Even before the National Audit Office declared in its report of December 2013 that the Charity Commission was failing to regulate effectively or provide value for money, the regime at the regulator was changing. William Shawcross had been chair for more than a year and had recruited a new board, including the former anti-terrorist police chief Peter Clarke, the hawkish academic Gwythian Prins and the fraud barrister and former Conservative parliamentary candidate Orlando Fraser. The number of inquiries into charities was rising and the commission was using its statutory powers more readily.
Over the past 16 months, that get-tough programme has gathered pace. The commission has been promised stronger legal powers in the Protection of Charities Bill, the number of inquiries has continued to rise and the general guidance to trustees, known as CC3, is being sharpened up. Paula Sussex, who came from the private sector to take over as chief executive in June last year, has declared that errant charities can no longer expect the benefit of the doubt, and she and Shawcross have repeatedly emphasised the importance of public trust and confidence in charities.
This programme has had a mixed reception from the sector, as represented by its umbrella bodies, specialist lawyers and the leaders of some large charities. Given past disasters such as the Cup Trust affair, there has been little dissent in principle about the push for more robust regulation; there has, however, been considerable scepticism about the rhetoric and mood music. For example, Lesley-Anne Alexander, chief executive of the RNIB, called in September for the commission to support and cherish charities rather than focus on compliance.
But the commission's recent intervention with the Joseph Rowntree Charitable Trust over that body's past funding of the advocacy group Cage – not a charity – has been seen by many as a step change and has prompted accusations that the commission is going beyond its remit. It is difficult to find anyone with experience in the sector or knowledge of charity law who is prepared to endorse the commission's actions, and some suspect it of responding to a tabloid or political agenda. A tiny proportion of charities among trusts and foundations are potentially affected, but there are fears that it sets a dangerous precedent.
Assurances over funding
To recap: when the Islamic State murderer "Jihadi John" was identified as a British citizen, Mohammed Emwazi, Cage contended that he was a "beautiful young man" who had been radicalised by the attentions of the security services. The Daily Mail newspaper ran a story about how the Roddick Foundation and the Joseph Rowntree Charitable Trust had funded Cage, which says it works to "empower communities impacted by the war on terror". The commission, which had opened slow-moving regulatory compliance cases on both charities many months previously, promptly asked the two organisations for assurances that they would never fund Cage again.
The Roddick Foundation complied, but the JRCT did not do so immediately, and when it did it said this was as a result of "intense regulatory pressure". The commission issued a strongly worded statement detailing the trust's recalcitrance and saying that it expected trustees to ensure all funding was used "in the way the public would expect". This prompted lawyers to suggest that the commission had exceeded its remit in fettering the future discretion of trustees, and a letter in The Times newspaper, headlined "Paying tribute to a besieged charity", was signed by Lord Kinnock and 189 others.
In a speech shortly afterwards, Shawcross asserted that it was for the commission to decide what was "in the public interest", as well as what might damage public trust and confidence in charities. The advance text repeated that "both charities have given us assurances that they will never fund Cage again", but the version now on the commission's website says "both charities have given us assurances that they have ceased funding Cage". Lawyers say the change removes the key point they objected to, but a commission spokeswoman says it was no more than "a tweak" and too much is being read into it.
After the incident, the Association of Charitable Foundations said it was concerned about the requirement to stop funding Cage forever and asked for a meeting with the commission, after which it said both parties had confirmed the independence of trustees to pursue their charitable objectives within the law. The commission said it was the funding of non-charities, rather than the cases of the JRCT or the Roddick Foundation, that was the subject of the meeting, and it was preparing fresh guidance on this.
Many trusts and foundations that fund marginal causes are concerned but unwilling to say anything: 15 that Third Sector contacted either declined to comment or did not respond. But Duncan Shrubsole, director of policy, partnerships and communications at the Lloyds Bank Foundation – which has funded less popular causes, including sex workers, people-trafficking, refugees and the homeless – says it would be worrying if the phrase about charitable funds being used "in the way that the public would expect" was followed through.
"Who is to deem what the public should expect?" Shrubsole asks. "Foundations have got to be able to fund difficult causes without thinking that the Charity Commission is hovering over their shoulder, about to pronounce them as funding not what the public would expect.
"It's a potential Big Brother in the funding world. All charities, not just foundations, would like to see a commission that champions the vital role of the charity sector in standing up for the marginalised – within the law, of course – but not one that potentially looks to throw its weight around and questions our activities on an uncertain basis."
Frederick Mulder, chair of the Frederick Mulder Foundation, which funds organisations that work in social and climate change and global poverty, says: "I suspect the commission bowed to either formal or informal political pressure. This sets an unfortunate precedent. I can't see any ground to require a foundation to commit not to fund an organisation in the future as long as it's obeying the rules. But this also seems like an extreme one-off case - not the thin end of a thick wedge."
Debra Allcock Tyler, chief executive of the Directory of Social Change, also discerns a political ingredient. "It appears to be part of a prevailing anti-charity narrative – an anti-charity infection," she says. "The commission has been given a very clear steer by this government about what its role should be and how it should behave.
"The commission massively overstepped the mark. Trustees are already risk-averse, and if there's any suggestion that they might get dragged through the media – as the JRCT has – they will be less willing to take risks. The JRCT could have challenged the commission and gone to the charity tribunal over it; had it done so, I suspect it probably would have won. But it decided not to because, I imagine, it didn't want to be put through the whole public media storm."
Alison Talbot, a partner at Blake Morgan solicitors in Oxford, says: "In my view, the commission went too far in requiring the two organisations to say they would never fund Cage again – it just feels a bit heavy-handed and disproportionate, because it might be that Cage completely changes what it's doing or, after further investigation, is found to be a perfectly reasonable organisation for them to support."
Talbot says that if the matter went to the charity tribunal the JRCT might be able to challenge the commission on the grounds that, in trying to protect the wider reputation of charities, the regulator had acted against the best interests of a charity that had made the grants after a proper process. She adds that the JRCT could have averted some of the pressure by issuing a statement immediately saying its funding of Cage had ended.
Sir Stephen Bubb, leader of the chief executives body Acevo, says the actions of the commission were unprecedented. "There's a long-standing practice that, although the regulator ensures adherence to the law, it doesn't interfere with the discretion of trustees," he says. "What it has done is beyond the proper scope of a regulator.
"The independence of the charity sector and the right to fund unpopular causes is at the heart of the charity mission, and we will rue the day when it's not possible for charities to get support for those causes. Many foundations have been superb in funding causes that won't get funding anywhere else – areas where public opinion is opposed; so it would be a shame if they now start becoming cautious and risk-averse."
Interpreting the public interest
Bubb says that another worrying aspect of this would be if the Charity Commission now thought its job was to interpret what was in the public interest. "That's not the job of a regulator," he says. "There's a big difference between ensuring charities work for the public benefit and stretching that to interpret what's in the public interest. We could end up with a situation where the only causes that attract support are those that find favour with the Daily Mail."
A spokeswoman for the commission says that what it did or did not do in the JRCT case would be made clear in a regulatory case report, which cannot be published until after the election. "Speculation and the suggestion that the commission is interfering with the administration of the charity – which is not true – are not helpful to the charities concerned or to other charities," she says.
"As to judgements about public interest, we have a statutory objective to increase public trust and confidence in charities. As a matter of law, the reputation of a charity is an asset and, where we consider it is at risk, we have powers to act."
The JRCT then and now: Funding causes that may be controversial
Joseph Rowntree (1836-1925) was a Quaker businessman and philanthropist who developed the famous chocolate factory in York that was taken over by Nestle in 1988. In his youth he saw the effects of the potato famine on a trip to Ireland with his father and became a campaigner for social improvement, giving workers in his factory fair wages, a library, free education, a pension fund and access to model housing.
In 1904 he put half of his wealth into the Joseph Rowntree Charitable Trust, the Joseph Rowntree Foundation and the Joseph Rowntree Reform Trust. The charitable trust is a respected grant-maker that follows Quaker principles in funding organisations that pursue peace and security, power and accountability, rights and justice, a sustainable future and conflict reduction in Northern Ireland. In 2013 it awarded grants of more than £6m to organisations that included War Resisters' International, Statewatch, the Tax Justice Network, Nato Watch and Child Soldiers International.
Between 2007 and 2014, the JRCT gave a total of £271,250 to Cage, which it says was to promote and protect human rights. "We believe Cage has played an important role in highlighting ongoing abuses at Guantanamo Bay and other sites around the world, including instances of torture," it says. "The trust does not necessarily agree with every action or statement of any group that we have funded. We believe that Cage is asking legitimate questions about security service contact with those who have gone on to commit acts of violence, but this does not absolve any individual from responsibility for such acts."
THE REGULATOR ON TRUSTEE CONDUCT
The Charity Commission says its role includes pointing out the consequences of any breach of trustees' legal obligations, "and where further regulatory action might need to be considered to ensure that public trust and confidence in charity is not damaged by trustee conduct in a particular situation".
It adds: "The commission has wide powers under the Charities Act 2011 to do anything required to facilitate or incidental to the performance of its functions and duties. We asked for these assurances (from JRCT) on the basis of these powers."
The "do-anything" power of section 20 of the act says the regulator cannot act as a trustee except under sections 84 and 85, which allow it to direct specified action or the way charity property is used. Section 76(3)(d) allows it to prevent a charity parting with property without commission approval. Lawyers say it is not clear how it could permanently stop a charity donating to any organisation.