Andrew O'Brien: Who benefits from charity regulation?

The argument for charging charities for regulation is based on faulty logic, writes the Charity Finance Group's head of policy

Andrew O'Brien
Andrew O'Brien

It looks like 2017 will be the decisive year in the debate on whether the Charity Commission can charge charities to pay for its upkeep. The debate has been a long one, but has really stepped up since the cuts to the commission’s budget over the last parliament.

Lord Hodgson, in his review of the Charities Act 2006, also gave support to the idea of charging charities for regulation. His line of thought was simple: charities benefit from a strong regulator, so they should contribute to it.

But dig a little deeper and this whole idea of "benefit" becomes a lot more complicated. Who really benefits from charity regulation?

It is important to remember that charities are legal vehicles for pooling resources to achieve some object, which has been deemed to be charitable and benefits the public. Charities themselves are therefore just legal entities.

The same is true for companies. Sainsbury’s does not benefit from regulation, but its shareholders do. However, because entities such as companies have been deemed easier targets for tax and enforcement, they have been subject to charges and taxes, rather than the individual shareholders. The aim, however, is always to get access to the private profit and gains of those shareholders, with companies as the method.

So before we go around charging charities, we should ask who benefits. Then we can consider the best way to get them to cough up.

Trustees, donors and staff

Is it trustees or staff? Trustees, given the overwhelmingly voluntary nature of their work, seem like an unfair target. Are we really going to ask them to pay for the privilege of governing an organisation?

Cynics might argue that it is the staff that benefit from the existence of charities. So should they pay? To say that I or someone who works for a charity benefits from the charity they work for is a complete misunderstanding of the employee-employer contractual relationship and is also mildly insulting. So let’s scratch a charity-employee levy.

What about donors? Perhaps we should add a surcharge on all donations to pay for charity regulation? Like all donors, I get that fuzzy feeling of doing something good with my money. However, to say that I benefit from the existence of the charity or charity regulation would be pushing it. I like to contribute to the upkeep of historical churches, for example, but apart from doing my bit to maintain these beautiful places, I don’t personally benefit from them.

Beneficiaries

What about the beneficiaries of the charity? Yes, the beneficiaries of the charity by their very definition do benefit from the existence of the charity and the regulation of the charity sector. Without them, they wouldn’t get access to the help they need. So should we charge them?

Well, in some cases we can’t charge them. Dogs, for example, are not likely to have spare change lying around to pay. Trees, parks or abstract concepts such as "science" or "human rights" are not going to be contributing. Charities do hold assets on behalf of these groups, but it seems odd to be charging organisations that service inanimate objects or animals for holding assets to pay for their welfare or maintenance. For those humans that are left, many simply don’t have any money to spare.

Charging charities for regulation is basically charging the beneficiaries that they support, because it means there is less money available to support them. Dogs and trees aren’t going to complain, but all beneficiaries are going to feel the impact of fewer services being provided to them. We could exempt those charities that work with vulnerable people from any fee, for example. This would be very complex and the infrastructure required would be expensive, but at least it would seem fairer.

This would leave only richer beneficiaries to pick up the tab. We could charge a flat fee for every beneficiary over a certain income level, but that doesn’t feel very progressive. Moreover, it would feel odd if someone who was well-off but disabled had to pay for using a health service provided by charity, while a rich family visiting an area of natural beauty might be let off.

The public

This brings us to the last group that benefits from charities and their regulation: the public.

The good work that charities do benefits everyone whether or not they realise it. This reason is why one of the tests of whether an organisation is a charity is whether it delivers public benefit. We might never visit an area of natural beauty or need to use a refuge, but we all benefit from their existence.

The public is already paying for charity regulation of course, through taxation. It’s also quite a fair system because it means that those with the most money pay more than those that have less. It is equitably distributed around the country and there are exemptions for those that are vulnerable or without work. Many beneficiaries are already paying for charity regulation, of course, which is another merit of taxation. And it doesn’t require any expensive administration from the Charity Commission, because HM Revenue & Customs does all the work for us. All that is needed is for the government to give a one-off grant for the year, so it is also incredibly efficient.

Some proponents of charging are likely to say that charities benefit from certain services and they should pay for them. But as we have discussed, charities don’t benefit from regulation – it is beneficiaries and the public. Why are these activities less beneficial to them than compliance and enforcement? Well-informed trustees and transparency are of benefit to beneficiaries and the public just as much as warnings and investigations. If anything, they are more valuable because they ensure better services rather than punishing wrongdoing after the fact.

This division is rooted in faulty logic. Whichever way you cut it, public taxation remains the fairest and most efficient way to fund the Charity Commission. The only reason to charge is that the government does not view the sector as a political priority – it should be our job to change its mind, not create complex systems to charge beneficiaries.

Andrew O’Brien is head of policy and engagement at the Charity Finance Group. 

Third Sector is running a survey on the sector's views on funding the Charity Commission here.

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