The Directory of Social Change (DSC) has responded in detail to the recommendations in Trusted and Independent, Lord Hodgson’s report on the Review of the Charities Act 2006.

After sifting through all the recommendations, the DSC has outlined a highly detailed list of fifteen points, which DSC mark as standing out as important, particularly for their potential impact on small charities and the charitable sector as a whole.

Five recommendations each are organised below under a red/yellow/green traffic light ‘system’.

DSC CEO Debra Alcock Tyler has also written to minister for Civil Society, Nick Hurd, highlighting the DSC's approach and position on this issue.

The list of points by DSC are:

Red Lights – don’t proceed with these recommendations

1) As we stressed in our original response to the review of the Charities Act 2006, trustees should not be paid for performing their role. We do not believe there is evidence of substantial support within the charitable sector or among the public for changing current regulations. We completely oppose Lord Hodgson’s recommendation that charities with more than £1m income should no longer require approval from the Charity Commission to pay their trustees. However reimbursement for legitimate trustee expenses is perfectly legitimate and good practice.

2) Despite further clarifications since the publication of the report, we believe Lord Hodgson’s proposals to raise the registration threshold to £25,000 and to rebrand those below that as ‘small’ would be damaging for small charities, especially those starting up. We also think his proposal to require all unregistered charities to rebrand as ‘unregistered’ will be impossible to implement. Given the scale of cuts to its budget, the Charity Commission is unlikely to prioritise voluntary registrations below a raised threshold of £25,000, especially when simultaneously mandated to register more excepted charities and the CIOs. Small start-ups, without professional staff or budgets to pay people to badger the Commission would be the ones pushed to the back of the queue. The opportunity to earn a charity number is crucial to fundraising and charity development, especially because many grant making trusts will only give to registered charities.

3) DSC remain adamantly opposed to charging charities for registration or for the submission of reports and accounts as Lord Hodgson suggests. This will disproportionately impact small charities and is a disincentive to voluntary action. We do not believe that Lord Hodgson’s proposal to remove Gift Aid for late filing of accounts is a good solution or workable, partly because not all organisations will claim Gift Aid, so it is not a universal sanction. If substantial revenue were able to generated from these sources the Government would only be more motivated to reduce the Charity Commission’s budget accordingly. These and a number of the other recommendations – for example a greater expectation of membership of the Fundraising Standards Board – will increase costs for charities and would disproportionately affect small charities. In total, these measures represent a shift of financial responsibility for safeguarding the wider public interest in charity from the state to the charitable sector itself, ultimately resulting in a greater burden on charitable donors. This is wrong.

4) DSC are opposed to further moves towards co-regulation or sub-regulation as Lord Hodgson suggests. It is vital that the Charity Commission remains the clear authority on the register of charities, and the laws and regulations which govern charities’ activities. Infrastructure bodies can and do provide advice and guidance if properly resourced, but are charities themselves and as such cannot and should not cross the line into regulatory compliance or enforcement. Co/sub-regulation could result in fragmentation of the register of charities, which would be confusing for the public and donors. It would counteract other recommendations, such as the proposal to register more excepted charities, which seem designed to make the register more comprehensive; a main objective of the 2006 Act.

5) Lord Hodgson recommends that Disposals of land and mortgages and other charges over charity land should be deregulated and rely on the charity trustees acting under their duty of care following Charity Commission guidance. We think this is not in the public interest. Consider that significant public assets are now being turned into charitable assets (for example the canals, leisure trusts) and that this is likely to be more common practice in the future. Deregulating control over those assets could facilitate the eventual privatisation of assets which were previously held for public benefit.

Yellow Lights – caution: further work, debate, consideration is required

1) Lord Hodgson recommends that all information required to be submitted by charities should be combined into a single document for simplicity. The first page of this should be a list of key risk indicators to help the Commission identify a sample of charities for further investigation. The completed list should also be published on the charity’s register entry to aid public understanding and exercise of judgment. The intention of these recommendations isn’t clear, nor the precise problem they are meant to solve. The Commission already identifies at-risk charities using a number of indicators and then intervenes accordingly. Is this about publishing that process externally somehow? Designing and implementing such a system in a sensitive way could be practically difficult but also highly problematic for the individual charities concerned, the Charity Commission, and even the Government – and we doubt it would be of much benefit to the public.

2) Lord Hodgson says that the Charity Commission needs to be adequately funded to properly regulate the sector. Some analysis of financial efficiency and requirements needs to be undertaken as reductions in the Charity Commission’s budget take place. The Commission absolutely needs adequate resources to carry out its duties, but this should not come from charging charities. The Government needs to reconsider its financial settlement for the Charity Commission. Efficiency is the wrong focus, because it simply implies cutting costs. If we are to have regulation which works, then effectiveness should be the focus – this might mean increasing costs. Current debates are being driven by how to manage cost reductions first, not by what is ‘adequate funding to properly regulate the sector’, still less ‘what is appropriate regulation of the sector’.

3) Lord Hodgson suggests The Government should introduce a ‘right to know’ for all charitable trustees i.e. a right to access any information, within the confines of data protection law, held by the charity that they reasonably judge necessary to discharge their duties effectively. We doubt whether this is necessary or desirable – especially to the extent to justify primary legislation. Is there evidence that significant numbers of trustees are unable to access information they need to perform their role? Would it be used by unreasonable trustees to demand information from charity management that cannot be reasonably obtained? There is a danger that it would be a license for trustees to get involved in operational details, potentially taking them away from their core role of providing strategic oversight.

4) Lord Hodgson suggests that Trusteeship should normally be limited in a charity’s constitution to three terms of no more than three years’ service each. Again we don’t think the case has been made of the need for such a proposal. Any further changes would require better evidence of the problem and further debate – there are some incredible charities doing great work which rely on long-serving trustees for their success. Forcing out those trustees based on arbitrary time frames could be damaging. Also, would it be worth the administrative cost and hassle of amending the governing documents of hundreds of thousands of charities? Especially as the Charity Commission might have to sanction those amendments?

5) Lord Hodgson makes a number of recommendations about social investment and amendments to the Trustee Act 2000. We find it bizarre that something like 10% of the recommendations in this report relate to this issue, which has absolutely no relevance whatsoever to the Charities Act 2006. We doubt whether many of the proposed changes are actually necessary, or would benefit significant numbers of charities. We would question whether some elements are in the broader public interest or the interest of the vast majority of charities – particular the proposal to change the rules on investment of non-functional permanent endowments. Any revision of existing legislation around trustees’ duties should be approached with care, and must be based on further consultation and a wide spectrum of involvement, not a narrow set of lobbying interests.

Green Lights – proceed with these recommendations (with some caveats)

1) Lord Hodgson recommends 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. The Charity Commission and HMRC will need to work together to design and implement such a process. This sounds great, but how is it going to happen? And how will it be paid for? Who will oversee it and drive it forward? Where will the required political pressure come from to overcome any roadblocks and obstacles? Currently HMRC seems more inclined to duplicate regulation or regulate areas that should be the Commission’s territory than cooperate constructively with it.

2) A similar recommendation made by Lord Hodgson is that Work by Companies House and the Charity Commission to create a single reporting system for charitable companies, as recommended in Unshackling Good Neighbours, should continue as a matter of urgency. The potential for joint accounting requirements should also be investigated. Again, a good intention, but one that may likely to prove difficult to achieve without significant financial and administrative investment.

3) Lord Hodgson says that The Charity Commission should work with umbrella bodies and other groups in the sector (e.g. infrastructure organisations) to promote their best practice guidance on trustee recruitment. Sounds like a good idea, but does this not happen already?

4) Lord Hodgson also proposes that Individual charities should adopt and publish internal procedures for disputes and complaints. Umbrella bodies are ideally placed to support charities with this by the development of pro-forma procedures and support in their implementation, perhaps even taking on the role of adjudicator for their members. It is best practice for charities to have complaints procedures in place.

5) The impact of CIOs should be assessed three years after implementation. This recommendation should be sharpened up. If we are going to implement CIOs there needs to be a concrete plan for doing so – they are part of the 2006 Act which hasn’t been implemented, six years on. Surely any review should take into account the number of CIOS which have been set up?

Debra Alcock Tyler's letter to Nick Hurd reads as follows:

Nick Hurd MP
Minister for Civil Society
Cabinet Office
70 Whitehall
London
SW1A 2AS


Dear Nick,

DSC’s feedback on recommendations in Lord Hodgson’s Trusted and Independent report on the Charities Act 2006.

Following the publication of Lord Hodgson’s report in July, you asked for feedback from the sector on his various recommendations according to a ‘traffic light’ system. Broadly, we took this to mean: Red=don’t do it, Green=do it, Yellow=caution, requires more work.

We have in fact looked at all 113-odd recommendations, but feel that it would be most useful at this point to give you our views on what we feel are the top priorities. As you know, we have a particular connection to and interest in small charities and this informs our responses. In the enclosed document we have outlined views on five recommendations of each ‘colour’ which we think are most important to comment upon.

I would also like to take the opportunity to make the following general points about the consultation process to date.

DSC agreed that conducting a review of the Charities Act 2006 after five years was a good idea, and we had no objection to Lord Hodgson being appointed to lead the review, especially as we felt he did an admirable job with the Unshackling Good Neighbours report on charity red tape. The review has stimulated debate in the voluntary sector on a number of important issues – as you know DSC encourages debate and discussion.

However, I do have concerns about the process of consultation for this review, and in particular the way forward following the publication of the report. I am mainly concerned that there still appears to be no strategy or road map for assessing and accepting/rejecting these recommendations, and then progressing on to some other stage – for example legislation or some kind of implementation plan. I feel it is vital that your office set that out for the sector as soon as possible, so charities can engage in the most meaningful and efficient way.

Despite the thoroughness of Lord Hodgson’s report, there are in our view practical problems with many of the 113-odd recommendations. Many of them are difficult to respond to cogently because the meaning, purpose or justification for them is unclear. Some recommendations aren’t really recommendations at all; they are statements of principle or descriptions of activity which already happens.

Still other recommendations are extremely technical and hence difficult to respond to in a shorthand fashion without detailed context or knowledge. There is a case for taking, to give one example, questions around the Charity Tribunal into a separate, more focused discussion, perhaps with legal experts.

Since the publication of the report there has been controversy about some of the proposals which are intended to be implemented together. We see no guarantee of that happening, and a number of these proposals could be damaging to many charities, especially if implemented separately – particularly the proposal to raise the registration threshold to £25,000 annual income. We feel the risk of this happening is greater, again, given the apparent lack of a clear procedure moving forward.

At this stage, I believe your office and the Government more generally need to:

• Set clear deadlines for feedback on the recommendations in this report, and clarify that until that point you continue to welcome views from any interested charities and individuals
• Evaluate the legislative programme/schedule for space to implement any recommendations requiring legislation, including potentially the involvement of the Law Commission
• Develop and publish an implementation plan with a realistic schedule and clear review points.

Finally, I note your comment that one of the criteria for judging these recommendations will be whether they ‘make it easier to run a charity’. Unfortunately I believe that although they may be well intentioned, many of the recommendations in Trusted and Independent will in fact make it harder to do so – especially for small charities. We are not alone in this view. The enclosed document elaborates on this point.

As ever, I appreciate your willingness to engage with DSC and other organisations in the voluntary sector. I hope you will find our feedback useful as this process moves forward.

Yours faithfully,

Debra Allcock Tyler
Chief Executive
The Directory of Social Change

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