Draft Protection of Charities Bill - Joint Committee on the Draft Protection of Charities Bill Contents

3  The power to issue a statutory warning

Issue to be explored

81. Clause 1 of the draft Bill would give the Charity Commission the power to issue an official warning to a "charity, charity trustee or any trustee of a charity"[109] which, if not heeded, could result in the Commission using its other powers. This Chapter examines the case for such a power to be added to the Commission's armoury, its likely degree of efficacy and whether the provision, as drafted, contains safeguards sufficient to ensure that it would be used appropriately.

Background to the proposal

82. Proposal 16 in the Cabinet Office's consultation document was to give the Charity Commission a new power to issue an official warning to a charity where it deemed the charity's trustees not to have complied with the provisions of the 2011 Act and/or their fiduciary duties. The power would be exercisable in "'medium' range abuses where the Commission's protective powers could be used but it would not be proportionate to do so".[110] Although the consultation acknowledged the argument that the Commission could address such issues through less formal existing routes (via general advice and guidance), it noted that such guidance was not enforceable under section 335 of the 2011 Act and that, as it was also "used in an enabling context", it would be clearer cut for such a warning to be issued under its own provision so that any warning would have "much-needed gravitas and status".[111]

83. As with the other proposed powers, the Commission provided the Cabinet Office with a case study based on a real-life example. The example used was that of a charity whose premises displayed images of the founder and other members of a proscribed organisation in a context which implied support of that organisation. The Commission suggested that it could act more effectively if it was able to use a warning power, which made clear the consequences of non-compliance with its advice, in combination with a proposed power to issue a direction to a charity outside the context of an inquiry (Proposal 10).

84. The original proposal differed in two key respects from the proposal as incorporated in the draft Bill. The separate power to issue a direction outside the context of an inquiry has not been included in the draft Bill, for reasons which are considered in Chapter 4. A further difference is that the proposal was for any official warning to be appealable to the First-tier Tribunal (Charity) by the recipient of the warning. The Government's response to the consultation explained that providing for such an appeal "would be disproportionate and could be used to frustrate or delay regulatory action."[112] The response notes that warnings currently provided on a non-statutory basis are not appealable, that representations against warnings could be made and that any warnings would, in the absence of a route of appeal to the Tribunal, be subject to Judicial Review.[113]

Would the power be an effective addition?

85. The Commission and the Cabinet Office both made the case for the warning power which had status beyond that of its existing regulatory advice and guidance as a means of graduation before the more severe powers associated with the opening of an inquiry were sought to be used. In William Shawcross' words, this would be "more serious than mere guidance, but much less than the sledgehammer of suspension, the removal of trustees or, indeed, a statutory inquiry".[114]

86. The view from a comparable regulator, the Care Quality Commission, was that the warning power would be a useful addition, describing its equivalent power "as a particularly useful piece of our regulatory armour."[115] The Minister, Rob Wilson MP, described the power as "one of the most important powers in the draft Bill", and a proportionate response to the "20 % to 30 % of non-statutory warnings [that] are currently either completely ignored or only partially addressed."[116]

87. Victoria Keilthy from the National Audit Office said that:

    "The warning power that the Bill proposes is a very helpful measure. It will allow a stepped approach so that, rather than just having, on the one hand, advice and guidance and then the nuclear option of a statutory inquiry, it gives the Commission something in between, which puts trustees on alert that the Commission is now moving away from seeking to assist and is starting to move up the regulatory hill towards something more rigorous".[117]

88. A range of witnesses questioned whether a statutory power to warn was necessary, arguing that the Commission could already issue an 'official warning' if it wanted to, and that a statutory one would have no greater effect. [118]

89. One current trustee, Richard Corden, told us that "if I received a letter from the Charity Commission under the present regime and it had 'Official Warning' written at the top, I would give that just as much weight as I would give something that arrived after the law had been changed saying 'Statutory warning under section 15'".[119] He suggested that those inclined to cooperate anyway would do so in such cases. On the other hand Mr Corden, David Orbison[120] and the Joseph Rowntree Charitable Foundation[121] said that it would have no impact on trustees who were less well-intentioned, who would continue to ignore the warning. Although in Mr Corden's view the "extra regulatory tool" was unnecessary, he did not oppose creating the power "If Parliament decided to enact a warning power for its symbolic value, as it were".[122]

90. We note the view from a number of witnesses that giving the power to the Charity Commission to issue a statutory warning will not contribute significantly to its regulatory armoury. We are however persuaded that in principle it would be useful for the Commission to have at its disposal "something in between" guidance and the opening of an inquiry. Our support in principle is qualified by some concerns over the detailed operation of the new power, which are discussed in the remainder of this Chapter.

Are appropriate safeguards in place?

91. Some concerns were expressed about the lack of detail in the provision as drafted, NCVO regarding it to be "merely a statement of the power to issue official warnings with no explanation of when and how the Commission will use it, or what the consequences of failing to follow an official warning would be".[123]

92. We asked the Joint Committee on Human Rights (JCHR) to examine the Government's Human Rights memorandum and the views of that Committee are included in Appendix 4. Although the JCHR did not make specific reference to clause 1, it did refer to "the lack of legal certainty in a number of key provisions which confer broad and coercive powers on the Charity Commission" and went on to provide "just four examples" of such provisions. It explained that "the lack of legal certainty matters from a human rights perspective because of the potential impact of the Commission's extensive powers on a variety of rights" including respect for private and family life, rights to freedom of expression and association and property rights.[124]

93. A significant number of witnesses were of the view that the warning power as drafted was too broad.[125]

94. The Association of Charitable Foundations (ACF) said that the warning power looked "straightforward" but raised a number of questions, about the evidence base for warnings, the appeals process, their duration and the consequences of a warning being ignored. ACF wanted to see this made clear on the face of the Bill.[126]

95. The Charity Law Association articulated their concerns over what they described as "the four 'Ps'… purpose, process, perception and publicity",[127] and provided a number of drafting suggestions to clause 1, aimed at addressing these concerns.[128] On the first of these, the CLA shared NCVO's concern that the draft Bill lacked any indication of what the power was intended to be used for, and would be "troubled by the idea that the Commission could issue a warning if, for example, it did not agree with a charity's interpretation of guidance such as its campaigning guidance (CC9), or if it considered the charity was not following "best practice"."[129]

96. Concerns were expressed over the potentially adverse impact of a warning, when publicised, on the reputation of a charity, and therefore over the degree to which the factual accuracy of the information in the warning could be guaranteed.[130] William Shawcross confirmed that the Commission "would definitely not publish all warnings"[131] and said that the Commission would be likely to publish warnings in cases where it "thought that potential donors ought to be aware of the concerns that we have over a charity" or "if it was something clear cut, like persistent non-submission of accounts, which often can be a warning sign of maladministration".[132] In his view, the ability of the Commission to publish such warnings would in itself provide a valuable incentive for charities to comply with earlier informal advice. As with the results of statutory inquiries, the Commission would share the content of the warning beforehand with the trustees and allow for feedback before making a decision to publish.[133]

97. The CLA argued that "the default position should be that the charity is not name[d], unless there is a good reason to do so"[134] and that it would be "essential that, as a minimum, the charity trustees know, on the face of the Bill, that they will have the ability to make representations against an official warning, prior to its publication."[135] Bond and the Muslim Charities Forum argued that, "the Charity Commission should endeavour in all cases where misconduct has not been found, to repeatedly defend the charity in the press and issue a clear public statement exonerating the charity."[136]

98. When we took evidence from the Minister at the end of our inquiry, we raised the concerns over the breadth of the power as drafted and the lack of detail in the draft Bill. The Minister conceded that there were "some elements of the operation of a statutory warning power that may need to be made clear on the face of the Bill—things such as the content of the warning, perhaps a period of representation".[137]

99. We welcome the Minister's commitment to consider putting more detail on the face of the Bill. We are convinced by the evidence we have received that this would ensure that the Charity Commission will exercise the power appropriately.

100. At our request, the CLA suggested an alternative draft clause 1, which included several points which might be helpfully added to the face of the Bill. These addressed, in particular: the circumstances in which a warning may be issued; the content of any notice of a forthcoming warning; the persons on whom such a notice may be served; a minimum period of 28 days for any representations to be made; obligations on the Charity Commission to consider all representations received and to take appropriate action in response and preventing the Commission from publishing a warning until the period of representations has expired. We are grateful to the CLA Working Group for its suggested amendments to clause 1 and invite the Government to consider their inclusion in the Bill.

101. At a minimum, we recommend that the following points should be on the face of the Bill:

a)  a restriction of the circumstances in which a warning may be issued to failure to comply either with a requirement of the 2011 Act or with an order or direction of the Commission;

b)  a requirement on the Commission to issue written notice of its intent to issue a warning, which would imply that that the Commission would have a duty to provide the recipient with the draft content of the warning before it is issued;

c)  a reasonable minimum period to make representations over the warning thereafter; and

d)  a restriction on publicising a warning until this period has elapsed and a requirement that the charity on whom the warning is due to be served is given advance notice of the intention to publish.

102. We now turn to the related issue of the appealabilty of a warning. In its submission Bond suggested that more clarity on the warning provision was essential because of the evident inability of a trustee or a charity to appeal against the issuing of a warning, leaving judicial review as the only recourse.[138] The CLA also argued that an appeal would be particularly necessary if the purpose and use of the power was not limited to a greater degree, describing the alternative of judicial review as "wholly inadequate (and certainly disproportionate)".[139] Simon Hebditch, Chairman of the Small Charities Coalition, felt judicial review was insufficient because:

    "We know the difficulty of doing that and the costs involved. A judicial review, even if you went through, will simply say whether the procedure has been followed, rather than whether it was a justifiable action to take. In that sort of balancing sense, I would ask that we look again at whether there should be an appeal allowed to the Charity Tribunal when a formal warning is first issued."[140]

103. The Commission maintained that that making a warning appealable would "seriously affect the efficacy of the power".[141] The Minister went further, suggesting that if "you set up an appeals system for this type of 'yellow card warning'—effectively that is what it is—it could make the system completely unusable".[142] In response to the contrary suggestion, that leaving judicial review as the only recourse may make the system more open to "gumming up", the Minister saw the disadvantages in terms of cost in applying for judicial review as amounting to "a very big decision" which would deter frivolous or vexatious appeals.[143]

104. Although we note the arguments by some that the issue of a warning should be subject to appeal to the Tribunal, we see the practical difficulty this would present to the Commission as disproportionate to the benefits of doing so. On the assumption that the Government agrees to our recommendation that the necessary details be added to the face of the Bill, we are satisfied that the issuance of a warning does not need the further safeguard of an appeal beyond the ability to seek judicial review.

  1. In Chapter 4 we explore the proposal in clause 2 that failure to comply with an order or direction from the Commission should be treated as an act of misconduct which could result in use of the Commission's other compliance powers including disqualification. This is relevant to the discussion over statutory warnings as, should a warning contain directions deemed not to have been complied with, subsequent action would continue to have its own appeals framework in the Tribunal.

109   Cabinet Office, Draft Protection of Charities Bill, Cm 8954, October 2014: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/365710/43820_Cm_8954_web_accessible_Draft_protection_of_charities_bill.pdf [accessed 18 February 2015] Back

110   Cabinet Office, Consultation on extending the Charity Commission's Powers to Tackle Abuse in Charities (December 2013), Paragraph 96: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/263248/ Consultation-on-Extending-the-Charity-Commissions-powers_4-December.pdf [accessed 2 February 2015] Back

111   Ibid., Paragraph 97 Back

112   Cabinet Office, Draft Protection of Charities Bill, Cm 8954, October 2014 Paragraph 105: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/365710/43820_Cm_8954_web_accessible_Draft_protection_of_charities_bill.pdf [accessed 18 February 2015] Back

113   IbidBack

114   Q 429 (William Shawcross) Back

115   Q 197 (Alex Baylis) Back

116   Q 501 (Rob Wilson MP) Back

117   Q 45 (Victoria Keilthy) Back

118   See, for example, Q 83 (Sir Stuart Etherington), Q 161 (Jo Coleman), Q 264 (Richard Corden) and written evidence from Professor Gareth Morgan (PCB0001) and NCVO (PCB0010) Back

119   Q 264 (Richard Corden) Back

120   Written evidence from David Orbison (PCB0014) Back

121   Written evidence from Joseph Rowntree Charitable Trust (PCB0028) Back

122   Q 264 (Richard Corden) Back

123   Written evidence from NCVO (PCB0010) Back

124   Letter from Dr Hywel Francis MP to the Chairman, 7 January 2015, Appendix 4 Back

125   See written evidence from Wales Council for Voluntary Action (WCVA) (PCB0021), NCVO (PCB0010), Bond (PCB0033), Muslim Charities Forum (PCB0029) and Joseph Rowntree Charitable Trust (PCB0028) Back

126   Written evidence from Association of Charitable Foundations (PCB0023) Back

127   Q 161 (Jo Coleman) Back

128   Written evidence from Charity Law Association, Annex A, (PCB0039) Back

129   Written evidence from Charity Law Association (PCB0039) Back

130   See Q 144 (Professor Debra Morris), written evidence from Professor Gareth Morgan (PCB0001) and Bond (PCB0033) Back

131   Q 430 (William Shawcross) Back

132   Q 431 (William Shawcross) Back

133   Written evidence from Charity Commission (PCB0035) Back

134   Written evidence from Charity Law Association (PCB0039) Back

135   Ibid. Back

136   Written evidence from Bond (PCB0033) and Muslim Charities Forum (PCB0029) Back

137   Q 501 (Rob Wilson MP) Back

138   Written evidence from Bond (PCB0033) Back

139   Written evidence from Charity Law Association (PCB0039) Back

140   Q 227 (Simon Hebditch) Back

141   Written evidence from Charity Commission (PCB0035) Back

142   Q 504 (Rob Wilson MP) Back

143   Q 509 (Rob Wilson MP) Back

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Prepared 25 February 2015