DCH 204 Memorandum from the Rayne Foundation
Charities Bill 2004 - Submission to the
Pre-legislative Scrutiny Committee
1. We write as Directors of grant-making trusts
and foundations established over a period of more than 50 years
by five individuals or families. In total there are 25 trusts
or foundations. Around 2,300 grants are made to charities in any
given year, valued at in excess of £60m each year, and ranging
in value from £200 towards school learning resources to £1m,
and occasionally £10 million, towards major research programmes.
All the trusts have general charitable objects and therefore
work as funders with a very wide range of UK charities, measured
by such criteria as size, location, geographical area of benefit
and field of operation.
We are also members of an informal grouping of
chief executives of some fifty of the largest endowed UK grant
making trusts. Taken together, these roles give us a particular
perspective on the operational issues which challenge endowed
trusts in this country at present.
2. In our experience, endowed trusts use their
income and assets to support charitable work in a variety of ways,
principally including:
i) Working with established charities to trial
new initiatives in specialist fields;
ii) Responding to appeals from smaller, often
new, service-providing charities which lack the public profile
for direct fundraising;
iii) Providing key grants for major projects
and initiatives in national and regional institutions, thus adding
credibility to wider fundraising efforts;
iv) Sometimes providing continuing support to
local causes well known to individual trustees.
3. Figures presented in other evidence show that
grant making charities provided £2.2 billion worth of funding
in the latest year for which figures are available. This is by
no means the bulk of estimated overall funding but it is a measurable
share, especially when set against figures from which the statutory
sector's purchasing of services is excluded. The diversity and
innovation in charitable activity in this country would decline
without the kind of funding which can be provided by trusts and
foundations. We believe charities who receive our funding find
it of special value because it is provided as a much more flexible
resource than money raised from other sources.
4. We ask ourselves whether the draft Bill
and its consequences will serve to stimulate the flow of funds
into independent trusts and foundations, to reinforce this stream
of charitable funding. Our conclusion is that it will not. If
anything, it will inhibit that flow. If that conclusion is a
matter of concern to the Committee and the promoters of the Bill
we need to explain why we reach that conclusion and what changes
in the Bill might modify it.
5. In our work on behalf of grant making trustees,
the regulatory and compliance requirements have become much more
onerous and intrusive. Yet at nearly every point of the enforcement
of these processes, we have been assured that the grant making
trusts and foundations are not the target of the changes. Despite
that, the compliance costs and wasted effort increase exponentially
with each change in regulatory process. We have seen no attempt
by the Bill team to recognise or assess the direct cost to charities
- grant makers and others - of such unproductive processes. Beyond
those direct costs, the weight of regulation is increasingly a
significant disincentive to the creation of new grant making charities,
or further funding of such existing charities by their settlors.
6. The present draft Bill envisages a much more
powerful Charity Commission. Evidence from other witnesses raises
real concerns about the practical implications of such increases
in powers and about the lack of clarity between the regulatory
and advisory roles in such a body. Some witnesses point out that
much greater resources will be required to fulfil the roles effectively.
In our judgement, it is unrealistic to expect a small government
department to be given a material increase in resources in the
current climate around machinery of government.
7. The implication of all this is that the regulatory
load on the medium sized and larger grant-makers will continue
to grow out of all proportion to the benefits - if any - to be
derived from such increase in regulation. Similarly, there will
be growing pressure to comply with "best practice",
which will in itself inhibit the risk taking and positive attitude
to the experiment which characterise the best decisions of grant-makers.
8. That "best practice" will be developed
around perceived weaknesses in processes within service-providing
charities, but will be applied without mitigation to independently-resourced
grant makers. It will become a compliance issue driven entirely
by bureaucratic convenience, in place of a real understanding
of the desirable relationship between different institutions in
the voluntary sector.
9 For these reasons, we believe the Bill in its
present form will add to the disincentives for wealthy individuals
to add funds to existing trusts and foundations or to set up new
ones. We believe that would be a highly unsatisfactory by-product
of the proposed legislation.
10 Some mitigation is possible if the draft Bill
recognises that the regulatory regime and compliance requirements
for this particular category of charity requires a light touch,
as is proposed elsewhere in the Bill for smaller charities. At
present, it is too easy for the Charity Commission to argue that
they have no mandate so to do.
11 We understand that others will be submitting
specific proposals as to how a suitable reference could be inserted
in the Bill. We will not duplicate on that point. We can, though,
offer a few illustrations to show examples of where the approach
to regulation by the Charity Commission might need to vary.
11.1 In current discussions around charity governance,
there is a growing consensus around size, responsibilities, recruitment
processes for trustee bodies. Yet the potential settlor of a
new grant-making charitable trust - whether a young person handling
newly-inherited wealth or an entrepreneur putting some of the
proceeds of his success into founding a trust - may well be frightened
off if compliance pressures suggest the new charity will only
be acceptable if it moves straight to the generally-advocated
governance model of the time. In the case of the young person,
he or she will almost certainly want the comfort of working initially
with a small group of known associates and advisers. Without this
option, the individual may well decide that this form of philanthropy
carries too much baggage to be contemplated so the resources may
well be lost to charity. As the trust matures, perhaps beyond
its settlor's life, requirements and appropriate practice will
change.
11.2 The current Statement of Recommended Practice
on accounting for charities started life as an advisory document.
Compliance is now a statutory requirement. A number of grant-making
charities continue to point out in their annual reports that its
format, designed with best of motives to improve transparency
of the accounts of fundraising and service-providing charities,
actually presents a distorted picture of the financial position
and stability of some grant-makers. It also tends to discourage
longer-term funding commitments by grant-makers, despite beneficiary
charities' frequent calls for greater certainty of funding.
11.3 The proposals for a Standard Information
Return, as so far exposed for discussion, will similarly impose
on grant-makers benchmarks for reporting which many grant-making
charity trustees will regard as a distortion of their general
charitable purposes. They will no doubt find ways of complying,
but this will be an exercise with some costs and minimal if any
benefit.
12. We emphasise that we have listed merely three
examples of where we believe regulation needs to differentiate
at least those grant-makers with a solid asset base provided from
private sources. Such charities must of course continue to be
publicly accountable given their tax privileges - even if those
are now significantly diminished - by showing who receives their
grants and how they apply their resources, through the medium
of their annual reports or in special cases by confidential report
to the Charity Commission.
13. Thank you for considering this submission.
Robert Dufton, Director, The Rayne Foundation
Patricia Lankester, Director, The Paul Hamlyn Foundation
Dr. Brian Martin, Director, Bernard Sunley Charitable
Foundation
Bridget O'Brien Twohig, Administrator, J. Paul Getty
Jr. Charitable Trust
Michael Pattison, Director, The Sainsbury Family
Charitable Trusts
29 June, 2004
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