22 March 2019 - Article
The UK Parliament has published a report that emphasises the vital role that the charity sector plays in British society, praising the work of the majority of charities and confirming public trust in the sector. The House of Lords Select Committee commented: “Charities are the eyes, ears and conscience of society. They mobilise, they provide, they inspire, they advocate and they unite. From small local organisations run entirely by volunteers to major global organisations with turnover in the hundreds of millions, their work touches almost every facet of British civic life.”
The report does however highlight governance challenges that the charity sector faces, with a particular focus on economic, social and technological changes, and makes wide-ranging recommendations for charities/ non-profits and for the UK Government.
The House of Lords Select Committee on Charities report – key highlights
The report covers several important areas for charities, including: governance and accountability; funding and alternative forms of charity finance; sustainability; technology; and regulation and the role of the Government.
The report emphasises the importance of trustee training and development, as well as increasing diversity and transparency. It recommends that Government and infrastructure bodies review and improve existing training opportunities.
The report makes several recommendations for charities, including:
- Charities should regularly complete skills audits of their boards (large charities, it says, should do this annually).
- Charities should also ensure that there is acceptable separation of executive responsibilities and oversight responsibilities.
- There should be clear time limits on trustees’ terms of office, which should be included in the Charity Commission’s model governing documents. Where a charity does not impose a time limit (for example, for the founder of a charity or a family charitable foundation), the reasons should be set out in the charity’s annual report.
- Trustees should not receive remuneration, except in exceptional circumstances. However, trustees should be able to claim relevant expenses.
- Diversity of boards should be promoted and the Charity Commission should lead by example when filling any upcoming vacancies.
- All but the smallest charities should have a simple website or public social media page to provide transparency.
The Report concludes that infrastructure bodies should work together to improve their services and ensure that all charities, and especially smaller charities, can access their advice and support. The Report's other suggestions to promote sustainability include:
- Tax policies and processes should be structured to enable charities to maximise their income and keep bureaucracy to a minimum. The needs of charities should be high on the agenda in relation to future changes to VAT and the National Living Wage.
- Government should lead by example by making payroll giving available to all Government staff and executive agencies.
- The impact of the new levy to fund the Fundraising Regulator should be monitored regularly, particularly with respect to small and medium sized charities.
- The Report emphasises that charity law and policy should promote and support the role of volunteers. It welcomed a Government review of this area, which was announced in December 2016.
- The Law Commission’s recent work to address some of the barriers to charity mergers should be brought into law at the earliest opportunity. In the interim, the Charity Commission should consider what guidance it can offer to charities seeking to merge and should remove existing barriers.
- The Charity Commission should consider cases where a time-limited structure for charities would be appropriate and include options for time-limited structures in its model governing documents.
The report states that, while some charities are at the cutting edge of the use of technology, others risk organisational stagnation and decay by not embracing digital technology. Charities should actively consider including a digital trustee role on their boards, and the report indicates that this would likely have a positive effect on board diversity.
The report welcomes the Government’s efforts, through the Access Foundation, to broaden the accessibility of social investment to small and medium sized charities, and the measures taken to reduce transaction costs for social investment and to promote the market for a wider range of investors. The report also concludes that the social investment market is unlikely to reach its potential unless there are further resources to support the investment readiness of smaller charities.
REGULATION AND THE ROLE OF GOVERNMENT
- Campaigning. The report stresses the importance of supporting advocacy by charities, saying that: “. . . through their advocacy [charities] help shape our laws, government policies and society as a whole”. Although charities are properly regulated in their campaigning activities, the report states that any new regulation or guidance should recognise that advocacy is a significant and legitimate part of a charity’s role.
- The Charity Commission. The report praises the Charity Commission’s work to improve its effectiveness but recognised more needed to be done. The report stressed that it was important for the Commission to remain politically impartial and encouraged the Commission to take care in its public communications to ensure that it retains the confidence of the public and the charity sector. Charity staff and trustees with concerns should be encouraged to report them to the Charity Commission where appropriate, and the Commission should ensure that charities which are proactive in reporting issues to them will be supported. The Charity Commission should be as clear as possible about the support it offers to charities and should be proactive in helping charities find appropriate sources of external support and advice when it cannot help. Significantly, the report expressed the “grave concerns” of the Committee with respect to the Commission's proposal to consult on charging charities for its services.
- Brexit. The report recommends that the Office for Civil Society undertake an extensive audit of the potential impact that Brexit will have on charities.