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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