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NOTE by Andrew Malcolm. Here at last is the Strategy (Performance & Innovation) Unit's long-awaited review of charities, which has interesting implications for the university presses' (OUP's and CUP's) tax-exemption, the Universities' accountability (e.g. in respect of Oxford's spending of millions of pounds of charitable, part-taxpayers' money on legal vendettas against individuals), the practical opacity of the Oxbridge Colleges' accounts, and so forth. Below I have extracted from the full 'main report' the most relevant passages, highlighting the key recommendations maroon. A summary of all the report's recommendations (Annex 2) follows below the extracts. The review makes no mention of the requirements of fair trading (e.g. within the UK book market), although it may be assumed that these fall within the phrase 'basic charity law requirements' (e.g. in recommendatiion 1 at 7.95, below). The full report can be accessed via its Strategy Unit Index.
Last paragraphs of introduction
This report sets out a package of measures which will modernise the law and enable a wide range of organisations to be more effective and innovative, whilst maintaining the high levels of public trust and confidence which are vital to the continued success of the sector.
The report is issued as a consultation document. Over the next three months, there will be time to comment on the analysis and the proposals in this report. I want to work with the sector and I hope to hear views from the widest possible range of people and organisations.
- Prime Minister Tony Blair.
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Extracts from Executive Summary
...Building on these reforms, the Government has undertaken three complementary reviews to help the sector achieve its full potential. These cover:
This review covers the first issue... It considers how to improve the legal and regulatory framework to enable existing organisations to thrive, to encourage new types of organisations to develop, and to ensure public confidence. The review sets out - for consultation - a package of proposals for reform which aim to:
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There should be a clearer focus on public benefit. In particular charities which charge large fees for their services, thereby excluding a substantial part of the population, will need to demonstrate how their activities have a public character. The Charity Commission should have an on-going programme to review the public character of charities.
Developing greater accountability and transparency... Public trust and confidence enable charities and the wider sector to thrive and prosper. But for some there are few external pressures to improve performance. And accountabilities to beneficiaries and donors can be unclear.
In general the sector does not produce sufficiently accessible and relevant information to meet the public's needs. This report proposes higher standards of information provision, including a Standard Information Return in which larger charities will focus on their objectives and measure outcomes against these. It encourages benchmarking, social audit and other quality tools through sector-led initiatives with Government support.
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The regulation of charities should aim to:
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What happens next
The Government would welcome views on this consultation paper. Responses should be sent by e-mail to piuvolsect@cabinet-office.x.gsi.gov.uk or in writing to Strategy Unit/Home Office (Charities Project), Admiralty Arch, The Mall, London SW1A 2WH. The deadline for submissions is 31st December 2002.
The Home Secretary has responsibility for Charity Law in England and Wales. However, some of the issues in this report, such as the definition of charitable status, have implications throughout the UK. Following the consultation period in this report the Home Secretary will publish a Paper setting out the Government's next steps.
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Unregistered charities
2.24 There are also a large number of charities which are not registered. For example, very small organisations with income of £1,000 or less, along with certain classes of charity including churches of particular denominations, do not have to register - these are collectively called "excepted" charities. Other types of charities, including universities, housing associations and some schools, are not registered on the grounds that they are regulated by other agencies. These are termed "exempt" charities.
2.26 Higher education institutions receive funding from the Funding Councils. In 1999-2000, 40% of UK universities' total £12.8 billion income derived from Funding Council grants; project-specific research grants and contracts with the Research Councils and with Government Departments also contribute significantly.
Recommendation:
(1) That charity be redefined in law, based on the principle of public benefit and falling under one of ten new purposes of charity.
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4.2: A new definition of charity.
A charity should be defined as an organisation which provides public benefit and which has one or more of the following purposes:
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7.93 Another group of charities, including universities, housing associations and charitable industrial and provident societies, have not been allowed to register with the Charity Commission on the basis that they are 'adequately supervised by another regulator'. These are exempt charities.
7.94 Exempt charities that are regulated on the basis that they receive significant public funds, such as universities and housing associations, are not being monitored in relation to charity law requirements. This review found that some of these organisations were unaware of the requirements of charity regarding, for example, governance arrangements and stewardship of funds. This potentially lays these organisations open to challenge since, like all other charities, they are required to abide by charity law principles. We propose that the 'main regulators' of these bodies should assess compliance with charity law as part of their usual monitoring processes. The aim would be to introduce the requirement with a light touch, using existing forms and reporting mechanisms, so as to minimise any additional regulatory burden.
7.95 The Charity Commission already has the power to give advice to exempt charities on their responsibilities in relation to charity law and regulation. In addition, it will provide advice and support to 'main regulators' in the drafting of guidance on charitable status for their constituencies. 'Main regulators' will have responsibility for ensuring compliance with charitable status but could ask the Commission to investigate if they had concerns about abuse of charitable funds.
Recommendations:
(57) The monitoring regimes to which housing associations, universities and colleges as exempt organisations are subject should be adapted to cover basic charity law requirements.
(58) The reports and accounts of exempt charities should clearly set out the voluntary funds they hold and how they use them. The same level of information about exempt charities as is required of charities should be made accessible on or via the Charity Commission website.
(59) The Charity Commission should be given a power to investigate exempt organisations on the request of their 'main regulator'.
(60) Larger exempt charities, without a 'main regulator' should be registered with the Charity Commission.
The bracketed numbering of the recommendations is as listed in Annex 2 of the Review (below). Numbers (1), (57), (59) and (60) above will require legislative change, (58) will not.
In the following list of recommendations, those printed in bold (and numbered L) will require legislative change; other recommendations may be implemented without legislation.
1L. That charity be redefined in law, based on the principle of public benefit and falling under one of ten new purposes of charity. (4.18)
2. The Charity Commission should undertake on-going checks on the public character of charities. (4.30)
3L. To amend charity law to allow charities to undertake all trading within the charity, without the need for a trading company. The power to undertake trade would be subject to a specific statutory duty of care. (4.47)
4. That the Charity Commission guidelines on campaigning should be revised so that the tone is less cautionary and puts greater emphasis on the campaigning and other non-party political activities that charities can undertake. The legal position should continue to be that charities can campaign providing that:
5. That the Charity Commission should provide specific advice to facilitate mergers, possibly by creating a dedicated internal unit. (4.62)
6L. That a package of legal measures should be introduced that will facilitate mergers and, more generally, the administrative running of the charity. (4.62)
7L. Criteria for allowing trustees to spend capital should be revised. (4.68)
8L. That a Community Interest Company be established, with the characteristics set out in Box 5.2. (5.21)
9L. That the distinction between the bona fide co-operative and the society for the benefit of the community be retained, and that the bona fide co-operative is given a statutory definition in line with the International Co-operative Alliance Statement on the Co-operative Identity. (5.35)
10L. That the names be changed to Cooperatives and Community Benefit Societies, and that the umbrella term Industrial & Provident Society no longer be used. (5.35)
11. That Community Benefit Societies be allowed to have distinct categories of members (such as staff and users), but retaining the principle that voting must not be in proportion to capital stake. (5.35)
12L. That the threshold for dissolving or demutualising both Co-operatives and Community Benefit Societies be raised, in line with current rules for building societies. (5.37)
13L. That Community Benefit Societies also have the option, following a vote of members, to be able to choose to protect their assets in perpetuity for a public purpose and prohibit conversion into a Co-operative or a company. (5.37)
14L. Constraints on financing should be relaxed, and the £20,000 limit on the amount of capital that can be held by any one member removed. (5.38)
15L. Industrial & Provident Society legislation should be brought up to date with relevant aspects of company legislation (such as on the disqualification of directors), and future updating with company law should be made possible by statutory instrument. (5.38)
16. The DTI's Social Enterprise Unit should consult further on the feasibility and value of a branding scheme in order to identify whether there is an option that could be taken forward and supported by Government. (5.42)
17L. That a new legal form designed specifically for charities, the Charitable Incorporated Organisation (CIO), be introduced, which will only be available to charitable organisations. (5.44)
18. As part of their Report and Accounts, the largest charities (those over the proposed new £1m audit threshold - see paragraph 7.42-7.44) should complete an annual Standard Information Return. This should highlight key qualitative and quantitative information about the charity, focusing on how it sets objectives and measures its outcomes against these. (6.11)
19. The next charity SORP should develop improved methods for apportioning costs and expenditure, enabling more meaningful financial comparisons between organisations to be made. (6.12)
20. Improvements should continue to be made to the SORP to strengthen its focus on achievements against objectives, organisational impact and future strategy. (6.12)
21L. For charities with total annual income of over £1 million, the Charities (Account and Reports) Regulations 2000 should be amended in line with the obligations of pension fund trustees to declare their ethical investment stance in their annual reports. (6.14)
22. Smaller charities which have significant holdings of equities should also make a declaration of their ethical investment stance on a voluntary basis, as a matter of good practice. (6.14)
23. The ability of charities to follow a broad ethical investment policy should be clarified. (6.14)
24L. Auditors of all charities should have the same statutory protection from the risk of action for breach of confidence or defamation, as do the auditors of charities which are not companies. (6.20)
25. A new, updated and unified local authority licensing scheme for public collections should be introduced, focusing on basic minimum requirements and geared towards encouraging legitimate collecting activity within the constraints imposed by competition for space and the avoidance of public nuisance. (6.24)
26. Government should support, with seedcorn funding, a new fundraising body to develop the self-regulatory initiative. The body would become self-financing, perhaps by a small levy on donated income, although the method of financing would be a matter for the body itself. This would be based on a new voluntary Code of Practice designed to promote good practice in fundraising, and to raise awareness of the sector's commitment to good practice among the general public. (6.32)
27L. The Home Secretary should be given the power to introduce statutory regulation, which he would exercise if he considers self-regulation to have been ineffective or inadequate. (6.32)
28L. The legislation should be amended to require a specific statement of the return that will be made to charitable, philanthropic and benevolent purposes from promotional ventures. (6.33)
29. The Home Office should issue guidance, building on that already available, setting out the form of statement appropriate to the particular type of promotion proposed. (6.33) 30. The liaison arrangements already in place between the Charity Commission, local authorities and the police should be strengthened by means of protocols setting out agreements on joint working. (6.35)
31. That Government provides support to the sector for work on performance improvement as part of its wider commitment to build the sector's capacity. The sector should work collectively to bringforward proposals by April 2003. (6.38)
32. Specific sub-sectors (groups of organisations involved in the same area of service provision) should pilot test an approach to developing common performance indicators and benchmarking for the organisations in their area. If this were to prove successful, it could be used to encourage other sub-sectoral groupings to follow similar approaches. It is not proposed that the Government or the Charity Commission would have a role in the exercise. (6.40)
33. That the citizenship component of the National Curriculum should contain more to encourage learning about, and participation in, charitable and not-for-profit activity, including volunteering and trusteeship. (6.47)
34. The SORP should provide for annual reports to include a statement of procedures for recruitment, induction and training of new trustees. (6.48)
35L. A trustee body should have a statutory power to pay an individual trustee to provide a service to a charity (outside their duties as a trustee) if they reasonably believe it to be in the charity's interests to do so. (6.48)
36L. Charity trustees should be able to apply to the Charity Commission as well as the court for relief from personal liability for breach of trust where they have acted honestly and reasonably. (6.48)
37L. The charity regulator should have clear strategic objectives in statute setting out what it exists to achieve as regulator. (7.6)
38. Indicators should be developed by the regulator, in consultation with interested parties, to allow its performance against its objectives, and its impact on the charitable sector, to be judged. (7.7)
39L. Legislation should require the Commission to report its performance against its objectives in its annual report. (7.11)
40L. Legislation should require the Charity Commission to hold an open Annual General Meeting at which to present its report and answer questions. It should continue its programme of regional meetings. (7.12)
41. The Charity Commission should open its Board meetings to the general public. (7.22)
42. The Charity Commission should develop a better focus on the needs of stakeholders other than the regulated constituency by: providing advice on giving aimed at potential donors; making standard information about the largest charities available on its web-site (see Chapter 6); and signposting on its website other appropriate bodies that members of the public should contact if they wish to complain about a particular aspect of a charity's work or mode of conduct. (7.26)
43L. The Commission should seek to separate the process of judging whether or not an applicant is a charity from that of assessing viability. (7.38)
44L. The circumstances in which an "activities test" can be used as an aid to interpreting purposes should be clarified in statute. (7.38)
45L. That all charities with income of £1m or more in any financial year should be required to have their accounts for that year professionally audited. The independent examination requirement should apply to charities with income between £10,000 and £1m. The latter threshold should be re-examined if the audit threshold for non-charitable small companies changes. (7.44)
46L. The Charity Commission's advisory role should be defined in statute to give a clearer focus on regulatory issues. (7.49)
47. The Charity Commission should review, with sector participation, and report on the performance of different charitable subsectors with a view to correcting information failures and enabling stakeholders to maximise beneficiaries' interests and better fulfil underlying charitable objects. (7.58)
48L. The charity regulator should continue to operate at arms length from Ministers. It should become a statutory corporation called the Charity Regulation Authority, whose relationship with Ministers is clearly defined in statute. (7.63)
49L. Legislation should enable the number of Commissioners to be increased from five to nine, with one Commissioner appointed by the Secretary of State for Wales. There should be separate Chair and Chief Executive posts. (7.66)
50. The Charity Commission should open an office in Wales. (7.68)
51. A new umbrella committee, on which all UK charity regulators are represented, should be created, to ensure a consistent regulatory approach UK-wide and to share information and best practice. (7.68)
52L. An independent tribunal should be introduced to hear appeals against the legal decisions of the Commission as registrar and regulator. This will be introduced alongside a streamlined single stage internal review procedure. (7.79)
53L. The threshold for compulsory registration should be raised to £10,000. The two criteria relating to permanent endowment and use/occupation of land should no longer apply. (7.84)
54L. All charities below the new registration threshold should have the status of "Small Charity". They would not be entitled to register as charities, but those that made tax repayment claims would have acceptance from the Inland Revenue of their charitable status - as is already the case for unregistered charities in England and Wales, and for all charities in Scotland and Northern Ireland. (7.86)
55L. There should also be a change in the law to enable funders who are legally limited to funding registered charities also to fund "Small Charities". (7.86)
56L. Excepted charities with incomes above the new proposed registration threshold (discussed in paragraph 7.81 onwards) should be required to register. A higher registration threshold could be set to ensure a manageable process of registration. (7.91)
57L. The monitoring regimes to which housing associations, universities and colleges as exempt organisations are subject should be adapted to cover basic charity law requirements. (7.96)
58. The reports and accounts of exempt charities should clearly set out the voluntary funds they hold and how they use them. The same level of information about exempt charities as is required of charities should be made accessible on or via the Charity Commission website. (7.96)
59L. The Charity Commission should be given a power to investigate exempt organisations on the request of their 'main regulator'. (7.96)
60L. Larger exempt charities without a 'main regulator' should be registered with the Charity Commission. (7.96)
61. The Charity Commission, with advice from the Cabinet Office's Regulatory Impact Unit, should quantify the impact of regulation on charities and other not-for-profit organisations, monitor it over time, publish the results and highlight areas where regulation appears excessive. (7.101)