Charities and the state: Drawing a line

As the Office of the Scottish Charity Regulator prepares to withdraw charitable status from institutions too heavily influenced by government, Mathew Little looks at the distinction - often minimal in England and Wales - between what is charitable and what is statutory.

Few have realised the role of charities in provoking one of the biggest Labour rebellions against Tony Blair since the war in Iraq. The Government's forthcoming Education Bill has inflamed more than 100 Labour MPs, together with the habitually loyal former leader Neil Kinnock and the former education secretary Baroness Morris. And charities are at the root of it.

But don't be surprised if you haven't heard of the offending organisations - they don't exist yet. The 'charities to be' currently reside merely in the pages of a Department for Education and Skills white paper. The controversial independent 'school trusts', the source of backbench concern about creeping academic selection, must be charities - the Government has said so.

Since Labour's election in 1997, the charity sector has got used to feeling needed. Debate continues over the extent to which voluntary organisations become willing collaborators in implementing government social policy.

But if existing charities don't want to comply or ministers don't want to solicit charities' co-operation, the state has always had a simpler option - creating its own charity.

Last March, the Charity Commission lifted its objections to the registration of two charities set up by local authorities to deliver statutory services.

Wigan Leisure & Culture Trust and Trafford Community Leisure Trust had been created specifically to provide services, such as libraries and the care of cemeteries, that the council is legally required to provide.

The Directory of Social Change threatened to take the case to the Attorney General, maintaining that the ruling "destroyed the distinction between what is charitable and what is statutory", and the then charities' minister Fiona Mactaggart voiced concerns about the charities' independence. But the Charity Commission said the organisations complied with charity law in that they had been "established for exclusively charitable purposes".

Historically, there are cast-iron precedents for the state-created charity.

Grant-maintained schools are charities. The National Trust was created by an Act of Parliament. Non-departmental public bodies such as the British Council, the Arts Council, the Design Council, the Community Development Foundation and the British Museum are all charities. Ministers have the power to appoint or approve trustees and issue directions.

The extent to which government can establish a tame charitable creature to implement its policies is illustrated by the case of the Construction Industry Training Board, now CITB-Construction Skills, which was awarded charitable status despite ministers being able to approve its functions and investments, direct its surplus funds and appoint or remove board members.

In 2005, the British Museum was given a blunt reminder of the limits of its freedom as a state-charity. Its trustees had decided that they had a moral obligation to return four old master drawings that had been looted from the Czech lawyer Dr Arthur Feldmann by the Gestapo in 1939.

But the High Court ruled that they did not have the legal authority to override the 1963 British Museum Act - a law drafted to control the museum's activities, from disposal of assets to giving ministers the power to appoint the museum's director.

Philip Kirkpatrick, a partner with the charity specialist law firm Bates, Wells & Braithwaite, says the issue of the state-charity hybrid is not new. "It's misunderstood," he says. "A lot of people involved in grant-maintained schools don't know that these are charities. People confuse the concept of charity with the concept of registered charity. There is a grey area - grant-maintained schools and other quangos that are charitable are in exactly that grey area. The Charity Commission puts out a very simple-sounding message, but it's more complex."

The commission says all charities must be independent, but it is a flimsy independence. "Charity law is clear that governmental authorities can set up charities," says a commission spokeswoman. "Just because a body has been set up by the state does not prevent it from being a charity. It is also permissible for government to have a high degree of influence or involvement in the governance of a charity - through, for example, conditions attached to funding or rights to nominate trustees or beneficiaries."

The caveats are that the purposes of the charity must be "exclusively charitable in law" and that trustees have a duty to act in the interests of their respective charities.

Barry Knight, director of the think tank Centris, argues that the commission has no authority to stand up against the Government's wish to create compliant charitable agencies. "They use case law to decide, and the commission has no real opportunity to reject something - even if it's foisted on it by government," he says. "If the objectives are charitable, then they have to give it charitable status."

But in one part of the UK, the charity quango is facing abolition. The Charities and Trustee Investment (Scotland) Act 2005 denies charitable status to any organisation whose constitution "expressly permits the Scottish Ministers or a Minister of the Crown to direct or otherwise control its activities".

Umbrella body the Scottish Council of Voluntary Organisations lobbied ministers to include the provision in the Act following the case of Scottish Natural Heritage, a registered charity that was ordered to move its headquarters from Edinburgh to Inverness against the wishes of its staff.

A bonfire of the quangos is now expected, with organisations such as the Scottish Crop Research Institute and the Royal Botanic Garden in Edinburgh on the condemned list. But the Scottish Executive has moved to exempt some quangos, such as the National Gallery of Scotland and the Scottish National Orchestra.

Stephen Maxwell, associate director of the SCVO, says it is crucial that Scottish charities are independent. "It was important to the health of civil society that the legislation made it clear there was a requirement for charities to be independent of the state," he says. "People ought to know that when an organisation presents itself as a charity, it is not really a part of state provision. It's healthier if people see charities as part of the voluntary sector, which means organisations that are initiated and led by citizens like themselves."

The SCVO believes the Act's independence principle should have been more explicit and fears that the new Scottish charities regulator will not move against local authority-created charities like those in Trafford and Wigan.

"We don't think they should be charities," says Maxwell. "We are opposed to public bodies setting up organisations that claim charitable status, and often get it, but whose sole purpose is to be a sub-contractor to the statutory body. We see them as an unfair source of competition for genuinely citizen-led organisations."

But the Scottish example does not look like being taken up in England.

The NCVO has shown no interest in the question and other umbrella bodies, such as Acevo, view the blurring of the line between state and sector with approval rather than opprobrium.

Kirkpatrick believes the hunting down of charity quangos north of the border shows "a rather peculiar understanding of the purpose of government in a democratic society". He adds: "I would hate to see England go down that route."

Kirkpatrick argues that opposition to state-charity combinations is misguided.

"There is a failure to recognise that government exists for the public good," he says. "In a democratic society, it is the epitome of a body that exists for the public good. And charities also exist for the public good."

But the sector in England may also have to come to terms with the fact that, as state-created and directed charities multiply, the concept of charity may gradually be rendered meaningless.

"Government is getting bigger and bigger and incorporating the charity sector for its own purposes," says Knight. "I think it's very dangerous. It's dangerous for society if you have a monopoly on thought and action."

WHAT THE CHARITY COMMISSION SAYS ...

Charity law is clear that governmental authorities can set up charities.

The fact that a body has been set up by the state does not prevent it from being a charity. Nor is it a bar to charitable status that the body has been created with a view to taking on a government function.

What is important is that the purposes for which the new body exists should be exclusively charitable. The fact that the body will help a governmental authority to carry out one of its functions does not undermine the body's claim to charitable status. In practical terms, this means that a charity can be set up to carry out a function of government where there is a charitable purpose that coincides with the governmental function.

However, for a body to be a charity, it must be independent. By this, we mean that it must exist in order to carry out its charitable purposes, and not for the purpose of implementing the policies of a governmental authority or of carrying out the directions of a governmental authority.

Source: RR7 - The Independence of Charities from the State

WHAT THE CHARITIES AND TRUSTEE INVESTMENT (SCOTLAND) ACT SAYS ...

A body meets the charity test if: (a) its purposes consist only of one or more of the charitable purposes, and (b) it provides (or, in the case of an applicant, provides or intends to provide) public benefit in Scotland or elsewhere

But a body which falls within paragraphs (a) and (b) does not, despite that subsection, meet the charity test if: (a) its constitution allows it to distribute or otherwise apply any of its property (on being wound up or at any other time) for a purpose which is not a charitable purpose, (b) its constitution expressly permits the Scottish Ministers or a Minister of the Crown to direct or otherwise control its activities, or (c) it is, or one of its purposes is to advance, a political party.

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