The Lords’ Committee, charity regulation and charging

Following the publication of the House of Lords select committee on charities’ report Stronger Charities for a Stronger Society (PDF, 1.7MB), we are publishing a series of posts covering the take-away issues and what charities can do in response, highlighting what we think are the best available resources to help you if you want to take action. Look out for further posts on:

• governance (now live)
• funding and finance
• public services and contracting
• impact
• campaigning and advocacy
• digital
• public trust and confidence
• volunteering
• next steps for infrastructure: An action plan for implementing the report.

When the Lords’ Select Committee on Charities was first set up the intended focus was very much about charity governance and how this could be strengthened. But as Karl’s overview shows, the final report is much more wide ranging and includes recommendations that go beyond charity governance, such as the regulatory framework of our sector and the role of the Charity Commission. Indeed, the committee’s remarks on the Charity Commission and its plans to introduce charging are what made the majority of the sector press headlines.

The role of the Charity Commission

The committee obviously heard some evidence that, in response to its financial constraints, the Charity Commission has focused on its regulatory role and reduced its advice and support functions, and that this has happened at the expense of small and medium-sized charities.

We have always been of the view that the commission’s primary role is the regulatory one, and that it should therefore prioritise compliance and what we refer to as ‘enabling regulation’. The now old dual approach of being both regulator and champion of the sector was always a difficult one to balance, potentially leading to confusion and conflicts.

It is much more appropriate for umbrella and membership bodies such as NCVO to provide the specific support and advice that individual organisations require on a case by case basis. That is why over the past few years we have intensified our work in developing templates and toolkits, ‘how-to guides’, model documents and policies. We have also updated our NCVO Knowhow Nonprofit, which covers a much more extensive range of topics, and we hold training events on an almost daily basis. Go to our services and support webpage to find out more.

The governance of the Charity Commission

During the committee’s inquiry, concerns were expressed about the commission’s board and its appointment process.

This is not news to us in the sector, since we have seen how over the years the Charity Commission has been subject to the criticism that it allows itself to be used as a political football by the government of the day and is drawn into political agendas. Critics claim this is not appropriate for the regulator of a sector which by law must not be party political.

That is why we have argued for some time now that the appointment process of chair and board members should be reviewed, and alternative mechanisms that ensure greater parliamentary oversight should be considered. A couple of years ago we published a discussion paper on the Charity Commission’s independence (PDF, 204KB), exploring a number of ways in which the current appointments process could be improved. The committee’s comments about how the commission needs to raise its standards with regards to board diversity are therefore a welcome opportunity to reopen the debate.

Charging by the Charity Commission

One of the strongest messages coming from the report is undoubtedly on the issue of charging by the Charity Commission. It is difficult not to listen when a group of peers representing all political parties expresses ‘grave concerns’ about the commission proceeding with any proposal to charge charities.

The committee raises questions about:

• the burden on small charities.
• the relationship between charities and the regulator, which would fundamentally change by giving charities a financial stake and possibly raising their expectations.
• the financial impact on charities and their beneficiaries.
• the wider potential impact on the public’s confidence.

Our five tests for charging

Here at NCVO we have been thinking about charging a lot – not least because we were expecting a consultation at the start of the year. But it’s actually something that has been debated for years, having first been raised by the previous chair Dame Suzi Leather when giving evidence to the then Public Administration Select Committee.

No amount of time however has given us the answer to the questions raised by the committee. Furthermore, we think there are some fundamental tests that any proposal on charging should be able to meet. These are:

• That the Treasury continues to provide the necessary direct funding to the Charity Commission, so that any income generated through charging is additional and not a replacement. This would require a clear and long-term commitment from the Treasury to not claw back any funding from the commission.
• That the additional funding is used to provide services that are identified and developed on the basis of evidenced needs. The commission should undertake an analysis of the compliance gaps and weaknesses to identify where additional services are required. Then in collaboration with the sector it should develop services that:

1. Complement existing services and support provided by sector bodies, rather than cause duplication.
2. Provide a strategic benefit to the sector as a whole, as opposed to a one-off benefit to a specific organisation or individual trustee.

• That proceeds of any charging are not substantially consumed by the cost of collection. Never having charged before, the commission will have the task of setting up a whole new system for collecting the fees, which is of course not without cost. There are also considerations (and calculations) to be made about chasing late payments, what to do about non-payments, maintaining and upgrading the system, recruiting and then training and skilling up relevant staff.
• That the fees charged are affordable and don’t have a disproportionate impact on charities’ sustainability. The amounts will therefore have to be carefully banded according to level of income, and taking into account the existing payments that charities already have to make to other regulators.
• That the financial contribution made by charities is balanced out by a change to the governance appointments process, to ensure stronger independence and avoid any stakeholder interests. The relationship between the commission and charities is a delicately balanced one, and as highlighted by the committee the introduction of a financial factor is likely going to be destabilising for both charities and the commission. Charities may start asking for direct representation on the commission’s board, or demanding ‘value for money’ through greater influence in its decisions. It will therefore be more important than ever to remove the commission’s governance from any interference, real or perceived, and ensure the appropriate structures are in place to ensure full independence and accountability. As I mentioned earlier, our proposals focus on giving parliament a greater role, preferably by setting up a special committee with representatives of both houses and cross-party.

These tests will require joint action by the commission, Treasury and government. Once they are met, it will be important for us to engage constructively with the consultation. The outcome of which has long term implications for our sector’s sustainability not only financially but also – and more importantly – in relation to public trust and confidence.