In its report, Stronger Charities For A Stronger Society, published at the conclusion of the committee’s year-long inquiry into the UK charity sector, the committee warns that if the commission were to draw funding directly from charities it would fundamentally change its relationship with the sector.
The committee also calls on the Treasury to "maintain adequate funding" of the commission, regardless of whether charging is introduced.
Cuts to the commission’s Treasury funding mean its budget has fallen by £8m since 2010 and will be frozen at £20.3m a year until 2020. William Shawcross, the commission’s chair, has said it is inevitable that charities will be called upon to make up the financial shortfall, although he hoped charities with annual incomes of less than £20,000 would be exempt.
But in its report, the committee says it is not clear that the commission has taken full account of the potential impact of charging for regulation, and it needs to be clear about the benefits of charging for charities.
"A mandatory charge for registered charities would mark a fundamental change in the sector’s relationship with its regulator," the report says. It warns that the commission would change from an independent overseer to a body in which charities would have a financial stake and might therefore wish to influence how the money was spent.
Aside from the immediate financial impact on charities and their beneficiaries, the report says, charging would also affect public confidence in charities, who might question why their donations are being used to subsidise government spending.
"If charging is mishandled, there are significant risks for the strength of the charity sector, its relationship with the regulator and overall public confidence and trust in charities," the report says.
"Because of these issues, we have grave concerns about the commission proceeding with any proposal to charge charities."
There should be continual monitoring of any model to ensure it does not burden small charities, the report says, and the commission must be transparent from the outset about how any additional revenue will be spent and which services will be provided.
The report does praise the commission’s efforts to improve its regulatory effectiveness in a context of reduced resources, but warns there is still much to do before it can be considered fully effective.
The commission needs to be more encouraging to charity staff and trustees who want to raise issues, be clearer about what it can offer within its reduced budget and help charities find support elsewhere if necessary, the report says.
A spokesman for the commission said the regulator was pleased the committee understood why it needed to consider charging.
"We agree that making the benefits of any changes clear to charities, as well as the way in which our services may be enhanced, is important," he said.
"We also recognise the funding pressures on charities, especially the small ones, and hope to find a way forward that is sensitive to that. No decisions will be made on charging without a full, open consultation."
In response to the committee’s comments, Sir Stuart Etherington, chief executive of the National Council for Voluntary Organisations, said that "any move to charging should go hand in hand with an overhaul of the commission’s governance" to ensure its independence from government.
He said the NCVO planned to produce a range of criteria by which any commission charging scheme would be judged, including reassurances that the money would not be used to replace existing funding and there would be appropriate accountability.
The charity leaders body Acevo and the Charity Finance Group welcomed the committee’s comments, and Andrew O’Brien, head of policy and engagement at the CFG, warned that rushing into charging could lead to long-term damage to public trust in the sector.
Jay Kennedy, director of policy and research at the Directory of Social Change, said it was unfortunate the committee had stopped short of recommending against the idea completely.