The report of the joint committee on the draft protection of charities bill – what you need to know

Last year the government consulted on a number of proposed new powers for the Charity Commission, aimed at modernising its ability to tackle the rare problems of abuse or mismanagement in charities.

Following the consultation, the government amended some of its proposals, and dropped some others. The result was a draft ‘Protection of Charities Bill’ that was handed over to the scrutiny of a joint parliamentary committee chaired by Lord Hope.

We submitted written evidence and also appeared as witnesses in front of the committee. All evidence is available here.

Broadly we supported the aim of the bill: the Commission should have the powers it needs to deal swiftly and effectively with serious problems in charities. But equally at a time when the Commission is under more and more pressure to be seen to be tough, it’s crucial that there are safeguards for charities that fall under its gaze.

In many cases, the draft bill lacked sufficient safeguards. NCVO was one of a number of organisations which made the point that these were necessary in order to prevent the excessive discretion in the Commission’s actions.

The committee’s final report (a weighty 120 pages!) largely agrees with our view.

Here is a summary of what the committee said about each provision

Power to issue statutory warnings

The committee supports the introduction of a power that would be somewhere in between guidance and the opening of an inquiry, subject to further details in statute as to how the Commission will use this power.

We agree with the committee. We were in principle supportive of equipping the Charity Commission with this additional tool to rectify non-compliance or prevent non-compliance, but we highlighted the need for clarification as to when and how this additional power would be used.

Actions that constitute misconduct and power to suspend

The committee agrees that failure by a charity to respond adequately to a statutory warning should be considered as an act of misconduct or mismanagement which could trigger further action by the Commission. The committee also supports the extension of the maximum suspension period from 12 months to 2 years.

We agree with this. It’s important charities work to high standards and that includes addressing regulatory concerns in the rare event they arise. However we think it should be clear that the power to take further action in the event of failing to respond adequately to a statutory warning should not extend simply to failure to follow good practice, as that would lead to regulatory creep.

Misconduct / mismanagement outside of a charity

The committee agrees that the Commission should be allowed to consider trustees’ other conduct in the course of a statutory inquiry, not only in other charities but also outside of charity – however the scope is restricted to situations where a person is aware of misconduct and has not reported it.

We agree that in the course of a statutory inquiry the Commission should not be limited to evidence of misconduct and/or mismanagement in the administration of the specific charity. We expressed concern that the power originally proposed was excessively broad but the committee’s suggestions on limiting the scope have alleviated this concern.

Resignation to avoid disqualification

The committee agrees that the Commission should have the power to remove trustees following the opening of an inquiry.

We agree with this. Our consultation response recommended that the exercise of this power should be subject to the test that there must be both misconduct or mismanagement and risk to charity property. This was included in the draft bill following the consultation.

Power to remove disqualified trustees

The Committee agrees that the Commission should have the power to remove disqualified trustees.

We agree with this proposal. The power is necessary to close a current loophole which allows people who have been disqualified to remain in their position, or give their notice to resign before the Commission can act.

Power to direct winding up

The Committee agrees that the Commission should have a power to direct trustees to wind up the charity in certain circumstances.

We agree with this. We have acknowledged that in some circumstances it would represent a more effective use of charitable resources to direct a charity to transfer any remaining assets to another charity with charitable purposes as close as possible, and then to wind up the empty shell, rather than attempt to get a charity back on its feet.

We had some concerns about the exercise of this power but a number of clarifications have been made which help address these (e.g. the power will only be available in the context of a statutory inquiry and where there is misconduct, mismanagement or risk to charity property).

Power to direct property to be applied to another charity

The committee supports giving the Commission a power to make an order directing a person holding property on trust for a charity transfer it not only when they are unwilling but also when they are unable.

This is a sensible extension of the existing power (which has apparently caused difficulties when financial institutions holding charity property have been unable to transfer it due to their contractual obligations, even if they were willing to do so).

Automatic disqualification

The Committee agrees that the types of criminal offences disqualifying individuals from charity trusteeship need to be updated and expanded beyond only those involving deception and dishonesty, to include money laundering, bribery, misconduct in a public office, perjury and perverting the course of justice, and terrorism offences.

We agree with this proposal, since it is a useful update and more accurate reflection of what type of offences are relevant nowadays.

We (and many others, including the Independent Reviewer of Terrorist Legislation) did however raise separate concerns about the wide scope of anti-terrorism legislation and its impact on a range of charity activities. So we are pleased to see that the committee has reflected these concerns, and made a number of helpful recommendations on how some of these issues might be addressed, such as guidance from the Director of Public Prosecution for charities on circumstances in which she will prosecute.

Discretionary disqualifying power

The committee supports the proposal to provide the Commission with a discretionary power to disqualify, subject to Cabinet Office producing a non-exhaustive list of matters which demonstrate when a person is ‘unfit’.

In principle we agree that the Commission should have a discretionary power to disqualify someone whose behaviour means they are unsuitable to act as a charity trustee, but we had reservations due to the lack of safeguards and clarity as to how the power will be exercised. So the committee’s suggestion is helpful and we would encourage the government to follow it.

Records of disqualification and removal

The Committee agrees that the publicly accessible register of persons who have been removed from office by the Commission or the High Court should also include details of persons who have been disqualified.

In principle, we agree with this change, which would bring trustee disqualification in to line with company director disqualification.

Participation in corporate decisions while disqualified

The Committee agrees that an individual who has been disqualified from acting as a charity trustee should not then take part in decisions about a charity in their capacity as director of a corporate trustee.

This is a loophole in existing legislation and it makes sense for it to be addressed.

The committee also comments on a few powers that the government originally consulted on but dropped following consultation feedback. These were:

  • a power to use directions outside an enquiry, and
  • a power to issue preventative directions against acts of potential misconduct.

The committee isn’t supportive of the former but suggests the government revisits the latter.

We argued against both these powers. If the Commission is going to issue directions to charities, it needs to be within the structured framework of a statutory inquiry. And while having the power to issue preventative directions to charities in cases of concern about potential misconduct sounds superficially attractive, in reality it’s beset with legal and practical problems. So we remain of the view that the government was right to drop these proposals and that there isn’t a case for them to be reintroduced.

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Avatar photo Elizabeth was head of policy and public services at NCVO until 2020.

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