UK: Charities must prove they are a public benefit

This article appeared in the Guardian on Wednesday January 16 2008 on p3 of the Society news & features section.

Call it work in progress, suggests Charity Commission chair, Dame Suzi Leather. She is talking about the commission's guidance on how charities must in future demonstrate public benefit, published today following introduction of the requirement in the Charities Act 2006 and an extensive consultation. "This is a large first step, but certainly we are not yet at the end of the road," she stresses.

The reason for her caution is that today's is general guidance, setting out the principles by which 190,000 charities in England and Wales must in future prove their worth. Work on supplementary guidance – tackling in detail some of the thornier issues around fee-charging, independent schools, religion and relief of poverty – is still at an early stage.

So those searching today's 55-page guidance note for definitive answers on whether Eton or the Royal Opera House Foundation will be able to continue to enjoy charitable status, and the tax breaks that come with it, will be disappointed. Much of the hand-to-hand combat on such questions is yet to come. Nevertheless, there are significant pointers in the guidance and it paints a clear enough picture for charities to start thinking about how they will account for their public benefit in their annual reports published from April next year.

Leather says: "I think in five years time there will be many, many boards of trustees who will say: "Actually, having had to think consciously about what our public benefit is, what we do, and to map that on the principles of public benefit and explain it, we have landed up with a clearer sense of purpose, clearer activities and clearer communication to the public – and that's been an advantage all round."

Leather has been in the job almost 18 months, after four years in the equally hot seat of chair of the Human Fertilisation and Embryology Authority and just over a year, simultaneously, chairing the School Food Trust. But anyone in the voluntary sector who expected a superficial "quango queen" was rapidly disabused by the way she threw herself into getting to grips with the often arcane complexities of charity law so she could actively oversee the public benefit review.

Perceived threat
Media attention has concentrated on the review's perceived threat to the charitable status of independent schools. Yet the bulk of responses to the consultation – 524 of a total 922 – were to do with religion. By contrast, 119 were about education.

"Perhaps we had underestimated the potential for concern from religious charities," says Leather, "and perhaps we needed to do more – and we have done much more – to make it absolutely clear that there is going to be no modernisation audit of them."

This concern arose from the commission saying it would consider public benefit in the light of "modern social conditions". Many religious charities feared their traditional beliefs would be judged at odds with modern, secular thinking and values. In the final guidance, "modern social conditions" has been replaced with "changing social and economic conditions". An example given is of altering the objectives of a charity that might have been established for the provision of "marriage portions for poor maids" to "relief of poverty of women".

Religious charities also voiced fears that their role would in principle be found to fall short of the public benefit hurdle. Whether religious activity is of itself a public benefit is indeed likely to prove one of the more challenging questions under consultation on the supplementary guidance.

Leather says religion is one of the most important charitable purposes. "If you look at most of the modern faiths, the act of being charitable is an important part of demonstrating the right relationship between a believer and God and between a believer and their fellow man and woman. It's a really important underpinning of a lot of charitable activity." This may not entirely answer the point, however.

On independent schools, the commission says many responses to the consultation centred on the merits of the sector as a whole and were more relevant to a political debate. It will be looking for sharper engagement with consultation on the supplementary guidance. Today's document does, though, offer one clarification: schools will not get away with justifying public benefit by simply opening up their facilities to local adults, as the claimed benefit must relate to the charity's purposes – in this case, the advancement of education and wellbeing of children.

Similarly, the guidance says, an amateur sports charity will not be able to cite a collection it may have held for a disaster fund, nor will a preservation charity be able to cite the health benefits of a skating rink it may have laid on in the grounds of a historic building.

One fundamental requirement is that all charities must show that poor people have the opportunity to benefit "in a material way" from their activities. In response to objections, the commission has dropped the proposed term "people on low incomes" in favour of "people in poverty" – though Leather still uses the former in conversation. A summary guidance paper for charity trustees says: "At the extreme, charities must not be seen as 'exclusive clubs' that only a few can join."

Leather says: "If you are an education charity, you have to show that it's possible for people on low incomes to benefit from education. If you are an arts charity, putting on performances that cost a lot of money, and you do that in a beautiful building, it's not enough to say that people on low incomes can walk past the thing and appreciate it."

But aren't many charities that charge high fees seen very much as exclusive clubs? "I can see why some people are confused," she replies. "It's certainly lawful for charities to charge fees … and they can in fact charge more than the cost of the services. But what they can't do is only provide those services to people who can afford those high fees. In practice, there has to be an opportunity for all people to materially benefit."

Without fanfare
Leather, a 51-year-old qualified social worker and mother of three, admits she has found the task of chairing the commission and running the public benefit review "hugely and intellectually complex". But she has been far from deskbound: she has made a point of getting out to visit charities, usually without fanfare, and is acutely aware of the need to avoid burdening smaller organisations – the majority – with excessive reporting requirements.

Charities with an annual turnover below the commission's audit threshold of £500,000 (or £100,000 if assets exceed £2.8m) will need to include only a brief summary of public benefit in their annual reports; larger ones will have to give a fuller explanation, "measured" by reference to aims and objectives.

Does this mean quantified evidence? Not necessarily, says Leather, stressing that the commission has sought not to be overly prescriptive. She emphasises, too, that the idea is to avoid the need for any overnight change: any charities having difficulty meeting the new requirements will be helped to revise what they do in order to comply; any withdrawal of charitable status, and consequent reallocation of charitable assets, will occur only in "the rarest of circumstances", she expects.

Leather has learned to choose her words with care and she ducks a question asking if she has come across any registered charities that, in her judgment, ought not to qualify. But she does say: "I have become aware that there has been a lack of accountability in this field: it's not clear, always, from organisations what they are doing for public benefit. And if it's not clear to me, it certainly isn't clear to donors and may not be clear to beneficiaries."

The new discipline can only help this, she feels, and can only strengthen what she calls the deal that exists between charities and the public. "The net outcome for society," Leather predicts, "will be increasing public benefit and increasing public trust and confidence in charities."

Clear advantage
All organisations wishing to be recognised as charities must now demonstrate, explicitly, that their aims are for public benefit. The requirement takes effect for the reporting year starting on April 1.

Until now, the law presumed public benefit in respect of charities that advance education or religion or relieve poverty. Supplementary guidance covering these, and other charities that charge fees, is due in the second half of this year.

Today's general guidance is based on two principles: that there must be an identifiable benefit or benefits, and that it must be a benefit to the public or section of the public.

The Charity Commission had proposed four principles, but as a result of the consultation, the two others – that people in poverty must not be excluded from the opportunity to benefit, and that any private benefits must be incidental – have been made sub-clauses of the second.

Commission chair Dame Suzi Leather stresses that this change is purely for greater clarity and simplicity and does not imply any shift of emphasis.

In what some observers have seen as a timely flexing of muscle, the commission has recently refused charitable status to Odstock Private Care, an organisation set up by Salisbury NHS foundation trust to avoid a cap on private patient numbers in foundation trusts.

Leather says this is not a test case because the decision, and any subsequent appeal, fall under the old law. But she adds: "People will look at the Odstock case and reflect on the importance that we attach to enabling people who cannot afford high fees to access the benefits of charities."

Charities and Public Benefit, the Charity Commission's general guidance on public benefit, and a summary version are both available on 0845 300 0218 or at charitycommission.gov.uk