NEWS IN FOCUS: Review to modernise entire sector

STOVIN HAYTER

Government is planning the biggest shake-up of charity law for 400 years. Stovin Hayter looks at how it will affect the sector in practice.

Much of the law governing charities is confusing and outdated. It has not kept pace with things that people regard as having a public benefit, such as amateur sport or the promotion of human rights. It makes voluntary organisations go through contortions in order to conduct the trading activities that make up an increasing proportion of their income.

It has also failed to keep pace with increasing public demands for accountability and information from and about charities.

So the obvious and rather facile question to ask about the Government's proposals for reforming charity law and regulation, published last week in the form of a report from the Strategy Unit entitled Private Action, Public Benefit, is why did it take so long?

The answer, of course, is that the current system actually works quite well, despite its drawbacks. So the reforms now proposed are not about fixing something that is broken but about getting things to work better.

And we might have waited a lot longer had it not fitted the Government's current concerns of strengthening civil society and enlisting the voluntary sector to play a much greater role in public services.

The proposals complement the tax changes made over the past few years to encourage giving, the Government initiatives in areas such as volunteering, active citizenship and neighbourhood renewal, and the recently published Treasury cross-cutting review of the role of the voluntary sector in public services.

Its aim is to ensure that the sector is "fit for purpose", and this is the context in which the latest, very wide-ranging proposals have to be seen. They are not radical, but they will entail the biggest rewriting of charity law in 400 years, and they will affect just about every charity.

The report covers England and Wales, and although it acknowledges that many charities operate and raise funds on a UK-wide basis, the Government has made it clear that any changes in Scotland and Northern Ireland are a matter for the devolved administrations there. The Scottish Executive is already considering a similar review for Scotland (the McFadden Report).

The proposals range from new criteria for charitable status, through new legal forms for charity-run businesses and social enterprises, to the regulation of fundraising activities.

It is proposed that the old "four heads of charity

be replaced with 10 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 culture, arts and heritage;

- advancement of amateur sport;

- promotion of human rights, conflict resolution and reconciliation;

- the advancement of environmental protection and improvement;

- other purposes beneficial to the community.

At the same time, the threshold at which a charity will have to register with the Charity Commission would be raised from £1,000 income to £10,000.

Only charities with a turnover of £1 million or more would have to have their accounts audited instead of the current £250,000, bringing charities into line with commercial enterprises.

There is also a much more explicit focus on public benefit. Charities will have to demonstrate clearly upon registration that they provide a public benefit.

And the Charity Commission should embark on a rolling programme to review the public character of charities that charge high fees for their services - in other words fee-charging schools and private hospitals.

It means that many organisations that do not qualify for charitable status, such as sports clubs and environmental and human rights organisations, would now be able to apply. However, the raising of the income threshold would roughly halve the number of charities that would have to register with the Commission.

By reducing red tape in this way, the Government hopes to encourage the formation and growth of smaller charities. By taking what the report describes as a "risk-based approach", it can target regulation and scrutiny where the greatest sums of money are. The 3,000 or so charities with a turnover of more than £1 million account for nearly 80 percent of the sector's total income.

Other deregulatory measures proposed include removing some of the obstacles to charities merging, and the report calls on the Commission to take on a more facilitating role in any mergers, possibly by creating a dedicated internal unit.

The Government also wants charities to be able to act in a more entrepreneurial way and to trade more freely. It proposes removing the need for separate trading subsidiaries, along with new corporate legal forms for social enterprises (the Community Interest Company) and charities (the Charitable Incorporated Organisation).

The idea here is to remove confusion about where charity law applies and where company law does, although an increased duty of care would be placed on trustees to ensure the charity is not exposed to unnecessary risk.

But if charities would be given more flexibility, the proposals also include a range of requirements designed to bolster public confidence in the sector.

Fundraising will, if the proposals become law, be more explicitly regulated (see p3). And charities will be expected to be much more open about their costs and the impact of the work they do.

The full report Private Action, Public Benefit is available on the Cabinet Office web site: www.cabinet-office.gov.uk.

TRUSTEE BOARDS WILL HAVE TO BECOME MORE DIVERSE

Trustee boards that lack the necessary skills or which are inappropriately dominated by narrow ethnic or interest groups will become a thing of the past if the reforms proposed by the Government's Strategy Unit become law.

The report recommends that trusteeship be taught as part of the citizenship element of the national curriculum and that charities slim down the size of their trustee boards.

"Trustees tend not to be as diverse as the organisations they represent and trustee boards are still much too big,

said one of the senior civil servants involved in the review of charity law and regulation. The Government also wants charities to be more transparent and accountable in the way they choose trustees, rather than "simply going through the old boys' network".

Stephen Bubb, chief executive of ACEVO, welcomed the proposal to improve governance. He said bad trusteeship still impeded the work of many chief executives and there were still examples of bad practice which led to unnecessary conflict between board and management. ACEVO is working with South Bank University on a review of governance issues which it hopes will influence the coming consultation over the review.

Linda Laurance, chairman of the Charity Trustee Network, welcomed the moves to improve governance but warned against over-regulating what tended to be unpaid positions. "More regulation might discourage them, we don't want that philanthropic flame to be put out,

she said.

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