£8M more for the Charity Commission

I have been repeatedly critical of the under-funding of the Charity Commission, so, like many people, I was encouraged with the announcement this week (22 Oct 2014) that it is to get a further £8M under the Government’s “Invest to Save” programme.  For details, see the Commission’s press release.

However, before we think it will solve everything I would raise several words of caution:

  • This is not a regular increase of £8M in the CC’s funding, or even a one-off boost of £8M next year.  It is £8M over three years.  With the total income of the CC for 2014-15 due to be around £21M, this only amounts to around a 10% increase in annual income for the next three years.
  • Like others, I am cautious at the announcement by David Cameron that the funding is “to tackle abuse, including the use of funds for extremist and terrorist activity”. Of course, in the rare case where charities are abused to channel funds to terrorists, serious actions by the CC is needed, and if this angle has helped the CC get more funds then I don’t criticise them.  But my sense is that support of terrorism is a long way down the list of issues in charities where CC action is needed.
  • Even if the whole £8M was to be paid every year from now on – which it isn’t – it would only put the CC back to where it was in 2010/11 in cash terms (and at least 10% below that after we allow for four years’ inflation).  So it certainly won’t reverse the cuts.
  • Clearly the funds will not for the most part enable the CC to re-employ good staff who have been lost.  It may allow some new staff to be engaged, but it is only short term funding, so presumably any new staff will have limited job security.  However, there is also a lot of talk about “technological solutions” – so I worry that large amounts of the funding will be spent on outsourcing to IT firms.
  • The CC’s regular funding is still being cut every year, and unless this changes after the General Election, they will be even worse off in 3 years time when the £8M runs out.

I suppose cynics might say it’s good for the CC itself to know what it is like for so many charities to have 3-year funding for specific projects, but totally inadequate long term sustainable income.

But I don’t want the CC to feel like an under-funded charity.  I want it to feel like a positive organisation that stands up for the vital role of charities in our society, keen to register new charities, proactively monitoring existing charities, and tackling charity abuse when it happens.

I actually agree 100% with the Commission’s newish Chief Executive, Paula Sussex, who said in a recent presentation:

“The best way for the Commission to promote public trust and confidence in charities […] is to concentrate on promoting compliance by charity trustees; enhancing the rigour with which we hold charities accountable, and upholding the definition of charity.”

I just want the CC to have the resources to do this. As I have said before, I am not against the idea of charities paying something towards this, but I agree with Lord Hodgson (in his review of the Charities Act 2006) that if society values charities as bodies providing public benefit, than the State must fund most of the costs involved in protecting charitable status.

 

What do we want from the Charity Commission?

In recent months the Charity Commission for England and Wales (CCEW) has come in for a fair bit of criticism – more so that the newer charity regulators in the rest of the UK –  OSCR (for Scottish charities) and the Charity Commission for Northern Ireland (CCNI).

The latest onslaught against the CCEW is a report on The Regulatory Effectiveness of the Charity Commission from the National Audit Office published today (4 Dec 2013).  However, it follows other criticisms in particular from from the Public Accounts Committee of the House of Commons which reported in June this year on The Charity Commission: the Cup Trust and tax avoidance and a few days later from the Public Administration Select Commitee on The role of the Charity Commission and “public benefit”: Post-legislative scrutiny of the Charities Act 2006.  There have also been criticisms from many individuals and certain sections of the media who dislike the CCEW’s position on certain issues – even in some cases wanting the CCEW to do things which fall outside its powers or which would be incompatible with charity law.

But I would argue that a good effective Charity Commission is a pre-requisite for an effective charity sector, which is a pre-requisite to a healthy civil society.

The Role

Of course, there is much about the Commission which many of us would like to improve.  There is no doubt in my mind that the huge budget cuts they have experienced in the last few years (a 40% cut in real terms) have been disastrous. As a result they have lost lots of good staff, they have introduced new ways of working which make it harder to communicate with them, and they have tried to improve things with a new website which people find terrible to use. 

But before hurling complaints, we need to ask why do want want a Charity Commission in the first place?  England has the oldest system of charity law in the world, going back certainly to 1601(arguably earlier).  As long ago as 1601 charity commissioners were appointed to investigate abuses of charitable gifts.  The early commissioners were not long term appointments but by 1853 the place of charities in society had become important enough – 160 years ago – to justify establishing a permanent body of Charity Commissioners, who evently became the modern CCEW.

However, it was only in the Charities Act 2006 that the CCEW was given clearly defined functions and objectives.  The objectives (which now appear in section 14 of the Charities Act 2011) are as follows:

1 The public confidence objective – to increase public trust and confidence in charities

2 The public benefit objective – to promote awareness and understanding of the operation of the public benefit requirement

3 The compliance objective – to promote compliance by charity trustees with their legal obligations in exercising control and management of the administration of their charities

4 The charitable resources objective – to promote the effective use of charitable resources

5 The accountability objective – to enhance the accountability of charities to donors, beneficiaries and the general public.

If you believe in the importance of the voluntary sector and accept that charities are generally a good thing for society, it is hard to disagree that we need a statutory body like the CCEW to take forward these objectives.  The 2011 Act (section 15) also sets out the Commission’s functions – i.e. the key activities through which it carries out these objectives:

1 Determining whether institutions are or are not charities.

2 Encouraging and facilitating the better administration of charities.

3 Identifying and investigating apparent misconduct or mismanagement in the administration of charities and taking remedial or protective action in connection with misconduct or mismanagement in the administration of charities.

4 Determining whether public collections certificates should be issued, and remain in force, in respect of public charitable collections.

5 Obtaining, evaluating and disseminating information in connection with the performance of any of the Commission’s functions or meeting any of its objectives.

6 Giving information or advice, or making proposals, to any Minister of the Crown on matters relating to any of the Commission’s functions or meeting any of its objectives.

These are further expanded with a list of specific duties for the Commission (in section 16 of the Act).  However, my point is this: if society is to recognise certain organisations as charities and give them a special status we have to have a body which protects that status.  Of course, the CCEW must have the powers to take action when charitable status is abused.  But its biggest role, as I see it, is protecting the status of the vast majority of charity which operate properly in accordance with their objects.

The Register

Arguably the most important function is maintaining the Register of Charities.  At the heart of the Register are two fundamental processes which receive far too little attention from critics:

  • deciding whether new organisations meet the criteria for charity registration (which includes the all-important issue of considering whether they are established for public benefit); and
  • ensuring that charities once registered operate in accordance with the requirements of charity law – working for the interests of their beneficiaries, not abusing their charitable status, and demonstrating accountability by producing annual accounts and completing returns.

These roles are clearly recognised and well documented – in the NAO report – but not particularly highlighted in its press release which begins with the most negative phrase possible “The Charity Commission is not regulating charities effectively”.

Looking at today’s CCEW I think this is unduly harsh.  I have a huge respect for most of the individual members of staff at all levels: most are struggling to do a good job in an incredibly difficult environment. 

I am concerned, in particular, that far too many people seem to think there is a fixed group of charities in our society, and do not appreciate the Commission’s incredibly important role of registering new charities.  If the registration function does not operate properly (as sometimes happens (I dealt with a recent charity registration which took well over two years) it is disastrous.  If people cannot readily set up new charities the growth and development of the voluntary sector comes to a standstill.

Working Well

But some new developments with the Commission are working well – since January this year we have had the new legal structure of charitable incorporated organisations (CIOs) in England and Wales.  With a CIO, registration with CCEW actually forms the CIO as a legal entity, so it does not exist until registered.  But generally I find CIO registrations are being considered and approved quite quickly.  Also the administraton of the new Charity Mergers Register seems to be working fine.  New regulations on the management of permanent endowment have been issued in time for a legal change which takes effect from 1 Jan 2014 – these sort of issues take up a lot of time for senior staff, but once the new forms or guidance are in place they usually work OK.

Addressing the criticisms

But on the criticisms, I do not think there is an easy way forward.  After the cuts, the CCEW’s budget is £23M this year.  This works out at around £140 for every registered charity which at first sight doesn’t sound too bad.   But this is the total income – there is no extra income for registering new charities.  No extra for the hugely expensive investigations which are somethimes needed when a charity gets into major problems.  No extra for the huge legal costs involved when the Independent Schools Council challenged the Commission’s guidance on public benefit. No extra for all the time spent responding to Parliamentary enquiries, or Freedom of Information requests from the media.  No extra for all the time spent on the many thousands of excepted charities (charities which do not have to register, but which still need CCEW approval for many issues).

Also, charities have a huge diversity of purposes, means of working, size, scale etc.  A ‘one size fits all’ approach tor regulation cannot work – the Commission needs staff who have the ability to relate to individual charities.

So – what should those of who are concerned about the charity sector do in response to the criticisms of the Commission?  I have three suggestions.

First, I think there is too much emphasis on the Commission as the regulator of charities and far too little focus on its role as registrar of charities.  We need to remind people that much of CCEW’s work is about assessing charities for registration and monitoring them when registered.  Formal action of a regulatory nature is important, but it is rightly only a small part of the total.  The NAO report says that around 23% of resources are spent on investigations, and that strikes me as about right.

Secondly, I agree with Lord Hodgson, in his 2012 Review of the Charities Act 2006 that the CCEW should be able to make charges for certain aspects of its work so it is not solely dependent on Treasury funding.  For example, I think a charge for new charity registrations and an annual charges to charities over a certain size would be reasonable – provided there is a clear Government commitment that this will not lead to reduced income from the Treasury.    I don’t think charities should object to this.  The CCEW must also be able to make charges to external bodies – for example for support to other Government departments or police forces or providing speakers to external conferences.  But charges of this kind can never cover the full range of the Commission’s functions and duties.

Thirdly, we must stress that charitable status is about organisations to which society gives particular respect.  The regulation of charities is not primarily about their tax status – it is first and foremost about recognising that resources given to charity deserve special protection.  Just as we have a planning system to protect people from improper building developments we need a charity system to protect us from organisations falsely claiming to be established for public benefit.  In my view a system of charity registration and monitoring is one of the best way of achieving this – and a properly working Charity Commission is vital to that end.

 

 

There are now over 1000 CIOs in the UK

I can report that there are now over 1000 charitable incorporated organisations registered in the UK.

My figures are as follows:

  • CIOs in England & Wales registered with CCEW up to 29 August 2013: 528 (source: Charity Commission online register search)
  • SCIOs registered by OSCR: 161 in 2011/12, 278 in 2012/13, 77 so far in 2013/14 (up to 31 July) – total: 516 (source: OSCR published management info/performance targets).

A very small number of these may be been subsequently dissolved (we know of one case in England) but it is clear that the UK total is now over 1000 CIOs/SCIOs overall.

Other interesting facts

  • Even though Scotland had nearly two years lead, the number of E&W CIOs now seems to be ahead of the number of SCIOs.
  • With new applications for charity registration with OSCR, 42% of applications are now for SCIOs (based on the first four months of 2013/14).  Bearing in mind that some applications are cross-border charities based outside Scotland  which cannot use the SCIO form but which must still register with OSCR, it seems we are getting very close to 50% of all new charities in Scotland being formed as SCIOs.
  • In the last two months (July/Aug 2013) there were 990 charity registrations in England and Wales of which 221 (22%) were CIOs.   This is slightly ahead of the proportion for the first year of SCIOs (2011/12) when 19% of Scottish charity registrations were SCIOs.

So – it is clear that the new legal form of charitable incorporated organisations has – as anticipated – become very popular very quickly with the voluntary sector both sides of the border.  CIOs in Northern Ireland are on the statute book and will hopefully follow in a year of two.   For more on CIOs, please see my book Charitable Incorporated Organisations published by Directory of Social Change: www.dsc.org.uk/cio.

 

How much should senior staff in charities be paid?

A row has broken out in the press in the last few days, following an article in the Telegraph which seemed to suggest that many chief executives of charities appeared to be overpaid.

The row was given particular focus, because William Shawcross, the Chairman of the Charity Commission suggested that:

 “… In these difficult times, when many charities are experiencing shortfalls, trustees should consider whether very high salaries are really appropriate, and fair to both the donors and the taxpayers who fund charities.  Disproportionate salaries risk bringing organisations and the wider charitable world into disrepute.”

He prefaced his remarks by making clear the decisions on the staff salary levels were a matter for charity trustees, not for the Charity Commission – but nevertheless, it seems his remarks have been seen as criticism by the Commission of the salary policies in some larger charities.  The survey on which he was commenting was looking at chief execs of charities in the international development field.

So what’s my view as an academic studing charities?  Here are some thoughts.

  1. Large charities with 5000 plus staff are complex organisations.  Even though many charities pay lower salaries than would apply in private sector or public sector organisations of the same size, it takes an incredible level of expertise to run a large charity effectively.  And apart from a few organisations – often religious bodies – who object in principle to paying higher salaries for greater responsibility, it is normal for managers to be paid a bit more than the staff they manage in order the recognise that the buck stops with them.  Some charities need to employ senior medical staff for example, where there are established NHS salary scales to follow.  So for various reasons there clearly will be many charities where a normal system of salary grades will lead to salaries over £100K for the person at the top.
  2. It is good to see movement of staff between sectors from time to time. So although I do not want to see charities paying more than comparable organisations in others sectors, it will never be possible for people to switch to a charity post from a highly paid role in another sector if the salary drop is too great.
  3. Most salary surveys work on information in the published accounts.  It is important to bear in mind these will normally show the “total benefits” attributable to a given post, which may be significantly more than the gross salary.  The figure will include (for example) cost of employer’s pension contributions, a car provided for the charity’s work but which is taxed as a benefit in kind, season ticket loans, etc.  So a salary package of (say) £120K may actually mean someone on a gross salary of £90K – still substantial, but not as high as it seems.  (By the way, the new Charities SORP proposed from 2015, suggests that senior staff salaries should always be disclosed.  Under SORP 2005 charities only have to disclose the numbers of staff paid over £60K, and only then in £10K bands.  But a salary of £30K would be considered excessive in many smaller charities, yet for others a £70K package for the chief exec could be very modest.)
  4. Many charity staff – especially at senior levels – are themselves generous donors.  It is not uncommon to find people in the sector who give at least 10% of their salary away; sometimes considerably more. Of course, they are free to choose whether or not to give, but their own donations are often forgotten.
  5. I am particularly concerned at the suggestion in the Telegraph, that chief execs’ salaries should go down when the income of the charity goes down (this has happened to many charities in the last couple of years, because of the rececession).  This does not make sense – I do not want fundraisers and still less chief execs paid on a commission basis in proportion to the charity’s income.  Trustees should assess the workload and responsibilities for each post in a charity and set salaries accordingly.   Commission-based remuneration is a real turn off the donors, because every time they give to charity a percentage is taken off to pass staff commissions – that’s why the Code of Fundraising Practice is very strict on such issues, and why there are legal controls when freelance fundraisers are paid this way.  In the last couple of years, charity leaders have faced some of the greatest demands at any time, and we do not want good chief execs facing salary cuts and hence deciding to leave when times are tough.  Likewise, I do not think most chief execs would expect to be paid more when times are good.
  6. We need to remember that charities are governed by trustees who are normally unpaid as a requirement of charity law.  So there is no excessive remuneration of those on the board.  Of course the board may feel it is right to employ highly-paid staff to deliver the charity’s work, but so long as they are genuinely seeking to advance the charity’s objects in their staffing decisions, that has to be a decision for the trustees. 
  7. The “public benefit requirement” is the central feature of charity law.  Paying staff – even when well justified – almost always amounts to private benefit.  But so does paying a builder to construct new premises for a charity, or buying equipment from specialist toy manufacters to use in work with disabled children.  Most charities cannot carry out their work without paying for goods, services and salaries to deliver their work.  Private benefit is perfectly allowed in charities, provided it is ‘incidental’ to the public benefit which for which the charity is established.
  8. But having said that I do think some of the salaries I see in the sector are on the generous side – so I do not criticise William Shawcross for raising the debate, even though some of his comments may have given the wrong emphasis.  We have to retain the vision and passion that all charity is about addressing the needs of others – that is the heart of the public benefit requirement as above.  Much work by charities is delivered by volunteers for no direct payment at all, though few people are able to volunteer full time, and all but the smallest charities need paid staff for the key positions.  But I know of many people working in the sector who accept much lower salaries than they would get elsehwere, because they are committed to the cause.  That is one of the great strengths of the sector.  And I think quite a few people leading international development charities are in this category. 

 

 

 

We must sort out UK charities

I was recently invited to write an “Opinion” piece for the Yorkshire Post on the issues regarding charities and the Charity Commission that were highlighted in the recent report from the Public Accounts Select Committee (PASC).  See tinyurl.com/ns5eyjm for the article.

It was an interesting challenging to explain these sort of issues for newspaper readers who will generally not be charity specialists – I would be interested to hear whether people agree with the points I made.

The Charity Commission’s new website

Does anyone actually think the new website of Charity Commission for England and Wales (launched last week – 24 May 2013) is an improvement?

The main comments that have reached me so far are:

  • it is harder to navigate than the old site
  • most of the links people have set up from other sites no longer work (some redirect, but not all)
  • the search field to allow you to bring up details on a particular charity is no longer on the home page (you have to select “find a charity” first)
  • when you bring up the details for a charity it appears on some browsers in a frame which is too narrow and needs scrolling horizontally, making the info very hard to read
  • there is no longer a single page listing all publications
  • it takes ages to get the PDF version of any page, and in some cases key headlings may be omitted
  • however, one person says the fuscia colour scheme is better than the old green.

Personally I haven’t quite grasped what the new site is meant to achieve.  Apart from a few cases where things were buried down too many levels, I thought the old site was fairly good.

At this time when the CC is so short of resources it seems odd to invest in a new website which cannot have been cheap and which does not appear to offer any significant benefits.  Perhaps it’s an attempt to reduce calls to the helpline in the hope that occasional users will find things more easily – but it’s not clear how.  Is it just a rebranding exercise?

 

How should the Charity Commission be financed?

The big debate to hit the sector this week is how to finance the Charity Commission?   The Treasury has asked the CC to make a further 10% cut in 2015/16 on top of the 40% cut in recent years.  The CC has responded by suggesting its income should be supplemented with charges to charities or a slice of gift aid tax refunds.

I do not think it is unreasonable for charities to make some contribution to the cost of regulation.  But as Lord Hodgson clearly said in his Review of the Charities Act 2006, income from charities must not be a substitute for state funding.  The state has a real interest in encouraging a viable voluntary sector, and a high proportion of voluntary organisations have charitable aims.  If society wants a vibrant charity sector, then society has to accept that certain costs for regulating and supporting charities must come from general taxation.

But the point here is general taxation.  It would be totally iniquitous to use the tax refunds of gift aid donors to support the CC.  There are several reasons for this.

(a) In the first place, only about a third of charity income comes from individual donors.  So funding the CC via a gift aid levy would mean individual donors would be paying for the regulation of all types of charities, including those who are funded almost entirely by the public sector.  That would be completely immoral.

(b) Secondly, as others have commented, gift aid tax refunds are part of the donor’s income which he/she is able to redirect to charity.  It has long been the case the income assigned for charitable purposes should not (subject to appropriate conditions) be taxed.  Funding a government body from personal donations would be utterly wrong.

(c) Thirdly, a large slice of gift aid tax refunds goes to exempt and excepted charities which do not have to register with the CC in the first place – e.g. universities, major museums, churches and other places of worship with less than £100K income.  Redirecting gift aid from these charities to help support a regulator which does not regulate them would be absurd.

So I think it is time to go back to first principles and say: why does society in the 21st century want charities?  Only when we have answered that can we say how the CC should be financed.