Memorandum from The Independent Services
Agency Ltd (DCH 12)
"Maintenance of Morale—Because success
in war depends as much on moral as physical factors, morale is
probably the single most important element of war. High morale
fosters the offensive spirit and the will to win. It will inspire
an army from the highest to the lowest ranks. Although primarily
a moral aspect it is sensitive to material conditions and a commander
should look after the well-being of his men." Source: "Design
for Military Operations. The British Military Doctrine."
[Army Code No 71451. D/CGS/50/8 of 1989].
INTRODUCTION
1. Our Agency, which provides management
services to about 50 Armed Forces charities, has concerns over
some of the measures proposed by the Government in its endeavour
to amend the law of charity. In the context of this paper our
worries are related solely to the possible effects of the proposals
upon military charities and upon the general morale of the Armed
Forces of the Crown. There are few members of the general public
who would regard the promotion of the efficiency of the Armed
Services, particularly the apparently esoteric customs and traditions
of the Services which make for good morale, as being "charitable".
This is because the public utility nature of this type
of charity is unrecognised except amongst certain groups of specialists
in charity law and administration.
2. The Ministry of Defence is well aware
of the concerns of this Agency, however it has chosen to ignore
them. Despite this attitude from "The Centre", we are
confident that the position set out in this paper reflects the
views of the many trustees of service charities with whom we have
a professional involvement.
3. We believe that the MOD's central staff
has failed, from the outset, to canvass proper opinion from the
three Services about the proposals and, when concerns were voiced,
little consideration was paid to them. As we are dealing with
measures that relate to the private trust moneys of the Services,
we do not believe that the MOD, a public body, has a mandate to
speak for individual trustees and charities without taking expert
and impartial advice. We believe that the interests of Services
charities, which the MOD claims to represent, would be best served
by a policy of no change to the law, save in the matter of having
all Service Non Public Funds and other registered military charities
operating under the laws of England and Wales.
4. After studying "Private Action,
Public Benefit (PAPB)" Our main concerns were:
A. The failure to include "The Defence of
the Realm/The efficiency of the Armed Forces of the Crown"
as a specific charitable "head".
B. The removal of "Excepted charity"
status from Service Non-Public Funds. (Excepted status is not
to be confused with the "Exempt status" of certain institutions,
which will remain after the introduction of the proposed legislation).
C. Devolved legislation. It is ridiculous that
different legal systems, under devolved legislation, prevent Service
Units, predominantly from the Army, based in Scotland and N Ireland
from investing in a collective investment such as the Army Common
Investment Fund (ACIF). If the Army, or either of the other two
Services, is governed as a legal unity in other aspects of the
law, then the same unity should apply to its charitable activities.
5. We are glad to note that the devolved
legislation issue, in this context, seems to be covered in Chapter
5/19 of the draft Bill and so we shall not comment further on
that matter.
6. Whilst we were delighted to learn that
the MOD has received categorical assurance from both the Home
Office and the Charity Commission that there is "absolutely
no threat to the status of Service charities", we do not
consider that this assurance is worth anything in terms of legal
precedent. It is certainly no substitute for properly drafted
statute law.
The need to include "The defence of the
realm and/or the furtherence of the efficiency of the Armed Forces
of the Crown" as a specific charitable "head".
7. Our legal adviser writes "I agree
that it would be much better if one found specific reference to,
for example, `promoting the efficiency of the Armed Forces of
the Crown' amongst the purposes specified in Box 4.2 in `Private
Action, Public Benefit'. The other purposes specifically listed
(with the possible exception of `the advancement of religion')
have a strong flavour of (one might say `fashionable') social
welfare, or `charity' in the narrow popular sense of relief of
poverty." The proposals ignore the public utility aspects
of charity law.
8. He goes on to write "The support
of the Armed Forces is rather different from any of them. The
position is well stated by Barwick CJ in the High Court of Australia
in Incorporated Council of Law Reporting (Queensland) v
Federal Commissioner of Taxation (1971), 125 CLR 659. "Out
of certain of the instances given in the preamble to the Act of
1601 a broad concept emerges of the kind of public utility
which will satisfy the quality of charity. Any notion that that
concept is of an eleemosynary nature is seen to be untenable by
some of the very instances themselves, eg the repair of bridges,
havens, causeways, seabanks and highways and the setting out of
soldiers. Further, these instances seem to regard the provision
of some of the indispensables of a settled community as charitable.
The ability to move from place to place and to do so without let
of rivers and streams, protection of the land from the ravages
of the sea, security against enemies, are fundamentals of the
society seen to be within the concept of charitable public benefit
as much as assistance to the needy and as education of the generations'
(emphasis added; "eleemosynary" is the legal term for
charities for the relief of the poor).
9. The Ministry of Defence has told us that
the "Defence of the Realm" has never been a specific
category of charitable purpose. This indicates that they are thinking
only of the four categories given by Lord Macnaughten in Pemsel's
Case, which do not, of course, constitute a definition of charity
but only a classification. The 1601 Statute refers to payment
for the setting out of soldiers as a specific category of charitable
purpose. However it does not contain a complete definition, though
it is fuller than Lord Macnaughten's classification of Charity.
10. Whilst there are other charities which
do not obviously fall into any of the original nine categories
of charity laid down in PAPB eg the care of animals, or public
works of the kind referred to in the 1601 Statute, there are not
very many that cannot be fitted into one of the nine categories:
whereas the promotion of the efficiency of the Armed Forces does
not fit very easily into any of them. The new category "the
promotion of human rights, conflict resolution and reconciliation"
does not sit very comfortably with security against enemies—though
the two are not necessarily inconsistent.
11. If the intention is that all purposes
which are currently charitable shall continue to be charitable,
a good case can be made for including "the promotion of the
efficiency of the Armed Forces" among the express purposes,
so as to remove any possibility of argument on the point, and
also to emphasise the importance in the national interest of maintaining
the efficiency of the Armed Forces.
12. Our adviser then goes on to refer to
"The Government's Response to the Strategy Unit Report Private
Action, Public Benefit" where he notes the creation of new
additions to the proposed list, the promotion of animal welfare,
the provision of social housing and the advancement of science.
These three purposes are already established as charitable and
would be covered by the Review's proposed tenth category of "other
purposes beneficial to the community". The specific inclusion
of these three purposes will not, therefore, create any new charitable
purposes but the Government believes that the specific purposes
contained in the list should reflect major areas of charitable
endeavour which have, or should have, strong public recognition.
The three proposed additions have a strong claim on that basis.
The list should serve to align the legal definition of charity
with the popular understanding of what is, or should be, charitable.
In view of the long-standing recognition that the support of the
Armed Forces is a charitable purpose (and particularly as it is
expressly mentioned in the Statute of Charitable Uses 1601, as
well as, for example, the passage from Barwick CJ's judgment set
out above), we believe that the need to "reflect major areas
of charitable endeavour which have, or should have, strong public
recognition" applies equally to Services charities. We feel
that they have an equally strong claim to be included on that
basis; and that the Government should give added force to "the
promotion of the efficiency of the Armed Forces of the Crown"
(or some such words) by express recognition in the Charities Bill.
THE EXCEPTED
STATUS OF
SOME MILITARY
CHARITIES
13. There are two main types of charity
within the Armed Forces:
(a) Registered charities supporting major in-Service
or ex-Service activity, such as the Army Central Fund (an in-Service
welfare charity) and the Army Benevolent Fund (an ex-service benevolent
charity).
(b) Services non-public funds (SNPF), which are
"excepted charities" under the terms of Statutory Instrument
Number 1056 of 1965 namely "charities mainly or wholly concerned
with the promotion of efficiency of any of the armed forces of
the Crown not being . . . a charity whose objects extend to the
relief or assistance of any person not being a serving member
of those forces . . ."
14. Whilst Registered Charities operating
in support of the Armed Forces may fund raise actively and become
involved with the general public in other ways, Service non-public
funds are essentially the accounts of units of the Armed Forces
covering domestic (ie internal) charitable activity. Using Government
phraseology, they operate "below the radar" and in our
view should continue to do so in view of their essentially domestic
status. There are, we believe, over 15,000 such excepted charities
in the three Services. Turnover on such accounts can be very considerable
and to impose a legal requirement to open them up to public inspection,
by the submission of accounts and returns to a central charitable
register, would impose yet another nugatory administrative load
upon staff already operating under considerable pressure. We do
not believe that there is any activity, within such accounts,
which is of interest to the general public. There is nothing to
hide but, conversely, nothing to show. If it is the Government's
intention to cut red tape, why introduce increased bureaucracy
in such a way? We ask what level of extra staffing will have to
be introduced at the Charity Commission, and presumably also at
the new Office of the Scottish Charity Regulator (and its equivalent
in Northern Ireland) to cope with this increased workload.
15. It appears that other excepted charity
groups consist mainly of some schools, the Scout and Guide movements
and certain churches. There is little in common between these
organisations and the Armed Forces and we cannot understand why
an exception to cover the unique circumstance of the Armed Forces
cannot be allowed. The Government would appear to be trying to
over-legislate in an attempt to be "fair to all" but
the Armed Forces are different in that their funds are designed
to improve and maintain morale. No other group is expected to
be prepared to die in the routine course of its duty.
16. The proposal now to set the initial
registration threshold for SNPF at £100,000 (annual income)
is probably too low for the majority of very large ships of the
fleet and major naval shore establishments, battalion-sized army
units and RAF stations. Such units operate on a "Central
bank" concept, whereby individual sub-funds, each of charitable
status, are aggregated together for administrative and banking
efficiency. The turnover on central banks can be very high but
the sub-funds contained within could now opt out of the system
and operate independently below the threshold. This would solve
one problem but go against the stated principle of trying to facilitate
charity mergers and administration. The measures contained in
the proposed legislation are therefore simplistic and fail to
take account of the totally unique status and requirements of
the Armed Forces. If excepted charity status is to be removed,
we feel that there is a solution in merely declaring that all
existing (and any new) Service Non-Public Funds should fall within
the category of "Exempt charity", which is to remain.
17. The reason why SNPF do not need to be
registered with the Charity Commission is because there are statutory
records of their existence elsewhere (with the Services Finance
branches). Tax legislation does not insist that a charity has
to be registered with the Charity Commission before it qualifies
for tax exemption. An alternate to the proposal (contained within
paragraph 16 above) is that, if excepted charity status is to
be abolished, SNPF be permitted to remain unregistered, except
within the Service, but to enjoy blanket tax exemption, unless
they enter into areas of activity which are deemed to be non-charitable
(which they are unlikely so to do).
18. The Charity Commission has recently
raised the matter of alleged illegality of Army non-public accounting
systems. The excepted charity status of Service Non-Public Funds
excepts such charities from "the duty under section 8(1)
of the Charities Act 1960 to send annual accounts to the Charity
Commissioners otherwise than on request". Under the SORP
(Statement Of Recommended Practice) charities with gross income
not exceeding £100,000 may opt out of accruals accounts and
prepare accounts on a receipts and payments basis. Paragraph 354
of the Charity Commission's publication "Accounting and Reporting
by Charities—Statement of Recommended Practice, October
2000" states "receipts and payments accounts and statements
of assets and liabilities may be organised in any way that the
trustees feel appropriate." For a large number of Service
Non-Public Funds below this level of turnover, we cannot understand
how the Commission can claim that the accounts are in an inappropriate
form when they allow such great latitude in their mode of presentation.
CONCLUSION
19. The Armed Forces have a unique position
in our society. Their position, in charity law, should reflect
this by underwriting the charitable nature of measures to support
their wellbeing thus enhancing morale and fighting efficiency.
This will be achieved by confirming that the Defence of the Realm
and the promotion of the efficiency of the Armed Forces of the
Crown are good charitable purposes and by the continuation of
the "excepted charity" position of SNPF.
June 2004
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