DCH 187 Charities Advisory Trust
June 2004
Charities Advisory Trust submission to the committee
on the Charities Bill
General comments on the questions posed by the
Joint Committee on the Charity
Bill: In our opinion
the Bill will neither improve nor detract from public confidence
in
charities. It will not encourage giving or volunteering.
We wish to comment specifically on three aspects
of the Bill:
- Firstly - the
new definition of charity
- Secondly - the
un-workability of the regulations on fundraising
- Thirdly - the
issue of trading by charities
New definition of charity:
We are concerned that the phrase 'public benefit'
is too vague, and subjective and may lead to a great deal of litigation.
It cannot be argued that commonsense will prevail: it is always
the zealots, and those with vested interests who have time for
litigation.
Hitler claimed his policies were for public benefit,
as do suicide bombers. What is to stop an individual bringing
a case to prevent any charity helping individuals in Israel, on
the grounds that anything that helped the survival of the State
of Israel was against public benefit? Or those who believe aid
to Zimbabwe bolsters the regime they abhor, so should be stopped
on the grounds of public benefit?
Whilst the looseness of the definition neatly sidesteps
the removal of charity status from public schools and hospitals,
but it opens up a can of worms. It would be better to remove the
charitable status from private schools and hospitals, on the grounds
that they bring no public benefit, rather than get into prolonged
litigation on what will be enough to get them through the public
benefit test (50% of free places? Use of the playing fields
for two evenings a week?). We believe public schools and private
hospitals, to which access is restricted by the ability to pay,
harm society.
The exemption from tax means that society suffers.
Either the rest of the population have to pay higher taxes, or
there is a reduction in services. Since the rich enjoy the benefits
of these two types of institution disproportionately, the State
is giving institutional support to inequality. This is surely
against public benefit in the contemporary state (it is suitable
in oligarchic societies, not modern day democracies).
I would argue that it is undesirable for a cohesive
society, for children to be educated in schools with equal access.
There may be different types of school, to suit different types
of children, but not on the basis of parental ability to pay.
If parents choose to educate privately they should not be subsidised
to do so by the general taxpayers.
The provision of 'private hospitals' has the effect
of robbing the health service of staff, whose costly training
is undertaken at the state's expense. If people want private medicine
they should pay its true cost, and not be subsidised by the general
taxpayer.
Charity is, in the public mind, there to help the
poor and needy. As it functions today it is being exploited to
subsidise the rich. The introduction of the notion of public benefit
is welcome, though its imprecision seems to open the floodgates
to legal dispute. Those with vested interests in the status quo
will put up the strongest resistance —
and this will be at taxpayer's expense.
Un-workability of the regulations on fundraising:
(clause 35; 1-4)
The change in the regulations on fundraising and
commercial participation will make no difference without provision
for enforcement.
Every year we flag up the breaches —
Christmas cards purporting to be sold in aid
of charity lack any information as to the amount going to charity.
We tell the Charity Commission —
they can write to the benefiting charity,
but cannot enforce. Trading standards officers feel powerless.
The police have other ways to spend their time.
Let us have clear lines of responsibility for enforcement,
otherwise do not bother to regulate. If people can break the law
with impunity it encourages bad behaviour.
Issue of trading by charities:
We were relieved that the Bill did not extend the
powers of charities to trade. We repeat here our arguments for
not allowing charities to trade (except in pursuit of their primary
purpose):
"There is firm, factual information on trading
by charities. The Charities Advisory Trust's 'Charity Trading:
a statistical analysis' shows that trading income rarely
produces significant income for charities. There is evidence that
there have been quite substantial losses through trading. Figures
for 1995 - 2000
(incl.) show
trading income as a proportion of income for the top 200 charities,
by income, was on average less than one quarter of a percent.
10% of charities made losses."
"Currently, charities trade through a subsidiary
company. The tax concession available to them would be available
to any company, which donated its profits to charity. By allowing
tax concessions enjoyed by charity to include trading, creates
a privileged status, far from the level playing field that the
EU requires.
There has been considerable hullabaloo around the
preferential treatment on rates, VAT and tax of charity shops
selling donated goods. Imagine the, justified, outcry if charities
do get concessions when selling like for like items.
The device of the wholly owned trading company has
much merit. It isolates the trading activity so it is easier to
see if it is profitable or loss-making. Investment (subsidy) in
trading is easier to identify. Before the new SORP, there were
many instances of charities trading very substantially, say in
excess of £1 million, within the charity, and in many cases
the true trading costs were not identified..
It would be regressive to return to this situation.
Our experience in analysing charity trading accounts is that when
charities trade without using a separate trading company, costs
are not fully apportioned to the trading activity, so that the
profit levels are artificially enhanced. SORP and the arms-length
trading company have given charity funds greater protection.
Recommendation: trading
subsidiaries be retained."
We would like to share with the committee our concern
that the Government's gung-ho approach to social enterprise, is
encouraging charities to risk / waste charitable funds on activities
they claim to be primary purpose trading.
We have come across instances of charities seeking
funding from charitable trusts for activities that should, and
could, be structured to cover costs. Charities use their ability
to attract subsidy as a soft option. We believe this will bring
charities into disrepute, deservedly. We are happy to give specific
examples if requested.
In conclusion:
We would like to draw the committee's attention to
the fact that the Government's many initiatives to support the
sector infrastructure, and the increased funding available to
the sector from Government and lottery sources, has coincided
with a fall in charitable giving.
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