The Regulator for Charities in England and Wales
The Charity Commission is established by law as the independent regulator and registrar of charities in England and Wales.
The Charities Act 2006 requires organisations to pass two tests if they are to be charities: firstly that their purposes are recognised as charitable, and secondly that their purposes are for the public benefit. The law had previously presumed that charities with the purposes of relief of poverty, or the advancement of education or of religion, were for the public benefit. The Charities Act 2006 removed this presumption, so for the first time the law requires every charity to explicitly demonstrate that their purposes are for the public benefit.
The Act does not contain any new definition of public benefit or suggest how charities should meet that requirement. It does give the Charity Commission the new objective of promoting awareness and understanding of the operation of the public benefit requirement, and requires the Commission to consult on any guidance for trustees on public benefit it produces, to which charity trustees are required to have regard when running their charity.
In March 2007 the Commission published for consultation its draft guidance on public benefit for trustees. This draft guidance set out the general principles which should apply to every charity. The draft guidance was accompanied by a legal analysis, setting out in more detail the legal framework underlying the principles of public benefit. The consultation closed on 6 June 2007 and the Commission is now preparing the final guidance on the principles of public benefit, taking into account the responses received.
As part of the consultation document, the Commission published an indicative timetable for the development of its advice and guidance for charities on the principles of public benefit. Alongside this summary of responses, the Commission published a revised timetable in October 2007, setting out new expected dates for the publication of the final guidance on the principles of public benefit, consultations on tailored supplementary guidance for specific groups of charities, and the implementation of the public benefit aspects of the Charities Act.
The public benefit provisions in the Charities Act 2006 and the Commission’s implementation of them will be subject to formal review in 2010.
There is a clear relationship between the many reputational, financial and social benefits of charitable status and the need for charities to be for the public benefit. Charities are precious, and play a vital and unique role at the heart of our society, but like all bodies in which the public places its trust, they should be accountable to everyone for what they do. That is the essence of the public benefit test. It also fits squarely with the Commission’s statutory objectives as set out in the Charities Act 2006, particularly the objective to enhance the accountability of charities to donors, beneficiaries and the public.
We understand that we have a responsibility to articulate and explain the concept of public benefit in a way which is consistent with the law and clear to the public. Our aim is to ensure that charities are for public benefit and continue to increase the value they bring to the communities they serve, and to enhance the reputation of charity by improving accountability to the public and enabling charities to demonstrate their effectiveness. Our decisions on public benefit must take account of existing case law, and follow the approach of the courts in taking account of the context of modern conditions; many of the cases which do exist were decided decades ago when social and economic circumstances were very different.
In taking forward our work on public benefit, we are also committed to making use wherever we can of existing accountability processes so that there is no undue increase in the burden of regulation on charities.
Our draft guidance set out four key principles of public benefit: 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. Our draft guidance also explained what we mean by considering public benefit in the light of modern conditions.
The draft guidance sought to explain what these four principles of public benefit might mean, and how they should apply to charities. It acknowledged that these general principles would apply differently to individual charities, depending on their purposes and also their size and capacity.
In framing our proposals around public benefit, we also wanted charities to understand better what the public’s expectations were, as opposed to the legal requirements. We therefore commissioned some independent research, asking people what was important to them when considering charities’ public benefit. From these discussions emerged a set of “Citizens’ Standards”, which we published alongside our draft guidance for consultation. We made it clear that these Citizens’ Standards are not a legal requirement, but they help give an indication for charities of what the public thinks and expects. We hoped they would help charities understand how they might improve their accountability to the public and demonstrate their effectiveness to the public.
Before publishing our draft guidance on the high level principles of public benefit, we held three external focus group events with public policy experts, charities and those with an interest in charities, to consider the meaning and concept of public benefit and to consider two of the most challenging public benefit issues, namely the public benefit of religious and fee-charging charities. The discussions were enormously helpful in informing the development of our draft guidance.
We sought to raise awareness of the consultation in a range of ways including: publication on our website; direct mailings by post and email; routine contact with customers; a press release and media work; and provision of speakers on the Charities Act and public benefit at a number of external events before and throughout the consultation period, including nine Charities Act roadshows we held jointly with the Office of the Third Sector in locations around England and Wales.
We are acutely aware of our accountability to Parliament, and we have engaged with numerous MPs and peers to raise their awareness of our approach to public benefit through a series of events as well as written briefings and individual meetings. Several individual MPs have also submitted written responses to the consultation.
We published the draft guidance on 7 March, with a 12-week consultation period ending on 6 June. We received 922 responses in total, including 200 expressions of interest in our further consultations on the public benefit of specific types of charity.
The level of response to our consultation has exceeded our expectations. The large number of responses we have received indicates that there is broad awareness of the public benefit requirement and of our consultation.
The 922 responses included:
The majority of those responding to the consultation acknowledged the very difficult task the Commission has in explaining and interpreting what is widely regarded as being a very complex area of charity law. Whilst reserving the opportunity to take a contrary view to some of the principles or proposals set out in the draft guidance, most were positive about the draft guidance and appreciative of the thought and care that had gone into its preparation.
A number of responses commented that the guidance, while generally clear, was very long and detailed. Conversely, some responses asked for some aspects of the guidance to be more fully explained; this includes some responses from legal advisers who expressed concern that in using everyday language to explain public benefit “some legal subtleties have been sacrificed”. We acknowledge that the complexity and detail of some of the issues addressed in the draft guidance mean that it is long, despite our efforts to make it as concise as possible. The guidance on the principles of public benefit is aimed at trustees of all charities, many of which are small organisations without the benefit of additional professional advice on the law. We will continue to make every effort to simplify the language used and some responses have been helpful in identifying where terms we have used in the guidance could be clearer. We will also consider whether we can further shorten the guidance, or whether in the future it could be possible to produce a meaningful summary of the guidance (as we have done with some of our other publications for trustees). Clearly there is a balance to be struck between providing comprehensive, meaningful guidance on the law in a way that is accessible and not daunting for the majority of charity trustees.
A significant number of responses deal specifically with the public benefit of particular types of charity, most notably charitable independent schools and religious charities. Although those responses will inform the revision of our guidance on the principles of public benefit, many will be of most assistance in the preparation of supplementary guidance on the public benefit of charities within those sub-sectors.
A number of responders asked that our guidance be kept under review, as it may be further informed by our more detailed consultations on supplementary guidance for particular groups of charities, and many asked to be involved in further discussions and consultations.
A number of legal responses commented on the legal standing of the Commission’s public benefit guidance, in particular that it is not there to provide a definition of public benefit but simply to provide guidance on the existing common law. There are concerns that the guidance tends to “state the law definitively in absolute terms”, and that the use of ‘must’ to indicate a legal obligation could have the effect of creating a legal definition of public benefit which is reinforced by the statutory duty in the Charities Act for trustees to have regard to our public benefit guidance. In revising our guidance we will need to make the intended purpose and effect of our guidance clear – i.e. that it is not intended to be tantamount to a legal definition of public benefit but seeks simply to set out the common law position.
Some responses raised the issue of the effect of statute on our interpretation of public benefit, for example the effect of the Human Rights Act 1998 on the provisions in the Charities Act 2006.
Many legal responders took the view that principle 3, ‘People on low incomes must be able to benefit’, and principle 4, ‘Any private benefit must be incidental’, are in reality subsets of principle 2, ‘Benefit must be to the public, or a section of the public’. Principles 3 and 4 were identified as particularly important aspects of the common law on public benefit which justified including them as separate principles, but there is little doubt that public benefit is primarily about two things – public and benefit.
Our draft guidance recognised that what is considered to be of public benefit changes over time. Much of the existing case law regarding public benefit was decided in very different social circumstances and we are therefore concerned to ensure that our consideration of public benefit remains relevant for today’s society. We explained that this does not mean regarding anything ‘old’ as not being beneficial, nor does it mean that benefit is based upon popularity; it simply means understanding modern day social needs and the changing environment in which we live, and ensuring that the benefits of what charities do is considered in that context.
Reaction to this aspect of our draft guidance was very mixed. Those in support of it were pleased to note our balanced and practical approach and welcome a flexible interpretation of charity law. Some considered the Commission’s modernising role to be important in justifying Parliament’s faith in retaining the common law approach to public benefit. Some recognised the Commission’s role in interpreting the law in a modern way, accepting the legal authority for this, and expressed hope that the Commission will work constructively with the Charity Tribunal and courts to ensure public benefit is not overly restricted or constrained by common law which was decided in different social circumstances. Responses which were critical of this approach were predominantly concerned with who defines what are modern social conditions, based on what evidence, and that long established charities are not made vulnerable to prevailing trends in society. Some expressed unhappiness that since Parliament made no reference to ‘modern social conditions’ in the Charities Act, the emphasis in our draft guidance was not justified. The use of the term ‘modern’ was disliked by some, preferring ‘current social and economic circumstances’.
A great deal of concern was expressed by religious charities (predominantly Christian religious charities) in their responses to the consultation about how they will be able to meet the public benefit requirement. In particular, many were concerned that the consideration of public benefit in the light of modern conditions might in some way affect the ability of some religious charities, whose traditional beliefs may be considered to be to some extent at odds with modern secular thinking and values, to meet the public benefit requirement.
We sought through the draft guidance and our wider engagement to make it clear to religious charities that the need to take decisions in the context of modern social conditions does not imply that their beliefs or practices are required to modernise. We will make further efforts to communicate directly with religious charities, and with those advising them, to clarify our position. We continue to take every opportunity to address this concern, and will be expanding on this question when we come to publish detailed supplementary guidance for religious charities for consultation early next year. We continue to be aware of the sensitivities in this area and acknowledge that there is further work to be done.
Many responses commented on the role of public opinion in informing any interpretation of what constitutes public benefit in modern society. The inclusion of the Citizens’ Standards as part of our consultation material, even though they did not form part of our draft guidance, gave rise to a number of comments mainly asking for them to be more clearly disassociated from our public benefit guidance. Few responses commented on the Citizens’ Standards, but those that did considered them to be a useful tool for trustees. We do not expect that the Citizens’ Standards will form part of our final guidance for charities, but we will consider how to ensure they remain available for charities and others who are interested in them.
Principle 1: There must be an identifiable benefit
Our draft guidance explained that it must be clear what benefit a charity’s purposes provide. The Charities Act 2006 states that, to be a charity, an organisation must have purposes which fall within the descriptions of charitable purposes in the Act and which are for the public benefit. In assessing public benefit we are therefore assessing whether or not a charity’s purposes benefit the public. Our draft guidance took the view that any benefits which may arise from any ancillary activities a charity undertakes which are unrelated to its purposes are therefore irrelevant in showing whether or not its purposes benefit the public. (This is not to say that charities should stop their ancillary activities, many of which we acknowledge are greatly appreciated by their local communities.) Our draft guidance acknowledged that there are different sorts of benefit – some are more obvious or quantifiable than others, but all are relevant provided they can be identified and described. The benefits of a charity’s purposes must also be weighed against any detriment or harm.
The balance of responses was clearly split on the question of whether or not ancillary benefits should be taken into account; the debate rests on the question of how widely a charity’s purposes might be interpreted, and what might therefore be regarded as a benefit arising from that purpose. This issue was raised both by responders representing charitable independent schools regarding the community use of school facilities by adults, but it was also raised in the context of religious charities, such as a church which advances religion, maintains a historic church building and maintains parish records. There was no clear consensus on this question.
On the issue of indirect benefits, many responders welcomed our view that it would not be sufficient if the indirect benefit of the relief of public funds were the only benefit, although some legal responders questioned whether there is a basis in law for that position.
There was widely expressed dislike of the term ‘disbenefit’. Many respondents suggested this implied an incorporation of the Scottish ‘disbenefit’ test and emphasised that nothing in the Charities Act refers to a consideration of ‘disbenefit’. Many respondents accepted however that the common law in England and Wales includes consideration of detriment or harm, and suggested it would be prefereable to use these terms.
There were particular concerns amongst religious charities regarding the extent to which evidence may be needed to show that a benefit does arise and concerns also about what might be considered a perceived detriment or harm. These points will need to be considered further in our consultation on supplementary guidance on the public benefit of charities advancing religion.
Many responses sought to show the benefits or ‘disbenefits’ of a particular sector of charities as a whole or class. We would tend to consider that arguments about the benefits, or detriment, of a particular group or class of organisations cannot be taken into account when considering whether an individual organisation is established for the public benefit.
A significant minority of responses challenged us on our position that a charity’s purposes cannot be political, because neither the Commission nor the courts could or indeed should judge the public benefit of a political purpose (decisions on changes to the law being properly the remit of Parliament). We do not believe that the underlying law relating to charities having a political purpose has changed and we believe our position reflects the law as it currently stands. However it is worth noting that we are currently updating our separate guidance to charities on this issue, in order to clarify the latitude which is available to charities in pursuing political campaigns in support of their charitable objects. We expect to publish updated guidance before the end of the year.
Principle 2: Benefit must be to the public, or a section of the public
Our draft guidance explained that who constitutes the public varies depending upon the organisation’s purposes, and that, in certain circumstances, the class of people who can benefit from a charity can be quite narrowly drawn provided that is justifiable in the context of the charitable purpose that is being fulfilled.
This principle gave rise to some debate about how narrowly a class of beneficiaries can be drawn. We expect to expand on our guidance on this question in the specific supplementary guidance we publish for consultation on the public benefit of charities relieving poverty, where this question is particularly relevant. As well as charities for the relief of poverty this issue was raised by responses from some religious communities and from professional bodies and learned societies with restricted membership provisions.
Principle 3: People on low incomes must be able to benefit
This principle has perhaps been the most contentious, particularly with regard to how it will be applied to fee-charging charities. The relevant legal principles emerge from the Privy Council case Re Resch1 and we explained our interpretation of them in our draft guidance.
There appeared to be general support for our interpretation of Re Resch to mean that benefits to ‘the poor’ should be more than tokenistic. Some responses were particularly welcoming of our approach, urging the Commission to take a robust approach and set quantifiable and challenging targets for fee-charging charities. Some organisations, whilst generally supportive of our approach, were concerned about the ability of some fee-charging organisations which rely on external funding to help people on low incomes access their services (such as residential care homes reliant on local authority funding to assist beneficiaries) to continue to meet the public benefit requirement if that funding should be withdrawn.
A significant minority of responses however suggested that our interpretation goes beyond what the law requires in this area.
Surprisingly, many responses preferred the term ‘the poor’ to ‘people on low incomes’, despite its possibly old-fashioned appearance, on the basis that people have a better understanding of who are the poor than they do about who are people on low incomes, which is viewed as a more relative term. Some were concerned that the suggested definition of who might be considered ‘people on low incomes’ was too UK focused (although the guidance merely used this as an example to illustrate what this term might generally mean in the UK) and a number of responders were concerned that it does not include people who are asset rich, suggesting that only asset-rich people whose assets are disposable should be excluded. There was no consensus view about what is a preferred term.
Principle 4: Any private benefit must be incidental
Our draft guidance acknowledged that anyone who benefits from a charity can be said to benefit privately or personally – that is not what is being referred to in this principle. This principle relates to non-charitable benefits that people may receive from a charity. For example, a living artist whose works are promoted by a charitable art gallery, who is then able to sell their work for a higher value as a result of the exposure their work has received. This benefit is private and not charitable, but must be balanced against the public benefit gained, in this case the opportunity for people to see the artist’s work and the promotion of art more generally. The private benefit to the artist might be considered incidental to the public benefit of the exhibition.
Most responses generally agreed with this principle, although many asked for further explanation and guidance on it. For example, one area of concern expressed was from members of religious communities who dedicate their life to the community and are supported by it throughout their life as a member of the community. Professional bodies and learned societies with membership were also concerned about the implications of this principle for the benefits their members receive. Further guidance and clarification of what this principle means in practice is clearly a priority.
In our draft guidance we set out some proposals for how we might assess public benefit and made a recommendation that charities be required to give a public benefit statement as part of their Trustees’ Annual Report.
Most responses were broadly content with the proposals, provided any regulatory burdens on charities are kept to a minimum. Some responders were concerned at the link to the £500,000 audit threshold and suggested that all charities, regardless of their size, should just be required to provide a simple statement on public benefit. Many welcomed reporting by charities but would prefer to see voluntary rather than mandatory reporting.
A further consultation by the Office of the Third Sector on the Charities (Accounts and Reports) Regulations 2007, which includes the proposal that charity trustees provide a public benefit statement in their Trustees’ Annual Report, closed in September 2007. Our guidance on this will therefore be informed by the results of that consultation and whether the proposal is endorsed by Parliament.
Our consultation document sought views on whether responders have any specific concerns about charities’ abilities to demonstrate public benefit or whether charity trustees might have difficulty understanding and applying the principles.
Not surprisingly, religious charities and independent schools were most commonly cited as possibly having difficulty meeting the requirement; the planned supplementary guidance for these charities is therefore both welcomed and eagerly anticipated.
Many religious charities and individuals connected with religious charities expressed concern, and outrage, about what they believed could be possible difficulties religious charities could encounter in meeting the public benefit requirement. Many were concerned in particular that the Commission would not recognise evangelising, proselytising or missionary activities as charitable and sought to remind us that the charitable nature of such work was clearly recognised by the Government during the debate on the Charities Bill. Neither our draft guidance, nor any statements we have made about religion and public benefit, indicated anything to the contrary, but there is clearly further work to do in explaining our approach and making this clear to religious charities. Not all religious charities were concerned about our draft guidance; some expressed positive views that it is comprehensive, well planned, user-friendly and non-threatening.
A great many responses dealt specifically with the charitable status of independent schools. There were strong arguments submitted both in support of and against the retention of their charitable status, and both certain of and doubting their ability to meet the public benefit requirement. Much of the argument centres around the public benefit or ‘disbenefit’ of the independent schools sector as a whole, which may be more relevant for a political discussion around the value or otherwise of independent schools rather than for our consideration of the public benefit of individual independent schools. Nevertheless some very interesting views were expressed which will inform our supplementary guidance on the public benefit of fee-charging schools.
There were a significant number of responses regarding the charitable status (or more specifically, the tax exempt status) of Oxford University and Cambridge University Presses, by virtue of their link to those Universities, and concerns about unfair competition by non-charitable publishing companies. This issue received some publicity through national press following a High Court action against OUP over the non-publication of an individual’s text. The individual concerned subsequently published an account of his lawsuit and encouraged publishers (& members of the public) via his internet site to respond to our consultation. As a result we received several responses from commercial publishers objecting to OUP’s & CUP’s tax benefits.
A number of learned societies also wrote to us expressing some concerns, particularly about the extent to which the Commission will focus on private benefits to members; also a concern for some sports and recreation charities.
Some responders have said they would welcome training for charity trustees and that it would be helpful to signpost agencies that could provide assistance to charities on assessing and reporting on public benefit. Some organisations working with Minority Ethnic charities suggested that simplified guidance or face-to-face training for those charities, possibly available in community languages, would be welcomed.
Copies of consultation responses are available on request, unless the respondent has asked for their submission to be kept confidential.
Charity Commission
October 2007
Re Resch’s Will Trusts [Le Cras v the Perpetual Trustee Company Limited and Others] [1969]