Public Benefit: Two principles must be satisfied

From 1 April, all registered charities will have to demonstrate that their activities are for the public benefit, as set out in the Charity Commission's guidance on the subject, published today.

The guidance sets out two principles that charities must satisfy: there must be an identifiable benefit in a charity's activities, and the benefit must be to the public, or a section of the public.

Under the first principle, the benefit cited must be related to the charity's aims. It must also be balanced against any potential detriment that might arise from those activities, such as damage to the environment or encouraging hatred of others.

The second principle considers the accessibility of the benefit in question. The opportunity to benefit must not be unreasonably restricted by factors such as geography, opening hours or the ability to pay for the service if the charity charges a fee.

The guidance specifies that people living in poverty must not be excluded from the opportunity to benefit. It says that charities can charge fees, although organisations that do so will have to consider ways of ensuring that those who cannot afford those fees can still benefit from their activities.

The draft version of the guidance, published last March, included two other principles: that people living in poverty must be able to benefit, and that any private benefit must be incidental to public benefit. In the final guidance, these points have been incorporated into the first two principles after comments from lawyers.

In response to the comments, the commission concluded: "There is little doubt that public benefit is primarily about two things - public and benefit."

Charities will have to report on how they meet the new test. Those with incomes below the audit threshold of £500,000 will have to include brief summaries of their public benefit credentials in their trustees' annual reports. Larger charities must provide more detailed explanations of how their activities are in line with their aims and strategies.

The first reports including public benefit reporting are due at the end of the financial year 2008/09.

DIY Assessment

The commission suggests trustees should ask these questions to gauge their charity's public benefit.

- What are its benefits, and does it cause detriment or harm?

- Who does it benefit, and how are the beneficiaries defined?

- Is access restricted by geographical area, by the nature of beneficiaries' charitable needs, or by their personal characteristics?

- Are there restrictions on access to facilities, including limited opening times?

- Does someone have to be a member to benefit?

- Are there restrictions through fee-charging? How can people in poverty benefit?

- Does anyone receive any private benefits, and are they incidental?

The road to reform

September 2002: The Prime Minister's Strategy Unit report Private Action, Public Benefit says charity law is confusing and unclear. It calls for a modern list of charitable purposes and a public benefit test based on cases decided in the courts.

January 2005: A Charities Bill, drawn up after joint parliamentary scrutiny of a draft, proposes implementation of the strategy unit recommendations. It falls at the 2005 General Election, but is reintroduced straight afterwards.

November 2006: The Charities Act becomes law. It says charities must have one of 13 charitable purposes and requires the Charity Commission to consult on and draw up guidelines on public benefit with reference to case law.

March 2007: The commission issues draft guidance for consultation. It suggests four main principles: there must be an identifiable benefit; the benefit must be to the public, or a section of it; people on low incomes must be able to benefit; and any private benefit must be incidental.

June 2007: When the consultation closes, it has received more than 900 responses, the majority from religious organisations. Some of them, the commission says, express outrage at the public benefit difficulties they fear. The most contentious principle is 'low income'.

August 2007: Dame Suzi Leather, chair of the commission, announces that, after taking legal advice, she will take no part in decisions affecting the public benefit provided by private schools. This is because her daughter attends one.

October 2007: The publication of the final version of the guidance is postponed because of the large number of responses. "We need to work through them carefully to consider the implications," the commission says.

January 2008: Commission issues final version of its general public benefit guidance, reducing the number of principles from four to two and dropping the phrase "people on low incomes must be able to benefit". Instead, it says "people in poverty must not be excluded from the opportunity to benefit".

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