Review process. These discussions
have included the costs related to the draft Bill if enacted.
A summary of the estimated costs is given below.
There are figures for both first year and continuing
annual costs. First year costs to start up new commitments include
one-off costs such as the registration of formerly excepted and
exempt charities. Continuing costs reflect the annual cost of
regulating them once they are on the register.
In total the additional resources we will need
are:
Start up costs: £1,700,000.
Future annual costs: £1,020,000.
In addition, further estimated costs of £390,000
will be met from existing Commission resources.
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?
On balance the Commission supports the proposal
as an extension of choice. We are aware that many charities will
prefer to retain the safeguards and the transparency in financial
relationships that come from operating through trading subsidiaries.
The proposal is in the same liberalising spirit
as other recent better regulation developments, such as the changes
to investment rules made by the Trustee Act 2000. The Commission
has taken an active part in these developments, for example in
our approach to trustee remuneration where we look at what is
expedient in the interests of the charity. These changes are all
designed to give trustees greater freedom—balanced with
a duty of care—in deciding how to deploy resources to best
advantage. The present proposal would put trading, as a form of
income generation, on the same footing as fundraising—an
area where the great majority of charities have a record of proportionate
and successful investment.
The new freedom would emphasise charities' ability
to identify and control risk. Many charities would need advice
and guidance from specialist advisers on how best to structure
their trading activities so as both to minimise bureaucracy and
mitigate risks to their assets. Measures that charities took to
mitigate risk would have their own costs attached. Trustees of
unincorporated charities would need to consider the risks of direct
trading very carefully indeed, given the personal liabilities
involved.
Should the proposal be implemented the Commission
would work with charities to build better understanding of the
issues and to increase transparency of such trading activities.
We envisage that this would include:
— amending accounting requirements
to enable those with an interest, including the Commission as
regulator, to understand how financial resources are being used,
— adapting our monitoring and regulatory
arrangements to ensure that charitable assets are protected, and
that the activities to not affect the organisation's charitable
status, and
— monitoring closely the costs and
benefits to charities which exercised the freedom to trade as
a way of generating income.
7. Are the proposals to regulate fund-raising
workable?
The purpose of regulating fundraising is to
protect the public, both from poorly managed and executed collections,
which could cause nuisance and harassment, and from unscrupulous
collectors who abuse public trust.
The legislation for regulating fundraising should
therefore be fit for this purpose:
— The requirements should be clear
and easily understood and followed by charities/fundraisers, and
— adherence to requirements should
clearly distinguish good and bona fide collectors from poor and
unscrupulous ones.
But—even if the legislation is fit for
purpose, it will only achieve this purpose if steps are put in
place to ensure adequate enforcement.
The draft bill moves fundraising regulation
forward from existing legislation. We think there is scope to
make technical changes which will improve the clarity of the legislation
and we will submit more detailed comments as we work through the
detail of how the proposals will work in practice.
8. Are the specific proposals in the draft
Bill (such as the new corporate legal form, the Charitable Incorporated
Organisation) adequate, workable and beneficial?
Taken overall the draft bill will provide benefits
to the sector in a wide range of areas, particularly by enabling
charities to choose the structure of a CIO and to develop and
adapt to changing social and economic circumstances. The proposals
relating to the future structure and role of the Commission support
its work in regulating charities in a way which protects the interests
of the sector and the wider public.
There are two additional areas which we believe
it would be useful to include in the draft bill. These are described
in Annex 2.
We also think that there are a number of areas
where some minor technical changes are necessary. We will send
a further statement to the Joint Committee covering this.
27 Private Action, Public Benefit-A review of Charities
and the Wider not-for-profit sector. Strategy Unit (September
2002). Back
28
We publish information about:
- our decisions on questions of charitable status,
- our statutory and regulatory requirements, and related advice
about best practice,
- the results of research into governance and finance issues,
and
- the outcome of our investigations. Back
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