DCH 137 Higher Education Funding Council
for England
Parliamentary Joint Committee
on the Draft Charities Bill
Written Evidence
submitted by
The Higher Education Funding Council
for England
21 June 2004
Background
1. The Higher Education Funding
Council for England ("HEFCE")
is the body with statutory responsibility for the administration
of funds to support higher education ("HE")
and research in England.
2. Under Government proposals, outlined
in Chapter 4 of the Draft Regulatory Impact Assessment to the
Draft Charities Bill (the "Bill"),
HEFCE is the proposed "principal regulator" in
relation to those higher education institutions ("HEI")
which are presently exempt charities. As a principal regulator,
the Government intends that HEFCE assumes the obligation to do
all that it "reasonably can" to meet the new
"compliance objective" in relation to the HEI
exempt charities for which HEFCE would take responsibility.
3. At the present time, HEFCE funds
higher education, research and related activities in 131 HEIs,
as well as in 162 further education colleges. In providing
such funding, HEFCE also monitors institutions' management and
governance arrangements and financial health.
4. HEFCE is, at once, both extremely
well versed with the sector, and uniquely placed to assume principal
regulator functions in regard to charity law in respect of HE
sector exempt charities.
5. However, the assumption of charity
law functions with respect to HEIs has the potential to change
fundamentally the established relationship between HEFCE and the
institutions to which it provides funds. Under the Government's
proposals, HEFCE will become all of provider, administrator, assessor
and legal watchdog.
6. As such, it is crucial for HEFCE
that the Bill clearly delineates between the charity law regulatory
responsibilities of HEFCE, as principal regulator, and those of
the Charity Commission (the "Commission"),
both for reasons of legal certainty and to maintain clarity and
trust in the relationship of HEFCE with HEIs.
7. The written evidence that follows
contains HEFCE's submissions on suggested amendments to the Bill.
Such amendments would more clearly define the relative roles of
principal regulator and the Commission, reflecting both the Strategy
Unit proposals regarding exempt charities, and the regulatory
realities of the HE sector (as a major sub-sector of exempt charities).
Submissions
8. HEFCE requests that the Joint Committee
recommends that Section 11 of the Bill obliges the Commission
to consult the principal regulator in the exercise of all Commission
powers in relation to exempt charities.
8.1 It is the intention of the Bill that
the principal regulator will assume the compliance objective in
relation to those exempt charities assigned to it by statutory
instrument.
8.2 The Bill does not, however, provide
for investigative powers or enforcement powers (such as suspending
a trustee or making orders in relation to the administration of
a charity) to be exercised by the principal regulator. Rather,
these will continue to be exercised by the Commission, on the
request of the principal regulator. HEFCE therefore envisages
that the principal regulator will play an important role in monitoring
for compliance, requesting information and regulating any enforcement
action taken by the Commission.
8.3 It is contradictory to this scheme
therefore that further provisions in Schedule 5 to the Bill allow
for autonomous enforcement action in relation to exempt charities
by the Commission (that is, action without consultation with the
principal regulator).
8.4 Amendments made to the Charities Act
1993 (the "1993 Act") by the Bill have the effect of
re-introducing exempt charities under the direct regulatory enforcement
powers of the Commission through the removal of exceptions in
the 1993 Act for exempt charities.
8.5 In addition, the Bill introduces new
powers of the Commission to make schemes for the application of
property cy-près and to make orders
to direct property (including land, which is of particular importance
to HEIs) to be applied for the purposes of the charity. These
new powers will apply to exempt charities.
8.6 Although these amendments reflect
the principle of greater regulation for exempt charities, the
Draft Bill introduces a high degree of uncertainty as to the operation
of the exempt charity regulatory system. In leaving open the possibility
of autonomous enforcement action by the Commission the Draft Bill
undermines the concept that a principal regulator is designated
as such by virtue of its existing expertise regarding the sector,
and the relevant regulatory mechanisms that it may already have
in place.
8.7 In particular, where sector-specific
knowledge is expedient, HEFCE is in a strong position to assist
the Commission, and should be consulted as a matter of charity
law. For example, in relation to the new power of the Commission
(contained in the Bill) to apply cy-près schemes, the desirability
of applying property for purposes close to the original purposes,
and the social and economic impact must be considered. Such factors
concern sector specific knowledge and it is important, both for
the effective functioning of regulation of the exempt charities,
and the nature of the relationship between exempt charities, the
principal regulator and the Commission, that the Bill recognises
as such and provides the principal regulator and the Commission
with a clearer delineation of functions.
8.8 A further example where consultation
between the principal regulator and the Commission is required
relates to the proposed amendment to Section 17(7) of the 1993
Act. The Bill, in Schedule 5, paragraph 5, imposes a prohibition
on exempt charities on the use of charity monies in the preparation
or promotion of a Bill in Parliament (without the consent of the
court or the Commission). In situations such as HEI mergers, an
act of Parliament is often required, and moneys applicable for
the purposes of the HEI charity may be spent on the preparation
or promotion of the Bill. Obtaining the Commission's consent
in such a situation would be greatly facilitated through consultation
of the Commission with HEFCE, with its knowledge of the sector
and the implications of expending (or indeed, not expending) monies
for such purposes.
8.9 HEFCE also believes that a requirement
to consult with the principal regulator is crucial in relation
to the exercise of Commission enforcement powers under Section
18 of the 1993 Act. Commission powers under Section 18 range from
the power to make orders in relation to trust property, to the
power to remove trustees. The Commission is only free to use these
powers following the initiation of an inquiry under Section 8
of the Act. For exempt charities, the Section 8 inquiry can only
be initiated at the request of the principal regulator. However,
once an inquiry is initiated (and the principal regulator may
request as such for any number of reasons), the entire range of
Section 18 powers becomes open to use by the Commission. HEFCE
is concerned that the substantial powers of the Commission under
Section 18, in particular the power to remove trustees, should
be subject to the obligation to consult with the principal regulator.
In the case of the HE sector, trustees of HEI charities are usually
members of the board of an institution. The removal by the Commission
of such senior personnel would have a large impact on the sector
as a whole and justifies consultation with HEFCE in its sector-specific
regulatory capacity.
8.10 HEFCE requests that the Joint Committee
recommends the inclusion of a sub-section in Section 11 of the
Bill, requiring the Commission to consult with the relevant principal
regulator before the exercise of Commission powers in relation
to an exempt charity. The inclusion of such a sub-section would
more clearly delineate the function of the principal regulator
and lead to more efficient regulation of the exempt charity sector.
9. HEFCE requests that the Joint Committee
recommends that the word "promote" is substituted for
the word "increase" in the compliance objective contained
in Section 11(3) of the Bill.
9.1 The Draft Bill creates an obligation
on the principal regulator to do all that it "reasonably
can to meet the compliance objective in relation to the charity".
The Draft Bill defines the compliance objective as "to increase
compliance by the charity trustees with their legal obligations
in exercising control and management of the administration of
the charity".
9.2 Although the word "increase"
is used in relation to the functions of a number of statutory
bodies, such examples demonstrate that "increase" is
used in relation to considerations to be taken into account in
the exercise of a function, rather than an objective in itself.
9.3 HEFCE is concerned that an obligation
on principal regulators to "increase" compliance per
se is unworkable, in so far as it does not adequately define the
limits or nature of the statutory duty. Indeed, the obligation
could be considered to be ever-increasing.
9.4 Recent legislation passed by the Scottish
Parliament contains an obligation on a public office to "promote
compliance". Further, a large number of public bodies in
England have a statutory duty to "promote".
9.5 HEFCE is of the view that the word
"promote" better represents the nature of the compliance
objective to be assumed by principal regulators. It imposes an
obligation on a level similar to that of "increase",
whilst avoiding the difficulties in relation to whether the statutory
obligation could be interpreted as being of an ever-increasing
nature.
9.6 HEFCE requests that the Joint Committee
recommends that that the word "promote" is substituted
for the word "increase" in the compliance objective
contained in Section 11(3) of the Bill.
The compliance objective is presently defined
as "…to increase compliance by the charity trustees
with their legal obligations in exercising control and management
of the administration of the charity." (Bill, Section
11(3))
Bill, Sections 11(2) and 11(3). The exempt charities
for which HEFCE will be principal regulator shall be specified
by the Secretary of State by way of statutory instrument (Bill,
Section 4(b)).
Figures correct as at September 2003
Private Action, Public Benefit: A Review of Charities
and the Wider Not-For-Profit Sector. Prime Minister's Strategy
Unit, September 2002
Bill, Schedule 5, §2 and §6
By virtue of Schedule 5 to the Bill, exempt charities
will become subject to the Commission's powers to: require a charity's
name to be changed (1993 Act, s.6); call for documents and search
records (1993 Act, s.9); exercise the same jurisdiction and powers
as are exercisable by the High Court in charity proceedings (1993
Act, s.16); give directions about dormant bank accounts (1993
Act, s.28); authorise charity proceedings (1993 Act, s.33); and
order a disqualified person to repay sums received (1993 Act,
s.73).
Bill, Section 15
Bill, Section 17
Bill, Section 15, inserting Section 14B(3)
Bill, Section 11(2)
Bill, Section 11(3)
See for example:
Milk Development Council Order 1995, Section 3(2)
- ("The Council shall exercise their function in such
manner as appears to them to be likely to increase efficiency
and productivity in the industry…); and
Countryside and Rights of Way Act 2000, Section 87(1)(b)
- ("It is the duty of a conservation board, in the exercise
of their functions, to have regard to…. the purpose of increasing
the understanding and enjoyment by the public…)
Public Appointments and Public Bodies etc (Scotland)
Act 2003, Section 2(3)(c)
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