Strategy Unit report is largely welcomed
Howard Lake | 25 September 2002 | News
The Strategy Unit has reported its recommendations on overhauling the 400-year-old law on charity in England and Wales.
The Strategy Unit report on the legal and regulatory framework of the
non-profit sector is an impressive and thought-provoking document. In CAF’s
view, the report raises a number of fundamental issues all of which are
important for the future of charities and voluntary organisations.
CAF will be consulting widely and will be issuing clear statements as to its
views on a variety of proposals highlighted in the report. For example, CAF
will produce a detailed response on accountability and transparency within
the sector, the potential role of social enterprises and community
businesses and the legal statutes surrounding this activity and the future
role of the Charity Commission – amongst other subjects. CAF will play a
full role in the consultation period and will be looking to take
initiatives, with other bodies, to push forward the agenda.
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The Strategy Unit review provides the voluntary sector with an agenda for
action, and there are a number of areas that require greater consideration.
CAF will be at the forefront in tackling these in the near future.
Stuart Etherington, Chief Executive of the National Council for Voluntary
Organisations (NCVO) said today: ‘It is a great boost for the charity sector
that the Government’s Strategy Unit has decided to move in favour of a
universal public benefit test and robust reform of the Charity Commission.
The National Council for Voluntary Organisations believes that it is
essential, in the interest of preserving public trust and confidence in
charities, that these recommendations are enacted through a new Charity Bill
in next years’ Queen’s speech.’
‘It is long overdue that all organisations that wish to become charities as
well as all those already in possession of charitable status should have to
demonstrate the public benefit they provide. Equally significant is the
proposed creation of a Charity Regulation Authority, which will remove the
ambiguity surrounding the Charity Commission’s current dual roles as both
regulator and advisor.’
‘The Government’s Strategy Unit has taken the first step today in updating
our antiquated charity law. This process must not be allowed to stall. We
need a new Charity Bill that introduces a universal public benefit test and
reforms the role of the Charity Commission in next years’ Queen’s speech.
Simplifying the legal definition in this way will clarify the very meaning
of charity and in doing so protect public confidence in the voluntary
sector.’Presently, no universal test of a charity’s public benefit is
demanded by English charity law, which dates back over 400 years. Instead,
this quality is generally presumed to exist in religious organisations and
in organisations that promote education or the relief of poverty.
NCVO will bring further pressure to bear on the Government to enshrine the
Strategy Unit’s recommendations in legislation with the launch of its
campaign for a Charity Bill in the 2003 Queen’s speech. The campaign will be
launched at NCVO’s Fringe Meeting ‘Labour’s second term – a new dawn for
charities’ being held at the Labour party conference on the 2nd of October
which is to be addressed by Paul Boateng MP.
NCVO has already assembled a Charity Law Experts Group which will hold it
first meeting on the 8th October to discuss the details of appropriate
legislation. The Group will be chaired by Lady Winifred Tumim. Lady Tumim
previously chaired the NCVO Charity Law Reform Advisory Group, which argued
for a public benefit test for charities and produced the report ‘For the
Public Benefit?’.
The wait has been worth it!
Private Action, Public Benefit
Report by the Strategy Unit of the Cabinet Office on Å’Charities and the
Wider Not-For-Profit Sector¹.
This remarkable report sets out the most comprehensive, thorough and
authoritative programme of reform for charity law and practice in the
lifetime of any of its readers and it comes with a strong commitment to
implementation, including new legislation.
The Directory of Social Change, as a major provider of information and
support for voluntary organisations, strongly welcomes the recommendations
as a a whole, as well as most of those in specific areas in which DSC has
been campaigning for change
Three reforms stand out.
Public benefit
The proposed new requirement that all charities should show that they are
for public benefit is hugely important. The fact that many charities have
not been Å’charitable¹ at all in the usual sense of the word has been a
blight on the sector for many years, serving to damage the public¹s view
that charity should be there to help those in need.
The call for change is put in forthright terms: Å’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
character¹. The report endorses the following tests, among others:
o ‘Charges should be reasonable and should not exclude a substantial
proportion of the beneficiary class
o the service provided should not cater only for the financially well
off. ‘
DSC expects that this change will affect not just public schools but also
quite a number of large private hospitals and clinics, as well as
organisations in other fields.
Charity Registration
The Directory of Social Change has been campaigning against the present
procedures for registration, arguing that they have been made so demanding
that they have become a deterrent to small local groups trying to get
together to do good on a small scale.
DSC therefore welcomes the proposal that charities with an income of less
than £10,000 a year should no longer be registered. This means that 90,000
charities with annual incomes of less than £10,000 will no longer be
registered but, as Small Charities, will still have access to the same tax
relief as registered charities.
For new organisations, the report has accepted DSC¹s view that that
registration is a right for appropriate applicants, and is not dependent on
the Commission¹s views on the viability of their proposed activities.
Legal forms for charities
The present system where most charities that are big enough to employ staff
have to become limited companies, subject to company as well as charity law,
has been a source of constant confusion. The radical proposals for a new
legal form, the Charitable Incorporated Organisation (CIO), with similar
proposals for mutual organisations and social enterprises or community
businesses, will end most of this.
Campaigning
The report calls for clearer and more liberal rules on a charity¹s right to
campaign on behalf of its beneficiaries. This is badly needed as the present
situation is unclear and a number of organisations, seen as wholly
charitable by the public, have been refused charitable status.
The government is consulting this autumn on the implementation of the
report. The Directory of Social change will be consulting with a number of
people including trustees, staff and others, to offer a wholly independent
response. A note on what it sees as issues needing further attention will be
placed shortly on the DSC web site (dsc.org.uk) and anyone interested in is
invited to contribute to this work, by Email or telephone.
COMMENT FROM KINGSTON SMITH’S NOT FOR PROFIT GROUP ON THE STRATEGY UNIT REPORT
Private Action, Public Benefit
The long awaited Strategy Unit Report (formerly the Performance and Innovation Unit) was published yesterday (September 25, 2002) entitled Private Action, Public Benefit. The Report which runs to some 97 pages starts by analysing the size and shape of the charitable and wider not-for-profit sector. One of the interesting statistics from this section of the Report would indicate that surprisingly enough the number of not-for-profit organisations in England and Wales per thousand of population is slightly below average and countries like Denmark, France, the US and Italy all have higher percentages.
The Report tells us that the Government’s strategy for the sector has four main strands:
Helping charities and other not-for-profit organisations play a bigger role in revitalising communities and empowering citizens;
Encouraging public support for the sector;
Helping the sector to become more effective and efficient;
and,
Enabling the sector to become a more active partner with Government in shaping policy and delivery.
One step to achieving that strategy is to reform the legal framework by producing a modern approach for charities. The existing charitable purposes which have effectively been with us since 1601 and covered the relief of poverty, advancement of education, advancement of religion and other purposes beneficial to the community, will be replaced by ten new purposes:
Prevention and relief of poverty;
The advancement of education;
The advancement of religion;
The advancement of health;
Social community advancement;
The advancement of culture, arts and heritage;
The advancement of amateur sport;
The promotion of human rights, conflict resolution and reconciliation;
The advancement of environmental protection and improvement;
and,
Other purposes beneficial to the community.
Much of this is not very surprising but the emphasis for charitable purpose will be on public benefit. The Report states that public benefit has always been presumed to be present for organisations involved in the relief of poverty and the advancement of education or religion, unless there is evidence to the contrary. And for charities with objects that fall under ‘other purposes beneficial to the community’, the concept of public benefit has to be demonstrated unless it is self-evident. However, the Report states charities cannot be wholly exonerated from the public benefit requirement on presumption. All institutions if they are to have charitable status must be demonstrably established for the public benefit.
A number of charitable sector groupings have been concerned about their future status as charities since the Charity Commission started reviewing the Register. The Report states that animal health and welfare will continue to be included under ‘other purposes beneficial to the community’. In regard to the advancement of religion it is proposed that legislation introducing change to clarify that faiths that are multi-deity (such as Hinduism), or non-deity (such as some types of Buddhism) should also qualify under this charitable head. However, it is unlikely that private education will receive such favourable terms! The Report says that those charities that charge fees that are not affordable to large sections of the population, unless they make significant provision for those who cannot pay full fees, may not fall within the public benefit criteria and thus would be excluded as being a charity. It is proposed that the Charity Commission will identify charities likely to charge high fees and undertake a rolling programme to check that provision is made for wider access.
However, to be included within the definition of charity would be those organisations that emphasise on campaigning, provided that it is of a non-party political nature.
The Report then goes on to outline a number of proposals to make the day to day operations of the charities more efficient and reform the legal framework in which those charities operate.
There is a recommendation that charity law be amended to allow charities to undertake all trading within the charity without the need for a trading company. There will be certain duties of care that the Trustees will need to take in this regard, however, it should increase the transparency by comparing the economic benefits of the trade with other forms of income generation that the charity undertakes.
The Report recommends that the audit threshold should be increased for charities with income between £250,000 per annum and £1million per annum. The Independent Examination requirement will therefore apply to all charities with income between £10,000 and £1million.
Another recommendation is that the Charity Commission should provide specific advice to facilitate mergers possibly by creating a dedicated internal unit.
The Report proposes a range of recommendations to reform the legal framework of the sector:
The creation of a new legal form for social enterprises called the ‘Community Interest Company’, which would protect assets against distribution to members or shareholders whilst creating a strong new not-for-profit brand for small scale community based social entrepreneurs;
A revamping of the Industrial & Provident Society legislation to modernise it and rename such organisations operating within the legislation as Co-operatives and Community Benefit Societies;
and,
The creation of a new legal form called a ‘Charitable Incorporated Organisation’ which will replace the existing ‘Companies Limited by Guarantee’.
The Report also discussed the building of public trust and confidence and supporting the sector in improving performance and suggests that for charities with income of over £1million they should complete an annual Standard Information Return which will highlight qualitative and quantitative information about the charity, focusing on how it sets it objectives and measures its outcome against these. It also suggests that the Charities SORP should be amended to improve methods for apportioning costs and expenditure, enabling more meaningful financial comparisons between organisations to be made.
As anticipated, but surprisingly little in detail, the Report looked at better regulation of fundraising. It recommended that a new fundraising body should be established to develop a self-regulatory initiative. The body would be self financing and 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. However, the Report does recommend that the Home Secretary should be given the power to introduce statutory regulations if he considers self-regulation is ineffective or inadequate!
Finally the Report looked in detail at the role of the Charity Commission and its regulation of the sector. The main recommendation was that the Charity Commission should continue to operate at arms length from Government and that it should become a statutory corporation and be renamed the ‘Charity Regulation Authority’.
As stated in the foreword by the Prime Minister Tony Blair, the Report is issued as a consultation document and the sector will have time over the next three months to comment and analyse on the proposals.
The Home Office’s Active Community Unit (ACU) will publish a paper next year setting out the Government’s next step and strategy for the sector as a whole. It will also set out an implementation plan for the recommendations arising from this Report. Many of the recommendations could only be implemented by primary legislation and it is intended that necessary legislation will be included in a Home Office Bill.
While the Report was worth waiting for, it is probably not as far reaching in comparison to the time it has taken to produce the Report. However, the sector will benefit from the recommendations. The jury is still out though on whether actioning all the recommendations will have a material effect on the public’s trust and confidence in the sector.
About Howard Lake
Howard Lake is consultant editor of UK Fundraising. He founded the site in 1994 and successfully sold it in 2022. As director of Giving X Ltd he is exploring growing giving on a massive scale.
He is the founder of Fundraising Camp and co-founder of GoodJobs.