A nettle ungrasped?
September 2009
Francesca Quint reviews the continuing saga of public benefit and reflects on the latest developments and their origins
It is now approaching three years since the Charities Act 2006 was enacted and about eight years since the proposals for legislation were first discussed. The key provision in, and driver for, the 2006 Act is the strengthened public benefit test now set out in the new, two-part definition of charitable purposes. In order to be charitable, a purpose must always be for the public benefit, and the law no longer presumes without positive evidence that charities with certain types of purpose (the relief of poverty, the advancement of education and the advancement of religion) are automatically beneficial to the public.
By restating and strengthening the public benefit principle, the new law provides a solid reason for the tax reliefs and other privileges which charities enjoy, and removes the basis for any credible argument that independent schools or any other types of charity should have their charitable status taken away by Parliament.
Definitions
It seems a pity that the Westminster Parliament (unlike its Scottish counterpart) declined to grasp the nettle of actually defining the test of public benefit in the Act itself. All the 2006 Act does is to say that the existing law on what ‘public benefit’ means still applies, and requires the Charity Commission to promote public awareness of the requirement and its operation and, in doing so, publish guidance for charities and others on how the test will be applied.
Unfortunately, the existing law is not clear. It has to be derived from centuries of judicial decisions, most of them concerned with a mixture of questions regarding the nature of the purpose under consideration in the individual case and not usually separating out the specific element of benefit to the public. Some of the case law is very outdated, such as the decisions that gifts to a non existent society for the increase and encouragement of good servants (1850) and for a school for the sons of gentlemen (1827) were respectively charitable. Hence it has been a major task for the Commission to analyse the case law and try to set out in modern terms what it means for today’s charities in view of the removal of the presumption. The second challenge is to decide and explain how they are proposing to assess whether the purposes of an existing or proposed charity are for the benefit of the public.
The main guidance and the supplementary guidance which the Commission has published so far has been drawn up with the assistance of both legal advice from within the Commission and public consultation exercises which have taken account of the views of a significant number of charities, umbrella groups and experts. Considering the diversity of the voluntary sector, no-one should be surprised that differing opinions have been expressed on both the law and its application to different kinds of charities, and, more particularly, that some people have expressed strong views.
Dominance of the educational sector
Certain issues have become familiar through repetition. Many of those representing independent schools have complained that the Commission does not take account of the fact that such schools relieve the taxpayer by removing numbers of pupils from the state system. Many who are opposed to independent schools in principle, by contrast, complain that the fact that such schools tend to remove from the state system pupils who are academically able and from well-off families (and therefore easier to teach) makes life more difficult for schools within the state sector. Wisely (in my view) the Commission has discounted both these arguments, neither of which is specifically related to the work, nor even the focus of the individual charity.
The core charitable purpose of a school is the education of pupils, not the relief of the taxpayer; whereas on the other hand the fact that excellence in some educational institutions highlights the deficiencies in others is a reason for committing more resources to the deficient institutions, not abandoning the pursuit of excellence.
Interestingly, while the educational sector has taken every opportunity to comment, the same cannot be said of those representing other types of charities. All charities which need to charge substantial fees for their services are likely to be affected by the change, because of the argument that a section of the population defined by their (or their parents’) ability to pay fees that others cannot afford is not a ‘section of the public’ for the purposes of the test, and that no charity may provide its benefits in a way that entirely excludes those living in poverty.
So the trustees of a charity which operates a theatre or concert hall, an opera house, a sports facility, a care home or a private hospital may have to take steps to ensure that it can demonstrate compliance. These sectors have generally not protested, or not nearly as vocally, as the spokesmen for independent schools which enjoy charitable status.
Recent assessments
Public discussion was given added impetus when the Charity Commission in July 2009 published its first group of individual assessments, which related to 12 charities: four religious organisations, five schools and three care homes [1]. Dame Suzi Leather, Chairman of the Charity Commission (whose term of office has since been renewed) was, for example robustly interviewed on the Today Programme and heavily criticised in the Daily Mail (rather patronisingly in the latter case, to my mind – what is the relevance of her eye colour?). The strong suggestion in both cases was that the change in the law was driven by party political considerations and that Dame Suzi’s membership of the Labour Party had directly influenced the Commission’s approach and in particular its view that two of the five schools were not doing enough to provide opportunities for the children of less well-off parents to satisfy the public benefit test.
In fact the Commission’s assessments provide fascinating sketches of twelve charities which operated in widely different ways, even where their aims and activities were basically similar. It is obvious that the Commission’s staff adopted a conscientious attitude in trying to apply the principles worked out in the published guidance in each case. They clearly took account of the charities’ individual circumstances, expecting more from those with greater wealth compared with those with limited resources. They also gave praise where they considered it merited: e.g. in relation to the careful child protection policies of one of the schools which the Commission judged could do better on the provision of bursaries.
In addition, they looked closely at the activities of each charity in relation to its expressed objects. In the case of one care home, whilst finding no reason to fault the trustees in relation to the public benefit test, felt constrained to point out that by operating as an inexpensive hotel open to anyone they had allowed the activity to drift away from any actual charitable purpose, thereby prompting the need for a serious review of the charity’s goals and operations.
There is no reason to conclude from the assessments themselves that the work or its conclusions were the result of direction by the Government or by Dame Suzi personally, and from my own knowledge of the Commission,I think it most unlikely that any such attempt at direction would have been tolerated.
There was one surprising feature of the assessments, however, which struck me on reading the assessments on the charities which were considered not to have complied with the test and has been noted by other commentators. All three charities (two schools and a care home) were felt to have done too little to provide or secure financial assistance for potential beneficiaries who could not afford the fees.
Other activities undertaken by the charity which ensured that benefits were available to the less well-off, e.g. the provision of a day care centre alongside the charity’s residential care and the sharing of sports or classroom facilities with local state schools, were not accorded anything like as much weight as the direct provision of bursaries. The assessments indicate that this was partly because the benefits in question were not means-tested and were not of a kind which it was the charity’s ‘core purpose’ to provide.
The supplementary guidance on ‘Public Benefit and Fee Charging’ specifically states that, in ensuring that the charity does not entirely exclude the poor, it is not necessary for the trustees to provide an opportunity for those who or whose parents cannot afford the fees benefits identical to those provided for fee-payers. One (obvious) way of providing such an opportunity for benefit is by offering free or subsidised access to the same facility as that which others pay for, but equal value appears to be accorded in paragraph C3 of the guidance to providing other significant opportunities to benefit which do not involve free or subsidised access to those facilities.
It is highly likely that if the Commission had consulted more widely before publishing the assessments this discrepancy would have been noticed, and the outcome might well have been different. It would be interesting to know whether the assessments actually illustrate a conscious intention to take a stricter line than previously indicated.
Non financial benefits
The difficulty with the approach in the Commission’s assessments, if this is indeed the intention, is that it will be more difficult than previously thought for smaller schools and care homes to operate as charities. Many of the less well-resourced schools which have joined the charitable sector recently depend for their survival on fees as their only source of revenue, and cannot raise the fees to the extent required to provide meaningful bursaries without risking loss of pupils through competition from better resourced schools.
Similarly, care homes which have to depend on local authorities to subsidise the fees of residents who cannot afford the full fees have found in recent years that the assistance available from the local authority, even at top rates, does not match the cost to the charity of providing the care, thereby preventing them from admitting poorer residents unless relatives or other charities provide a ‘top up’.
So long as it was thought that non-financial methods of providing benefits to otherwise qualified beneficiaries who were unable to afford the fees, such charities were equally acceptable, there was scope for imaginative schemes for alternative types of benefit. These included the provision of benefits in kind, such as (in the case of schools) through the sharing of facilities, teaching staff or know-how with other schools, and (in the case of care homes) opening up the facilities during the day time to elderly or disabled non-residents. It does not appear that the Commission really values such initiatives, and in my view that is a lost opportunity.
Religion
Another particular observation I have on the assessment relates to charities for the advancement of religion. It was always going to be interesting to see how the Commission would measure the somewhat intangible benefits provided by religious organisations to their adherents, let alone to rest of society. The outcome of these first assessments is that of the four charities (two Christian, one Hindu and one Buddhist) none was considered to have failed to comply with the test even though in at least one case the Commission found it hard to understand precisely what the benefits were. The impression is given that a more relaxed attitude is taken towards religious charities in assessing the benefit deriving from their activities than towards schools or care homes.
Enforcement
Nevertheless, it is worth bearing in mind that, according to Dame Suzi’s Foreword to the published paper on ‘Emerging Findings for Charity Trustees’ from the Public Benefit Assessments [2], the Commission regards itself (like the charities themselves) as still in a learning process with regard to public benefit and its assessment. It is therefore likely to listen to the views of charities and be willing to consider modifying its approach in future assessments. It also seems to me highly likely that provided that those of the assessed charities which the Commission does not regard as having complied with the public benefit requirement ‘show willing’ and attempt to formulate and implement workable plans for improving performance, the Commission will be prepared to give them more time if, at the end of the 12 months that each has been given, they are still not able to satisfy the Commission.
In other words, I think it most unlikely that the Commission will move on to considering any more threatening action (such as opening an Inquiry, removing trustees or making a scheme to change the purposes of the charity) unless the trustees either flout or ignore its recommendations. Despite some remarks on the subject in the press, removal from the register would not be the preferred approach and is unlikely to occur, except after the charity’s assets have been
redirected to other charitable purposes.)
redirected to other charitable purposes.)
[1] See Caritas news, issue 21, August 2009
[2] www.charity-commission.gov.uk/publicbenefit/assessemerge.asp
Author: Francesca Quint
Barrister, Radcliffe Chambers, London WC2
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