How the Charities Act 2016 will affect the sector

01 Mar 2016 In-depth

Kirsty Weakley unpicks how the Charities (Protection and Social Investment) Act will affect the sector.

In 2013 an investigation by the Times uncovered a charity, the Cup Trust, at the centre of a gift aid scam. The Public Accounts Committee investigated and published a critical report which said the Charity Commission focused too little time and resources on its enforcement Activity – PAC chair Margaret Hodge even suggested the Commission should be abolished. 

It later transpired that HMRC had never actually made any payments to schemes like the Cup Trust.  But the damage to the Charity Commission’s reputation had already been done. For its part, the Commission told MPs that if they wanted a tougher regulator then it needed new powers, and the government agreed to Act.

The Cabinet Office launched a consultation in December 2013 which proposed wide-ranging new powers for the regulator, and a draft Act to introduce many of those powers was announced in the Queen’s Speech in June 2014. A joint committee of MPs and peers then took evidence from a range of stakeholders and published a report in February 2015 which backed measures proposed by the Cabinet Office, and suggested others.  Separately, the Law Commission suggested the introduction of legal measures to make it easier for charities to make social investments, and this was added to the Act.

The renamed Charities (Protection and Social Investment) Bill was introduced in the House of Lords in May 2015.  When it arrived in the Commons in September, charities were facing criticism over their fundraising practices, and new clauses were therefore added to address fundraising too.

The Lords accepted the changes that were made in the Commons on 3 February this year, and the Act is now awaiting royal assent.

What is in the final Act?

Charity Commission powers

The regulator will now have the ability to publicly issue warnings to a trustee or charity where it thinks a “breach of trust or duty or other misconduct or mismanagement” has taken place.

Meanwhile, the Act extends the number of criminal offences which lead to someone being automatically disqualified from becoming a trustee to include convictions for serious terrorism offences, money laundering or bribery.  It also introduces a process enabling the Commission to disqualify someone it considers to be unfit for trusteeship.  For the Commission to begin this process, one of six conditions must be met:

  • Someone has been cautioned for an offence against a charity or in the administration of a charity for which a conviction would bring automatic disqualification
  • Someone has been convicted of an offence in another country that is against, or involves the administration of, a charity or similar body or if it had been committed here would bring automatic disqualification from acting as a trustee
  • Someone has been found by HMRC not to be a ’fit and proper person’ to be a manager of a body or trust
  • They were the trustee, officer, agent or employee of a charity who was responsible for, contributed to or facilitated misconduct or mismanagement in a charity
  • They were an officer or employee of a corporate trustee who was responsible for, contributed to or facilitated misconduct or mismanagement in a charity
  • They have done something, whether or not in relation to a charity that is, or is likely to be, damaging to public trust and confidence in a charity or charities

The Act also extends disqualification beyond trustees to the most senior managers in a charity, such as the chief executive or finance director.

Clause 7 of the Act gives the regulator the power to wind up a charity.


After the fundraising scandals of last summer, ministers warned the sector that it has one last chance at making self-regulation work, and stipulated that there must be a ‘statutory backstop’.

New provisions were added to the Act which mean that if the new Fundraising Regulator is judged to have failed to adequately police the sector’s fundraising Activities, the government can set up a statutory regulator or hand full responsibility for fundraising regulation to the Charity Commission.

It also allows the government to direct charities to fund the regulator.

Charities with an income over £1m must report how many complaints they received about fundraising and outline their approach to raising money in their annual report.

Social investment

The Act also sets out a general power for trustees to make social investments as long as they have taken advice and are satisfied that it is in the interests of their charity.

What is not in the Act?

Protection for housing associations

In an attempt to block the government’s extension of right-to-buy schemes to housing associations peers inserted a clause into the Act to ensure “charities are not compelled to use or dispose of their assets in a way which is inconsistent with their charitable purposes”.

This was removed by MPs when the Act reached the House of Commons, where the Conservative Party has a majority.

In between the clause being added in the Lords and being removed in the Commons the government arrived at a deal with the National Housing Federation that will see its members voluntarily deliver the policy.

Safeguards on warnings

Throughout the Commons debates Anna Turley, Labour shadow minister for civil society, urged the government to introduce clearer safeguards about when and how the Commission would use the official warning powers. And a number of sector bodies including Directory of Social Change, Acevo, Bond, Association of Charitable Foundations, Charity Finance Group and law firm BWB submitted evidence to the Act committee calling for the greater safeguards.

The government did not agree that the power is too broad and the Commission will consult ahead of implementation.

Tougher fundraising controls

The report stage of the Act took place shortly after the Public Administration and Constitutional Affairs Committee published its report into fundraising. On behalf of the committee, Paul Flynn introduced amendments that would force the Commission to hold public hearings into fundraising and give it direct oversight of the new Fundraising Regulator, in line with PACAC recommendations.

These amendments were rejected by Wilson and were not put to a vote.


Labour MPs attempted to amend the Act to undo some aspects of the Lobbying Act, which placed restrictions on charities’ campaigning but withdrew the amendments before they were put to a vote.

They also used debates to voice concerns about whether independent schools.

What does the sector think of it?

The sector has been broadly supportive of measures to strengthen the Act but have raised concerns about whether there are enough safeguards relating to the new ‘official warning’ power and the disqualification of trustees.

An NCVO spokesman says that while the umbrella body broadly welcomed the Act and the powers it introduces for the Charity Commission, NCVO still “has some concerns around both the powers to disqualify trustees and also the official warning powers”.

Andrew O’Brien, head of policy and engagement at the Charity Finance Group, says: “We still have some concerns about the warning powers

O’Brien also has concerns about the social investment clauses. “There will now be a different level of rigour for the process of financial investment and social investment,” he says and that could lead to people opting for social investments as they can “pass it through without as much scrutiny” and that there was a danger it could be open to “abuse”.

The Directory for Social Change has been vocal in its warning that the Act goes too far in its objections to aspects of the Act.

Jay Kennedy, director of policy at DSC, says that where the government changed things following the consultation “they didn’t necessarily change for the better” and highlights Clause 9, which DSC and others are concerned gives the Commission too much power to disqualify people but the government extended this clause to apply to senior managers.

He says the next steps are to work with the Commission because “we need to work to get that guidance to be sensible and proportionate” and adds that “it will be interesting to see how it works in practice”.

Neil Cleeveley, chief executive of infrastructure body Navca, says he is worried “that an overworked commission is more likely to make mistakes in applying these new powers”. And urges government “to take positive steps to help us tackle the real problems facing most charities, rather than keep attacking us all for the faults of a few”.

Patrick Murray, head of policy and external affairs and NPC, says that the provisions in the Act are important to strengthen public trust the Commission and in charities.

“People want to know that the Charity Commission is on the ball and able to Act on concerns,” he said. He adds that on the fundraising provisions the emphasis is on charities to change the “culture” and ensure that self-regulation works, but that statutory backstop will help give the public “confidence” in the new regulator.

What happens now?

The Charity Commission will consult on how it will implement the new powers, but has not yet set a timetable for doing so. However, it has already begun talking to key stakeholders, such as charities that support ex-offenders who fear their beneficiaries may be affected by the extension of offences that lead to automatic disqualification, to explain the process of applying for a waiver.

A review of the Act and how the Commission is using its powers will be carried out after three years.