Major Changes for Charities

Charities and Not-for-Profits: A Modern Legal Framework The Government’s response to "Private Action, Public Benefit"

Article by Oenone Wright and Guy Greenhous

Last year we issued a Briefing with a summary of the proposals in the Strategy Unit’s Report "Private Action, Public Benefit" which was issued on 25th September. This is reprinted for ease of reference.

On 16th July 2003 the Home Office issued the Government’s response and the following is a summary of the Government’s intentions by reference to the recommendations of the Strategy Unit.

• Updating and expanding the list of charitable purposes.

The Review recommended nine specific purposes with a tenth general purpose, "other purposes beneficial to the community".

The Government recommends a legal definition, adding to the Review’s recommendations the following:

• Promotion of animal welfare
• Provision of social housing
• Advancement of science

Please see the back page for the full list.

• The Government supports the recommendation regarding checks on the public character of charities.
• The Government does not support the recommendation removing the requirement for trading subsidiaries.
• The Government and the Charity Commission accept the recommendation regarding campaigning by charities.
• A Charities Bill will include provisions to facilitate charity mergers and administration.

• The proposed Charitable Incorporated Organisation is to be included in the Charities Bill.
• Community Interest Companies (for social enterprises) will be provided for, subject to analysis of responses to the consultation which closed in June.
• The law on Industrial and Provident Societies will be modernised but co-operatives will not be given a statutory definition.

• Information available to the public will be improved through a Standard Information Return.
• Self regulation to promote good practice in fundraising will be tried first before any Government intervention but statutory regulation could still be included in the proposed Charities Bill.
• The Charities Bill will include provisions regulating public charity collections but public consultation will be carried out first.

• The threshold for regulation will be increased to £5,000 (not the £10,000 proposed by the Strategy Unit) but "small charities" below this threshold may register if they wish.
• Certain recommendations are accepted regarding reforms to the Charity Commission but there will be no change in the Charity Commission’s name. Provisions will be included in the proposed Charities Bill.
• Legal and administrative issues in the registration process will be separated and an Independent Tribunal will hear appeals against legal decisions of the Commission as registrar and regulator.

• Payment of trustees will be allowed where a service is provided outside duties as a trustee subject to safeguards which will be set out in the proposed Charities Bill.
• Trustees should be able to apply to the Charity Commission as well as to the Court for relief from personal liability for breach of trust where they have acted honestly and reasonably. Provisions will be included in the proposed Charities Bill.

In his foreword to the Government’s response David Blunkett states that the Government will publish the Charities Bill in draft as soon as possible. Work is already in progress to take forward the proposals for a Community Interest Company and for reforms to Industrial and Provident Society law.

No date has been given for publication of a draft Charities Bill.

• Updating and expanding the list of charitable purposes so that a charity is an organisation providing a public benefit which has one or more of the following 10 purposes.
• The prevention and relief of poverty.
• The advancement of education.
• The advancement of religion.
• The advancement of health.
• Social and 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.
• Other purposes beneficial to the community.
• Clearer focus on public benefit especially where large fees are charged for services, for example by private schools and hospitals.
• Encouraging entrepreneurialism, for example by removing the requirement for trading subsidiaries.
• Enabling charities to campaign.
• Cutting red tape through deregulation.

• Charitable incorporated organisations (as an alternative to companies limited by guarantee).
• Community interest companies (for social enterprises).
• Modernising the law on Industrial and Provident Societies.

• Improving information available to the public.
• Regulating fundraising more effectively through the creation of a new independent body to oversee a self regulatory initiative and a new simplified licensing system for public collections. If voluntary regulation fails compulsory regulation will follow.

• Increasing the threshold for regulation from £1,000 to £10,000 – below this "small charities" will not have to register.
• Clearer goals and greater accountability for the Charity Commission.
• Separate Charity Registration Authority and independent tribunal to decide appeals against the regulator’s decisions.

The Government’s proposed list of charitable purposes

• The prevention and relief of poverty.
• The advancement of education.
• The advancement of religion.
• The advancement of health.
• Social and community advancement.
• The advancement of science, culture, arts and heritage.
• The advancement of amateur sport.
• The promotion of human rights, conflict resolution and reconciliation.
• The provision of social housing.
• The promotion of animal welfare.
• The advancement of environmental protection and improvement.
• Other purposes beneficial to the community.

This list will not exclude any purposes which are currently charitable.

There will be a 2 stage test:

1. Is the purpose within the new list; and
2. Is the organisation established for the public benefit.

There will no longer be a presumption of public benefit for charities for the relief of poverty, the advancement of religion or the advancement of education.

There will be ongoing checks on the public character of charities, not just at the point of registration.

On 17^th July (the day after publication of the Government’s Report) the Charity Commission announced the recognition of the promotion of equality and diversity as a new charitable aim in its own right.