The Regulator for Charities in England and Wales
October 2006
The Charities Bill is widely welcomed by both the Charity Commission and the charitable sector. It paves the way to a clearer and more modern framework for charities and a clear role for the Commission to ensure compliance and strengthen accountability. The Bill represents a modernisation of the legal framework within which charities operate. It will empower the charitable sector and allow charities to operate with greater freedom and flexibility to respond to changes in society.
The Bill will create a clear definition of charity, emphasising public benefit; it will improve the governance and accountability of the Charity Commission; benefit thousands of smaller charities by reducing the burden of regulation on them; and will address inconsistencies in the regulation of public collecting.
The proposals in the Bill will ensure that charities remain at the heart of society with a more enabling regulatory framework and the independent oversight of a modern regulator, securing a high level of public trust and confidence.
The wide range of purposes which may be charitable listed in the Bill will help give greater clarity about what is charitable and better reflects the diversity of the charitable sector. The thirteen descriptions of charitable purposes cover the present areas of charity. They aim to clarify the scope of charitable aims for a modern society while being broad enough to provide the flexibility to keep up with future development and change through case law. If an organisation’s purposes have already been accepted as charitable, they will continue to be so.
The Bill requires organisations to pass two tests if they are to be charities: firstly, that their objects are charitable, and secondly that they operate for the public benefit. For the first time the law will require charities which advance education, religion or relieve poverty to explicitly demonstrate they deliver public benefit. The law has previously presumed this to be the case for these types of charities.
The Bill does not contain any new definition of public benefit or suggest how charities should demonstrate public benefit. Decisions on how the public benefit test will operate will, rightly, rest with the Commission as the independent regulator for charities in England and Wales, based on underlying case law.
The appended document sets out the Charity Commission’s approach to the public benefit test in more detail, including the process for consultation, and issues concerning fee-charging charities.
The Charity Commission itself will have new statutory objectives which clearly set out our role as a modern regulator with a duty to facilitate and support charitable activity in society. The Commission will:-
The Bill also makes provision for the Commission to be established as a body corporate with a clear legal identity and modern governance arrangements. We have already begun work to reposition the organisation to ensure that we are properly equipped to fulfil our future role.
The Commission welcomes the provisions in the Bill to expand our Board to a total of 9 (including the Chair of the Commission). This will allow us to recruit up to four new non-executive Board members which will ensure a broader range of skills and experience. It will also enable us to better reflect the diversity of the sector and of society.
The Government recognise that the Charity Commission must be seen as an independent organisation and have stated that the Commission’s independence is of paramount importance for the proper regulation of charities and to ensure continued high levels of public confidence in the charity sector. The Commission will continue to have complete independence in making decisions and exercising our powers in relation to charities.
The Bill will create a new Charity Tribunal which will deal with appeals against and reviews of Commission decisions and referrals from the Commission or Attorney General involving the operation or application of charity law. The Bill provides for the Lord Chancellor to make rules about the Tribunal to facilitate its operation.
Currently in order to appeal against a decision of the Commission, the case must be taken to the High Court. The new Charity Tribunal will make it easier and less expensive for charities to challenge the Commission’s decisions.
The Charity Tribunal will not relate to the Commission’s customer service complaints which are dealt with by internal procedures and an independent reviewer.
At present charities can be set up with a corporate structure but this means that they normally fall within the requirements of company law as well as charity law. The framework of company law was designed primarily for commercial organisations and may not always be suitable for charities. The proposals for a new legal form of incorporation designed specifically for charities will enable them to have the reduced risk of a company structure, without the burden of dual regulation.
The CIO will bring a number of de-regulatory benefits to the many charities for whom it will be appropriate including:-
The Bill will change the shape of the Charity Commission’s register of charities to address the need for increased transparency in the sector. This is tempered with a wish not to overburden charities with inappropriate administrative duties.
Small Charities with an annual income of less than £1,000 do not currently have to register unless they have a permanent endowment or the use or occupation of land. The threshold for mandatory registration will rise to £5,000 and this will become the only criterion for registration. This measure will cut administrative costs for small charities, whilst charities with incomes between £1,000 and £5,000 will be able to stay on the register if they want to.
Existing Charity legislation makes provision for some charities, for example some Christian religious denominations, to be excepted from the requirement to register on a discretionary basis by either the Secretary of State or the Charity Commission. The Bill makes provision for excepted charities with an annual income above an interim threshold of £100,000 per annum to be required to register with the Commission. Charities with incomes below the £100,000 threshold will retain their excepted status.
Exempt charities benefit from the same advantages as registered charities but with an exemption from registration with the Charity Commission and its supervisory role. The original grounds for the exemption of certain charities from the requirement to register have been that they are adequately supervised by another Government department or public authority (eg. Universities; Museums). There is however, no mechanism for monitoring their compliance with charity law.
Under the Bill some exempt charities will have to register. Others will have their compliance with basic charity law monitored by a ‘principal regulator’. For different groups of these charities the principal regulator will be the body who supervises the charities for other functions. This system will minimise the burden of dual regulation by the Commission and the principal regulator whilst providing a mechanism for monitoring the compliance of exempt charities with charity law. Where it has not been possible to identify a principal regulator, exempt charities will lose their status and will register with the Commission.
Flexible use of Endowments - The trustees of charities which have permanent endowment funds can use the income from the fund but they cannot usually spend the capital. The Bill proposes extending the circumstances in which charities can spend such capital. The process of enabling small charities to spend capital will be made easier and larger charities will be able to spend capital in certain circumstances provided the Commission agrees.
Mergers - The Charity Commission encourages all charities to consider the possibility of working with or merging with another charity as a way of providing a better service to beneficiaries. The Bill will establish a register of charity mergers and will facilitate charity mergers by speeding up the process of transferring property from one charity to another and by preserving gifts made to the charity that has ceased to exist for the benefit of the merged charity. In response to concerns expressed during the Lords debates, charities wishing to take advantage of the merger provisions must confirm to the Charity Commission that they have made proper arrangements to discharge their liabilities.
The Bill includes a power which will allow charity trustees to receive payment for providing additional professional or business services to the charity. A number of safeguards will be put in place to ensure that the principle of voluntary trusteeship is preserved.
Measures in the Bill will provide a statutory power for trustees to take out trustee indemnity insurance using the charity’s funds. This means that trustees will no longer need an explicit power from the Commission before buying trustee indemnity insurance. This will help charities who have had difficulties when prospective trustees have been discouraged by the prospect of unlimited liability for breach of trust.
The licensing role for both street and house to house collection currently rests with local authorities and in London with the Metropolitan Police. This system is widely considered to be out of date and difficult to use and there is a lack of clarity about how direct debit solicitation should be dealt with.
The Bill provides for a more coherent unified licensing system for public charitable collections. The new licensing regime will have the following key features:-