The Regulator for Charities in England and Wales
The Charity Commission welcomes this review and supports the great majority of its proposals. The review, if implemented promptly and in substantially its published form, will:
Whether or not they require legislation, many of the proposals in the report will require a good deal of further work and thought. The Commission wishes to be an active and committed partner in this and will offer Home Office and SU colleagues more detailed comment in due course on a number of issues. We are likely also to want to contribute further views on particular issues in response to growing discussion and debate within the sector during the second part of the consultation period and beyond.
The Commission welcomes this recommendation. One of the Commission’s priorities in recent years has been to ensure that, within the existing law, the definition of charity develops in response to social and economic changes. Recent examples of new purposes we have recognised as charitable in this way include the promotion of human rights and the promotion of religious tolerance. Both before and after any change in the law, we will continue to take a positive and inclusive approach to charitable status.
For the reasons set out in the review, there is advantage in a new statutory list of charitable purposes describing the scope of charity more fully and clearly than the existing four heads.
We believe that many of the new purposes will need to be further defined in statute. This will be necessary both where the margins of an existing purpose are being redefined, as with the purpose for the advancement of religion, and in relation to the new purposes in the list.
The review suggests that the proposed statutory redefinition excludes "none of the objects currently recognised as charitable". However, it does exclude recreational charities whose charitable status is secured by virtue of the Recreational Charities Act 1958. If the new statutory list is to include all currently charitable objects, recreational charities will have to be added to the list (allowing repeal of the 1958 Act).
We welcome the review’s statement that the new statutory definition is meant to be a one-off change, leaving the law to evolve in response to social and economic changes as it does at present.
The Commission agrees that, to qualify as charitable, all organisations should satisfy the same test of public benefit. In practical terms, this is already the position. Although there is a presumption that organisations falling under the current poverty, education and religion heads are established for the public benefit, this presumption is "rebuttable". In other words, where there is reason to doubt that a particular charity, or applicant for registration, would meet the public benefit test which applies to other charities, the presumption falls. Because of this, while the proposal to adopt a single, universal public benefit test is right in principle, we do not believe that it will make a significant difference in many cases to the status either of existing organisations or of new ones.
To be charitable, an organisation must have a "public character". The main thing that determines whether this requirement is met or not is access – whether or not the services or other benefits the charity provides are available to everyone, or to a sufficiently wide group within the community. Charges are a factor, and often an important one, in assessing this, but they do not in themselves necessarily call a charity’s public character or its charitable status into question. Fees, even quite high ones, may not prevent those of ordinary financial means from gaining access to the services or benefits the charity offers – charitable care homes, which are able to offer services widely to the less well-off because of the availability of state benefits, are one example.
For this reason, fees alone would not be the right criterion on which to select charities for "public character" review. (The wider range of factors that, under the law as it stands, affect "public character" is explored in the Commission’s publication The Public Character of Charities, which can be found on our website.
The Commission believes that any duty to review the public character of charities should be clearly defined in legislation. The legislation should specify, in particular:
There are arguments both for and against this proposal. Inevitably, it would expose charity assets to greater risk. It also involves a reduction in the clarity of the distinction between trading and direct charitable activities which, over time, could have a negative effect on donors’ perceptions. The new freedom would put a high premium on charities’ ability to identify and control risk. Many charities would need advice and guidance from specialist advisers on how best to structure their trading activities so as both to minimise bureaucracy and mitigate risks to their assets. Measures that charities took to mitigate risk would have their own costs attached. Trustees of unincorporated charities would need to consider the risks of direct trading very carefully indeed, given the personal liabilities involved.
On the other hand, the proposal is in the same liberalising spirit as other recent deregulatory developments, such as the changes to investment rules made by the Trustee Act 2000. The Commission has taken an active part in these developments, for example by accepting a more flexible "total return" approach to invested funds and the income they produce when that suits charities’ needs. These changes are all designed to give trustees greater freedom – balanced with a duty of care - in deciding how to deploy resources to best advantage. The present proposal would put trading, as a form of income generation, on the same footing as fundraising – an area where the great majority of charities have a record of proportionate and successful investment.
On balance, the Commission supports the proposal as an extension of choice. We are conscious, however, that many charities will prefer to retain the safeguards and the transparency in financial relationships that come from operating through trading subsidiaries.
In the early years of any new arrangements, the Commission would monitor closely the costs and benefits to charities which exercised the freedom to trade as a way of generating income.
The Commission accepts this recommendation.
The current guidelines are widely seen as providing positive and user-friendly solutions in what used to be a problem area. We are happy to look at the scope for further improvements in consultation with charities and others.
The Commission welcomes these recommendations.
It is already our policy to encourage charities to consider joint working, up to and including merger in appropriate cases, wherever that is in the best interests of their clients. We already provide extensive advisory and enabling support to charities pursuing merger, and were delighted last year to be able to assist the Imperial Cancer Research Fund and the Cancer Research Campaign to fulfil their ambitions to merge in the interests of greater effectiveness in their research activities. We will seek to expand our capacity for similar work. We are considering options for this, including a dedicated unit within the Commission.
We are preparing a regulatory report on collaborative working and mergers, which will be published in the first quarter of 2003.
The Commission welcomes this recommendation.
The Commission welcomes the report’s proposals to create a wider and more flexible range of institutional forms for not-for-profit organisations.
We have considered whether it would be possible to set up a CIC in charitable form. At the moment, based on the characteristics of the CIC described in the review, we believe that it would be possible. We take the view that any CICs which were charitable should be subject to registration and regulation by the Commission on the same basis as other charities. If CICs could be charitable, we would want to contribute to development of the form and to the discussion as to how they should be regulated.
The Commission welcomes this recommendation.
The Commission recognises the growing importance of social enterprise as a source of benefit to the community, and will support the growth of social enterprise by charities. We have published guidance on our website making it clear that many charities will be able to fund social enterprise as part of their mainstream activities.
We welcome this recommendation.
The Commission has enthusiastically supported, and taken an active part in, the development of this proposal for a tailor-made form of incorporation for charities. It would be of significant long-term benefit to many charities by allowing them to adopt governing documents which are more clearly adapted to their purposes and activities, and which allow worthwhile efficiency gains through the elimination of dual regulation by the Commission and Companies House.
The Commission welcomes this recommendation.
We share the review’s belief that there is a valid demand for more consistent information about charities that allows their performance to be more easily judged and comparisons and choices to be made more easily between them. Charities and umbrella bodies should embrace this demand, which reflects the public’s valid interests, as donors, volunteers, clients, supporters and taxpayers, in the efficiency and effectiveness with which charitable funds and assets are used.
The Standard Information Return will be a useful start. Its development over time will offer charities and their representatives opportunities both to make themselves better accountable, and to present their achievements more effectively and rigorously to existing and potential clients and supporters. In appropriate cases, the Commission will cooperate with other organisations that maintain databases, analyse information and put the results into the public domain.
The Commission welcomes these proposals.
SORP is reviewed annually, as is required by the Accounting Standards Board. These proposals will be considered as part of the annual review (which will also consider the recommendations for SORP made by the Treasury’s recently-published cross-cutting review of the role of the voluntary sector in service delivery).
The apportionment of costs was considered at the last (November 2001) annual review of SORP. As a result we published an information note to help clarify the distinction between those publicity costs which should be treated as fundraising expenditure and those which should be treated as charitable expenditure.
The Commission welcomes these recommendations.
We are now revising our published guidance on investment issues. The revised guidance will include a clear explanation of the current legal rules on ethical investment by charities.
The Commission welcomes this recommendation.
The Commission agrees that the current regulatory system for public collections does not work well and needs modernising.
The last attempt to modernise the regulation of public collections (Part III of Charities Act 1992) foundered on the practical detail of implementation, so great care has to be taken to get it right. Close consultation with practitioners, local authorities and the regulatory and enforcement authorities will be essential. In particular, it is important to be clear about:
The Commission disagrees with the review’s proposal to treat public places differently from privately-owned sites to which the public has free access for the following reasons:
The Commission agrees that high standards of practice in fundraising are crucial to public confidence in charities, and welcomes the recommendation that self-regulation should be given a chance in this area, with the possibility of state regulation if that fails.
If self-regulation is to succeed we believe that the self-regulatory body must:
The Commission welcomes these recommendations. We suggest that:
At present, appeals that are identical from the donor’s perspective can be subject to different degrees of regulation depending on whether they are carried out by professional fundraisers or by charity staff who are paid to raise funds. The legislation should address this inconsistency, for which no good reason exists.
The Commission accepts this recommendation.
Working effectively with the other agencies engaged in countering bogus fundraising is already a high priority for the Commission. Over the past year we have established a series of formal agreements with other regulators and public authorities, including local authorities and the police, as part of a major project to strengthen our capacity to investigate and deal with abuse.
The Commission welcomes these recommendations.
The Commission welcomes this recommendation.
The Commission accepts this proposal, which will be implemented in the annual review of SORP.
The Commission’s regulatory report "Trustee Recruitment, Selection and Induction", published in March 2002, showed that, currently, recruitment and induction practices often leave much to be desired. Charities need to move away from their current overwhelming reliance on personal invitation in recruiting trustees towards more open methods, and to seek greater diversity. Too often, induction practices fail to include making trustees familiar with charities’ legal purposes and powers, and with current and recent financial information.
The Commission has reservations about this proposal.
We see the advantage for charities in being allowed to pay trustees who provide services to their charities, often at reduced cost, which are outside the duties of trusteeship. Some charities’ governing documents already allow this; in other cases, the Commission authorises it where it would be in the charity’s best interests.
The risks of providing a universal power to pay remuneration of this kind are that:
If the proposal is adopted, it is important that safeguards should be provided. These should, for example, limit the number of members of trustee bodies who could be paid, and specify duties that trustees would have for managing the conflicts of interests that would be involved.
The Commission welcomes this recommendation.
The Commission welcomes these recommendations.
The Commission’s current statutory mandate was set by Parliament over forty years ago. As the review recognises, we have made good progress recently in turning ourselves into an effective, modern regulator within our current statutory remit. But we agree that the time is right for Parliament to renew our mandate in modern terms. We welcome the increased accountability and clarity of purpose that these proposals will bring.
The Commission welcomes this proposal.
It is a logical extension of the events we have held in past years to present our annual report to the sector and to account for our activities and performance.
The Commission is committed to openness and accountability and welcomes the stress that the report places on this principle.
In the last two years, we have put reports on our inquiries into the public domain for the first time, and begun a process of publishing on our website both the working instructions that we provide to our caseworkers, and key decisions that the Commission has made on status and similar issues. We will look for ways to take openness further by publishing a wide range of Board papers and holding open Board meetings.
While openness remains the objective, all organisations are entitled to opportunities to discuss in confidence issues such as "blue skies" options for policy and strategy, negotiating and influencing issues in relation to partners, stakeholders and funders, and internal management matters. It is obvious, too, that much of the decision-making of a regulator in particular may need to take place in confidence if its effectiveness is to be safeguarded and duties of confidentiality to third parties are to be preserved. For these reasons, the Commission believes that not all of its meetings and decisions can or should take place in public.
The Commission accepts this recommendation.
We have been developing plans along these lines for some time independently of the review, and will consider how these can be further developed. Our website is a very powerful means of communicating with stakeholders, currently receiving around 800,000 hits a month. We are committed, not only to improving its usefulness to charities, but also to widening its appeal to other stakeholders.
Our e-business strategy aims to enable us, by 2005, to offer all of our services electronically, without compromising levels of service to customers who want to deal with us using non-electronic means.
We are currently supporting a bid, by a consortium of voluntary sector bodies, for funds to develop a website providing public information about the activities, finances and performance of charities.
The Commission accepts these recommendations. We believe, however, that looking at the viability of charities at the point of registration is lawful, and very much in the public interest. So, our surveys show, do organisations applying for registration, whether or not they are successful. Both elements of the gateway – deciding charitable status and assessing viability – are important and proper functions for the Commission.
We will look again at the gateway procedure with a view to keeping the two elements more clearly distinct, while maintaining each of them. This will not need primary legislation.
We are clear about the circumstances in which the law allows us to use an "activities test" (para 7.33 of the review), but agree that statutory clarification of these circumstances would be helpful.
The Commission welcomes this recommendation, with one reservation.
The proposal is consistent with developments in European and UK company law, and would send a deregulatory signal that many charities would welcome. Some charities below the new professional audit threshold would make useful resource savings on audit fees.
However, the financial affairs of some charities with significant assets would go unaudited, and thought should be given to imposing an asset threshold as well as an income threshold.
This change would increase the demand for independent examiners and reporting accountants. There is a risk, which will need to be carefully assessed and managed, that the pool of competent people willing to act as examiners and reporting accountants might not be large enough at first to take on several thousand new examinations. The level of expertise required to examine charities of this size is likely to mean that a high proportion of examiners and reporting accountants will charge for their services.
The Commission welcomes this recommendation.
Our statutory function currently allows us to give advice and information to trustees "on any matter affecting their charity". While flexibility remains important, expectations of the Commission’s advisory role could and should be more clearly defined than this. In practice, virtually all the advice we give is on matters of clear regulatory relevance. As regards information for charities on good management practice and other, wider, non-regulatory issues, there are now far more sources of good quality advice available elsewhere than there were forty years ago, when the Commission’s advisory role was first formulated. In dealings with individual charities the Commission already signposts many of these other sources, and we are actively seeking to improve this element of our service further.
The Commission accepts this recommendation.
The Commission agrees with the Government that league tables are not the best way forward for charities. These reviews, like our programme of regulatory reports, should therefore be concerned with objective evidence-gathering, analysis and reporting. The intention is to give incentives for charities to perform more effectively and cost-effectively by increasing the transparency of their operations and enabling donors, and other commentators and stakeholders, to compare performance more readily, but the sophistication of the analysis required for this should not be underestimated.
The Commission welcomes the substance of these proposals. We believe that the intention will be easier to achieve if the Commission’s present name is retained, and other means are used to clarify the regulatory nature of its role.
The ability to regulate impartially is vital. We welcome the recommendation to retain and enhance the Commission’s current independence as a regulator. We agree that the relationship between the regulator and Ministers could usefully be further defined and clarified by Parliament.
Subject to the need for careful attention to be paid to the detail of what will inevitably be a complex technical matter, the Commission welcomes the proposal to convert it into a corporate body with clearer independence and clearer statutory relationships with both the Government and the charity sector.
The Charity Commission should retain its present name. The review itself correctly argues that the organisation should seek higher recognition and profile with the public. This will be much easier if we build on recognition of our current title and functions, which is already very widespread among those who deal with us directly, than if we start from scratch with a new name.
The Commission welcomes the proposal to expand the Board to nine.
This would allow a welcome extension of the diversity and range of skills, background and experience available for the governance of the organisation. Pending the necessary primary legislation, we will explore ways of working towards the underlying intention within the constraints of the current statutory framework, which allows a maximum of five Commissioners.
The proposal to split the chair/CEO functions needs more thought, and possible effects on the Commission’s governance, leadership and accountability need to be more fully explored.
The Commission accepts this recommendation, subject to availability of resources.
We are in dialogue with the Welsh Assembly and sector interests in Wales, and will take the issue into account in our business and resource planning for 2003/04 and future years.
The Commission welcomes this proposal.
The Commission accepts that public expectations of the availability of redress against decisions by public authorities are growing, and that this is right and healthy. We have already sought to improve redress within the current statutory position by introducing new, formal complaint procedures, including an element of independent review in appropriate cases; and by providing a system for the internal review of formal decisions with which those affected are in disagreement.
We believe that this has gone a considerable way towards achieving the underlying purpose of the review’s recommendations in this area. It is, however, for the Government to decide, following consultation, whether further formal redress short of litigation against decisions by the Commission is needed on major matters such as refusal of registration or trustee removal. Should they so decide, we would be prepared to work constructively and willingly with Government on the development of such a system.
The Commission believes there are strong arguments both for and against these proposals.
On the one hand, they would simplify compliance and reduce costs for some small charities. On the other, they would reduce by about 60% the number of charities on which information is available through the Commission’s public register, and would take away a status which many small charities value. We would propose allowing charities to register voluntarily below the new threshold in return for some monitoring proportionate to their size.
The reduction in bureaucracy for currently-registered small charities which leave the register should not be overestimated. The proposals would release such charities from the obligation to complete, annually, one form updating their details on the public register. The Commission’s regulatory functions, including the giving of advice and if necessary its investigatory powers, would not be disapplied.
It makes sense to align the compulsory registration threshold with the monitoring threshold, so that the accounts and activities of all registered charities are subject to some degree of systematic monitoring oversight. But, as the review recognises, the ending of voluntary registration would deprive small charities of their badge of official recognition. This could be a real disadvantage for some in their dealings with funders and with other people and institutions. Some of the latter may tend to equate registration with respectability, and view unregistered charities with a degree of suspicion. It might take some years for this perception to be overcome, even with the benefit of Inland Revenue recognition and the introduction of "Small Charity" status.
The Commission welcomes this recommendation and the proposal for the process of registration to be phased.
The Commission welcomes these recommendations.
The Commission welcomes this proposal. As the Commission is part of the regulatory apparatus, and in the interests of securing the credibility of the exercise, we believe that this task would be best taken forward jointly with an academic or other disinterested partner body or bodies.
The Commission believes that the opportunity should be taken to strengthen the accountability of charities in ways additional to those proposed in the report. We believe in particular that there is a place for a charity Ombudsman.
While the Commission has extensive powers of intervention and enforcement, these powers are major ones, designed to protect the charity and its assets from abuse or serious mismanagement. They are not designed, and are not well adapted, for use to give redress where a charity has fallen short of acceptable standards of administration in a single case or in its dealings with a particular individual. In such cases, it is most unlikely that sanctions of the kind available to the Commission – for example, freezing a charity’s finances, or suspending or removing its trustees – will be appropriate or proportionate. And we are – rightly – prohibited by law from overruling a charity’s trustees on matters of its detailed administration.
Where individuals feel aggrieved, the first recourse should be to a charity’s own customer care and complaints arrangements. But where these cannot resolve the issue, recourse should be to an independent Ombudsman, rather than to a state regulator such as the Commission.
The Ombudsman should have the power to make recommendations to charities in particular cases, and to publish his or her findings. The model proposed by the review for fundraising supervision – self-regulation by the sector, with power to set up a state scheme as a long stop – might be equally appropriate here. Cases would typically be those where a complaint arose against a charity whose actions, although lawful and within the charity’s trusts, gave rise to unfairness – for example to a client dissatisfied with service received, or a third party whose interests were adversely affected by a charity’s activities.
Charities’ ability to take decisions without state interference is, however, a fundamental feature of their independence and their freedom from state control. The scheme should be designed in keeping with this central principle. It should not, and could not, offer a means to arbitrate on disputes within a charity’s governing body on policy or priorities. Nor should it provide a means for a charity’s lawful decisions to be overruled simply because some – even most – people might have reached a different view. It would remain charities’ responsibility to take such decisions, including the most difficult ones, and to stand accountable for them to stakeholders and to the public, rather than to an Ombudsman or regulator.