NEWS IN FOCUS: Ministers ready to go but action could take a while

Mathew Little

The Government's response to last year's Strategy Unit report was an unusual outbreak of consensus, writes Mathew Little.

The Government, said voluntary sector minister Fiona Mactaggart, was getting to grips with a problem that had existed for 400 years - the "splendidly out-of-date" nature of British charity law.

Changes to ancient national customs often bring raging controversy, but in this case there was consensus between the instigators of reform and those it will affect.

The consultation revealed heavy majorities for most of the proposals in Private Action, Public Benefit, the original Strategy Unit review of the voluntary sector, and the Government has agreed to implement almost all of them.

The main exceptions are the recommendation to allow charities to trade without forming a subsidiary company - dropped, reportedly, at the behest of the Treasury - and the proposed waiving of the requirement for charities with income under £10,000 to register with the Charity Commission. The Government has dropped the threshold to £5,000 under pressure from the charities themselves, who wanted to keep the public endorsement of charitable status.

The Government accepted the nine definitions of charity proposed by the review, which include advancement of education, religion, amateur sport and the promotion of human rights. But it has added three more: animal welfare, social housing and science. These would have fallen within the 10th definition - "other purposes beneficial to the community" - but the Government felt they merited specific status because of public recognition.

Private schools will therefore remain within the orbit of charity but will, in future, have to prove their public benefit - something which, under current charity law, is presumed to be there. Mactaggart said fee-paying schools would have to demonstrate public benefit through "bursaries or collaborative schemes with state schools". Those "not taking any effort to be open to the public" would be under threat of deregistration.

The schools themselves were among the most vociferous in responding to the review, with 177 sending submissions, 16 per cent of the total. They were the second-largest type of respondent, behind the small charities.

Meanwhile, the Charity Commission will conduct ongoing checks on the public character of charities, rather than just at the time of registration, as at present.

However, the Government wants public benefit checks to be a way of encouraging "under-performing" organisations to improve their relationships with the community, rather than immediately losing charitable status.

The one aspect of charity law reform where the Government ignored the wishes of the voluntary sector was on trading. Some 84 per cent supported changing the law to allow charities to undertake trading solely within the charity, without the need for a trading subsidiary. But there were concerns that it could put charities' assets at risk, and lead to commercial activities overshadowing charitable activities (Third Sector, 22 January and 11 June).

The Institute of Chartered Accountants of England and Wales, while supporting the change, called for restrictions to prevent charities from becoming "simple profit-generating businesses". The Federation of Small Businesses expressed serious reservations about the proposed reform, arguing that "the amending of charity law to facilitate charity trading activity could inadvertently damage the small business sector", by enabling charities, with their substantial tax subsidy, to gain commercial advantages.

Ultimately it would seem that the opposition of the small business lobby was the crucial factor in the Government's decision to reject the proposal.

It would "offend the principle of a level playing field with private sector business", explained Mactaggart. "There would be substantial competitive advantage to charities and there is anxiety that competition could be distorted." But, reportedly, it was only last minute intervention by the Treasury which swung the Home Office against the proposal.

Stuart Etherington, chief executive of National Council for Voluntary Organisations, supported the Government's position, saying the proposed reforms could threaten the "public nature of charities".

The largest category of respondent was smaller charities, 178 of which sent in submissions. The strength of their interest was undoubtedly the proposal to raise the threshold of compulsory registration to £10,000.

There was clear majority opposition to this proposal - the only recommendation in the report that provoked such a response. Smaller charities argued that they derived much of their credibility with funders, the public and local authorities from their legal charitable status.

The Government's response will be to raise the registration threshold to £5,000, and allow any organisations below this level to register voluntarily.

A large proportion of the changes the Government wants to implement require primary legislation. Yet the sector is still awaiting a draft charities bill, and no commitment has been given to when the Government will put such a bill before Parliament. "The historic overhaul of our antiquated charity law lies within our grasp, we must work to ensure that having come this far this charities bill makes it onto the statute books," said Etherington.

He wants the draft bill to be proposed in November's Queen's Speech and published by the end of the year. A Charities Act could, potentially, become law by 2004, it says. But, whatever the timetable, it seems certain the bill will be subject to a relatively new form of "pre-legislative scrutiny". A special committee will be established by the Government to scrutinise the bill and conduct another public consultation. The whole process could take up to a year.

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