The Regulator for Charities in England and Wales
Wednesday 2 May 2007
Thank you for inviting the Charity Commission to take part in this conference, and indeed for putting me in the privileged position of opening it. An event such as this, bringing together as it does a group of professionals with so much experience, so much knowledge, and so much commitment to the development of charity law, will give some hugely valuable insights and perspectives on the public benefit debate at this crucial stage in the development of our guidance.
My role today is to set the scene – to outline what I see as the Charity Commission’s role as the independent regulator in determining this question of the benefit to the public, and to highlight some of the key issues in our draft guidance. Many of my colleagues are with me here today and their job, throughout the day, will be to observe and contribute to the discussions in the working parties, and to bring back your comments and concerns to feed into our further work on public benefit.
The CLA’s own material for prospective delegates invites you to come together to examine “such law as exists” in relation to the 13 heads of charity set out in the Charities Act 2006, and the nature of public benefit. And of course Parliament positively declined the opportunity during the passage of the Charities Act last year to provide a new definition of public benefit, to introduce a more specific public benefit test for charities, or indeed to add greatly to the law underpinning the requirement that charities must be established and operate for the public benefit.
This means of course that we as the regulator have to handle a delicately balanced issue. The public benefit test is clearly not a greenfield site - our decisions will be based on underlying case law and Parliament clearly agreed that this should be so. However, in removing the legal presumption that charities for the relief of poverty, or the advancement of education or religion, benefit the public, and at the same time giving the Commission challenging new objectives to promote awareness of the public benefit requirement, and to ensure charities are accountable to beneficiaries, donors and – crucially – the general public, the Charities Act nonetheless requires us to take a major step forward in defining for the first time how the public benefit of every charity might be determined, and in articulating in our guidance to charities what this concept of the public benefit means in practice.
The Charity Commission’s role is further complicated by the need to interpret public benefit in the light of modern conditions. While the Charities Act didn’t change the common law on the definition of public benefit, we are conscious that the law in this area is based upon a relatively limited number of cases, some decided decades ago in very different social and economic circumstances. I firmly believe that we must ensure that what charities do remains beneficial for today’s society. We cannot assume something is beneficial today simply because it was regarded as beneficial many years ago. Our decisions about what is or is not of benefit to the public will be strongly, and rightly, influenced by what is relevant and appropriate for the modern social conditions of the day.
In practical terms, then, our role in determining public benefit is twofold: to promote awareness of the public benefit requirement, which we will do by publishing guidance for trustees and prospective trustees; and to determine the public benefit of existing and prospective charities, through assessment on registration and through reporting requirements and checks for existing charities. Our guidance, and the criteria we set out for checking the public benefit of charities, must reflect accurately the complex legal issues at play. It must also aim to be an accessible and genuinely useful tool for charity trustees, who are now required to have regard to our guidance on public benefit when carrying out their charities’ work.
Turning to the draft guidance, I think the first thing I want to say is that this is of course a consultation. The consultation itself, which will be supported by further consultation on specific guidance for the key sub-sectors most directly affected, is a vital step in enabling us to raise awareness and understanding of the public benefit requirement. It is also an essential stage in developing the criteria we will use to assess the public benefit of charities. We have chosen to publish the high level guidance on public benefit for consultation now, before we move to consider specific guidance for key sub-sectors, so that we can seek agreement on the key principles – including reporting requirements - and establish as far as possible within the sector those issues on which further clarification, or sector-specific guidance, is needed. We also hope that the draft guidance and public discussion around the general principles will be reassuring for charities, particularly smaller charities which may not previously have begun to consider the impact of the changes in the Charities Act.
On that basis, we expect that some of you may identify areas where you disagree with our interpretation of the law, where we have omitted an essential point, or where we have included advice which you do not feel is helpful. The final guidance we will publish for trustees will be vitally important and so I urge you to raise all those issues with us in your responses to the consultation, and indeed in the working parties today which my colleagues will be attending. We have been pleased so far with the positive response to the consultation from across the sector - already we have had over 36,000 hits on the website and nearly 70 complete responses. Of course we believe that we have got the law and the balance right in this draft guidance, but there are many issues here on which we are actively seeking views on our approach. Alongside the draft guidance, we published a detailed analysis of the law underpinning our approach to the public benefit requirement, and while we have not asked any specific questions within that document, we would also welcome your comments on it and on the interpretation of the law which it sets out.
Interpreting the law on public benefit will in some cases require the Commission to make difficult judgements on the public benefit of existing charities and new organisations seeking charitable status. Ultimately of course we are answerable for our decisions to the courts, and in due course to the Charity Tribunal. We fully expect that as we develop the public benefit requirement it may be appropriate for some of the most complex and novel areas to be decided through decisions of the courts or of the Tribunal, and will welcome this opportunity to clarify the law.
For many of you, who will have closely followed the development of this issue since the Deakin report, through the Strategy Unit report ‘Private Action, Public Benefit’ in 2002, and then through scrutiny in the Joint Committee and on the floor of both Houses, much of the draft guidance will seem familiar. Certainly the four key principles we set out are in essence unchanged from our previous indicative guidance, and as headline statements have attracted a broad consensus of support. We have said that there must be an identifiable benefit; benefit must be to the public, or a section of the public; people on low incomes must be able to benefit; and any private benefit must be incidental.
While I don’t propose to dissect each of these principles in detail, I would like to highlight some of the issues which have prompted particular debate, and on which I think we have moved forward in producing this draft guidance.
Firstly, while the headline statement of the four principles has as I said been widely supported, there is of course some debate about the suggested principle that people on low incomes must be able to benefit, in as much as it applies to fee charging charities. The legal principles at issue here emerge from the Privy Council case Re Resch, and we have interpreted the relevant principles being that:
Access to the less well off was clearly more than minimal or nominal access, or access that occurred merely by chance. We have therefore taken this principle further, and have proposed a requirement that for fee-charging charities to show that access for people on low incomes is more than a remote possibility, there must be reasonable access for people on low incomes. We set out in the guidance a few examples of the ways in which charities might make their facilities or services accessible and we will look in more detail, in our further guidance for fee-charging charities, at what in practice will constitute reasonable access. We have however made it clear that it would not be sufficient to show reasonable access if the only benefit available to people on low incomes were to be the wider benefit which the public in general receives from the relief of public funds.
We have also proposed that benefits must be related to the charity’s purposes – ancillary activities which do not directly deliver the services or functions for which the charity is set up, even where they provide a benefit to the public, will not be taken into account in assessing the public benefit, particularly when considering accessibility to people on low incomes. This is not to say that we intend to make a more narrow interpretation of charitable purposes than we have done previously in considering the activities of charities, but in order to establish a meaningful test of public benefit we must look for benefit which relates to purposes.
In examining the considerations which underpin the principle that there must be an identifiable benefit, we assert that a benefit cannot be concerned with fulfilling a political purpose. This reflects the current law.
In ‘Private Action, Public Benefit’ the Strategy Unit recommended that the legal position should be unchanged and the Government response supported this – and without a change in primary legislation, it would not be open to the Commission to take a different approach. Of course a charity, with purposes which are charitable in law and established for the public benefit, may carry out political activities to further these purposes. However, we are also aware from our work with charities that trustees sometimes exercise a considerable degree of self-censorship in undertaking campaigns, and may not be aware of the extent to which they can campaign and engage in political activities to achieve their objectives. We want charities to be in no doubt about this point. Campaigning, advocacy and political activities are all legitimate and valuable activities for charities to undertake. That is why we recently published supplementary Q&A to support our guidance on this subject and clarify the extent to which charities may undertake political campaigning. This is as you know a very live issue of debate within the sector, and we look forward to seeing the conclusions of Baroness Helena Kennedy’s advisory group on campaigning. Perhaps some of you may also want to put your views on this area within the working parties today.
In our guidance, we examine some of the complex issues which need to be understood in order to reach a conclusion on whether or not benefit is to the public, or a sufficient section of the public. We assert that any limitations on who benefits must be justifiable, rational and reasonable, and must of course be considered as such within the context of the charitable purposes in question. Charities are not and should not be established as ‘exclusive clubs’ whose benefit is limited to a lucky few. In general, the more open, outward-focused and inclusive the purpose, the greater the benefit to the public it can provide. We will be looking to charities with a purpose which appears more closed, more exclusive, to justify this more clearly in order to show public benefit. We will of course tend to the view that, where the restriction relates to some common disadvantage or unenviable mutual state among the beneficiaries, this is more likely to show benefit to the public than another restriction.
A question on which we would particularly welcome views is the extent to which, where there is a geographical restriction which is reasonable, further restrictions to the beneficiary class may or may not be appropriate.
In the past, organisations concerned with the relief of poverty have been treated as an exception to the rule that beneficiaries must not be defined by a personal connection, such as family relationship or common employer. The exception for ‘poor relations’ and ‘poor employees’ have been confirmed and applied in decisions of the Commission and of the courts. We have provisionally assessed the changes in the Charities Act 2006 as possibly making no difference to this well-established exception, but we must return to this issue when we prepare and consult our sub-sector guidance on the public benefit of charities established for the relief of poverty. The working group today looking at the relief of poverty will doubtless want to address this point and I look forward to hearing from them.
It is right that all charities should be asked to show that they are set up for the public benefit. There is a clear relationship between the benefits of charitable status and the need for charities to provide public benefit – so in return for the benefits of charitable status, we think charities should report on how they meet the public benefit requirement. An effective test requires effective oversight, and we set out in the consultation the reporting requirements we are suggesting for different sorts of charity. We have proposed using existing reporting frameworks, to balance the need for charities to be accountable to the public with our commitment to reduce the administrative burden on charities. For high fee-charging charities where the public benefit may not be immediately obvious given the high fees charged, we have suggested assessing and reporting the value of the benefits they deliver alongside the value of the tax breaks or other benefits they receive.
Later this year we will publish – again for consultation – specific guidance for the charities most directly affected by the changes in the Charities Act, to assist in clarifying the extent to which the current law on charitable purposes may have changed. We will continue to engage with stakeholders, before and during the consultation on sub-sector guidance, to make sure our guidance is both clear and effective. We will also pilot a process to assess the public benefit of individual charities. We expect that pilot to start late this year in time for the requirement to come into force, which we expect early next year.
I want to finish by saying a few words about the role of public opinion. I said earlier, and our guidance makes clear, that our decisions will be strongly influenced by what is relevant and appropriate for the modern social conditions of the day. Decisions about public benefit should reflect ordinary life, and take into account widely-held views on the importance and usefulness of an organisation’s aims. The concept of charity must move with the times and be relevant and meaningful in modern society. Public opinion can be a useful factor in considering modern social conditions, and can help us shape the legal understanding of what is charitable in a way that is relevant for modern society.
Of course, charitable status is not decided on the basis of popularity. I am well aware that, if we held a charity version of the X Factor, some of the most pioneering and innovative work done by charities would not necessarily be successful in winning the public vote. Public opinion cannot decide what is or is not charitable – but it can help us understand what the public values about charities, and what genuine accountability to the public might mean. I believe that charities want to account publicly for the benefit they provide in ways which accord with public understanding and expectations.
For this reason we have published, alongside the consultation on our draft guidance and its legal annex, a report on the public perceptions of public benefit which include some Citizens’ Standards for charities. These are of course not a legal requirement for charities, but we think they help to give an indication of the context of public benefit, and indeed of the roots of the public trust and confidence in charities. I do hope that, in discussing the question of public benefit with your peers today, and with your clients and colleagues, you will consider the added dimension these public perceptions bring to the debate.
In conclusion, I want to emphasise what I hope is evident throughout the draft guidance and associated documents: the Commission’s commitment to implementing the public benefit requirement flexibly, proportionately, and in a way which recognises the many different ways in which charities operate. It is right that all charities should be asked to show that they are set up for the public benefit, but there is clearly no one size fits all approach and in developing the public benefit requirement we are conscious of that. The wide range of activities, services, views and values which charities offer and reflect is a distinctive feature of the sector and as the regulator we recognise the great value in that diversity.
I am grateful to the Charity Law Association for bringing this conference together today. Your work will inform both our approach and the general debate on the public benefit of charities. May I thank you for the thought you will bring to these issues today, for the efforts you will take in responding to our consultation, and for the wise advice you will no doubt be giving to your clients over the coming years as we jointly endeavour to protect and sustain the concept of charity, to which we are all committed.
Thank you.
Approx 25 minutes