Putting the clarity into charity

With 32 Bills announced in the Queen’s speech on 23 November, the parliamentary draftsmen are going to be busy. One of the bills announced was the Charities Bill, which was published in draft form earlier this year.

Assuming there is no election in the first few months of 2005, it is likely to become law next summer. The draft bill currently consists of 48 sections and eight schedules. At the end of September, the joint committee on the draft Charities Bill (the scrutiny committee) reported on its findings. The government has until the end of the year to respond.

Charitable purposes

The bill introduces the 12 “heads of charitable purposes”. The list is not, and is not meant to be, comprehensive of all charitable purposes. There are also refinements. For example, the definition of poverty will be extended to include the prevention of poverty (which simply reflects the current position).

A new category of citizenship or community development is added, although again this is designed to clarify rather than to extend the existing law. Here the committee has made some further recommendations, including an additional charitable purpose for “the promotion of religious harmony, racial harmony, and equality and diversity”.

Exempt charities

That said, neither the bill nor the committee’s recommendations, such as specifying religious harmony as a charitable purpose, change the law significantly in the area of social housing.

However, the changes to the regime for exempt charities such as housing associations are more significant. These are charities that are not registered with the Charity Commission because they are already being supervised by other regulators such as the Housing Corporation, government departments or public authorities.

There are about 10,000 exempt charities, including many universities, most housing associations and some schools. They enjoy the status and fiscal benefits accorded to other charities and must comply with the key principles of charity law. However, they are not subject to the same accountability and transparency requirements as charities registered with the commission.

The review found that the regulators of these charities were often unaware of the requirements of charity law. There is no mechanism for monitoring the compliance of exempt charities with charity law and they do not have to demonstrate that they continue to merit the benefits offered by charitable status. It was felt that allowing these organisations to avoid regulation as charities created anomalies.

The Charity Commission will have the power to investigate charitable associations at the request of the Housing Corporation

The draft bill gives the Charity Commission new powers in relation to exempt charities. Principal regulators for an exempt charity will be required to do all they can to ensure that exempt charities comply with charity law.

For example, the commission will have the power to investigate these charities at the request of their principal regulator – the Housing Corporation for registered social landlords in England and the assembly for those in Wales.

To avoid two regulators pouncing on the same RSL, the committee recommended that the commission should consult with principal regulators before using any of its enforcement powers for exempt charities.

The bill also provides that exempt charities without a principal regulator should register with the Charity Commission.

Still to solve

The timetable for the registration of exempt charities is under discussion. This is hardly surprising as a considerable number of issues remain to be resolved. They include:

n remuneration of board members of housing associations regulated by the Charity Commission. The Housing Corporation has a more liberal regime for remuneration to the board than the commission. The commission expects paid trustees to be in a minority (that said, the Welsh assembly does not currently allow the remuneration of Welsh housing association board members)

• regulation of groups of exempt charities where some members are directly regulated by the commission and others via the principal regulator
• the degree of regulation of charity law the Charity Commission will expect the Housing Corporation (and Welsh assembly) to exert
• reconciling the financial reporting regimes of the exempt charities and the charities’ statement of recommended practice.

In addition, the Charity Commission’s budget is currently frozen, so some commentators are speculating whether it has sufficient resources to take on the role of registering exempt charities at all.