Charity Regulation: Time to Debate the Fundamentals, Not Just the Charity Commission and Its Chair

02/02/2015 11:59 GMT | Updated 03/04/2015 10:59 BST

The re-appointment of William Shawcross as Chair of the Charity Commission has understandably and rightly sparked much media and charity sector interest in his views and political allegiance as well as the role of the Commission itself. The latter is old news.

Over the last decade (and perhaps longer), there seems to have been an almost continuous debate about the role of the Charity Commission, its effectiveness and its methodologies. And too often, it's the same voices, the same 'game-playing' and the same narrow arguments. Frankly, this discussion has now become tedious. Worse, I think that for the most part, it obscures the real questions that we should be debating and consequently, it is an unnecessary distraction and ill serves charities, the voluntary sector and the public at large.

We need a different and more serious debate that addresses: the role and definition of charities; their contemporary place; how to protect their independence; what legal and governance structures should entitle organisations to claim the benefits afforded to charities; and much more.

To be effective, regulation of any sector (and in particular of charities) has to reflect modern realities, current and forecast developments in social policy, economic conditions and public opinion. Charity law has a long history but a failure to review and reform it from time to time must potentially lead to a widening gap between where charities are and what they need on the one hand - and regulation and the regulator on the other. Such a gap, especially a widening one, is not sustainable and benefits no-one.

The role of charities has evolved and will continue to do so. As the horrors of poverty, inequality, discrimination and marginalisation of communities grow once again, the role and importance of communities is as great as ever. They have roles as campaigners, advocates, service providers and so much more. These roles are interdependent and attempts to split one or more of them away from charities should be resisted.

Modern regulation should be designed to reflect the sector's evolution and 'enable' - not hinder or challenge - charities to fulfil their missions and to retain public confidence. It should enshrine charities' independence in legislation and in particular, acknowledge and protect their right to campaign and challenge governments.

Regulation should also define and set the boundaries for charities and charitable activity. It should not and must not 'inhibit' experimentation, risk taking, mergers, partnerships with the public, social enterprise and business sectors - or the creation of new charities.

Reformed legislation should redefine 'public benefit' and 'public interest', and do so in the context of contemporary political, welfare and economic systems. There is a specific need to consider what limits should be placed on entitlements to charitable benefits - for example, it could consider the appropriateness of private schools that charge very large fees affordable only by a privileged minority enjoying the benefits of charitable status. And what about religious groups?

Where is the public and sector debate on these fundamental issues? They cannot and should not be avoided, any more than can a review of what these benefits should be. What tax relief should charities be entitled to and on what basis? Should they be able to reclaim trapped VAT, which is so problematic for charities? Should there be tax benefits and allowances for personal and corporate donors? Tax benefits for charities deny the state at national and local level of vital revenue. Is it not better to tax fully and allow democratic accountable politicians to decide how the money is spent in the public interest? Or is allowing individuals and corporates to offset charitable donations against their tax liabilities necessarily wrong? Does it have a positive social and economic benefit as many donors and the charity sector claim? The recent debate on this tax benefit issue was almost hysterical and, at times, made the sector seem to be pleading for self-interest and even a return to Victorian philanthropy in preference to a modern welfare state. That was wrong! A sensible contemporary debate is needed.

Related to these questions are others about the role of charities contracting with the public sector to develop and deliver public services. This is especially relevant in respect of the use of charitable funds to subsidise the state, which is increasingly happening as the public sector is refusing to pay fully for what is either required or specified through contracts. And inevitably, austerity and cuts to public finance are making this an ever- bigger issue. I have long believed that charities have a significant role to play in the delivery of public services but if contracted, this should be fully funded.

Charities are usually better engaged when they can innovate, challenge orthodoxy, take risks that the public sector may find too hard, and reach marginalised communities for whom the public sector is a perceived threat because it represents "officialdom" and authority, or is simply too remote from certain communities. However, this is far from the same as charities taking over great rafts of the public sector on a wholesale basis. If charities are involved in public service contracting (and they will be), this needs to be reflected in revised regulations, as does their ability and entitlement to trade and/or enter into collaborative arrangements with the business, social enterprise and public sectors.

A review of charity regulation must address the overlaps between: company law and charity law; procurement regulations and charity regulation; and similar issues. Can and should charities be exempted from some public service competitions and simply be awarded work and funding on a collaborative rather than a market-based procurement basis?

Above all, it is essential to consider the different legal and governance models which are now in existence, and ones which might yet emerge. The creation of community interest companies, social enterprises, staff and user-owned mutual and public sector trading companies raises the question as to whether the traditional charitable governance structure is the right one. Should formal charity structured bodies be the only ones to have the benefits which have been available traditionally to charities and any future benefits? Of course, there need to be limits and safeguards but these should focus as much on public benefit, ethos and values, and the use of financial surpluses rather than just legal structures.

Exemplar governance is essential for the effective leadership of charities and similar bodies, and for ensuring public confidence. Regulation has to address governance issues such as transparency, accountability and risk management when money which has been donated by the public is involved. Should charities in receipt of public money be subject to the Freedom of Information Act? In addition, there are issues of ethics, standards, ethos and behaviour that must be part of a contemporary debate.

Regulation should be strong on governance, and persistent non-compliance with agreed standards should result in an organisation forfeiting its right to charitable status benefits. And so should persistent failure to meet a 'public benefit' test.

Personally, I have no problem with a debate on regulation re-visiting the issue of remuneration for trustees and board members, the ability of charities to establish unitary boards including executives as well as non-executives trustees; and their personal liabilities.

I also believe that the independence of the charity sector and charities should be better enshrined in law. This is vital for the sector, the future of civil society and the health of our democracy. But how, given that the Government and others have sought to restrict the right of charities to campaign and act as a voice for communities and their beneficiaries? There is no other option but that the law has to be reformed to enable charities to be much more engaged in the political discourse.

In addition to a much-needed debate on the role, definition and regulation of charities and related bodies, it is necessary to consider the nature of the regulator and how it operates.

My view is that sector led 'self-regulation' will be inappropriate and just will not work - but let's have the discussion. And if the regulator is to be a public body, to whom should the regulator be accountable and on what terms?

Should the regulator treat all charities the same or should it apply differentiation based on estimated risk, track record, size or some other measure? Should the regulator focus solely on administration and compliance (I sincerely hope not), or should it have responsibility to support, nurture, challenge, promote and foster the sector? Are the latter roles compatible with an enforcement role? What can we learn from other regulatory arrangements for all sectors, both in this and other countries?

Given the number of questions to be addressed (and this piece has only identified some of them!) and the importance of charities and related bodies to civil society, democracy, social, economic and environmental wellbeing, I believe that following the General Election the new government (whatever its political complexion) should instigate an independent commission or similar to address them.

Ideally the terms of reference would be agreed cross-party and with the charity sector.

Such a commission should be given a wide remit, encouraged to seek and take evidence in this country and from other UK and global jurisdictions. And it should be given a clear timetable so that its recommendations can be enacted in the next Parliament.

In this way we can 'move the discussion on' and avoid having the wrong debate. It is time for a wider, more fundamental, more thoughtful and useful discourse.