Charity law update

Just before Christmas I was asking whether we were ‘nearly there yet’ on the reforms in the charity sector proposed nearly two years ago. Since then, there has certainly been movement, but maybe not in the direction we were hoping.

The two big stories this quarter are the introduction of the new lobbying rules and the increased pressure on the Charity Commission in light of recent criticism from parliament.

Hit hard

Campaigning has been hitting the headlines for a while now – whether it be MPs reporting charities for using hashtags on twitter, or the potential curtailment of legitimate campaigns under the new Transparency of Lobbying, Non-Party Campaigning and Trade Union Administration
Act (‘he Lobbying Act).

The passage of the Lobbying Act through parliament was far from easy. The extensive ‘lobbying’ against the provisions in part 2 were unsuccessful and charities are now facing a somewhat difficult period when, come 9 September, they may unintentionally become third-party campaigners under the Act.

Part 2 of the Lobbying Act is intended to prevent political parties and candidates from using external bodies to campaign on their behalf and thereby evade the existing rules on campaign expenditure. The Act provides for the registration of all third-party campaigners who spend above a specified limit on defined activities, which seek to promote or not promote a particular party or candidate. Once an organisation is a third-party campaigner, they must register with the Electoral Commission and account for the spending on the particular campaigns which are caught by the definition.

However, the very wide definition of ‘campaigning’ means that charities may potentially be caught if they were to mount a campaign which later becomes a political issue on which particular parties or candidates are standing.

The actual intention of the campaign is irrelevant – if it can be seen to be in support of a particular party or candidate, or to not support a particular party or candidate – it is caught within the definition. As an example, the issue of whether the UK should repeal the Human Rights Act and instead have a UK-centric Bill of Rights looks set to be an issue at the next general election, and is one on which the main political parties disagree.

Any human rights charity that is campaigning for a UK Bill of Rights come 9 September could be seen to be supporting the party which is also supporting the UK Bill of Rights, or not supporting the parties that are against. The campaign itself could be perfectly legitimate and carried out in furtherance of the charity’s objects without any limits or controls on expenditure over and above the general charity law rules.

But once the next relevant period begins in the run up to the general election in 2015, that same charity will be subject to an additional layer of bureaucracy and accountability that many argue is completely unnecessary.

The real difficulty for charities is not going to be in registering with the Electoral Commission and the paperwork that comes with that registration, but more likely knowing when to register and when not to. The Electoral Commission is to provide sector specific guidance in July, but many charities will already be planning their strategy and campaigns for the next financial year and it will be interesting to see what effect the new law has on the way charities campaign.

Extensive consultation

It is not just the sector that is struggling with parliamentary decisions; the Charity Commission has also come in for its fair share of criticism over the past few months, leading to an extensive consultation on proposed new powers for the commission’s compliance team.

Parliament is unhappy with the way in which the commission regulates the sector, and there is a sense that the commission is not doing enough to combat fraud and mismanagement in charities.

There is an inherent difficulty in assessing the commission’s effectiveness in this area of work and there seems to have been a significant emphasis placed upon the number of cases opened and statistics regarding the use of the commission’s powers. There is a real danger to the sector if the commission feels that it has to open a certain number of cases per quarter, or exceed targets for the use of its powers.

There seems to have been an increase recently in the amount that the commission is reporting. This does not mean necessarily that the commission is opening more cases, just that they are reporting the outcomes more publicly, to demonstrate their effectiveness. The danger in this upturn of reporting is that pubic confidence in the sector starts to erode and, in an age of increased scrutiny and reporting requirements, is this really in the sector’s best interests?

The commission has responded to the Public Accounts Committee criticism with a robust statement saying that, while many of the recommendations made have already been put in place, more funding is required before the commission can carry out the job that parliament has set it to the required standards.

In this age of austerity and cuts these pleas may fall on deaf ears, but a properly funded commission is essential to its success.

Charities and information law has also been hitting the headlines. The British Pregnancy and Advisory Service were given a large fine from the Information Commissioner’s Office (ICO) when a hacker stole contact details of individuals who had filled out a ‘contact us’ form on the website.

When the website had been set up by a third party, the charity had not fully understood where and how the contact details would be stored, and so had not ensured that they were secure. The ICO found that the charity was in breach of its obligations under the Data Protection Act in not knowing where and how personal information was stored on the website and the size of the fine was linked to the potential harm to the individuals had the hacker not been caught and imprisoned before he could publish the list.

The case is a timely reminder for all organisations to ensure that they understand how their computer systems work, what personal information they hold on those systems, how and where it is held, and how securely, which is especially important with cloud computing and BYOD on the increase.

Additional means

The Supreme Court also handed down its decision in Kennedy v Charity Commission [2014] UKSC 20, which looked at the application of an exemption under the Freedom of Information Act which the Charity Commission used to prevent the release of documents it had obtained and created in the course of a statutory inquiry.

The most interesting part of the judgment was not that the use of that exemption has been upheld, but that there is an additional means of requesting information from public authorities under common law, where release would meet that authority’s duties or objectives.

How useful this will be in practice remains to be seen, but it is something to bear in mind for clients who deal with public authorities and supply information to them on a regular basis, as this is another means by which that information could end up in the public domain.

So, charities are set to be penalised for carrying out legitimate campaigns, the commission is having to over-report to satisfy parliament, and charities are getting fined for not knowing their website – not much positivity to take away.

However, on a slightly better note was the Tribunal decision in an appeal by the Harrogate Fair Trade Shop against a decision by the Charity Commission that the shop was not charitable. The shop argued that the sale of ‘fair trade’ goods was a means of achieving relief of poverty of the suppliers and the increased visibility of goods and marketing of the ‘fair trade’ brand was also capable of this.

The Tribunal accepted that this could be the case, it was just that on these facts, the shop had failed to adduce sufficient evidence to demonstrate that there was a link between the activities of the shop and the relief of poverty.

Once that link was established, the shop could be treated as a charity, carrying on a primary purpose trade. SJ

Vicki Bowles is a barrister practising at Stone King