Charity Finance Group responds to reviews of charity law and regulation

5th September 2013

Following the publication of the Government’s response to the PASC report ‘The Role of the Charity Commission and “public benefit”: Post legislative scrutiny of the Charities Act 2006’, and Lord Hodgson’s review ‘Trusted and Independent: Giving charity back to charities’, Caron Bradshaw, CEO of CFG, commented: 

“Now, more than ever, it is vital that trust in our sector is upheld, and effective regulation is central to this. We’ve been gravely concerned at the growing negative headlines over the past year - from the tax abuse stories and the salaries debacle this summer, to the current proposals on lobbying.  Our sector performs a vital role in public life, and we must ensure the right scrutiny and legal protections exist to ensure this is not undermined. 

“While efforts to review the legislative framework have been lengthy, we hope that this will give all of the sector’s stakeholders, including the wider public, greater confidence that charities are operating lawfully and being held to account, and that improvements are being made where necessary.

“We were particularly pleased that the Government has ruled out charging charities for registration, that HMRC and the Charity Commission are exploring a single registration process, and that HMRC has clarified its own use of charity reporting in the regulation of Gift Aid to provide the public with greater confidence.

“More worrying are the concerns surrounding the effectiveness of Commission in interpreting and implementing public benefit law. Defining public benefit was always going to be a difficult issue, and with hindsight it is easy to say that the Commission could have done this quicker, clearer and better.

"The interpretation of public benefit is largely working, as is recognised in the Government’s response. We all want an effective regulator so we urge Government to focus its efforts on ensuring that the way the Commission does business is fit for purpose for a modern charity sector, and avoid fundamentally reopening the public benefit debate.”


CFG’s position and comments on specific aspects of the review are as follows:

Charging:
CFG opposes charging charities for registration with the Charity Commission and is pleased that the Government has agreed with this position, which was also put forward in the PASC report. Charging would place a significant burden on small charities and act as a deterrent to engaging with the regulator.  Given the public duty nature of its work, CFG believes that the Charity Commission should remain funded by Government.

Sanctions/Fines for late filing:

A proportionate and flexible system of fines for late submissions to the Commission has previously been advocated during the review.  CFG accepts that there could be a case for imposing charges on late filers as a compliance measure.  However, this needs further detailed consideration:

• There are often complex reasons as to why accounts are not submitted on time, especially when smaller charities are not able to access or pay for support.
• We would query whether the implementation of a system of fines would drive compliance higher, or if there are more effective means of achieving a similar outcome (for example, joint communications via sector bodies, direct communications with known late filers).
• The issue of who the fines are paid to and how the funds are used will need careful consideration. There may be conflict of interest considerations for the Commission if money recouped was to go towards its own general income. It is vital to ensure that any income generated is used purely for compliance purposes, as outlined in the Government’s report.
• Complex questions surrounding trustee liability could arise if unincorporated charities were fined for late filing.

While not against the idea in principle, we feel that this proposal would require greater consultation as to the specific mechanisms used before implementation. In any case, it would be better if fines for late filing were not automatic, were considered on a case by case basis and were more likely if there is a consistent problem.

Joint filing and registration:
CFG has consistently raised issues of dual regulation and inefficiency caused by separate registration processes for the Charity Commission and HMRC.  CFG is pleased that the Government supports Lord Hodgson’s recommendation for a single registration system and believes that this could be a huge step forward if implemented effectively. 

Recommendations have also been supported by Government that charitable companies should not be required to file annual returns with both the Charity Commission and Companies House. CFG has long called for a single reporting system which would significantly reduce administrative burdens on charities, and will follow any developments in this area closely.

CFG strongly opposed Lord Hodgson’s recommendation to increase the threshold for compulsory registration to £25,000, and is pleased that the Government has listened to the concerns of the sector.  Many smaller organisations place a very high value on Charity Commission registration.  CFG wants charities with an income below £5,000 that wish to register to be able to do so more easily, and the Government’s commitment to work with the Commission to make this feasible is a positive development.

Public benefit and the role of the Commission:
Getting the implementation of public benefit right was always going to be a challenge. Parliament chose to task the Commission with this in 2006. We are of the view that the focus now needs to be on ensuring that the Commission is an effective regulator, has the necessary powers to perform its role and is fit for purpose to perform in the 21st century.

Social investment:
CFG urged the Government to explore the opportunities to create a specific power for charity trustees to make social investments, but recognised that this may not be the catalyst for change that the social investment market needs.  We welcome the on-going discussion with the Law Commission, and think it appropriate that independent legal experts review this area.   However, we are concerned that wider initiatives to support the sector in accessing this valuable form of funding do not go far enough. CFG today issued its response to the Social Investment Tax Relief proposals.  This highlighted that they are currently too restrictive, presenting a missed opportunity to stimulate the social investment market. We also encouraged the Government to do more to increase demand for social investment among charities for which it may be appropriate.
 
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Notes to editors:
1. Charity Finance Group is the charity that champions best practice in finance management in the voluntary sector.  Our training and development programmes enable finance managers to give the essential leadership on finance strategy and management that their charities need.  With more than 2200 members, managing over £19bn, we are uniquely placed to challenge regulation which threatens the effective use of charity funds. For more information, please see www.cfg.org.uk

 2. CFG’s written evidence for this inquiry can be read here, and the CFG submission to Lord Hodgson’s review of the Charities Act can be read here.

 3. For further information, please contact Jane Tully, head of policy and public affairs, at Jane.tully@cfg.org.uk or on 020 7250 8400.

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