Review of the charities act

Lord Hodgson against Statutory definition of Public Benefit

Big Charities should be able to pay Trustees


Lord Hodgson was appointed the Reviewer of the Charities Act 2006 on 8 November 2011. The Charities Act 2006 was passed on 8 November 2006. The Charities Act was the first with an automatic review procedure built into it.  The intention of the 2006 Act was always to re-emphasise the importance of public benefit and   encourage charities to consider how they deliver that benefit. This is a pretty comprehensive Review worth looking at in more detail. The Charities Commission has struggled in its attempts to clarify what public benefit means for schools, and was  recently rapped over  the knuckles by a tribunal for its poor guidance on the issue  (rightly so)

Statutory Definition of Public Benefit

The Review considered whether there is a need for a statutory definition of public benefit. The Review states ‘It is certainly possible to see arguments on both sides. The flexibility of the case law basis of the existing definition has undoubtedly had its benefits over the years, allowing the definition of what is charitable to change and develop along with society. This has permitted the evolution of the sector in a way that a statutory definition would most likely have been unable to.’  Hodges says ‘This question was also considered by the Strategy Unit in the development of their report, Private Action, Public Benefit. Their conclusion was that the flexibility of case law was to be preferred. I agree.  Further, the overwhelming majority of views gathered in the course of the Review’s consultation took the view that a statutory definition would be too inflexible to cope with the diversity of the sector and the need for change and adaptation over time. Given that the Upper Tribunal has only recently delivered its ruling on the meaning of public benefit and new guidance on the point has recently been published for consultation by the Charity Commission, it seems only sensible to wait and see how these developments play out. On the subject of the new guidance, feedback from the sector to the Review was that the new guidance should draw a very clear distinction between legal requirements and what the Charity Commission considers good practice. This would help trustees understand the nature of their obligations and apply them in their organisation.’

Concerns over Charity Status

Concerns have also been raised that there may be a mismatch between the public’s perception of which organisations can fall within the definition of charitable, and the reality. The mismatch may in large part be due to the diversity of the charity sector. Many charities are no longer the small, local, volunteer-led groups that many people associate with the term ‘charity’; some are highly professionalised and specialist service delivery bodies, and some increasingly prioritise campaigning activities rather than delivering services.  That is not to say that the activities of charities who do not fit the traditional model should not be able to be included within the sphere of ‘charity.’ But it does point to the need for an important wider debate between and among Parliament, the public and the sector, around whether charities should be limited in their activities or where the boundaries of the definition should lie. Is a charity with no volunteers at all still a charity? How about one where all its funding comes from the State through delivery of public services? Or one where the primary regulator is a Government department, directly or via an agency? Lastly, how do fee-charging institutions fit within the popular conception of a ‘charity’ regime?

Payment of Trustees

Currently charities cannot pay trustees unless they receive specific permission from the Charity Commission. However all charities can reimburse trustees for expenses, and pay for professional services provided outside the trustee role. The review recommends that all charities with an income over £1m be allowed to pay trustees if they choose, while smaller charities continue to apply for permission as they do currently. If implemented, these reforms would affect about 4,500 charities; less than 3% of the total number but representing over 75% of the sector’s overall income.  Alex Massey from ACEVO agreed that charities should be free to choose governance arrangements suited to their operations, and use charitable resources as they see fit to achieve their charitable objects.  Opposing this view, Debra Allcock Tyler from DSC argues that charities are founded on expectations of altruism. Unpaid trusteeship maintains public trust, ensures that trustees are motivated by and committed to the cause, and demonstrates to the sector’s volunteers that payment is not an indication of value.  Citing evidence from universities and housing associations, Lord Hodgson found ‘no real indication from sectors that do have the general power to pay trustees that they have found this helpful in recruiting and retaining quality trustees’. He also stressed that voluntarism was ‘a fundamental tenet’ of the review, and noted the risk of abuse of the power to pay trustees. Nonetheless the review states that paid trusteeship should be an option for ‘truly huge organisations handling substantial amounts of public and private money’. His recommendation seems to be based on the need for large complex organisations to have highly skilled boards, and the reassurance that the accounts of these higher profile organisations will be subject to scrutiny which smaller organisations might escape.

Trusted and Independent: Giving charity back to charities- Review of the Charities Act 2006


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