By Andrew Holt
The sector has broadly welcomed Lord Hodgson’s Charities Act review report, Trusted and Independent: Giving charity back to charities, and its underlying focus on reducing red tape for the sector while maintaining public trust and confidence in charities.
Though the National Council for Voluntary Organisations (NCVO) suggested that while the report gets it right on most counts there are some ‘jarring notes’.
Recommendations in the report, Trusted and Independent: Giving charity back to charities, include:
Charities that fall into the ‘large’ category (income over £1 million) should have the automatic power to pay their trustees.
The general income threshold for compulsory registration with the Charity Commission should be raised to £5,000 to £25,000.
Government should work with the Charity Commission to develop a fair and proportionate system of charging for filing annual returns with the Commission and for the registration of new charities.
NCVO: sound recommendations, with a few “bad apples”
Sir Stuart Etherington, chief executive of NCVO, said: "The report makes some sound recommendations for reducing undue bureaucratic burdens on charities, but there are a few “bad apples” which run counter to the general spirit of maintaining high levels of public trust and confidence in charities.
"The issue of trustee payments will always divide opinion, but NCVO stands by our concerns that giving charities above the £1m income threshold automatic power to pay trustees would set a dangerous precedent and is a deregulatory step too far.
"Large charities can already seek the Charity Commission’s permission if they want to pay their trustees and that system is working well. Making the right automatic undermines the value of voluntarism which defines the sector and goes against the public mood – Lord Hodgson’s own report identifies that the majority of the public oppose the idea of paying trustees.
"The majority of charities are also against this move, primarily because it would blur the boundaries between commitment to a cause and financial reward.
"We also have strong reservations about the proposal to raise the income threshold at which charities have to register with the Charity Commission from £5,000 to £25,000.
"This would risk shunting a large tranche of charities outside of the Charity Commission’s regulatory remit and injudiciously bolster the powers of HMRC over this group.
"The proposal to introduce fees for registering new charities and filing annual returns is also a step in the wrong direction – in these difficult times it is counterproductive to put more obstacles in the way of charities being created when they are often best placed to address a wide range of societal challenges. It is also wrong to be charging existing charities at a time when they are under huge financial pressure.
"On the other hand, we are delighted to see recommendations which facilitate social investment and make it easier to set up and run charities, especially the introduction of Charitable Incorporated Organisation (CIO) status and simplifying the accounting and reporting framework. These are some of the deregulatory measures that will be strongly welcomed by the sector."
Charity Finance Group: welcome report
Charity Finance Group (CFG) broadly welcomed Hodgson’s review. Caron Bradshaw, CEO, CFG, commented: “Lord Hodgson’s report is a vote of confidence that our existing regulatory framework is strong and instills trust in charities.
“Many of the proposed deregulatory measures are tweaks to the legal framework and will improve the operating environment and reduce preventable bureaucracy – we particularly welcome the proposals to remove the Summary Information Return, strengthen the links between HMRC and the Charity Commission and to grow the social investment market.
"Some recommendations such as fees for late filing will require much more detailed exploration but generally this is a very positive report."
In particular, CFG welcomed:
The recommendation that the processes for registering and organisation with the Charity Commission and for tax relief with HMRC should be joined up into a single process. CFG called for a single registration process in its Charities Act review submission which would significantly reduce administrative burdens on charities as well as encouraging greater information-sharing between the two bodies.
The recommendation that the Summary Information Return should be abolished, subject to the requirement that all the information it provides is available elsewhere in charities accounts and Annual Returns. The requirement to complete the Summary Information Return is too onerous and duplicates other information which can be found elsewhere.
The recommendation that work by Companies House and the Charity Commission to create a single reporting system for charitable companies should continue as a matter of urgency. The potential for joint accounting requirements should also be investigated. CFG has long called for a single reporting system which would hugely reduce administrative burdens on charities.
The report’s focus on supporting the development of the social investment market. Growth of a healthy social investment market presents opportunities to the sector and could form an important aspect of the future for civil society organisations and their contribution to the economy.
However, there are several areas of concern for CFG:
The recommendation that sanctions for late filing of accounts and Annual Returns should include the withdrawal of Gift Aid. This measure is impractical and unsuitable, and is unlikely to work effectively within the current system given the communication lag between the Charity Commission and HMRC.
The report’s recommendation that the Charity Commission should be given the power to delegate some or all of its functions to other bodies. While it is important that the Commission works in partnership with umbrella organisations and sector specialists in creating a culture of ‘supported regulation’, sub-regulation should be approached with caution as it could lead to confusion and inconsistency. A single streamlined, strong regulator is best placed to deliver a coherent regulatory regime.
The recommendation that Government and the Charity Commission develop a system of charging for the registration of new charities. CFG is firmly against the suggestion that the Commission should charge for its services and believe it should remain funded by Government given the public duty nature of its work.
ACEVO: modernisation of the charity sector
Sir Stephen Bubb CEO of ACEVO said the review was a landmark moment. “Lord Hodgson’s review represents a landmark in the modernisation of the charity sector. The reforms proposed remain rooted in the sector’s proud history whilst opening the door to real change in the 21st century.”
“It is hugely welcome that Hodgson has recognised the fact that some charities want to pay their trustees and we agree with him that they should be allowed to.
"The recommendations on social investment are a necessary breakthrough if its exciting potential is to be achieved”
Institute of Fundraising: cautious welcome
The Institute of Fundraising gave a cautious welcome to Hodgson’s review, but warned against creating bureaucracy that could deter donors.
Peter Lewis, chief Executive of the IoF, said: "We welcome Lord Hodgson's wide-ranging and comprehensive report brought together in such a short timescale. We will of course need time to reflect and respond in detail. "
"We are delighted Lord Hodgson recognises the important work the Institute does setting the Codes of Fundraising Practice, the basis of the self-regulatory system."
Lewis added: "We are also pleased that Lord Hodgson recognises that the scale of complaints about fundraising activity is very small, and public trust in charities remains very high. Moving forward a prime concern will be that we do not to invent a sledgehammer to crack a nut."
"We need to remember that the fundamental drive should be to help more donors' money go to the beneficiaries, not to invent an unnecessarily large or bureaucratic system to regulate the joy of philanthropy"
CAF: Free charities from some unnecessary bureaucracy
John Low, chief executive of the Charities Aid Foundation, which promotes charitable giving and provides financial services and social finance to not-for-profit organisations, also focused on bureaucratic burdens and red tape.
He said: “Charities are facing a financial squeeze because of the economic downturn and ever increasing demands for their services. Our analysis of the latest charity accounts filed during 2012 shows a real terms fall in income.
“It is essential that we do everything we possibly can to cut red tape and remove any bureaucratic burdens to make it easy for charities to carry on their vital work. Lord Hodgson’s recommendations will free charities from some unnecessary bureaucracy and help encourage social investment in projects for the public good.
Low added: “Face to face fundraising can be a good way of engaging with people – young people in particular – and talking to them about the work that charities do.
“We need to maintain trust in charities, so it is right that fundraising is regulated and charities act in a professional, accountable and transparent way, deliver high standards and show people what their donations are spent on.
“All the evidence is that charities are highly efficient and spend the minimum on fundraising.”
British Red Cross: Giveitbackyourlordship?
Mark Astarita, director of fundraising at the British Red Cross, welcomed the review while also presenting some warnings. "Lord Hodgson’s review of the Charities Act has been widely reported as a ‘crackdown on chugging’. This may have made for some good Sunday headlines, but his proposals may not in fact change street fundraising that much.
"Overall his report provides useful insight and it appreciates the complexity of the issues around the regulation of public collections.
"At the British Red Cross we warmly welcome any proposals that promote high standards in fundraising at the same time as defending the right of the British public to support the life-saving and life-changing work of charities by signing up to regular giving plans.
"But the report contains a body blow for some of the UK's best loved charities that has come entirely out of the blue. We are deeply concerned about the proposed abolition of National Exemption Orders.
"They provide a simple way for over 40 of the UK's largest charities to carry out door-to-door clothing collections as well as door-to-door fundraising. The removal of them could cost our beneficiaries dear – with a potential loss in income over the next 5 years of £20m plus to the Red Cross alone.
"Charity Shops could close, jobs could be lost and millions of pounds of donated income could disappear as charities are buried under new paperwork. Hodgson says in the report often the best solution is to maintain the staus quo. We agree. Every pound spent on paperwork is a pound not spent on saving lives"
"Let us hope all the good in the report is not undone. Giveitbackyourlordship may well be the next campaign to worry ministers."
Fundraising Standards Board: review is strong and positive
The Fundraising Standards Board (FRSB) also welcomed Lord Hodgson’s Review, highlighting recommendations made to strengthen and grow the existing self-regulatory scheme for fundraising.
Alistair McLean, chief executive of the FRSB said: “Lord Hodgson’s Review is a strong and positive step forward in ensuring the UK has a transparent and accountable charity sector underpinned by robust self-regulation, driving up standards and building public trust.
"The past five years have shown that there is a real appetite for self-regulation of fundraising, both within the charity sector and amongst the public.
"We welcome these new recommendations, which set out a clear path for strengthening the scheme, ensuring the public can give to the good causes they care about with confidence.
“The focus is on growing the sector’s commitment to self-regulation, with greater incentives for fundraising organisations to commit to the high standards required of FRSB membership and tighter sanctions for those that fail to comply.
"Establishing a Standing Committee to drive forward fundraising regulation is a key move that would accelerate change and ensure greater cohesion amongst regulators and trade bodies.
“The need to simplify the regulatory landscape for fundraising is clear and can only be achieved by more joined up working with regulators within and beyond the sector, as well as the Institute of Fundraising as standards setter and the Public Fundraising Regulatory Association for face-to-face fundraising.
"We are committed to developing these relationships and will seek meetings with all relevant parties as soon as possible.”
Self-regulation of fundraising, run by the FRSB, was first launched in February 2007.
To date, more than 1,420 charities and suppliers are signed up to the FRSB, raising around half of all voluntary income raised in the UK. Member organisations are committed to fundraising best practice, transparency and accountability, reporting complaints to the regulator.
Charities display the ‘give with confidence’ tick mark on appeals.
Directory of Social Change: decimate ability of small charities to raise money
Though the Directory of Social Change argued Lord Hodgson’s proposal to increase the mandatory registration threshold for charities to £25,000 annual income would decimate the ability of small charities to raise money and promote public awareness about their work
DSC’s CEO Debra Allcock Tyler said: "Lord Hodgson’s proposal to raise the income threshold at which charities must register with the Charity Commission from £5000 to £25,000 would be disastrous for small charities, and not in the public interest."
She went on to explain that ‘DSC has always argued for proportionate and enabling charity regulation which takes into account the different capacities of charities.
"We are in favour of rationalising and simplifying the system of reporting. But it is absolutely crucial that small start-up charities have the chance to earn a charity number and provide information on the Charity Commission register. This is vitally important for fundraising – particularly from grantmaking trusts – and also to raise public awareness.’
"Although Lord Hodgson does make allowances for voluntary registration below the raised threshold in time, his proposals suggest this will only take place after large numbers of excepted charities and the new Charitable Incorporated Organisations are registered.
"It is hard to see how the Charity Commission will manage this in the near future, given its dire financial situation. We were supposed to get voluntary registration as a result of the 2006 Charities Act – but it still isn’t possible in practice. Instead we may be waiting another five years for it following the review of that very same Act – if we get it at all."
Despite these criticisms, DSC believes Lord Hodgson’s report does offer a number of other worthwhile ideas, which should provide important points for debate in the months to come. DSC will respond in full to the report in due course.
Social Enterprise UK: listened to the sector
Peter Holbrook, chief executive of Social Enterprise UK, said: “The recommendations in this review suggest that Lord Hodgson has listened intently to the sector and if implemented, will boost the UK’s growing social investment market.
"Every year charities invest billions and despite the cuts they have faced, many are in a strong position to invest for a blended return and wield their economic power to bring about positive change. We need reform that brings about a cultural and behavioral shift among charity trustees, seeking only a financial return needs to become a rarity.
“We particularly welcome Lord Hodgson’s recommendation that amends be made to the Financial Services Bill. The UK’s financial services need to fully embrace social investment otherwise they are effectively a barrier to its growth.”
Last year the UK’s richest charities invested many billions of pounds. A large proportion of these investments are held in UK equities, and last year charity investments increased by more than 13%.
NAVCA: Good look at robust but efficient charity regulation
NAVCA said it is pleased to see recommendations that will make it easier to run a charity, including Lord Hodgson’s call for the Charitable Incorporated Organisation legal form to be implemented immediately and the recommendation that charities should be able to voluntarily register with the Charity Commission.
However NAVCA is concerned at some proposals, especially the recommendations to raise the threshold to £25,000, allow payment for trustees of large charities and charging new charities to register.
Joe Irvin, Chief Executive of NAVCA, said: “Public trust in charities is a precious commodity which should not be taken for granted. Therefore I am pleased that Lord Hodgson has taken a good look at robust but efficient charity regulation. However, I am concerned that some of these recommendations might not help charities nor increase public confidence.
“Although we are concerned by the recommendation that the income threshold for compulsory registration of charities is increased to £25,000, we are relieved that Lord Hodgson is recommending that charities below the threshold should be able to voluntarily register.
"Getting registered is a vital step for charities. It makes it easier to attract funding, strengthens their governance and helps them gain recognition as a genuine charity. We think the Government should pause for thought on this and consult on the actual effect on small and start up charities.
“On the payment of trustees of large charities, NAVCA has long held the view that paying trustees is in principle not a good idea. The voluntary nature of trustees is part of what makes charities special. This move could blur the distinction between charities and other organisations.”
Similarly, Irvin said he was worried about moves to charge new charities for registration.
"If these charges are substantial it will hold back the development of new charities supporting new and emerging needs – the new lifeblood of civil society.
"Let’s not forget that some of the best known charities, such as Oxfam, Scope or the Terence Higgins Trust, started small. NAVCA believe all charities should be encouraged to register.”
Social Investment Business: helpful recommendations
Jonathan Jenkins, chief executive of the Social Investment Business said: “Lord Hodgson has listened and made some practical and helpful recommendations. As a result charity trustees should feel much more confident about their ability to invest for mixed motive and therefore grow the capital base for the market.
"I’m particularly pleased to see the call on government to amend the financial services bill to better recognise social investment and I echo that call.”
Charity Commission: Principles set out chime well
Sam Younger, chief executive of the Charity Commission commented: "We welcome Lord Hodgson’s wide ranging report.
"The principles he sets out chime well with the results of our own recent Strategic Review, as do many of his recommendations. We are also pleased that the report is broadly supportive of the Commission and our role as regulator and that some of the specific proposals we made have been reflected.
"We look forward to considering the report in more detail and informing and assisting the Government in taking it forward."
Gareth Thomas: look with care
And Gareth Thomas MP, Labour’s shadow charities minister said: “We will look with care at the Hodgson Review and the steps the Government intends to take. However many charities struggling after huge and unnecessary funding cuts will see this review as more akin to the emperor’s new clothes than offering real immediate help.”
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