Written evidence submitted to the Joint
Committee on the draft Charities Bill
DCH 3 Association of Chief Executives of Voluntary
Organisations (ACEVO)
1 About ACEVO
1.1 ACEVO is the professional body representing
chief executives in the third sector in England and Wales, with
over 1700 members. The broad not-for-profit sector now employs
the full-time equivalent of 1.5m staff, with a collective annual
turnover of £46bn.
1.2 ACEVO is an active and supportive member
of the Coalition for a Charities Act, along with charities including
NCVO, RNID, and NSPCC.
2 ACEVO strongly welcomes the publication
of the draft Charities Bill
2.1 ACEVO welcomes the draft Bill and supports
its recommendations. There currently exists a real and urgent
need for legislation to reform charity law, as obsolete legislation
undermines the good name and effectiveness of third sector organisations.
We therefore consider it a matter of great importance for the
sector that the draft Bill becomes a charities act as soon as
possible.
2.2 We particularly welcome the proposals
to place a "public benefit test" at the centre of charitable
status, and to remove presumptions that some causes are inherently
charitable.
2.3 We also welcome the decision to ground
the meaning of "public benefit" in current case law,
allowing it to evolve in response to wider social and economic
changes.
3 ACEVO supports measures to reform
the role of the Charity Commission
3.1 ACEVO welcomes provisions in the Bill
to modernise and reinvigorate the Charity Commission, making it
a more effective regulator for the charitable sector.
3.2 ACEVO supports the position of NCVO that
the primary focus and duty of the Charity Commission should be
regulation. The Commission should work to become a more strategic
regulator, maximising charities' public benefit while minimising
the costs of compliance and regulation. As part of the Commission's
drive to maximise its regulatory effectiveness, it should consider
regulating more closely in proportion to risk and size.
3.3 The Commission's role in giving support
and promoting best practice has proved valuable to the sector,
particularly in providing authoritative guidance to smaller charities.
We wish to preserve this role, although the Commission's priority
must be maximising regulatory impact.
3.4 A key part of this role will involve
driving up the sector's standards of governance by facilitating
and supporting moves to promote best practice. We therefore welcome
the second of the Commission's general functions, "Encouraging
and facilitating the better administration of charities",
which we take to include support for effective governance.
4 The Strategy Unit report's recommendation
on trading should be revisited
4.1 "Private action, public benefit"
recommended amending charity law to allow charities to undertake
all trading within the charity, without the need for a trading
company. The power to undertake trade would be subject to a specific
statutory duty of care.
4.2 The recommendation attracted support
from 84% of respondents to the consultation.
4.3 The recommendation was rejected by the
Government on the grounds that
4.3.1 IT MIGHT RESULT IN INCREASED RISKS TO
TRUSTEES, AND
4.3.2 ENSURING TAX NEUTRALITY WOULD INVOLVE
CHANGES TO TAX LEGISLATION.
4.4 The current necessity to establish trading
subsidiaries places a considerable burden on charities, as
4.4.1 ESTABLISHING TRADING SUBSIDIARIES INVOLVES
CONSIDERABLE COSTS, INCLUDING PROFESSIONAL ADVICE, ADDITIONAL
FINANCIAL TRANSACTIONS, COMPLIANCE COSTS, AND STAFF TRANSFERRALS.
THESE ARE OF PARTICULAR SIGNIFICANCE TO SMALL CHARITIES;
4.4.2 TO AVOID TAX CHARGES, SUBSIDIARIES MUST
DONATE THEIR ENTIRE TAXABLE PROFIT TO THE PARENT CHARITY, MAKING
IT DIFFICULT AND EXPENSIVE TO BUILD UP WORKING CAPITAL;
4.4.3 ADVICE FROM GOVERNMENT ON TRADING SUBSIDIARIES
IS PROBLEMATIC, AND INCONSISTENT. FOR EXAMPLE, ALTHOUGH THE INLAND
REVENUE RECOMMENDS USING SHARE CAPITAL, THE CHARITY COMMISSION
RECOMMENDS FINANCING THROUGH LOANS, SINCE IT DISALLOWS SHARE CAPITAL
AS UNSECURED INVESTMENT.
4.5 The recommendation should be revisited
by the Joint Committee, with a view to establishing a more efficient
and viable means of trading through charities.
4.5.1 REGARDLESS OF WHETHER THE RECOMMENDATION
IS REINSTATED, THE JOINT COMMITTEE SHOULD STRONGLY ADVOCATE A
RELAXATION OF THE ADMINISTRATIVE BURDENS FOR CHARITIES WITH TRADING
SUBSIDIARIES.
4.5.2 IF THE RECOMMENDATION IS REINSTATED, THOSE
CHARITIES THAT WISH TO LIMIT RISK BY CONTINUING TO CONDUCT TRADE
THROUGH TRADING SUBSIDIARIES SHOULD BE ALLOWED TO DO SO.
4.5.3 IF THE RECOMMENDATION IS REINSTATED, THE
JOINT COMMITTEE SHOULD EXPLORE SAFEGUARDS TO PROTECT CHARITIES
AGAINST HIGHER LEVELS OF RISK, AND TO MAINTAIN THE PRINCIPLE OF
A LEVEL PLAYING FIELD WITH SMALL BUSINESS. THIS MIGHT INVOLVE
A DE MINIMIS LEVEL FOR TRADING WITHIN THE CHARITABLE TAX
STRUCTURE, EXPRESSED AS A PERCENTAGE OF RESERVES OR USING THE
ACCOUNTING CONCEPT OF "MATERIALITY".
5 Public service delivery and risk
5.1 The Bill quite properly focuses
on effective regulation of the charitable sector, rather than
its role in public service delivery.
5.2 There are considerable obstacles to charities
that wish to take on a greater role in public service delivery.
These include:
5.2.1 The marked increases in the burden of
public liability insurance for charities and professional indemnity
insurance for trustees,
5.2.2 The burden of irrecoverable VAT for charities
delivering public services, which mitigates against a level playing
field with the other sectors,
5.2.3 The failure to share risk effectively
and appropriately between independent service providers and public
bodies commissioning services, and
5.2.4 The failure to implement the principle
of full cost recovery across the sector, particularly at a local
level.
ACEVO and others are taking forward measures
to address these barriers to effective service delivery through
channels outside the draft Bill.
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