The House of Lords Select Committee on Charities has also recommended that the government should provide the voluntary sector with more opportunities to give feedback on new policies before they are announced, and calls on the government to run a consultation on introducing a statutory duty on organisations above a certain size to allow their staff time off to carry out duties as charity trustees.
The committee’s report, Stronger Charities For A Stronger Society, comes after a wide-ranging inquiry into the voluntary sector, which took in issues including charity governance and leadership, the Charity Commission, local government procurement, alternative forms of finance and charity mergers.
The report features 42 recommendations, including that the Office for Civil Society should work to improve the awareness and availability of payroll-giving schemes and that the department should carry out an audit of the potential impact of Brexit on charities.
The committee, which was chaired by the Labour peer Baroness Pitkeathley, says the next round of board appointments for the Charity Commission should ensure greater diversity and actively seek to recruit people from a wide range of demographic characteristics, such as age, gender, ethnicity and geography.
The report also says the commission "must take care in its public communications to ensure that it retains the confidence of the public and the charity sector".
It says the committee heard concerns from charities about the Charity Commission’s initial guidance on campaigning during the EU referendum, which had been interpreted as restricting their ability to speak on the issue.
The committee says in its report that the government has had a disproportionate focus on social impact bonds and should focus future public funding on other forms of alternative finance.
The report says that the results expected from SIBs have "yet to materialise" and, although the government should make them work better, future public funding should focus on other financial products that apply to a wider range of charities and beneficiaries.
It says the government should make the public sector account for, rather than just consider, social value when commissioning contracts, and calls on local authorities to maintain or revive grants wherever possible.
It raises concerns about the problems smaller charities have in bidding for public sector contracts, and it describes the commissioning landscape as "skewed against smaller charities".
The report says contracting authorities should address this by embracing new procurement rules allowing for smaller contracts, and says that not involving charities in commissioning processes could see charities "losing out on potential work and funds" and commissioners "missing out on the values, knowledge of local needs and innovation that charities bring".
It recommends that there should be a time limit for people to serve as charity trustees, and the Charity Commission should include the suggestion of a limit in the materials and draft articles of association it provides.
It says the Charity Commission should take a "positive approach" to charity mergers and help in removing any barriers that might scupper such arrangements, including issues around pensions.
The regulator should also consider introducing time-limited charity structures in the model governing documents it produces, enabling organisations to dissolve once they have delivered their objectives.
Vicky Browning, chief executive of the charity leaders body Acevo, said: "This is a comprehensive and progressive report that addresses itself to many issues the charity and social enterprise sector has been raising for some time. It's particularly welcome that the committee doesn't just air the issues but also offers real change.
"I'm naturally pleased to see the emphasis on the need for strong leadership and good governance, as well as recommendations around uptake of digital technology, better commissioning, stronger collaboration, a robust defence of the role of charities in campaigning and a call for better engagement between government and the charity sector."
Barney Mynott, head of public affairs at the local infrastructure charity Navca, said the select committee had done a thorough job.
"We are delighted to see support for grant funding, a re-commitment to not paying trustees, recognition that charity campaigning is a ‘sign of a healthy democracy’ and the timely expression of concern about the Charity Commission introducing charging.
"The acid test is what difference this will make. Rob Wilson and the OCS have to take up the challenge of this report and turn these words into real support for charities."
Jay Kennedy, director of policy and research at the training and publication charity the Directory of Social Change, also questioned how the government would respond to the report and whether it would do anything with it.
William Shawcross, chair of the Charity Commission, said: "This report rightly demonstrates the vital role that charities play in our society, and why good governance and strong leadership are so important. We are pleased that the committee recognises the progress the commission has made in being a more effective regulator and we will study with interest the recommendations that have been made to strengthen our sector."