State of the Nation - Charities Moira Protani

2 The New Austerity State of the Nation Banks, FTSE 100s, Public bodies, Members of Parliament and charities Public expectations: public benefit, minimal private benefit, the voluntary principle, no tax avoidance

3 5 Year Review of Charities Act 2006 Lord Hodgson Review of the Charities Act 2006 Significant changes in the global economic situation since 2006 Charity Commission budget cuts Lord Hodgson’s recommendations published July 2012, the Law Commission; the Public Administration Select Committee published May 2013; the Government response published September 2013 State of the Nation

4 Public Benefit A charity must be established for a purpose set out in the Act and be for the public benefit – presumption of public benefit removed Charity Commission guidance – wholesale delegation by Parliament to the Charity Commission Lord Hodgson recommended no statutory definition of public benefit: the Select Committee disagreed citing the Independent Schools Council and the Preston Down Trust cases The Act is “critically flawed” and Parliament must legislate The Select Committee said repeal the removal of the presumption of public benefit and the Charity Commission’s statutory objective of promoting public benefit The government supported Lord Hodgson State of the Nation

5 Charity Tribunal Some (but not all) decisions can be challenged or reviewed Supposed to be cost effective for litigants in person – the Tribunal had failed? Lord Hodgson said to extend rights of appeal on legal decisions and rights of review on other decisions. Not accepted by Select Committee but agreed by the government Over reliance by the Charity Commission on Charity Tribunal? “Abdication of responsibility” and “expensive, time consuming and unjust way to test the law” The government disagreed with the Select Committee – the whole purpose of the Charity Tribunal was to facilitate development of charity law

6 The role of the Charity Commission Friend or Policeman? The Charity Commission’s statutory objectives “Too vague and aspirational” said the Select Committee Focus on regulatory role and preventing use of charities for tax avoidance – The Cup Trust. Parliamentary Public Accounts Committee Use of charities for tax avoidance purposes exaggerated? Select Committee Report more balanced If the Commission is not to receive additional funding for regulatory activities Ministers must accept that the Commission’s role will be limited. This was accepted by the government The Public Safety Trust State of the Nation

7 Fundraising Self-regulation Failure to give the public confidence – eg Chuggers Charities Act 1992 Charities Act 2006 Cost of regulation by Charity Commission estimated at £4 million per annum plus start-up costs A balance to be struck between regulation and cost to the public Self-regulating bodies on notice – 5 years to improve – Select Committee If regulation becomes necessary charities should pay for it. Agreed by the government State of the Nation

8 Politics and Campaigning Political campaigning Encouragement of transparency – charities should publish expenditure on campaigning and political activities in their annual returns Think tanks New guidance from the Charity Commission

9 Fees and Penalties Proposal of fee for registration not accepted Proportionate and flexible charging of charities who are late with filing annual returns – agreed by the government

10 Trustee Remuneration and Red Tape Lord Hodgson’s recommendation that large charities (income in excess of £1 million) to have power to pay trustees for their services as trustees not accepted by Select Committee or the government Government interim response – no “easing of the general presumption against trustee remuneration”. Undermines the voluntary principle central to the ethos of the charitable sector Administrative burden of separate annual returns to the Charity Commission and Companies House to be resolved as a priority Recognising devolved power but joined up regulation to be encouraged between the different jurisdictions State of the Nation

11 Governance Lord Hodgson Trustees to serve no more than 3 terms of no more than 3 years each If not, explain why in the annual report Government Good practice only Whether disclosure is appropriate to be decided between the government and the Charity Commission

12 More reporting obligations More detailed annual return Trustee remuneration Membership of Fundraising Standards Board Working with commercial participators Qualified accounts? Trading subsidiary information Policies e.g. risk management, investment, conflicts of interest, complaints handling Other regulators

13 More Grief for the Charity Commission but.....HMRC.....? Another review by the National Audit Office – is the Charity Commission fit for purpose? Law Commission Registration jointly with the Charity Commission and HMRC– A conflict of interests? State of the Nation

14 What now? A stricter tax regime Trustees should review their governance thoroughly Increased regulatory activity by the Charity Commission, eg the Dove Trust; Christ’s Embassy

15 What now? Charity Commission’s overall reduction in funding will have greater impact on smaller charities Charity Commission’s advisory functions have always been free of charge – already a loss of focus in this regard Greater reliance on professional advisers and in-house expertise Help from the charitable sector? A change in the mood of the public The age old dichotomy for charities The new austerity State of the Nation