DCH 213 FRANK WIDDOWSON
JOINT COMMITTEE ON THE DRAFT CHARITIES BILL
CALL FOR EVIDENCE
WRITTEN SUBMISSION BY FRANK WIDDOWSON
1. I make this submission on the basis of my
past experience as the in-house legal adviser to a national charity
that had local branches, undertook operational activities in the
field through volunteers and members of staff and presented interesting
constitutional and regulatory issues as well as my experience
as a charity trustee.
2. In my view the key issue that the Committee
needs to consider is the effect an Act in the form of the Bill
would have on public confidence in charity generally and on that
of donors and volunteers in particular.
Regulation
3. Some lawyers in commercial firms have complained
of unwarranted intrusion by the Charity Commission particularly
during the registration process. My personal experience of the
Commission and its staff has been that they have done an excellent
job in difficult circumstances. I do not think that the Commission's
regulatory powers should be extended or reduced otherwise than
on matters of relative detail.
4. I appreciate the sentiment that may lie behind
the proposed inclusion of a duty on the Commission to fulfil a
social and economic impact objective but believe that this will
undermine confidence of charity donors and volunteers. Further,
there are inherent conflicts between the Commission's current
regulatory, promotional and advisory powers. The present delicate
balance will be lost if the Commission is given what is essentially
a policy role in respect of social and economic objectives. At
the very least, this policy-making function would need to be independent
of regulatory function of deciding what is or is not charitable
and would need to be exercised by a separate body. Otherwise the
regulator will be duty bound to move the regulatory goal posts
in accordance with the policies current from time to time. This
will undermine confidence.
The importance of donor and volunteer confidence
5. The figures given in The Strategy Unit's background
paper on 'The organisational and institutional landscape of the
UK wider nonprofit sector' show that the income of general charities
in 2001 was £15.6 billion. Of this 40% was derived from independent
sources by way of donations or returns on investments. The value
of unpaid work by volunteers was shown as £15.4 billion.
The underpinning of charity is overwhelmingly private in nature.
Sight of this fact should not be lost behind a desire to impose
a strategy aimed of maximising the social or economic impact of
charities in general or of a class of charities in particular.
6. In essence, the basis of charity is the private
desire of individuals to achieve particular purposes of benefit
to the community in connection with causes in which they are interested
personally. Those desires are not readily susceptible to direction.
Donors and volunteers always have the option to withdraw their
support for a charity if it does not address the purposes in which
they are interested. Similarly they can withdraw their support
from the charity sector as a whole if, as a consequence of new
regulatory powers or actions by the regulator, they lose confidence
that the funds or time they donate will be used to benefit the
purposes for which they were given.
7. The imposition on the Commission or other
regulatory body of the social and economic regulatory objective
would introduce into the charity sector a new central function
to direct charities to certain charitable ends rather than other
ones. The inclusion of this objective would have a subtle but
far-reaching effect on the current powers to appoint new trustees
and on the application of the cy-pres provisions for the re-allocation
of assets held for charitable purposes where those purposes can
no longer be achieved. I believe that while, in practice, these
provisions may only be applied to a relatively few charities their
inclusion in the Act would have a widespread effect in lowering
the confidence of donors and volunteers.
Some examples of how confidence could be lost
8. It may be helpful to consider an example of
how the provisions currently in the Bill could apply. Let us assume
there are three charities. The purpose of one of them is to advance
the welfare of dogs by preventing cruelty. Similarly, the purpose
of the second is the advancement of the welfare of cats and the
purpose of the third is to advance the welfare of animals in general.
Assume also that over time the view grows that the public benefit
in advancing the welfare of cats is outweighed by the widespread
damage to the environment caused by cats killing large numbers
of small wild mammals. It is found that the charity's purposes
do not discharge the onus of proof in respect of the new public
benefit test. (I must emphasise that this is merely an example
and that these are neither my personal views nor do I believe
that it is likely that such a conclusion will be reached in the
future.)
9. The first point to grasp is that it under
the provisions as presently proposed there is no possibility of
one or more of the charities 'loosing their charitable status'
and carrying on as before with the same trustees and assets. The
trustees of the charity with broad animal welfare purposes might
be directed not to apply the charity's assets towards the advancement
of the welfare of cats. If they failed to comply they could be
removed and new trustees could be appointed to ensure compliance.
The doctrine that once assets are held for charitable purposes
they are always thereafter to be treated as charitable and the
cy pres doctrine would have the effect that the assets of the
cats charity would have to be applied to a similar purpose that
continued to be charitable. Those assets could be given to the
charity with broad animal welfare purposes and it is even possible
that the dog charity might benefit as it also makes provision
for companion animals. The former cats charity would be no more.
10. The potential effect on donors and volunteers
is clear. They gave their money or time to a body whose objectives
in advancing the welfare of cats that they supported and this
was charitable. As a consequence of a change in the law and of
the actions of the regulator they find that those assets have
been stripped away and applied to a different purpose, say the
welfare of dogs. Their confidence in charity is likely to be gravely
undermined. In my view the likelihood is that they will cease
to give to charity altogether rather than look for new charitable
purposes to support.
11. At the very least, if the social and economic
objectives are to be retained in the Bill, the doctrine on charity
assets and the cy pres doctrine need to be amended. Where the
objects of a charity cease to be charitable following the passing
of the Act, the formerly charitable organisation should be allowed
to continue and retain its assets but be stripped of the fiscal
benefits of being a charity. This might occur as a consequence
of the loss of the presumption that a purpose falling within one
of the heads of charitable purposes is in the public benefit or
of a regulatory action in connection with the public benefit test.
A mechanism, perhaps a form of company limited by guarantee, would
need to be utilised to ensure that original purposes would be
maintained and that no assets could pass into private hands. In
this way the cat welfare body could continue to look after cats
but without any tax or other fiscal relief.
12. This example is far-fetched but equally controversial
examples can be taken from the real world. Schools that charge
high fees may be anomalies as charities. A world famous high fee
charging school may have very substantial assets. It might reasonably
be expected that, in the case of a school with such extensive
assets, the social and economic impact objective will only be
met if very substantial changes are made to increase the 'public
benefit' (whatever that might be judged to be). The trustees of
the school may conclude that these changes would affect the very
basis of the school. The giving of directions to the trustees,
the appointment of new trustees or the application of the assets
to other educational purposes will be highly controversial. The
likely consequence is a very severe loss of confidence by donors
and volunteers across the charity sector generally and not just
in the education sector. If these schools are seen as a difficulty
then this difficulty should be dealt with directly and in a manner
that does not undermine confidence in charity generally.
13. It has been said that trying to manage volunteers
presents many of the same difficulties as trying to herd cats.
Very properly volunteers and donors have minds and objectives
of their own. An attempt to try to 'herd' them by setting externally
the social and economic objectives for the charities they support
is, in my view, doomed to the failure of severely discouraging
charitable giving.
The 12 Charitable Purposes and the Public Benefit
Test
14. In my view the proposals set out in the draft
Bill are workable. I do not think that it would be practical to
define 'public benefit' on the face of the legislation or even
in regulations. This would lead to uncertainty. It is preferable
to rest on the current case law and to allow this law to continue
to develop rather than to try to set a new definition. Such a
definition would, inevitably, form the starting point for the
development of new case law with all the uncertainty this involves.
15. The proposed public benefit test will continue
to maintain the present safeguards. Taking further the example
of the animal welfare charities, the judgement in National Anti-Vivisection
Society case would continue to apply. An activity aimed at advancing
animal welfare would not be charitable if the benefits it brings
to society are outweighed by, say, the benefits of undertaking
medical research on animals that does not cause unnecessary suffering.
Accordingly, bodies such as SHAC (Stop Huntingdon Animal Cruelty)
should not be able to obtain charitable status.
Charities and the delivery of public services
16. The ease with which charities play a greater
role in delivering public services is not determined by the regulatory
regime under which they operate but by the contractual or other
relationships between the charities and the bodies charged with
procuring the delivery of those services. Much still needs to
be done to make these relationships fairer to the charities and
to allow them to plan for their delivery of services over longer
periods than are often the case at present. These changes are
outside the scope of the Bill.
17. The great majority of charities are not involved
in the delivery of statutory public services. Any additional regulation
of the delivery of public services by charities should not be
applied to charities as a whole by way of general charity legislation
but applied under specific legislation or the forms of public
procurement contract.
De-merger of charities
18. The Bill makes special provision for the
merger of charities. Provision ought also to be made to provide
an easier means by which the activities of charities can be de-merged.
This would be beneficial to enable donors to be sure that their
donations will be used for the purpose they envisaged. For instance,
as a charity grows it may well be necessary to separate its operational
activities from its campaigning activities. For much the same
reason it might be necessary to de-merge parts of the activities
of two charities that are merging.
The views expressed in this submission are my own
and are not those of any charity or other body.
Frank Widdowson BA Solicitor
26 June 2004
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