Update | Charity law: Charities Act review and CRB checks

Lord Hodgson’s review of the Charities Act 2006 culminated in his report, ‘Trusted and independent: Giving charity back to charities, which contains no fewer than 113 recommendations.

Charities Act review

Lord Hodgson set out several principles which informed his thinking and recommendations, which include the idea that people, and charity trustees in particular, should be encouraged to use their own judgement in the course of their work with charities and should not seek to rely too much on the judgement of others. Much has been made of the ever increasing burden of red tape on charities. Lord Hodgson himself led the task force which looked into the red tape experienced by charities and other voluntary organisations, which resulted in the May 2011 ‘Unshackling Good Neighbours’ report. However, the burden on charities can only be reduced if individuals are willing to take on a greater degree of responsibility, whatever their position within a charity. The flip side to trustees being empowered to use their judgement and enjoy reduced red tape is increased transparency. The public values access to information about salaries, expenses, fundraising and administration costs when assessing whether or not to give to charity, and greater transparency about these costs is considered to be an important aspect of maintaining public trust and confidence in charities and the valuable ‘charity’ brand generally.

Dealing with charity land

The proposed deregulation of disposals and mortgages of charity land is one of the more technical recommendations, which reflects the idea that charity trustees should be trusted to exercise the same sound judgement and act in accordance with their duty of care when dealing with charity land assets as they do when dealing with other charity property.

The report recommends that the Charity Commission’s approval continues to be required for disposals and mortgages and other charges to “connected persons”, which appears to achieve the right balance between removing unnecessary bureaucracy while also ensuring that transactions which may raise queries continue to be subject to independent scrutiny by the commission. Both aspects of this recommendation would seem to work in order to promote public trust and confidence in charities, while also making life easier for charities by removing unnecessary bureaucracy.

Payment of charity trustees

One recommendation which has already proved controversial is the suggestion that charities with an annual income of over £1m should have the power to pay their trustees without needing to first obtain permission from the Charity Commission. This would be subject to clear disclosure requirements on the quantum and terms of any remuneration in the individual charity’s annual report and accounts.

This recommendation makes a very clear distinction between the charities which may exercise this proposed new power, and those who may not. Small and medium-sized charities are considered to be more vulnerable to the danger of abuse of any freedom to pay trustees, particularly smaller charities which are largely below the regulatory and public radar.

In contrast, larger charities are described as huge organisations handling substantial amounts of public and private money, which, presumably, therefore have the expertise to exercise the proposed power without being taken advantage of.

Lord Hodgson recognises that payment of charity trustees is one of the most divisive issues in the sector: those in favour of a general power to pay cite the need to be able to reach those who are unable to take on unpaid trusteeship - often because, quite understandably, those people have to earn a living. They also say that this would improve board diversity and attract those with professional expertise. Those against such a change argue equally vehemently that payment of charity trustees fundamentally undermines the voluntary principle, may encourage people to be charity trustees for the wrong reasons and risks creating an unlevel playing field between those charities which can afford to pay trustees and those which cannot.

This issue is perhaps the most interesting when considering the balance to be struck between charity trustees taking responsibility for their decisions, thereby making running a charity easier, and the need to maintain public trust and confidence in charities.

The recommendation proposes splitting responsibility: the Charity Commission would continue to be the entity which will use its judgement to decide whether or not a trustee of a small or medium-sized charity may be paid, whereas trustees of large charities would be empowered to exercise their judgement, supported by the infrastructure of their organisations, when considering whether to pay a fellow trustee. The recommendation would make life easier for the larger charities, but not the smaller ones, which would continue to have to make their case to the Charity Commission. In any case, it seems doubtful that this recommendation would be one which would overall improve public trust and confidence in charities.

Registration with the Charity Commission

Currently, registration is compulsory for charities with an income of more than £5,000 per annum. The report recommends that the threshold should be raised to £25,000 per annum, but that registration should be compulsory for organisations which claim Gift Aid. In addition, voluntary registration should be available to all charities, regardless of annual income, provided that the application to register is made online. The latter recommendation will help smaller charities who need the ratification conferred by charity registration to obtain funding. These charities will have the term “small” in front of their charity number, in order to inform the public that although they are registered, they are subject to little proactive regulatory oversight. All charities which are unregistered should be required to disclose this fact on their correspondence, fundraising materials and cheques.

These recommendations do seem fairer to those charities who are prepared to take on the burden of registration, whatever their income. Failure to register once it becomes open to all, and the obligation to advertise the fact of non-registration, is likely to raise question marks in the minds of potential donors to those charities who remain unregistered. In addition, given the value placed by the public and charities alike on the charity brand, it seems likely that virtually all charities will wish to register. Opening up the possibility of charity registration to all charities may seem broadly like a good thing, but inevitably there will be increased administration for all parties, not least for the Charity Commission. If charity registration is to be more widely available, it is to be hoped that one of Lord Hodgson’s other recommendations, that the Charity Commission needs to be adequately funded to properly regulate the sector, is also heeded.

Greater transparency

The corollary of the empowerment of charity trustees is the requirement for greater transparency, in order to promote public trust and confidence in charities. Lord Hodgson has recommended that charities report against certain key indicators, so that information can be used and scrutinised more effectively. The suggested indicators include whether a charity:

• has paid staff;

• is publicly funded and what proportion of its total funds this represents;

• fundraises from the public and, if so, is a member of the Fundraising Standards Board;

• spends funds overseas and, if so, where;

• has trustees who have served more than nine years in total (one of the recommendations is that trustees serve no more than three terms of up to three years per term);

• pays any of its trustees; and

• has ever been fined or submitted a serious incident report to any of its regulators.

The list of indicators will certainly be debated, and I would suggest that it would also be helpful to add whether there have been any related party transactions to the list.

Lord Hodgson suggests that the information provided by this “traffic light” system will not only assist the public in understanding better the charities they consider supporting, but will also assist the Charity Commission to use computer technology to identify a risk-based sample of organisations to scrutinise and, possibly, a random sample should also be identified to help encourage wider compliance. This recommendation is made within another of the wider principles which informed the review: that charitable status is a privilege and not a right and charities must therefore be able to demonstrate that they deserve this privilege. Greater transparency can only be a good thing, but, as a strict matter of law and with respect to Lord Hodgson, it is not correct that charitable status is a privilege, not a right. Status is granted upon meeting a legal test and it is therefore, in a sense, automatic and therefore a right. This point is not merely the lawyer’s love of technicalities: charitable status is important from a tax perspective since it enables a charity that is not registered to claim Gift Aid and other tax reliefs. Charity registration does not confirm charitable status: status is gained by meeting the legal test and registration merely confirms that.

Criminal records regime

The ‘Unshackling Good Neighbours’ report identified some of the obstacles to people giving their time to charities and other voluntary organisations. One of these was the tendency for charities to apply for Criminal Records Bureau (CRB) checks as the default option, from an overzealous interpretation of the rules and risk-aversion at every stage, which has been found to put off volunteers. The Protection of Freedoms Act 2012 received Royal Assent on 1 May 2012. It contains a number of changes to the safeguarding legislation, which have been described by the Home Secretary as being designed to bring common sense back to public protection. The changes effected by the new safeguarding regime should, hopefully, clarify the circumstances in which CRB checks need to be obtained, provide volunteers with greater confidence that they can challenge information contained in a CRB certificate (where they think it inappropriate for it to be included) and allow charities and charity trustees to use their judgement when using CRB checks as part of their wider safeguarding procedures.

Regulated activity

Of the changes coming into effect on 10 September, one of the most important is the new definition of ‘regulated activity’. Regulated activities are those activities for which a charity must obtain a check to establish whether someone is barred by the Independent Safeguarding Authority (known as a “barred list check”) from doing a particular type of activity or work. The number of regulated activities is being scaled back, to focus on those activities which involve close and unsupervised contact with children and vulnerable adults. It is estimated that the current definition of regulated activity would, in time, cover over 9 million people, whereas the new definition will apply “only” to some 5 million. The activities which are being taken out of the definition will still be eligible for enhanced CRB checks but they will no longer be eligible for barred list checks. Charities which use volunteers should benefit from this change, since the number of checks required should fall.

Passporting

Another welcome change is the ability to “passport” CRB checks, although this will not be available until early 2013. When the Update Service goes live, individuals who pay a small subscription fee will be able to apply for a CRB check once and then, if they need a new check for a new voluntary position or new job, will be able to re-use the original CRB check. The organisation requesting the CRB certificate will be able to check online if it is still up-to-date and only if there are any changes will the individual be asked to make another application. The portability of CRB checks between posts should lead to a substantial reduction in the need for repeat checks on the same individual and it is anticipated that in the vast majority of cases there will be no new information, saving both time and money. In practical terms, this should lead to a substantial reduction in delays before an individual can start to volunteer, which can be frustrating for both the volunteer and the charity.

CRB information

The “relevancy test” for police to release information held locally on an enhanced CRB check will be changed. At present, the police include information when they consider it to be relevant to the purpose for which the check is requested. This will continue, but the police will apply a more rigorous test when deciding whether or not to disclose such information: at the moment they disclose information if it “might be relevant”. From September, they will include it if they “reasonably believe it to be relevant”. This, coupled with the right of applicants to ask the Independent Monitor to review the inclusion of this information on an enhanced CRB certificate, and the repeal of provisions in the Police Act 1997 (but not their common law powers) which allow the police to provide certain sensitive additional information about applicants to the organisation only and not to the applicant, should make the option of volunteering more appealing.

It is certainly to be hoped that the changes to the disclosure and barring regime will establish a fair balance between protecting vulnerable beneficiaries on the one hand (and it must be remembered that charities should do CRB checks as part and parcel of their wider safeguarding procedures) and, on the other, encouraging individuals to feel that they can volunteer without getting caught up in too much red tape. The difficulty with the current CRB regime is that it remains complex: the need for a charity to obtain a CRB check on an individual, and the type of check required, still depends on whether the charity is a children’s charity or a charity for vulnerable adults, or merely provides services to those groups as part of some of its activities, and the type and frequency of the activity contemplated. Charities and trustees should certainly apply common sense to the issue and should not have a universal policy of requiring CRB checks, but, given that safeguarding beneficiaries is such a critical issue, I suspect they will continue to need support to deal with the complex arrangements for checking volunteers.

Charity Commission consultation on the revised public benefit guidance

The next big item on the horizon is the Charity Commission’s consultation on its revised public benefit guidance, issued in response to the Upper Tribunal’s decision in the Independent Schools Council case. The tribunal required the Charity Commission to re-write key parts of its public benefit guidance because the sections on fee-charging by charities was unclear or incorrect. Lord Hodgson’s review is keen for the charity sector to continue the wider national trend towards localism, with charity trustees being empowered to take responsibility for the running of their charities. This ties in with the Charity Commission’s revised guidance, which adopts a very hands off approach and places responsibility for meeting the public benefit requirement, and how to do so, very firmly with trustees.

The Charity Law Association, representing the views of those who advise on and use charity law, will contribute to the consultation.