DCH 12 INDEPENDENT SERVICES AGENCY
THE DRAFT CHARITIES BILL
Draft Charities Bill -written evidence
WRITTEN EVIDENCE SUBMITTED BY THE INDEPENDENT SERVICES AGENCY
LTD.
"Maintenance of Morale - Because success
in war depends as much on moral as physical factors, morale is
probably the single most important element of war. High morale
fosters the offensive spirit and the will to win. It will inspire
an army from the highest to the lowest ranks. Although primarily
a moral aspect it is sensitive to material conditions and a commander
should look after the well-being of his men." Source- "Design
for Military Operations. The British Military Doctrine."
[Army Code No 71451. D/CGS/50/8 of 1989].
INTRODUCTION
1. Our Agency, which provides management services
to about 50 Armed Forces charities, has concerns over some of
the measures proposed by the Government in its endeavour to amend
the law of charity. In the context of this paper our worries
are related solely to the possible effects of the proposals upon
military charities and upon the general morale of the Armed Forces
of the Crown. There are few members of the general public who
would regard the promotion of the efficiency of the Armed Services,
particularly the apparently esoteric customs and traditions of
the Services which make for good morale, as being "charitable".
This is because the PUBLIC UTILITY nature of this type of charity
is unrecognised except amongst certain groups of specialists in
charity law and administration.
2. The Ministry of Defence is well aware of the
concerns of this Agency, however it has chosen to ignore them.
Despite this attitude from "The Centre", we are confident
that the position set out in this paper reflects the views of
the many trustees of service charities with whom we have a professional
involvement.
3. We believe that the MOD's central staff has
failed, from the outset, to canvass proper opinion from the three
Services about the proposals and, when concerns were voiced, little
consideration was paid to them. As we are dealing with measures
that relate to the private trust moneys of the Services,
we do not believe that the MOD, a public body, has a mandate
to speak for individual trustees and charities without taking
expert and impartial advice. We believe that the interests of
Services charities, which the MOD claims to represent, would be
best served by a policy of no change to the law, save in the matter
of having all Service Non Public Funds and other registered military
charities operating under the laws of England and Wales.
4. After studying "Private Action, Public
Benefit (PAPB)" Our main concerns were:
A. The failure to include "The Defence of
the Realm/The efficiency of the Armed Forces of the Crown"
as a specific charitable "head".
B. The removal of "Excepted charity"
status from Service Non-Public Funds. (Excepted status is not
to be confused with the "Exempt status" of certain institutions,
which will remain after the introduction of the proposed legislation).
C. Devolved legislation. It is ridiculous that
different legal systems, under devolved legislation, prevent Service
Units, predominantly from the Army, based in Scotland and N Ireland
from investing in a collective investment such as the Army Common
Investment Fund (ACIF). If the Army, or either of the other two
Services, is governed as a legal unity in other aspects of the
law, then the same unity should apply to its charitable activities.
5. We are glad to note that the devolved legislation
issue, in this context, seems to be covered in Chapter 5/19 of
the draft Bill and so we shall not comment further on that matter.
6. Whilst we were delighted to learn that the MOD
has received categorical assurance from both the Home Office and
the Charity Commission that there is "absolutely no threat
to the status of Service charities", we do not consider that
this assurance is worth anything in terms of legal precedent.
It is certainly no substitute for properly drafted statute law.
THE NEED TO INCLUDE "THE DEFENCE OF THE REALM
AND/OR THE FURTHERENCE OF THE EFFICIENCY OF THE ARMED FORCES OF
THE CROWN" AS A SPECIFIC CHARITABLE "HEAD".
7. Our legal adviser writes "I agree that it
would be much better if one found specific reference to, for example,
"promoting the efficiency of the Armed Forces of the Crown"
amongst the purposes specified in Box 4.2 in "Private Action,
Public Benefit". The other purposes specifically listed (with
the possible exception of "the advancement of religion")
have a strong flavour of (one might say "fashionable")
social welfare, or "charity" in the narrow popular
sense of relief of poverty." The proposals ignore THE
PUBLIC UTILITY ASPECTS OF CHARITY LAW.
8. He goes on to write "The support of the
Armed Forces is rather different from any of them. The position
is well stated by Barwick CJ in the High Court of Australia in
Incorporated Council of Law Reporting (Queensland) v Federal
Commissioner of Taxation (1971), 125 CLR 659. "Out of
certain of the instances given in the preamble to the Act of 1601
a broad concept emerges of the kind of PUBLIC UTILITY which
will satisfy the quality of charity. Any notion that that concept
is of an eleemosynary nature is seen to be untenable by some of
the very instances themselves, e.g. the repair of bridges, havens,
causeways, seabanks and highways and the setting out of
soldiers. Further, these instances seem to regard the
provision of some of the indispensables of a settled community
as charitable. The ability to move from place to place and to
do so without let of rivers and streams, protection of the land
from the ravages of the sea, security against enemies,
are fundamentals of the society seen to be within the concept
of charitable public benefit as much as assistance to the needy
and as education of the generations" (emphasis added; "eleemosynary"
is the legal term for charities for the relief of the poor).
9. The Ministry of Defence has told us that the
"Defence of the Realm" has never been a specific
category of charitable purpose. This indicates that they are
thinking only of the four categories given by Lord Macnaughten
in Pemsel's Case, which do not, of course, constitute a
definition of charity but only a classification. The 1601 Statute
refers to payment for the setting out of soldiers
as a specific category of charitable purpose. However it does
not contain a complete definition, though it is fuller than Lord
Macnaughten's classification of Charity.
10. Whilst there are other charities which do not
obviously fall into any of the original 9 categories of charity
laid down in PAPB e.g. the care of animals, or public works of
the kind referred to in the 1601 Statute, there are not very many
that cannot be fitted into one of the 9 categories: whereas
the promotion of the efficiency of the Armed Forces does not fit
very easily into any of them. The new category "the
promotion of human rights, conflict resolution and reconciliation"
does not sit very comfortably with security against enemies -
though the two are not necessarily inconsistent.
11. If the intention is that all purposes which
are currently charitable shall continue to be charitable, a good
case can be made for including "the promotion of the efficiency
of the Armed Forces" among the express purposes, so as to
remove any possibility of argument on the point, and also to emphasise
the importance in the national interest of maintaining the efficiency
of the Armed Forces.
12. Our adviser then goes on to refer to "The
Government's Response to the Strategy Unit Report "Private
Action, Public Benefit" where he notes the creation of new
additions to the proposed list, the promotion of animal welfare,
the provision of social housing and the advancement of science.
These three purposes are already established as charitable and
would be covered by the Review's proposed tenth category of "other
purposes beneficial to the community". The specific inclusion
of these three purposes will not, therefore, create any new charitable
purposes but the Government believes that the specific purposes
contained in the list should reflect major areas of charitable
endeavour which have, or should have, strong public recognition.
The three proposed additions have a strong claim on that basis.
The list should serve to align the legal definition of charity
with the popular understanding of what is, or should be, charitable.
In view of the long standing recognition that the support of
the Armed Forces is a charitable purpose (and particularly as
it is expressly mentioned in the Statute of Charitable Uses 1601,
as well as, for example, the passage from Barwick CJ's judgement
set out above), we believe that the need to "reflect major
areas of charitable endeavour which have, or should have, strong
public recognition" applies equally to Services charities.
We feel that they have an equally strong claim to be included
on that basis; and that the Government should give added force
to "the promotion of the efficiency of the Armed Forces of
the Crown" (or some such words) by express recognition in
the Charities Bill.
THE EXCEPTED STATUS OF SOME MILITARY CHARITIES
13. There are two main types of charity within the
Armed Forces;
a. Registered charities supporting major
in-Service or ex-Service activity, such as the Army Central Fund
(an in-Service welfare charity) and the Army Benevolent
Fund (an ex-service benevolent charity).
b. Services non-public funds (SNPF), which
are "excepted charities" under the terms of Statutory
Instrument Number 1056 of 1965 namely "charities mainly or
wholly concerned with the promotion of efficiency of any of the
armed forces of the Crown not being ……a charity whose
objects extend to the relief or assistance of any person not being
a serving member of those forces…"
14. Whilst Registered Charities operating in support
of the Armed Forces may fund raise actively and become involved
with the general public in other ways, Service non-public funds
are essentially the accounts of units of the Armed Forces covering
domestic (i.e. internal) charitable activity. Using Government
phraseology, they operate "below the radar" and in our
view should continue to do so in view of their essentially domestic
status. There are, we believe, over 15,000 such excepted charities
in the three Services. Turnover on such accounts can be very
considerable and to impose a legal requirement to open them up
to public inspection, by the submission of accounts and returns
to a central charitable register, would impose yet another nugatory
administrative load upon staff already operating under considerable
pressure. We do not believe that there is any activity, within
such accounts, which is of interest to the general public. There
is nothing to hide but, conversely, nothing to show. If it is
the Government's intention to cut red tape, why introduce increased
bureaucracy in such a way? We ask what level of extra staffing
will have to be introduced at the Charity Commission, and presumably
also at the new Office of the Scottish Charity Regulator (and
its equivalent in Northern Ireland) to cope with this increased
workload.
15. It appears that other excepted charity groups
consist mainly of some schools, the Scout and Guide movements
and certain churches. There is little in common between these
organisations and the Armed Forces and we cannot understand why
an exception to cover the unique circumstance of the Armed Forces
cannot be allowed. The Government would appear to be trying to
over-legislate in an attempt to be "fair to all" but
the Armed Forces are different in that their funds are designed
to improve and maintain morale. No other group
is expected to be prepared to die in the routine course of its
duty.
16. The proposal now to set the initial registration
threshold for SNPF at £100,000 (annual income) is probably
too low for the majority of very large ships of the fleet and
major naval shore establishments, battalion sized army units and
RAF stations. Such units operate on a "Central bank"
concept, whereby individual sub-funds, each of charitable status,
are aggregated together for administrative and banking efficiency.
The turnover on central banks can be very high but the sub-funds
contained within could now opt out of the system and operate independently
below the threshold. This would solve one problem but go against
the stated principle of trying to facilitate charity mergers and
administration. The measures contained in the proposed legislation
are therefore simplistic and fail to take account of the totally
unique status and requirements of the Armed Forces. If excepted
charity status is to be removed, we feel that there is a solution
in merely declaring that all existing (and any new) Service Non-Public
Funds should fall within the category of "Exempt charity",
which is to remain.
17. The reason why SNPF do not need to be registered
with the Charity Commission is because there are statutory records
of their existence elsewhere (with the Services Finance branches).
Tax legislation does not insist that a charity has to be registered
with the Charity Commission before it qualifies for tax exemption.
An alternate to the proposal (contained within paragraph 16 above)
is that, if excepted charity status is to be abolished, SNPF be
permitted to remain unregistered, except within the Service, but
to enjoy blanket tax exemption, unless they enter into areas of
activity which are deemed to be non-charitable (which they are
unlikely so to do).
18. The Charity Commission has recently raised the
matter of alleged illegality of Army non-public accounting systems.
The excepted charity status of Service Non-Public Funds excepts
such charities from "the duty under section 8(1) of the Charities
Act 1960 to send annual accounts to the Charity Commissioners
otherwise than on request". Under the SORP (Statement Of
Recommended Practice) charities with gross income not exceeding
£100,000 may opt out of accruals accounts and prepare accounts
on a receipts and payments basis. Paragraph 354 of the Charity
Commission's publication "Accounting and Reporting by Charities
- Statement of Recommended Practice, October 2000" states
"receipts and payments accounts and statements of assets
and liabilities may be organised in any way that the trustees
feel appropriate." For a large number of Service
Non-Public Funds below this level of turnover, we cannot understand
how the Commission can claim that the accounts are in an inappropriate
form when they allow such great latitude in their mode of presentation.
CONCLUSION
19. The Armed Forces have a unique position in our
society. Their position, in charity law, should reflect this
by underwriting the charitable nature of measures to support their
wellbeing thus enhancing morale and fighting efficiency. This
will be achieved by confirming that the Defence of the Realm and
the promotion of the efficiency of the Armed Forces of the Crown
are good charitable purposes and by the continuation of the "excepted
charity" position of SNPF.
| 
