Joint Committee on the Draft Charities Bill Written Evidence


DCH 2 National Council for Voluntary Organisations (NCVO)

NCVO's Submission

To the Joint Committee on the draft Charities Bill

June 2004















Contact: Belinda Pratten

Tel: 020 7520 2558

Email: belinda.pratten@ncvo-vol.org.uk




DCH 2

1.  Introduction

1.1 NCVO is the largest general membership body for charities and voluntary and community organisations in England. NCVO has sister councils in Wales, Scotland and Northern Ireland. Established in 1919, NCVO gives voice to over 3500 organisations ranging from large 'household name' charities to small self help groups involved in all areas of voluntary and social action at the local level. NCVO champions the cause of the voluntary sector. It believes that the voluntary sector enriches society and should be promoted and supported. It works to increase the effectiveness of the sector, to identify unmet needs and to encourage initiatives to meet those needs. It does this by providing a wide range of information, advice and support services and representing the views of the sector to government and policy-makers.

1.2  NCVO has undertaken an extensive programme of work in relation to charity law and regulation in recent years and has demonstrated both the need for reform and the importance of this to the charitable sector. In previous evidence to the Committee, prior to publication of the draft Bill, NCVO addressed the recommendations put forward by the Strategy Unit in 2002 and the Government's response to this. This paper refers specifically to the clauses set out in the draft Bill, highlighting key issues we would like the Committee to consider for inclusion in its report to the House.

1.3  The Coalition for a Charities Act is an alliance of over 30 charities that has been campaigning for the modernisation of charity law. Members of the Coalition want to see a universal public benefit test; a clearer role for the Charity Commission, with a stronger focus on regulation and limits on their general advice-giving role; and an independent appeals tribunal to hear appeals against decisions of the Charity Commission. The Coalition supports the issues raised below in relation to these aspects of the proposed legislation.

1.4   NCVO and the Coalition welcome the publication of the draft Bill. There is a real need to bring charity law into the 21st Century and to create a modern, effective, legal and regulatory framework that will enhance public understanding of, and confidence in charity. We particularly welcome the introduction of a universal public benefit test and an independent appeals tribunal for organisations wanting to challenge decisions of the Charity Commission.

2. Consideration of the draft clauses

Meaning of charitable purpose

2.1   NCVO has consistently supported a list of charitable purposes that reflects changing public attitudes, is non-political, flexible and allows the law to develop over time. The draft Bill goes a long way towards meeting that aim, with the publication of a descriptive list of charitable purposes that reflect modern perceptions of charity. As the explanatory notes make clear, the intention is that the Bill should provide scope for the possibility of new charitable purposes to be recognised in future.

2.2  The use of the principle of analogy to the list of charitable purposes given in the preamble to the 1601 Charitable Uses Act as a means of determining charitable status has enabled modern definitions of charitable purposes to evolve through case law. However, it can be difficult for organisations operating in new fields to make such an analogy because the activities they are undertaking could never have been foreseen 400 years ago.

2.3   The list in the preamble was never intended to be comprehensive, rather it was developed as a guide. In cases where an organisation appears to provide public benefit but cannot easily draw an analogy with existing purposes, the courts have had the power to decide whether the organisation's objects fall 'within the letter, the spirit or intendment of the preamble and subsequent case law'. NCVO recommends that a version of this statement, amended to replace 'the preamble' with 'the Charities Act 2005', should be included in subsection (4). This would allow for the possibility of charitable status to be granted by the court to organisations whose purposes are not analogous but who nevertheless provide a clear public benefit.

The Public Benefit Test

2.4 We welcome both the requirement that a charitable purpose must be for the public benefit and the removal of the presumption of public benefit from certain categories of charity. This will help to clarify what charity is for, not only in relation to the legal position of charities but also to the public's perception of charity

2.5 However all organisations with charitable status should be required to demonstrate that they provide public benefit on an on-going basis, not just at registration. For this reason we supported the Strategy Unit recommendations on this point and particularly the proposed introduction of an additional public character test for charities that charge high fees. It will be essential that such on-going checks are undertaken if we are to enhance public confidence by making clear the relationship between charity and public benefit.

Definition of public benefit

2.6 We are pleased that clause 3(3) of the draft Bill states that public benefit will continue to be determined by reference to common law; this will ensure that the law has the flexibility both to accommodate the diversity of the sector and to evolve over time. It also ensures that the definition of public benefit remains free from political interference.

2.7 However we are extremely concerned that elsewhere in the draft Bill there is an attempt to define public benefit: this is in the third regulatory objective for the Charity Commission, 'to enable and encourage charities to maximise their social and economic impact', and again in Chapter 4 in relation to the application of property cy pres, where similar wording is used. It should be noted that this goes beyond any legal requirement placed on charities. Moreover an organisation that is able to maximise its social and economic impact will not necessarily be able to demonstrate that it provides public benefit or has a public character, and vice versa.

Such terminology is currently in vogue, but whilst most charities will be able to show they have a social impact, for many organisations any economic impact they have is likely to be incidental to their work: this is not, nor should it be a primary purpose of charitable activity. We are particularly concerned that this will have a disproportionate impact on small charities. Charities should be encouraged to maximise their public benefit and to use their resources efficiently and effectively to promote the best interests of their beneficiaries and their underlying charitable purposes. This would be a more appropriate strategic objective for the Commission.

2.9 NCVO is extremely concerned that the wording of this objective will, in time, be used as a de facto definition of public benefit and thus as the basis for decision-making by the Charity Commission. Indeed in clause 15 of the draft Bill, cy-pres schemes, it is suggested that the Commission should have regard to 'the need for the relevant charity to be able to make a significant social and economic impact' (14B, sub-section 3(c)) when making decisions about the application of property cy pres. This suggests that this phrase is intended to be used in this way. The Charity Commission's existing objective of 'promoting the effective use of charitable resources' is much more appropriate.

The Charity Commission

2.10 Clause 3 states that the Charity Commission will exercise its powers on behalf of the Crown and and the explanatory notes state that it is to be established as a Government department. We would like clarification of the underlying constitutional basis of these changes. How will the Commission be accountable if it acts on behalf of the Crown, eg will it be accountable to Parliament and if so, how? What are the implications of this in relation to scheme-making and other judicial acts currently undertaken by the Commission on behalf of the High Court, given that the Crown has no functions in these areas?

2.11 It has always been and remains our view that there should be an effective and rigorous regulator for the charitable sector in order to maintain and enhance public trust and confidence. There is a need to strengthen the Commission's regulatory focus, but to do so without appearing to expand the regulatory burden on charities. For this reason NCVO agreed with the Strategy Unit recommendation that the role of the regulator should be more clearly defined, with a stronger focus on its regulatory function.

2.12 To achieve this aim, the Commission's strategic objectives need to reflect this role, specifically in relation to enhancing, monitoring and investigating compliance with charity law. Its performance and impact should be assessed on this basis. The changes outlined above, in particular the removal of the presumption of public benefit for some categories of charity, will expand this role. For example the Commission will need to ensure the public benefit test is applied consistently as well as undertake a rolling review of the public character of charities that charge high fees. However, the objectives proposed by the Strategy Unit are too widely drawn to enable the Commission to maximise its regulatory impact.

2.13 The Commission should retain and indeed strengthen its advice and policy role in relation to its regulatory functions: clearer focus on regulatory advice would be welcomed by charities. But the advisory role outlined in the Draft Bill goes much beyond this, giving the Commission the general function of 'encouraging and facilitating the better administration of charities', and the power to determine how it will achieve this (chapter 1, clause 5, sub- sections 1C and 1D). It also extends the Commission's power to give advice and guidance (chapter 5, clause 20).

2.14 NCVO believes that as a matter of principle there should be a clear distinction between regulation and more general advice giving and a recognition that providing that they comply with the law, trustees have the freedom to pursue whatever activities they judge to be in the best interests of the charity. The blurring of the boundary between the two means that, in practice, advice given by the regulator becomes de facto regulation, thereby extending the regulation of charities beyond that required of other sectors. As a consequence a charity could spend disproportionate effort ensuring that it complies with advice from the Commission rather than meeting the needs of its beneficiaries. It is also confusing for trustees who are in a weak position to challenge the Commission, even if they do so 'honestly and in good faith'.

2.15   The Regulatory Impact Assessment not only fails to consider the impact of extending the Commission's advice giving role, but also asserts the opposite view to that of the Strategy Unit, namely a concern that the changes 'might result in the regulatory or "watchdog" aspects of the work carried out by the Commission over-shadowing its advisory and supportive role to the sector'. NCVO urges the Committee to consider the impact of these changes to ensure that the role of the Charity Commission has a clear focus on regulation; that this is reflected in its strategic objectives, which should be re-written accordingly; and that there is no apparent increase in the burden of regulation on charities as a result of this Bill.

2.16 The wider advice service should be independent of the Charity Commission and is more appropriately the role of umbrella and resource bodies owned by the sector. Whilst the current climate has meant that there have been gaps in the sector's ability to undertake this role, this will be addressed by the significant investment by the government in the sector's infrastructure at local, regional and national levels. It will be important that infrastructure organisations work with the Charity Commission, but we would not want to see the creation of parallel structures nor duplication of resources in respect of advice-giving.

Charity Appeal Tribunal

2.17 NCVO welcomes the creation of an Independent Appeals Tribunal. We would like further clarification with respect to the cost of bringing an appeal. We also think that the Tribunals jurisdiction should be enlarged to cover the range of decisions taken by the Charity Commission.

Registration of Charities

2.18 NCVO believes that all charities that receive the benefits of charitable status should be treated the same: that is they should be subject to the same reporting and accounting requirements, proportionate to their size. Therefore whilst welcoming the changes to the status of excepted and exempt charities, we would like to see these clauses strengthened:

  •   there should be a schedule setting out a timetable for the registration of excepted charities; and
  • the principal regulator of an exempt charity must ensure compliance with charity law.

Powers of entry

2.19 Clause 21 extends the Commission's powers to a considerable degree, following the institution of an enquiry. There must be clear and explicit guidance as to when and why this would be necessary and it would have to be the last in a long list of measures.

Charitable Incorporated Organisations

2.20 It will be useful for charities tobe able to become incorporated by adopting this new legal form. We also welcome the fact that it will be relatively easy for those organisations that have incorporated as a company to change to this form if they so wish. However, the aim should be to add to the range of legal forms available to charities, not to make this the only option available.

Remuneration of trustees providing services to charity

2.21 NCVO believes that the longstanding voluntary principle underpinning trusteeship is the defining essence of the sector, without which it would be little different from the commercial sector. However, we agree that where a trustee provides a service over and above his or her role as a trustee, he or she should receive appropriate remuneration, subject to a duty of care by the trustee board as a whole.

Liability of Trustees

2.22 NCVO welcomes the inclusion of this clause.


Power to spend capital

2.23 We are concerned that whilst the powers contained in clause 33 to enable trustees to spend capital endowments will enable the Commission to give existing charities greater flexibility in managing their investments, we note that there is no half way house between a total restriction on expenditure of capital and a complete relaxation of that restriction. In consequence we feel that the new power will discourage future donors who would otherwise be willing to set up a charity in reliance on the freedom to provide for a permanent endowment, as they could not be confident that their gift will be retained indefinitely. We would like the Committee to consider carefully the implications of this measure and whether it should be modified in relation to larger charities.

Mergers

2.24 The arrangements for establishing a register of mergers and simplifying the procedure for vesting property in a merged charity are helpful and to be welcomed. However decisions about mergers are properly the responsibility of trustees; the Charity Commission should not direct trustees to merge, eg because the Commission believes it would maximise social and economic impact. Nor should the Commission give advice beyond what is required by charity law, ie it should not offer advice in respect of due diligence, TUPE and the transfer of contractual and other liabilities.

Promotional Ventures

2.25 Professional fundraisers raising money for charitable purposes or institutions should be required to make appropriate statements about their role and the amount of money raised that will benefit the charity or cause concerned. This will promote public confidence in such ventures and in charity fundraising more generally. We welcome this clause.

Regulation of fundraising

2.26 NCVO considers that charitable fundraising should be subject to self-regulation by the sector, not regulated by government. Nevertheless we welcome the current proposals. We note that the Secretary of State is committed to consulting with the sector and those involved in raising funds on its behalf before activating the reserved powers described in this draft Bill, but we would like to see a clear statement of the criteria on which the decision to invoke reserve powers would be based. Such criteria should be jointly agreed with and owned by the sector in a compact compliant manner.

CHARITABLE COLLECTIONS

2.27 NCVO BROADLY SUPPORTS THESE PROPOSALS. THE CURRENT LEGISLATION IS FRAGMENTED AND INCONSISTENT AND THERE IS A NEED FOR A NEW INTEGRATED LICENSING SCHEME. THERE SHOULD BE A CLEAR AND CONSISTENT SYSTEM FOR CHECKING THE ELIGIBILITY OF ORGANISATIONS WISHING TO UNDERTAKE PUBLIC COLLECTIONS, BUT IT IS IMPORTANT THAT THIS DOES NOT INCREASE THE BUREAUCRATIC BURDEN ON CHARITIES, PARTICULARLY THOSE ORGANISING NATIONAL COLLECTIONS. THE PROPOSED 'LEAD AUTHORITY' APPROACH WILL GO SOME WAY TOWARDS MEETING SUCH CONCERNS. WE AGREE THAT LICENCES SHOULD NOT BE DENIED ON THE BASIS OF ARBITRARY OR ADMINISTRATIVE CONVENIENCE, BUT SHOULD INSTEAD BE JUDGED ON THE BASIS OF CAPACITY. THE DEFINITION OF CAPACITY WILL BE CRUCIAL AND WILL REQUIRE A CONSENSUS BETWEEN THE SECTOR AND LOCAL AUTHORITIES.

2.28 We note that unlike collections in a public place, door to door collections will not need a permit, only to notify the local authority. It is possible that in future capacity could become an issue here as well, for example if the collection of direct debits through face to face funding on the street were to be curbed collectors might shift to doing this on a house-to-house basis. This could potentially be seen as more intrusive and could further damage public confidence.

NCVO

June 2004


 
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