24 June 2011

Keynote address: Changes at the Charity Commission and the Review of the 2006 Charities Act

Thank you Mark.

I am delighted to be here at this important event. Fiona is the only person who keeps inviting me to a racecourse, and although I am yet to ever catch a race, it is always a great pleasure.

When I spoke at your conference in 2009 I was impressed with the energy and enthusiasm in the room and the quality of your debate.

It helped me realise how essential events like this are. They are your opportunity to catch up with each other, to exchange problems and share solutions.

You know that the role independent examiners play has never been more important.

You are some of the true unsung heroes of the charity sector.

Without your advice and support, many charities would not be able to properly report on their financial affairs and the public would not have the level of assurance that they need.

That public trust is essential if we are to maintain and increase charitable giving, and volunteering.

Whether you label it as the Big Society, the Good Society or as anything else- we all share a desire to have a strong and vibrant charity sector that improves and enhances people’s lives.

That’s what makes me get out of bed in the morning and I know it is what drives and motivates you too.

A lot has changed since I was last here in June 2009. The political landscape is very different and the reductions to public spending have started to hit.

The Charity Commission’s most recent research – published in March last year - suggests that only 15% of registered charities receive income from public grants and contracts. But for those that do, the cuts to central and local Government funding are now biting.

The Voluntary Sector Cuts website, for instance, which is administered by NCVO and other umbrella bodies, is collating the experiences of individual charities across the country.

It is now recording cuts to the tune of £75 million. Just to put that in context – the total income of the charity sector was around £55 billion last year.

The situation regarding other sorts of income streams varies.

Some charities are clearly doing very well, in spite of the economic situation. Just think of some of the military charities that have managed to improve on their fundraising success enormously.

Similarly, the most recent UK Giving Report, compiled by the Charities Aid Foundation and NCVO, revealed that levels of giving last year recovered slightly, after a drop in 2009.

The typical, so median, amount given per person went up from £10 in 2008-9 to £12 in 2009-10.

Nevertheless, there is no doubt that the big picture is one of serious pressure on resources for charities.

And, if we’re to believe the economic commentators, there is evidence to suggest that it will remain challenging for some time.

Many predict that the country’s economic recovery will be a slow, arduous incline rather than a swift ascent back to the summit.

It is in this context that you know only too well the pitfalls that many charities can fall into.

Good professional independent advice that you, and other professionals give, will be critical to the success and indeed to the survival of many charities in the coming months and years ahead.

I have been asked to update you on changes at the Charity Commission - and indeed the Commission is undergoing a process of transformation.

That’s not new – the Commission is used to continual modernisation. And the organisation has changed almost out of recognition since I joined in 2002.

But as many of you will know, we are now having to adjust to cuts of a third over four years.

And that process – the Strategic Review - has required us to go back to basics and to look again at the role and purpose of the regulator.

This began, very deliberately, with a period of wide-ranging and intensive consultation. We spoke to charities, the public, think-tanks, academics, MPs, peers – about what they expect from a charity regulator with declining resources at its disposal.

Regulating charities is not and never will be like most other forms of regulation. We don’t regulate a market, nor do we regulate a state monopoly or private enterprise established for profit.

We regulate the endeavour of citizens coming together to do something for the benefit of the wider public….you could say we regulate good intentions, but it’s much more than that:

With an annual income of £55 billion and reach into every community, charities are a fundamental part of the fabric, the economy and DNA of our country.

So we started our consultation by asking: who are we here to serve?

Here the answer we received was crystal clear…the public.

This may seem obvious, but much of the Commission’s work over the last six years has focused on transforming the nature and quality of our services to charities.

Andrew Hind reflected on this journey in his address at your conference last year.

These improvements were long overdue and vital, and I, for one, am convinced that they have made us a more targeted, more responsive and more effective regulator.

Nevertheless, an explicit focus on serving the public first – that does represent a strategic shift and an organisational re-positioning.

When we asked about where our priorities should be, we were told that our stakeholders want us to:

Focus on our core regulatory activities:

• maintaining the register
• registering charities
• ensuring compliance with charity law
• producing information on our web

However, what the strategic review process did not provide us with is a clear steer on the things we should not be doing.

It didn’t result in consensus that the Commission could simply stop a significant section of our work.

But, guided by our strategic focus on serving the public, we have identified areas to which we can and should commit fewer resources, so that we can make the savings we need to make.

One of the ways in which we’ve done that is by asking:

Can anyone else do this work instead of us? Does any of our work represent duplication with the work of others?

That certainly helped us identify areas in which we can take a step back.

For instance, we will place far less emphasis on work to represent and champion the sector in future.

There are many other organisations able to do a much better job in that respect. Such as charities themselves, and their beneficiaries.

After all, nothing is more powerful in promoting your work than the story of a life changed with the help of a charity.

Similarly, we will scale back the amount of one-to-one advice we provide to charities and indeed to professional advisers. For example:

If our role is indeed to serve the public, it’s hard to defend an escalated helpline service for accountancy professionals. Especially in this resource constrained environment.

Of course, we know that our role in providing individual legal advice to charities- albeit as regulator, not as professional adviser- has been of great assistance to many charities.

Especially smaller charities – the ones you work with. As you know, they are by their nature volunteer led and have limited resources.

But should the provision of such advice be part of the core role of a regulator?

The answer that we have come to in our Strategic Review is that, during a time at which our resources are limited, it sadly cannot be.

I should stress that we do not plan to pull the carpet from under the feet of small charities.

We won’t abruptly stop providing individual advice. And we are currently working on a new approach to determine when and where we continue to provide advice to trustees.

At the same time, we will look to work with charity umbrella organisations and infrastructure bodies to help them increase the amount of individual advice they are able to provide to charities.

But it’s clear that our relationship with charities and with trustees is changing.

For one, we’ll be talking to each other less often.

We’ll be working to make our website, our online services and our online guidance ever better, ever more user-friendly.

You will know that we have been talking for years about driving people to the website first.

And that has already been very successful.

An example: in the 2010-11 financial year 88% of charity registrations were done online – that’s up from 50% in the previous year, and in May this year 100% were done in this way.

That’s great, but we need to do even more to ensure that trustees and charity advisers check our website first, before getting in touch by phone or email.

Last September, we did a bit of a spot-survey of calls coming into Charity Commission Direct, the call centre.

That revealed that more than half of all callers asked us questions to which they could have found the answer on our website.

So we’ll be talking less often to individual charities in future – but how else will our relationship with them change?

Well, we’ll also be holding their hands less.

We’ll be encouraging trustees, as far as possible, to make their own decisions.

I think trustees often come to the Commission for reassurance about a decision they’ve pretty much already made.

But as regulator, we’re not here to hand-hold trustees.

So we’ll be reminding trustees that the onus is on them to make sure that they fully understand their legal and fiduciary duties. That they understand when they need to seek and consider external advice – such as that of a lawyer or an accountant. And that they are aware of the risks associated with their decisions and activities.

For our part – we will continue to explain, in the clearest way possible, through our online guidance, what trustees’ legal and accountancy duties are, what the requirements are.

But it’s for trustees to then interpret the guidance in light of their charity’s particular circumstances. The Commission will not, as a matter of course, do so for them.

I’ll explain what this means in practise by using the example of registration.

In the past, our approach here has been to reject very few applications for registration.

When we receive an application that includes some problems – for instance, the proposed objects are not exclusively charitable – we’ve tended to work with the people making the application to make the necessary improvements and get the charity on the register.

It is perhaps for this reason that only 8% of organisations applying to register as a charity use the help of professional advisers.

This will be changing.

We are clear that the onus is on the organisation making an application to get it right.

If it isn’t, we’ll reject it.

If that organisation then thinks we made a wrong call, they are of course free to request a decision review or appeal to the Charity Tribunal.

Similarly, as you know, the Commission is called upon to give a wide range of legal permissions.

This will continue to be the case unless Parliament decides in future legislation to adopt a more de-regulatory approach.

But our work here will be changing, too.

If a charity needs permission, such as requiring the power to do something it currently cannot do – for example, to sell land - they will need to apply on line using a new electronic form.

The onus will be on the charity to provide all the evidence and to make the case for the exercise of such a power.

We will not engage in protracted correspondence. If the case is not made, we will reject.

This approach may sound a little harsh. But actually, judging from the public focus groups we held during the strategic review, the public expect quite a firm approach from the regulator.

They certainly don’t expect us to be a soft touch.

What they also expect, very clearly, is that trustees are accountable to the public.

And we will certainly continue to focus on ensuring trustees comply with their duties and obligations here.

Such as getting their annual returns and accounts in on time. It is completely unacceptable that so many charities still fail to do so. We will look at a wide range of measures to address this – and we will certainly appreciate your help here.

So, to summarise:

The changes we are making serve to reinforce the independence of charities and the sector.

They move us away from what has been a slightly paternalistic relationship, especially with smaller charities.

And they will, I am convinced, help promote charities’ ability to stand on their own two feet - independent of both the state and of private interests, established for the public benefit.

So what do we think this all means for you, for independent examiners working with smaller charities?

Well, clearly, it is likely to mean that charities become more heavily reliant on professional advisers, such as yourselves.

And it would be naïve of me not to recognise that there may be commercial opportunities here for some of you.

But, at the same time, I am acutely aware that many of you provide services to charities at no charge or in return for very modest fees.

That makes you, as I mentioned at the start –unsung heroes of the charitable sector.

Heroic because your work is so crucial to helping uphold trust in charities and their probity.

And unsung, because, let’s face it – your work is rarely glamorous. You don’t get the headlines or the gongs.

Most people are blissfully unaware of the contribution you make to improving standards of accountability in the sector.

So this is really just a chance for me and for the Commission to acknowledge what you do, to say thank-you, and to make a heart-felt plea to keep it all up.

As we adjust to reduced resources, as charities face new challenges, please do what you can to provide a steady source of advice and support to charities.

Right - before closing, I’d like to just briefly move us back on to the slightly more prosaic ground of charity law.

First – the Charities Act and the review thereof.

As many of you know, one of the provisions of the Charities Act 2006 is that it be reviewed after five years. So the time is upon us soon.

Unfortunately, I can’t offer firm details as to the timescale – although the Minister has said that he will appoint someone to carry out the review by 8 November.

There are certain things that the review has to cover. These include the effect of the Act on:

• excepted charities;
• public confidence in charities
• the level of charitable donations, and
• the willingness of individuals to volunteer.

The review also has to look at the status of the Charity Commission as a Government Department. The Government has said that the regulation of land transactions and the public charitable collections provisions of the 2006 will also be looked at.

The Minister will decide what if any other areas will be included.

In anticipation, the Commission is putting together what you might call a ‘wish list’ as to what we might like the review to look at.

Of course, we’ve had to await the outcome of the strategic review to make a sensible start on that work. So I can’t I’m afraid share any of the detail yet.

But I can pledge to keep the Association updated and we’ll certainly be covering news on this issue though all our usual outlets, such as CC News.

Finally I cannot leave today before having mentioned CIOs, which, even by Charity Law standards have had a very slow gestation period.

CIOs were a key plank of the 2006 Act and have been much awaited by the sector.

The crucial ‘selling point’ of a CIO, as opposed to an incorporated charitable company, is that it grants the advantages of incorporation without the need for dual regulation by Companies House and the Charity Commission.

I am pleased to report that the end is in sight. The Constitutions and guidance have been produced and are available on our website.

We have worked closely with the Office of Civil Society to simplify the regulations and we believe the new model will be suitable for small to medium sized charities.

All of the Charity Commission’s systems have been changed and we are ready to start registering new CIOs as soon as the regulations pass through Parliament.

We are optimistic the regulations will get Parliamentary time shortly after the summer recess, in which case we will be able to start registering the first CIOs later this year.

As ever, it has been a pleasure being with you today - and I am happy to take any questions.

Thank you.

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