Chapter 8: Regulation and the role of government
Office for Civil Society: priorities, initiatives and sector engagement
427.The Office for Civil Society (OCS) is responsible for policy and support to charities and the voluntary sector, while the Charity Commission acts as the regulator. Previously based in the Cabinet Office, the OCS was relocated to the Department for Culture, Media and Sport (DCMS) in July 2016.
428.The policy priorities of the Office for Civil Society, set out in the 2015–20 departmental plan for the Cabinet Office, include:
- Supporting social investment, innovation, and an independent and capable voluntary sector
- Guaranteeing every child a place on the National Citizen Service
- Scaling up social impact bonds and Payment by Results
- Supporting an increase in public service mutuals.558
429.The OCS told us that it sees the Government’s role in relation to the charity sector in the following terms:
“It is responsible for ensuring that charities have an effective legal and regulatory framework that supports public trust and confidence in charity; Government is a direct funder, through programmes such as the Local Sustainability Fund, a commissioner of services, and a partner in designing and delivering public services and tackling social issues at local, regional, national and international levels.”559
430.It added that “supporting small charities continues to be a priority”, and that the £20 million Local Sustainability Fund, launched towards the end of the last parliament, was intended to support this part of the sector in particular as a “direct response to sector concerns that small and medium charities were struggling more than others to adapt to the challenging operating environment.”560 The OCS also noted that it had launched a Small Charities Fundraising Training Programme, designed to help small charities to fundraise more effectively, and that it had been engaging in a “policy conversation” with the voluntary sector with the intention of helping more charities to become involved in the delivery of public services.561
431.We heard a range of evidence from other organisations as to how the Office for Civil Society currently operates, and what its priorities should be. The Small Charities Coalition told us that, following the change of department, the OCS should continue to focus on embedding its work across Government and on how different departments focus and engage with the sector. They added that “it may be that a more formal network of OCS leads is required across all departments to ensure that work is strategically embedded.”562
432.Health Poverty Action told us that the move of department for the OCS may cause problems and that “the lack of clarity around new roles and responsibilities within DCMS mean it could be more difficult to collaborate and influence any decisions made which will have an impact on the charity sector.”563 The National Association for Voluntary and Community Action (NAVCA) took a similar view, stating that the departmental move “was a downgrading, making it impossible to fulfil its role of being an advocate for civil society across Government.”564 It added that there was a risk that the OCS might simply become a delivery agency for the National Citizen Service “and a few other less funded programmes.”565
433.The Social Investment Business told us that the move to the DCMS might make it more difficult to promote understanding of social investment across government, but that it might provide an opportunity to “imbed how social investment can help deliver policy outcomes across an entire department.”566
434.We also heard criticism that the Government did not engage effectively with the charity sector, especially when developing new policies and initiatives. Mencap told us that “recent Government policy announcements have too often been rushed, ill thought through and thus destabilising to the sector” and that “there is also an impression in the charitable sector that the Government are hostile to feedback or discussion.”567
435.Karl Wilding from the NCVO echoed this view, telling us that there had been a period “based on constructive engagement in both the delivery of services and the design of policies” but that this had been replaced by “a more distant relationship, which is, I suggest, more instrumentalist, where government sees charities as just one of a number of independent sectors that are potentially useful in the delivery of services.”568 Richard Jenkins from the Association of Charitable Foundations suggested that the Government no longer appeared to see itself as the “curator and champion” of the charity sector, and that as it had reduced its strategic funding programmes, there were “fewer strategic partners around.”569
436.Alzheimer’s Research UK told us that “Government is not perceived to be championing the sector by highlighting its vital contribution to society or providing measures of support.” It added that “Government decision-making discounts the unique perspective of the sector” and that efforts should be made to engage the sector through channels of communication that support the value of charity expertise.”570
437.We also heard evidence on the proper role of government in relation to charities and wider civil society. The Cranfield Trust told us that “the role of the OCS in particular should be around charity excellence—through sharing examples, highlighting opportunities, networking with support providers and communicating resources to charities.” It added that many smaller charities were not aware of the Government’s role in supporting the sector beyond funding and so “there is a great opportunity for focused communications to feature smaller organisations—the majority of charities—where they have particular strengths in performance.”571
438.On a similar theme, the Centre for Philanthropy told us that “the role for Government is to enable and encourage all charities to maximise their voluntary income, which involves paying attention to the distribution and destination of causes, as well as to raising the general propensity to give and the total amounts given.”572 It suggested a range of initiatives to help the Government better fulfil this role, including increasing investment in capacity building, and promoting and supporting volunteer fundraisers.573
439.Unite the Union told us that the Government should take a “hands off approach to the sector’s activities” and instead concentrate on “building coherent support, regulation and infrastructure that enables the sector to develop and excel, building infrastructure skills and funding that strengthens autonomy and advocacy.”574
440.The Minister for Civil Society Rob Wilson MP said that:
“In terms of supporting the sector, the most important thing that the Government can do is to make sure that we maintain an effective legal and regulatory framework for charities, and to promote, encourage and support civil society in a number of ways … in essence, we want to increase social action, develop a culture of giving in this country, support a strong and diverse voluntary sector and empower communities to look after themselves.”575
Local government engagement
441.The relationship for charities with local and regional government is of particular importance. As the NCVO noted, the majority of charities are local and their engagement with the state is most likely to be with local government.576
442.A considerable proportion of the public income received by charities comes from local government, including through grants and contracts. As with the picture at the national level, charity income from local government has been under pressure. While income from local government increased to £7.4 billion in 2013/14, from £7.2 billion the previous year, it remains well below its peak of £8.1 billion in 2007/08.577
443.The Lloyds Bank Foundation reported a similar picture with its own figures, telling us that many small-and medium-sized charities received a significant proportion of their income from local government grants, but that the value of government grants overall had declined by 64% since 2008/09.578
444.The Esmée Fairbairn Foundation told us that of all the recent changes affecting charities, loss of local government funding “had the most significant effect on those organisations we fund.” They cited in particular the example of youth services, noting that their reduction had not just affected the services themselves but also those voluntary organisations which used youth clubs to reach and help the most disadvantaged young people.579
445.We heard a range of evidence from both the charity sector and local government representatives on how relations between the two sectors had developed in recent years. Daniel Hurford from the Welsh Local Government Association told us that charities had a vital role in local communities as:
“they have access and engagement with parts of the community that local authorities cannot always reach. It is also about challenging local authorities and public services, challenging the status quo, bringing innovation into play, and, increasingly … an approach of co-production where the third sector and charities work very closely with local authorities in designing and delivering services.”580
446.Councillor Robert Light from the Local Government Association added that, while funding reductions had created pressures on local authorities and charities to make savings, it had also created opportunities to work together to restructure services:
“We have seen a situation where, in relation to some of those contracts, such as for adult social care, which many of the big charities have with local authorities, those charities have been able to engage in service reconfiguration in a very positive way, driving innovation and helping local authorities. We have seen both bodies helping each other to address a major significant issue.”581
447.Councillor Stephen Powers told us that he saw local charities as key to local innovation, and that Newcastle City Council’s focus had been “on identifying innovations that generate both community benefit and cash-flow efficiency.” He added, however, that there were some skills shortages in the charity sector locally, particularly with regard to digital innovation, so the focus of the council had been on “upskilling the sector” in data analysis, evaluation and impact assessment.582
448.We heard that, in addition to financial support, local government had a role in championing the charity sector in their areas. The Young Barnet Foundation told us that local authorities should be working with local charities to help build their capacity, particularly in light of the widespread expectation that charities will take responsibility when statutory local services are reduced or removed due to funding cuts.583 Bolton Community and Voluntary Services said that “the role of Local Government should be to allocate adequate resource to a local infrastructure organisation so that the voluntary and community sector can engage local structures through its membership, whilst retaining independence.”584
449.We also heard that local government should avoid competing with the charity sector, or duplicating resources and effort where charities were already providing a valuable local service. Age UK Runnymede & Spelthorne told us that in their area the County Council had established ‘hubs’ to provide information and advice services, even though such services were already provided by many charities in Surrey.585
Charities and devolution
450.We also heard evidence on the experience of charities in Scotland and Northern Ireland where charity law and regulation is devolved, as well as on the opportunities and challenges of devolution to the English regions.
451.We were told by representatives of the sector in Northern Ireland and Scotland that UK legislation did not always take account of the impact on the charity sectors in devolved areas. Frances McCandless of the Charity Commission for Northern Ireland told us that issues including tax and company law, data protection legislation and fundraising self-regulation had “consequences”, but that the Northern Ireland Commission had only been consulted at a late stage.586 Seamus McAleavey from NICVA echoed this view, telling us that issues affecting the sector were not always properly communicated to devolved areas by Westminster:
“Charity law is a devolved matter, but there are lots of other things that have an impact, particularly issues of tax and financial matters. Sometimes, Westminster departments flag up some of those issues and engage with us—the Department for Exiting the EU has been over and has engaged with us on the Brexit issue—but a whole range of things never hit our agenda at all … we often find out about them too late. If something is likely to impact on Scotland, Wales or Northern Ireland, people need to be thinking about that and flagging that.”587
452.Similarly, Martin Sime from the SCVO told us that engagement by the Westminster Government with voluntary sector issues in Scotland was “an episodic thing rather than systematic engagement.”588
453.Small charities we spoke to during our visit to Cardiff told us that the existence of devolved government helped charities, even though charity law was not devolved in Wales, as it enabled closer contact with government representatives on the issues facing the charity sector in Wales. This meant that the Welsh Government was perceived to be closer to the concerns and priorities of the charity sector than was the case with the Westminster Government, and thus able to be more responsive to the issues they were facing.589
454.On our visit to Manchester we heard from local government and voluntary sector representatives on the ways in which they were seeking to take advantage of the localisation of budgets and powers to provide for a strong voluntary sector. The representatives from the Greater Manchester Combined Authority (GMCA) told us that they valued charities and that, while there had formerly been a paternalistic relationship between local authorities and charities, they were keen to change this and they had established a third sector partnership group to ensure that the voice of the sector was heard.590
455.The representatives from the Greater Manchester Centre for Voluntary Organisation (GMCVO) said that relationships between local government and the charity sector in Greater Manchester were probably better than elsewhere, but that more work was needed to strengthen the partnership. They had some concerns that the amalgamation of local authorities to form the GMCA meant that some of the power was being drawn up and away from the more local level of individual authorities and that this could risk weakening relationships between local authorities and the voluntary sector. The GMCVO representatives concluded that it was still early days for devolution in Manchester, but they were hopeful that it might help bring more funding to the area and give the sector a chance to demonstrate a distinctive “Greater Manchester way of doing things.”591
456.Views of the English devolution experience to date were mixed. The Lloyds Bank Foundation for England and Wales told us that “devolution has largely failed to involve local charities and communities” and that “small and medium-sized charities need to be involved in strategic decisions at the start of the devolution process so they have the ability to shape processes that will most benefit local communities.” They argued that a requirement for the involvement of small- and medium-sized charities should be included in future devolution deals.592
457.Locality said that devolution had “the potential to bring about a renaissance in neighbourhood level governance and community empowerment, as well as the opportunity to harness the capacity and expertise of local organisations in public service transformation.”593 They added, however, that if there was not proper engagement with the community sector and wider civil society, there was a risk that devolution would be “a technocratic exercise which simply shifts marginal responsibilities between different parts of the public sector, adding new layers of sub-regional governance which actually push influence, power and resources away from local people.”594
458.Councillor Robert Light said that: “I would urge, and hope the Committee would urge, the voluntary sector to engage with the devolution agenda” because it provided considerable opportunities for large and small charities alike. He added that “that ability to have a more consistent approach, to engage with an organisation based around an economic area rather than just lines on a map, which is what many local authorities are, will help voluntary sector organisations.”595
459.The NCVO emphasised that, in order for devolution to be truly successful, power passed down to local authorities would have to be passed onward to local communities, with voluntary organisations acting as a conduit between citizens and local authorities. They said that “without proper dialogue with civil society there is a risk that devolution will see poor commissioning practices applied at a combined authority level”, in particular the aggregation of services into larger contracts that exclude smaller charitable providers.596
460.NAVCA referred us to a document it had produced in conjunction with Locality, entitled Devolution for People and Communities,597 which set out principles of devolution for charities and the voluntary sector including representation of the voluntary and community sector within new leadership structures, ensuring accountability through effective community engagement, and working with local organisations to transform public services. They added that “devolution has largely been viewed around the devolution deals but it is equally important to encourage policies that transfer power to people and communities through transforming public services.”598
461.Regional devolution in England is a significant opportunity for charities to develop stronger and closer relationships with decision-makers and commissioners and to become more closely involved in the design and delivery of services. There are valuable lessons that can be learned from the experience of some charities in Wales that have benefitted from devolution.
462.While the Government has been willing to devolve powers and budgets in certain areas, we believe it has been insufficiently committed to engagement with charities and other external bodies to help devolution work in practice.
463.Central Government needs to understand better, and take account of, the implications of devolution for charities and civil society. There needs to be a proper dialogue between charities and new regional administrations at every stage of the devolution process, and voluntary sector representatives should be involved in leadership structures and decision-making where appropriate. We recommend that the Office for Civil Society works closely with the Department for Communities and Local Government and infrastructure bodies to ensure that this happens.
464.In addition, the Government must improve the way it consults with devolved administrations and infrastructure organisations when developing legislation on reserved matters which may impact charities in Scotland and Northern Ireland.
National and local compacts
465.Compacts exist between government and voluntary sector bodies at both national and local levels. Compacts are voluntary agreements that are intended to promote partnerships between public bodies and voluntary organisations. At a local level, they usually cover local public bodies such as councils, police and fire services and health commissioners. At a national level, all Government departments are signed up to the principles of the national Compact, which was last reviewed in 2010.599 However, the Commission for the Compact, which had an important monitoring role, was abolished in 2011.600
466.The principles of the national Compact are a strong, diverse and independent civil society; effective and transparent design and development of policies, programmes and public services; responsive and high-quality programmes and services; clear arrangements for managing service changes; and an equal and fair society.601
467.The NCVO told us that “the Compact provides a framework which helps guide the relationship between Government and the sector at every level. It recognises that Government and the sector fulfil complementary roles in the development of public policy and the delivery of services, and that Government has a role in not only providing legitimacy to civil society, but also in respecting its independence in all areas of society.”602
468.The evidence we heard on the status of compacts indicated that, while they were a positive initiative, their principles were not always adhered to in practice, and that awareness of them was not always high. Civil Exchange told us that “the Compact has been repeatedly broken by Government”, for example in its lack of consultation over legislation affecting the charity sector, such as the Transparency of Lobbying, Non-party Campaigning and Trade Union Administration Act 2014. They argued that a new Compact was needed, “supported by a new state funded agency to promote and enforce it, which is independent and accountable directly to Parliament.”603
469.Others took a similar view on the Government’s failure to observe Compact principles in practice, including the Sheila McKechnie Foundation which said that the Compact “established some key principles for consultation which serve as excellent practice, but are not being followed”,604 and Unite the Union, which told us that “the Compact is largely ignored when politically expedient.”605 David Cutler of The Baring Foundation told us that “I really regret the demise of the compact as a framework between the state and the Government” and that “a lot of things that have gone wrong would not have gone wrong if we had continued to subscribe to that principle.”606
470.The NCVO concluded that “now more than ever before is the time for government, led by the Office for Civil Society, to restate and demonstrate its support for the Compact principles as a framework for respectful collaboration between the voluntary and statutory sectors, while recognising their separation and the independence of the voluntary sector.”607
471.We heard similar evidence that local compacts may be in need of renewal. Councillor Robert Light from the Local Government Association told us that “they are probably not the highest on the agenda at the moment and the time is probably now for a refresh … we need to push the LGA and others to reinvigorate the compacts a little more.”608
472.Daniel Hurford from the Welsh Local Government Association told us that compacts risked being purely symbolic if they were not taken seriously by partners. He told us that the Welsh Government had considered making compacts statutory, but that most Welsh local authorities had them and their effectiveness was not necessarily related to the strength of the Compact itself: “It is largely down to the organisations, the interpersonal relationships and the history between the local third sector and the local authority.”609
473.Councillor Anne Brown told us that Essex County Council was currently reviewing its compact with the intention of making it a more practical guide to best practice, for both local public services and for the local voluntary sector.610 Councillor Stephen Powers told us that Newcastle City Council had recently refreshed its compact and said:
“It is not the bit of paper that defines the relationship. It is the people working together to make good on the commitment to that compact, and working relationships are most important rather than what is in its detail. For me, the compact is, above all, a commitment to dialogue, to fairness and to respect between our different organisations.”611
474.Compacts are a valuable statement of principle about the relationships between government, both local and national, and the voluntary sector. We recommend that, where compacts do not currently exist, they are re-established in consultation with the sector.
475.We also recommend that, where they have not done so recently, national and local government should review their compacts in collaboration with the voluntary sector to ensure that they continue to be fit for purpose, reflecting the changing role of charities. They should restate their intent to apply the principles of the compact and include a mechanism for review to ensure that they are observed.
Legislation
476.There have been a number of recent pieces of legislation concerning the charity sector, most directly the Charities Act 2006, the Charities Act 2011, and the Charities (Protection and Social Investment) Act 2016. The Public Services (Social Value) Act 2012 and the Transparency of Lobbying, Non-Party Campaigning and Trade Union Administration Act 2014 have also been of significant importance to the sector, and during the course of our inquiry the Small Charitable Donations and Childcare Payments Act 2017 was passed.
477.In addition, the Law Commission has recently undertaken a series of consultations on a number of technical matters relating to charity law, and intends to publish a final report on these matters along with a draft bill in the summer of 2017.612
478.Although some of the proposals we heard for reforms to support charities might require primary legislation, we did not detect an appetite in the evidence we heard for major new legislation affecting the sector. For example, World Horse Welfare told us that “we do not believe there is a need to change arrangements nor is there a need for more legislation. Most charities are well-governed, there is plenty of support available for trustees to fulfil their duties, and the Charity Commission can take a more proactive role in imposing consequences for bad practice.”613
479.We were, however, told that when Government prepares legislation it should consult more widely, and seek a fuller understanding of the impacts of certain laws, particularly on smaller charities. Age UK Runnymede & Spelthorne told us that “it would be good if those making and agreeing legislation recognise that any one rule can have a profound effect on smaller organisations, and take this into account.”614
480.The Wellcome Trust told us that “we are concerned that changes to regulation often impact civil society organisations in a way that does not appear to have been properly considered and does not reflect the primary driver of the proposals. We believe that this is often due to insufficient consideration of the breadth of the charity sector, and variations in sizes, structures and funding models.”615 They cited examples including changes to the Research & Development Expenditure Credit which meant that charities were no longer eligible, and changes to the Corporation Tax Code 2010 which imposed additional charges on charities.
481.The Churches’ Legislation Advisory Service described “the huge—and increasing—amount of regulation and legislation that trustees are expected to be aware of and to comply with” as a “major pressure” on churches as charities.616 The Institute of Chartered Accountants in England and Wales took a similar view, telling us that “charity legislation and accounting requirements can be complex and charities may have to use highly specialised professionals to comply with them. This can be costly and add to the disadvantages faced by small charities.”617
482.We note that charities rarely feel fully consulted about proposed new laws and regulations, and that this increases the risk of unintended consequences. This particularly applies to smaller charities, which do not have the resources to devote to additional legal and regulatory compliance.
The role of charity advocacy
483.We heard considerable concern from charities about the Government’s perceived attitude to advocacy and lobbying. This was in relation both to the Transparency of Lobbying, Non-Party Campaigning and Trade Union Administration Act 2014 (often known as the Lobbying Act) and the controversy in early 2016 regarding the proposed “anti-advocacy clause” in Government contracts, by which charities would be forbidden to use public funds to advocate on behalf of their beneficiaries.
484.Karl Wilding of NCVO told us that the Lobbying Act was a “good example of where the relationship has gone wrong” between charities and Government, as the sector had received no warning that the planned legislation was expected.618 The Brain Tumour Charity told us that the Lobbying Act had “created legal uncertainty for charities about the extent to which they can campaign in the run-up to regional and national elections … this legislation, whilst well intentioned, has created an additional regulatory burden on many charities who receive no public funding.”619
485.The Charity Law and Policy Unit of the University of Liverpool said that the Act had been “a minefield for charities in terms of the interaction between charity law and electoral law” and that the confusion had created a “chilling effect” on charities’ campaigning activities.620 Homeless Link said that the Act was seen as “part of a culture in which charities may be afraid of expressing opinions which could be seen to be critical of Government.”621
486.The Voluntary Organisations Disability Group concurred with this view, stating that “the Lobbying Act has made charities more cautious at speaking out on policy implementation issues and done much to inhibit dialogue between charities and government. Charities are often best placed to understand and articulate the interests of people who experience social inequality and this has been a key feature of their contribution to society over centuries.”622
487.Lord Hodgson of Astley Abbotts’ review of the Act proposed a number of changes to reduce its scope and increase its focus. These included that the definition of relevant campaigning should be changed to cover only activity that intended to influence voters (as opposed to activity that could be “reasonably regarded” as influencing them); that the regulated campaign period should be reduced from a year to four months; and that there should be changes to registration and reporting rules to prevent arbitrary restrictions on joint campaigning.623
488.We believe that Lord Hodgson of Astley Abbotts’ proposals for a review of the rules set out in the Transparency of Lobbying, Non-Party Campaigning and Trade Union Administration Act 2014 are eminently sensible and will provide reassurance to charities that they will not face censure for carrying out ordinary campaigning activity during election periods. We recommend that the Government implement Lord Hodgson’s recommendations in full.
489.We also heard criticism in relation to the Government’s proposal to introduce an “anti-advocacy clause” in public sector grant agreements. The Public Relations and Communications Association described it as a “gagging clause” which should be resisted. It compared the proposal by analogy to the notion that private outsourcing companies such as Capita might be forbidden from having a public affairs function owing to their receipt of public money.624 The Scottish Council for Voluntary Organisations described the proposal as one which would “harm the prospect of vigorous or even evidential debate on public policy.”625
490.Bond said that there was a lack of clarity around the proposed clause, stating that many charities were “concerned that the broad drafting of this clause could restrict important opportunities to pass on valuable insights on policy to government and to MPs and Peers.”626 The Small Charities Coalition said that “any quietening of small charities voices only diminishes government’s capacity to make good decisions and understand the populations they serve.”627
491.Towards the end of our evidence programme, the Government announced new grants standards that made clear that activities such as contributing to consultations, giving evidence to Parliament or taking part in public policy debate would not be covered by rules against advocacy.628 The new standards were largely welcomed by the sector, with Sir Stuart Etherington of NCVO stating that the “new guidance is crystal clear in saying that activities such as raising issues with ministers and civil servants, responding to consultations and contributing to the general policy debate are not only permitted but actively welcomed.”629
492.We welcome the Government’s decision not to proceed with a restrictive anti-advocacy clause in public sector grant agreements.
493.In relation to charities’ ability to advocate on behalf of their causes, we also heard concerns about the Charity Commission’s initial guidance on campaigning during the EU referendum, which had been interpreted as restricting their ability to speak on the issue. Bond told us that the guidance risked further undermining public trust in charities, and reducing the legitimate contributions charities could make to the democratic debate.630 NAVCA described it as an unwelcome intervention in the “legitimate and valuable role that charities have in civil society” and a “negative development in the relationship between charities, government and the regulator.”631 While the guidance was subsequently revised, it clearly created a negative impression in the sector in relation to their freedom to comment and advocate on relevant issues.
494.Kenneth Dibble, Legal Director at the Charity Commission, acknowledged to us that the guidance had been imperfect and that lessons had been learned. He told us:
“If there is a lesson to be learned from that piece of guidance, it is about the way we positioned it and our style of communication. There were some immediate concerns about the width of the guidance, and at that point we revisited the guidance and reissued it to deal with those particular concerns, which we were happy to do. The general message about that particular guidance is that the style with which it was written did look restrictive, even though it was technically correct in law. That is a lesson on making any future guidance that we need to take away.”632
495.Charities are the eyes, ears and conscience of any society; advocacy is a central part of their work and a sign of a healthy democracy. Whilst charities are quite properly regulated in their campaigning activities, particularly at election times, any new regulation or guidance should clearly recognise that advocacy is an important and legitimate part of their role and be set out in clear and unambiguous language.
496.Just as charities must be judicious in their activities, in order to remain politically impartial, the Charity Commission must take care in its public communications to ensure that it retains the confidence of the public and the charity sector.
497.Poor consultation and ill-thought-through policy proposals have caused serious unease and disruption to the work of charities. We recommend that the Government reviews its approach to engagement with the charity sector before policy announcements are made, with a view to ensuring that charities feel better informed about legal changes which may affect them and have a greater opportunity to provide input on new policies.
Impact on charities of the UK’s departure from the European Union
498.We heard some evidence in relation to the impact of the UK’s forthcoming departure from the European Union on the charity sector. The Institute of Fundraising told us that charities receive around £200 million from the EU each year.633 Much of this comes from European Structural and Investment Funds (ESIF), in particular the European Social Fund (ESF).
499.The Royal Mencap Society described the ESF as a “major source of revenue”, which helped support fairer living standards and greater job opportunities, in particular for young people and the long-term unemployed. They added that the ESF was scheduled to fund a total of €4.9 billion of services in the UK between 2014 and 2020 (including services not delivered by charitable organisations).634 They called on the Government to underwrite ESF funding and replace it once the process of withdrawal was complete. The charities we spoke to at our roundtable in Cardiff also noted the challenge that the withdrawal of EU funding would pose.635
500.The Association of Medical Research Charities told us that departure from the EU would have a particular impact on their part of the sector, as EU membership offered considerable research funding and opportunities for collaboration.636 The Brain Tumour Charity concurred, telling us that there was “concern that the UK Government would not be able to guarantee the level of funding currently leveraged by [Higher Education Institutions] and researchers from the EU.”637 The British Heart Foundation noted that the UK obtained the second highest contribution across all EU member states from Horizon 2020, the current EU research and innovation programme.638
501.The Small Charities Coalition told us that “there are concerns that the loss of EU funding will impact heavily on small charities, both in money previously budgeted for devolution and current funds provided by the EU and distributed either directly or through intermediaries to small charities.”639 The NCVO said that Government should “ensure the sector is involved in the negotiation process led by the Department for Exiting the European Union. It is important that formal engagement opportunities are in place to ensure the sector’s views and contributions can be fed into the discussions.”640
502.Minister for Civil Society Rob Wilson MP told us:
“We recognise that charities will be affected by exiting the EU, and there are a broad range of implications. Different parts of the charity sector could be affected in different ways. The important thing is that we are listening to their concerns and talking to them about the opportunities as well as the potential pitfalls that might arise from Brexit. We have looked at some of the funding issues, particularly around the European Social Fund, which is about £200 million worth of funding. One positive thing is that all the legislation is local, incountry legislation, not European legislation, so the disentanglement in the charity sector is not as big a problem as in other areas of the economy.”641
503.He added that “if charities show strong value for money in projects going forward, they will continue to be funded”, and that the Government was holding ongoing roundtable meetings with sector representatives to discuss issues arising from the UK’s withdrawal from the EU.642
504.As part of its ongoing engagement with the charity sector in relation to the UK’s withdrawal from the EU, the Office for Civil Society should undertake an audit of the potential impact of Brexit on charities. This should include the impact of loss of funding as well as on research collaboration. We recommend that the OCS publish its assessment by the end of 2017.
Regulation of the charity sector
505.Following criticism of its regulatory abilities from, among others, the House of Commons Public Accounts Committee and the National Audit Office in 2013–14, the Charity Commission undertook to focus on its regulatory role and to become more proactive in this regard.
506.Lord Hodgson of Astley Abbotts told us that the Commission “has to be a regulator; public trust and confidence in the sector depends on there being an effective regulator. Such a role is not compatible with acting as a ‘cheerleader’ for the sector.”643 Karl Wilding of NCVO said “having a strong regulator is good for public trust and confidence in charities”,644 though he warned against it confusing “strong” regulation with “tough”, and suggested its approach had at times undermined public trust.
507.On the Commission’s performance, Minister for Civil Society Rob Wilson MP told us that “the Charity Commission is performing extremely well … there have been a number of different reviews over recent years … they all said the same thing: that the Charity Commission was not a robust enough regulator. We have changed that, and I think the Charity Commission is doing a very good job. According to the most recent assessment of how it is doing, it is making good progress.”645
508.On our visit to the Commission we heard about the work that had been done to improve their operation, and in particular on their digital transformation programme to enhance the efficiency and quality of their regulatory functions.646 The Commission’s chief executive Paula Sussex set this in the context of a 40% cut in their budget.647
509.At our roundtables with small charities, some participants spoke of their concern about the risk of seeking guidance from the Charity Commission if they suspected something had gone wrong, in case it resulted in punitive actions.648 One of our participants likened the Commission to Ofsted (the Office for Standards in Education, Children’s Services and Skills), saying that it was “only there to tell you off”.649 At our roundtable in Cardiff we were told that the Commission was an “overstretched resource” and some took the view that a separate Commission may be of benefit to Wales as devolved agencies were perceived to be more effective and engaged.650
510.We commend the Charity Commission’s efforts to improve the effectiveness of its regulatory functions, particularly in the context of reduced resources. There is much still to do until it can be considered to be fully effective, however.
511.Charity staff and trustees who have concerns with regard to their charities should be encouraged to report them to the Charity Commission where appropriate. We recommend that the Commission makes clear that those charities which are proactive in reporting issues to them will be supported to help put things right.
512.We heard some evidence, however, that the Charity Commission’s regulatory focus may have come at the expense of its other role as an advisor and enabler to the charity sector. The Lloyds Bank Foundation told us that “in response to significant resource constraints, the Commission appears to be moving away from an advisory role. The implications of this for small- and medium-sized charities is that they lack support on the interpretation of legal requirements.”651
513.The Association of Charitable Foundations told us that it had observed the effects of the reduction in the Commission’s advice and support functions, as it had received more calls from organisations and members of the public seeking technical information.652 The Charity Law and Policy Unit at the University of Liverpool told us that the advice function of the Commission “remains very important” and that “a structural split of its advice and regulatory functions would remove some fear among charities that seeking advice will attract regulatory attention with its attendant reputational risks.”653
514.The NCVO agreed that the Charity Commission should continue its focus on the regulation of charities, but added that it should consider a model of “enabling regulation.” It described this model as being “based on the recognition that the best way to ensure the regulated community understands and fulfils its obligations is to provide appropriate guidance and tools.”654
515.The NAVCA told us that:
“the Charity Commission should be a regulator not, as some suggest, a cheerleader for the sector. The Commission is there to make sure that the public can be confident in charities, a role more important than ever in the wake of falling levels of trust. There is plenty to do to ensure boards prioritise impact and good governance, and the Charity Commission should concentrate on this.”655
516.In addition, the role of the Commission in promoting and supporting trusteeship was a particularly frequent theme of evidence. The Abbeyfield Society told us that the Commission should take a more proactive role in the recruitment of trustees by putting trustee guidance into context and promoting the benefits of being a trustee.656 Similarly, the Association of Chairs told us that the Commission should be promoting chairs and trustees, but noted that it did not currently provide any specific advice or support for chairs.657
517.On the same subject, the NCVO said that “the Charity Commission should review the information and guidance it makes available to new trustees, both in terms of its content and how it is communicated to trustees, so that it is widely disseminated but most importantly it sends the right message to trustees about the importance of their role, their responsibilities and the importance of continually investing in their skills.”658
518.Sarah Atkinson, Director of Policy and Communications, from the Charity Commission told us that:
“guidance is a really important part of our job as a regulator, to ensure that trustees understand the rules and are able to keep within the rules, which most of them want to do and are able to do if they understand the framework in which they are operating.”659
519.Paula Sussex, the Chief Executive of the Commission noted that it handled around 1,500–1,600 “permission and consent” cases each year which fulfilled part of its enabling role. She added that “since the strategic plan, we have had a clear focus on understanding what compliance and enforcement means … as we move into the second year we are putting a good deal more focus on the enablement strand across the piece.”660
520.In light of the Charity Commission’s reduced budget, and its necessary focus on regulatory work, it should seek to be clearer to charities about what support it can and cannot offer. It should also be more proactive in helping charities to find the most appropriate sources of external support and advice.
521.The future funding structure for the Charity Commission was noted as an issue, as the Commission had indicated that it might seek to introduce a charge to cover some of its work.
522.Kenneth Dibble, Legal Director at the Charity Commission, told us that the Commission had had the power to charge for its services since 1992. He said that it had not chosen to do so because “it would be counter to our regulatory mandate, because if charities were charged for registration they might not wish to register, so it acted in a contrary way.”661
523.Lord Hodgson of Astley Abbotts, who had previously recommended some form of charging mechanism in his review of the Charities Act 2006, told us that:
“in my view some form of hybrid funding is both appropriate and inevitable. I believe that the general public would accept that it is not unreasonable that the charity sector which receives £billions in tax relief should be asked to put some very small percentage back into helping maintain an effective regulatory structure.”662
524.The Chairman of the Charity Commission, William Shawcross, told us:
“Given the fact that we cannot expect the Treasury to give us more when everybody else is being cut, it is imperative that I seek funding from the sector. This will be a huge cultural change, because ever since the commission was created in 1853 it has been funded by the taxpayer. Government officials and others have made clear to me that we should try to reduce the burden on the taxpayer of the £21 million that now finances us.”663
525.He added that “many sectors pay for their own regulator, and the regulator still remains at an arm’s length from the sector that is paying them. It will be a cultural change but we have to face it”, and he expressed a wish that small charities should be excluded from the burden of any payment.664 He also confirmed that the Commission’s preferred method of charging was an annual fee to be on the register. Kenneth Dibble told us that as part of an internal reorganisation the Commission was structuring its operational units into more discrete functions, but that it was not yet at the point where it was considering generating revenue through marketing and selling particular services.665
526.William Shawcross told us that he hoped any funding to come from charging charities would be additional to the funding the Commission received from Government, and not simply a replacement for cuts to Government funding. He added that he hoped the Commission could “gradually relieve the burden on the taxpayer”, but that this would be a “long process.”666 The point was also made by Lord Hodgson of Astley Abbotts, who told us that charging “will of course require an undertaking from the Treasury that if the sector does provide some funding there will not be an immediate commensurate reduction in the Treasury grant.”667 The Charity Commission subsequently wrote to us to say that the Treasury had “clarified that any funding by the sector would be in addition to existing grant in aid.”668
527.The Wellcome Trust told us that any charging plan “does not take into account the breadth and variation across the sector” and that “imposing additional costs on smaller charities may have a disproportionate effect on their ability to work for the public good.”669
528.On 3 January 2017 Chairman William Shawcross said that the Commission was considering a model by which the largest charities would pay between £60 and £3,000 per year to fund the regulator, depending on the size of the charity. He added that a public consultation on the proposal would take place “very soon.”670 At the time of writing, no consultation has yet been published.
529.The Minister for Civil Society, Rob Wilson MP, told us that:
“Charities want further services beyond the policeman/regulatory functions, and if they want those services then they will have to contribute something towards them. There is no suggestion that Government will step out completely from funding the Charity Commission, because we have already made a commitment, but it is wise to have a look at other ways to fund things.”671
530.We recognise the resource pressures and the wider economic climate that have led the Charity Commission to consider charging charities an annual fee to be on the register. Any charging model must ensure that the burden does not fall upon small charities which will not be able to afford it. This should be established not just at the outset of any charging regime, but by continual monitoring and testing of the impact of charging, with changes made to lift the burden on charities where necessary.
531.A mandatory charge for registered charities would mark a fundamental change in the sector’s relationship with its regulator. No longer merely an independent overseer, it would become a body in which charities themselves have a financial stake, and to which they are required to divert funds which might otherwise be spent on their beneficiaries. Charities might, not unreasonably, seek to be represented on the board of the Charity Commission to ensure they have a say in how the money is spent. It might also prompt calls for the regulator to become fully independent of government.
532.It is not yet clear that the Charity Commission has taken full account of the potential impact of charging for regulation. A charge would by definition have an immediate financial impact on charities and their beneficiaries. It may also have an impact on the confidence of the public, who may question why their donations are being used to subsidise an arm of Government. Nor is it clear that the Commission yet understands how charities’ expectations of it as a regulator may change if they are required to pay for its upkeep. If charging is mishandled, there are significant risks for the strength of the charity sector, its relationship with the regulator, and overall public confidence and trust in charities.
533.Because of these issues, we have grave concerns about the Commission proceeding with any proposal to charge charities. We recommend that the Charity Commission makes clear how a charge would benefit charities and strengthen the sector overall. To achieve such clarity, the Commission must be transparent from the outset as to how additional revenue from charities would be spent, and what services would be delivered or enhanced in return. The Commission must set out how it envisages its supporting and enabling role developing or expanding if a charge for registration was introduced.
534.We welcome the assurance given to the Charity Commission by the Treasury that any funding from the sector would be in addition to, and not a replacement for, funding from the Government. This is essential. The purpose of any charge must be to enhance the ability of the Commission to operate effectively, not to take money from charities to help Government meet its fiscal targets.
535.We recommend that the Treasury maintains adequate direct funding of the Charity Commission, irrespective of any proposal from the Commission to seek additional funding from other sources.
536.The charity sector faces many challenges but also has so much to celebrate and be optimistic about. We hope that our report and its recommendations will go some way to ensuring that charities thrive in the years to come and have greater confidence in themselves.
558 Written evidence from the Office for Civil Society, Department for Culture, Media and Sport (CHA0160)
559 Ibid.
560 Ibid.
561 Ibid.
565 Ibid.
573 Ibid.
577 NCVO, ‘UK Civil Society Almanac 2016: Income from Government’: https://data.ncvo.org.uk/a/almanac16/income-from-government [accessed 14 March 2017]
589 Note of roundtable discussion in Cardiff, Appendix 8
590 Note of meeting with Greater Manchester Combined Authority, Appendix 6
591 Note of meeting with Greater Manchester Centre for Voluntary Organisation, Appendix 6
594 Ibid.
597 NAVCA and Locality, Devolution for People and Communities: https://www.navca.org.uk/assets/000/000/121/Devolution_key_principles_FINAL_original.pdf [accessed 14 March 2017]
599 Compact Voice, ‘About Compact’: http://www.compactvoice.org.uk/about-compact [accessed 14 March 2017]
600 Independence Panel, Voluntary Sector Independence (July 2011), p 15: http://www.independencepanel.org.uk/wp-content/uploads/2011/10/Independence-Panel_Report-webcopy.pdf [accessed 14 March 2017]
601 Compact Voice, ‘About Compact’: http://www.compactvoice.org.uk/about-compact [accessed 14 March 2017]
612 Law Commission, ‘Charity Law, selected issues’: http://www.lawcom.gov.uk/project/charity-law-selected-issues [accessed 14 March 2017]
620 Written evidence from Charity Law and Policy Unit, School of Law and Social Justice, University of Liverpool (CHA0104)
623 Lord Hodgson of Astley Abbotts CBE, Third Party Election Campaigning - Getting the Balance Right (March 2016): https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/508568/2904969_Cm_9205_Complete_Text_V0.5.pdf [accessed 14 March 2017]
628 Cabinet Office, ‘New standards announced for Government grants’: https://www.gov.uk/government/news/new-standards-announced-for-government-grants [accessed 14 March 2017]
629 NCVO, ‘Charities welcome new grants standards’: https://www.ncvo.org.uk/about-us/media-centre/press-releases/1607-charities-welcome-new-grants-standards [accessed 14 March 2017]
635 Note of roundtable discussion in Cardiff, Appendix 8
642 Ibid.
646 Note of Committee visit to the Charity Commission, Appendix 5
648 Note of roundtable discussion in Westminster, Appendix 7
649 Note of roundtable discussion in Manchester, Appendix 6
650 Note of roundtable discussion in Cardiff, Appendix 8
653 Written evidence from Charity Law and Policy Unit, School of Law and Social Justice, University of Liverpool (CHA0104)
664 Ibid.
670 ‘William Shawcross says consultation on charging could come by end of January’, Third Sector (10 January 2017): http://www.thirdsector.co.uk/william-shawcross-says-consultation-charging-end-january/governance/article/1420360 [accessed 14 March 2017]