Charity umbrella bodies have expressed serious concerns about draft Charity Commission guidance on grant giving to non-charitable organisations, saying it could threaten the growth of social-purpose organisations.
The commission promised to release the guidance as a result of the High Court case brought against the regulator by the advocacy group Cage, when the regulator asked the Joseph Rowntree Charitable Trust and the Roddick Foundation to agree not to fund Cage any more.
The case was withdrawn when the commission agreed to issue a statement saying it had no power to forbid charities to fund organisations in the future.
A joint response from the Association of Charitable Foundations, the Charity Finance Group and the National Council for Voluntary Organisations to a consultation on draft guidance says it risks fettering the discretion of trustees and could threaten the growth of social-purpose organisations, such as social enterprises, start-ups and international NGOs.
In a statement, the three organisations described the guidance as an attempt by the commission "to draw tight boundaries around how grants may be used to cover the running costs of organisations that are not charities".
The draft guidance says charities may not offer grants to cover core costs or overheads to non-charitable organisations. But the groups warned this could be detrimental to the public good, particularly for organisations that operate in countries where they cannot be registered as charities but have aims that would be considered charitable under UK law.
In the joint response, the organisations said: "Without funding for ‘core’ essentials such as accommodation, ICT, salaries for leadership and the costs of growth and adaptation, such organisations would in many cases cease to exist to the great detriment of their beneficiaries and the frustration of the charitable objectives of the UK-based funder.
"The guidance as currently drafted would prohibit important funding arrangements such as these."
They said the guidance "removes discretion from trustees who alone can assess the suitability of a grant and the conditions that should be attached".
Instead, the consultation response suggested such funding should be allowed as long as charities took steps to monitor the trustworthiness of grant recipients and ensured the money was delivering public benefit.
David Emerson, chief executive of the ACF, said: "Charitable funders are increasingly finding themselves working in pioneering ways to deliver public benefit, often in collaboration with other and emerging sectors, which might include non-charities.
"Funding such organisations may not be the most frequent use of a charitable grant, but it is an important tool in supporting innovation in civil society.
"We call on the commission to take on board our concerns and ensure that trustees are enabled and informed by the guidance rather than being inhibited in delivering the vital funding that organisations might otherwise be unable to access."
Andrew O’Brien, head of policy and engagement at the Charity Finance Group, said: "We are deeply concerned about this guidance as it is currently drafted and the impact it will have on foundations and charities that carry out their work internationally, often through organisations that are not charities."
If the guidance was not revised, O’Brien said, it would restrict the ability of charities to work in the best interests of their beneficiaries.
"Ultimately, trustees of charities are best placed to make decisions about how they realise their charitable objectives, not the Charity Commission," he said.
Neal Green, senior policy adviser at the Charity Commission, said it was in dialogue with the ACF and other sector bodies to understand their concerns better.
"We want the guidance to give charities confidence about the organisations they can give grants to by helping them understand the risks and how these can be better assessed, mitigated and monitored," he said.
"We worked closely and constructively with the ACF in developing this draft guidance, and we look forward to continuing this discussion with the benefit of the consultation responses we have received."