Joint Committee on the Draft Charities Bill Written Evidence

DCH 81 Nuffield Hospitals

DCH 81

WRITTEN SUBMISSION OF NUFFIELD HOSPITALS (Charity No. 205533)

TO THE JOINT COMMITTEE OF PARLIAMENT CONSIDERING

THE DRAFT CHARITIES BILL ("the Bill")

1 INTRODUCTION

Nuffield Hospitals is the leading group of charitable hospitals in the UK, with an income in the calendar year 2003 of £409,517,000.

We welcome elements of the Bill, in particular the new statement of charitable purposes.

However, we are concerned about indications from some influential quarters that charities such as ourselves, which charge for services that are expensive to provide, may not in future satisfy the test of public benefit. We would strongly resist any suggestion that our services do not provide sufficient public benefit. The fact that the "profits" made by a charity go back into improving services which by definition are for the public benefit, rather than being paid out as dividends, is the fundamental distinction between the charity and profit making sectors, and so it is right that those profits are not subject to taxation. If the Government is serious about allowing the charity sector to become a vehicle for public service delivery then any reform of charity law that effectively prohibits charities such as Nuffield Hospitals from charging reasonable fees for the provision of services ought to be resisted.

We also have concerns that a number of provisions in the draft Bill will increase the regulatory burden on charities and make trustee recruitment more difficult, whilst we also doubt the usefulness of the Charitable Incorporated Organisation ("CIO").

We set out below our specific comments having reference to the issues that the Joint Committee has indicated it will be concentrating on.

2 FLEXIBILITY AND ACCOUNTABILITY

Does the draft Bill strike the right balance between flexibility and accountability? How can the danger of over-regulation be avoided? How will this affect smaller voluntary-run charities?

Powers and objectives of the Charity Commission

We are concerned about the open-ended objectives placed on the Charity Commission to encourage charities to maximise their social and economic impact and enhance the accountability of charities. These seem to us to be open-ended commitments the pursuit of which is likely to divert charitable funds into increased regulatory compliance without a matching gain in accountability and efficiency in the use of charitable funds.

There is no concept of a standard to be achieved. To take the example of the compliance objective the Commission will need to collect information about the extent of compliance and will then apparently have to devise ways of achieving an ever increasing degree of compliance. We can only speculate that the combined effect of this will become a strong disincentive to voluntary trusteeships.

We have similar concerns about the Commission requesting information and responding to requests for information from Ministers by effectively passing the request, and hence the costs of compliance, directly onto charities.

To help avoid the danger of over regulation we would prefer to see a balance struck by:

(1) the definition of objectives in a finite way; and

(2) the imposition of a general duty on Ministers and the Commission to have regard to the effect on charities of pursuing their objectives and of using their powers and the need to use charity resources in the most efficient and economic way.

Remuneration of trustees

We welcome the proposal to allow trustees to be remunerated for services provided to the charity. However, in the case of the very largest charities, such as ourselves, we feel that the duties imposed on trustees are sufficiently onerous that there is a case for extending the remuneration provision in respect of these charities to allow payment to trustees for acting in that role. We feel that this would be an aid to trustee recruitment and retention. We comment on this further below in relation to public service delivery.

Altered regulatory model for the largest charities

We would go on to say that there is an increasing difficulty in making a common regulatory model fit the entire range of charities in the sector. We would say that one solution for this would be to liberalise certain rules for the very largest charities, perhaps balanced by a more onerous reporting requirement. The division between the largest charities with the altered regulatory regime can perhaps be formalised by giving the Commission a power to divide the register into two or more sections.

Organised in this way there would be more flexibility for the charities sector as a whole. For example, a regime might be developed in regulations for charities with particular criteria to be allowed to remunerate their trustees, carry on trading activities and do other things under a general licence from the Commission. A small number of such regimes might be developed over time adapted to the different needs of, for example, grant making foundations or membership-based organisations. The key step at this stage though is to facilitate this by allowing the register to be divided into classes and giving the Commission power to grant authorisations by class.

3 IMPROVING PUBLIC CONFIDENCE

Will the Bill improve public confidence in charities? Will it encourage more giving and volunteering?

We do feel that, provided the initiatives are properly resourced, the fact that an increasing number of charities are brought under the ambit of the Commission should increase public confidence in the sector.

However we are concerned that the general tendency to increased regulation may inhibit trustee recruitment and retention. For example, we feel that the creation of a criminal offence for breach of the provisions on trustee remuneration is disproportionate.

4 NEW CHARITABLE PURPOSES

Are the 12 new charitable purposes the draft Bill proposes for a charity satisfactory - should there be additions or deletions? Is the phrase 'public benefit' best left undefined in the Bill? Do fee-paying schools which are charities demonstrate adequate public benefit arising from their activities?

Descriptions of charitable purposes

We welcome the new list of descriptions of charitable purposes set out in clause 2 of the Bill, particularly the inclusion of the advancement of health and the relief of those in need via the provision of care and accommodation. We are satisfied that Nuffield Hospitals' current objects and activities fall squarely within these descriptions of charitable purposes.

Public benefit and public character

We agree with the decision not to include a statutory definition of public benefit in the Bill, and would urge the Committee not to attempt to do so. We feel that there are significant advantages in keeping public benefit as a concept derived from case law rather than statute, in order to render it flexible enough to accommodate the whole diversity of the charity sector, and to give it the scope to evolve over time.

With regard to the proposed systems of ongoing checks on the public character of charities that charge high fees for their services, we would clearly need to see the statements from the Commission as to how they propose to carry out these checks before commenting in detail. However we are concerned by the initial indications that the Charity Commission views the removal of the presumption of public benefit for charities in the first three current heads as potentially giving it the scope to write a significantly tougher public character test, on the basis that the courts should no longer feel bound to follow the existing case law. This seems to us to contradict the guidance to the draft Bill, which indicates that references to public benefit in the Bill are to the existing concept in English charity law.

With regard to Nuffield Hospitals' own position, we would strongly resist any attempt by the Charity Commission to challenge the proposition that our services do not display the requisite degree of public character. Whilst the fees charged for some of Nuffield Hospitals' services are high, they do no more than reflect the cost of the service plus a reasonable margin to generate cash for reinvestment. The Bill should make explicit that charging for services is not a bar to charitable status.

With the availability of health insurance to spread the cost of treatment over time, and our very significant contracts with the NHS, we believe that Nuffield Hospitals' services are both affordable and accessible to a sufficiently broad cross section of the public (who are given a choice in how they obtain their healthcare that is itself of value) that our charitable status ought not to be called into question. If the Government is serious about allowing the voluntary sector to become a vehicle for public service delivery then any reform of charity law that effectively prohibits charities such as Nuffield Hospitals from charging reasonable fees for the provision of services ought to be resisted.

5 DELIVERY OF PUBLIC SERVICES

Are there aspects of the draft Bill which would permit the charity and voluntary sector to play a greater role in the delivery of public services if they wished to do so?

We already play a very significant role in the delivery of public services through our contracts with the NHS, and intend to continue to do so. However our ability to do so could only be hampered by a reform of the public benefit test that prevented us from charging reasonable fees for services.

The strength of Nuffield Hospitals ability to play a significant role in public service delivery, is due in significant measure to the caliber of the individuals we have been able to recruit to the board. We found that we could not recruit trustees with the knowledge, skill and experience needed to help run a multi million pound business without offering remuneration. We have to compete through board level competence as in every other aspect of our business. We believe that this is likely to be a key issue for other providers of services.

We suspect the issue is more acute for trading charities which do not necessarily have the kudos associated with charities which some might regard as more glamorous. And, given the choice between a remunerative non-executive directorship on a FTSE 350 board or an unpaid trusteeship on a charity board, many good candidates choose the paid position. We have found that since our trustees became remunerated their commitment to the Charity has increased significantly, as measured by an increase in the number of board meetings, board committees, and hospital visits undertaken by our trustees. We believe that many charities of our size would similarly benefit from improved governance and accountability stemming from the right to pay trustees.

6 BENEFITS AND COSTS

What are the likely benefits and costs of the draft Bill? What level of funding will be necessary for the Charity Commission to carry out its additional tasks effectively?

We feel that the Charity Commission will require a very significant increase in funding, as it seems to us the additional tasks (administering the public character tests, performing the role analogous to Companies House for the CIO, regulating increasing numbers of exempt and excepted charities) will required large numbers of staff with proper technical (especially legal) support.

7 TRADE

Is it right that the draft Bill does not include the recommendation in the strategy unit consultation paper, private action, public benefit, that charities should be allowed to trade as part of their normal activities without the need to set up a trading company?

We would suggest that the freedom to carry out significant non-primary purpose trading without a subsidiary company should be one of the freedoms given to the largest charities such as ourselves, as suggested above. It is the large charities that will invariably be incorporated in any event, thus protecting the trustees from personal liability, and which will have proper management systems in place to manage the commercial risks involved.

8 ADEQUATE, WORKABLE AND BENEFICIAL?

Are the specific proposals in the draft Bill (such as the new corporate legal form, the charitable incorporated organisation) adequate, workable and beneficial?

Charitable incorporated organisation

We do not see any particular merit in the proposed new legal form, and do not currently foresee any circumstances in which Nuffield Hospitals might convert to a CIO. A CIO would not permit its trustees to achieve anything that they could not do through the medium of a Company Limited by Guarantee (CLG). Indeed the trustees of a CIO would have their discretion fettered, e.g. through the Charity Commission's effective oversight of mergers and amalgamations, and by all amendments to their constitution needing the Commission's scrutiny before becoming effective, in ways that those of a CLG currently do not. We also do not believe that the interaction of the new provisions with the Companies Act and the Insolvency Act have been fully thought through.

Extension of Section 29 of the 1993 Act

We do not agree with the proposal in the draft Bill. We feel that it will encourage officers, employees and agents of the charity to bypass the trustees in matters of administration. If any of these persons have a legitimate concern about the management of the charity or the conduct of the trustees, then there are other avenues for this disquiet to be legitimately expressed. This provision does not add anything constructive to the current "whistleblowing" legislation.

Search warrants

We feel that the powers of entry given to the Charity Commission under the proposed new Section 31(a) of the 1993 Act represent a significant extension of the powers granted to it pursuant of a Section 8 inquiry. We feel that, at the very least, the written records kept by the authorised person should also include the identities of any people accompanying him.

Charity Appeal Tribunal

Whilst we welcome the setting up of the Charity Appeal Tribunal, we feel that the scope for appealing against a decision by the Charity Commission to institute an inquiry should be extended to include the ground that there was no reasonable basis for instituting the inquiry. The need for this additional check on the Commission's ability to start an inquiry is heightened by the more invasive powers that will be available to them once the Bill is passed.