The Charity Commission said it will open a consultation “later this year” to review the possibility of a charity-funded regulator – a model its chair William Shawcross said would be “inevitable” in the future.

Speaking at the Charity Commission’s annual meeting yesterday, Shawcross said it was “impossible” to think "that the Charity Commission could continue to exist as an effective regulator while constantly facing cuts by the Treasury year after year”.

“It doesn’t work,” he said. “So I think it’s inevitable in the long run that more funding of the Charity Commission will have to come from charities”.

Shawcross said a charity-funded regulator would reflect existing funding patterns across “many other parts of society”.

“There is no reason why it shouldn’t happen in this part,” he said. “I don’t think it’s possible to expect the taxpayer to fund the charity sector’s regulator”.

Shawcross said the regulator has already explored the option with “chief executives and trustees of many charities” and has received a positive response.

“Many of those charities with whom I have spoken to, quite understand this and think it’s a perfectly proper way of addressing the problem,” he said.

“This is a challenge for charities and it is my duty to try and persuade the sector that this is the best way of protecting it and making sure that it has an effective regulator for the future. But of course it’s a challenge. And we will have to argue it in an effective way.”

Shawcross said he would continue to consult with charities “in the course of this winter and early next year”.

'Meagre funds'

Earlier in the meeting, David Jones, director of corporate services at the Charity Commission said he was “pleased to find high standards of financial control” since joining the Commission in April.

“We have been pretty effective at maximizing the meagre funds available to us,” he said.

But he said “effective regulation” would require “sustainable funding”.

“This is a priority and as we have set out in our strategic plan, we are exploring the potential of direct funding by the sector and are consulting widely later this year on those proposals”.

The regulator has received year-on-year cuts in funding from the government, Jones said. Last year it received a 3 per cent cut “in cash terms”, equating to a “bigger cut in real terms” after taking inflation into account, he said.

In the face of further expected cuts in the next spending review, Jones said the regulator could only go so far in terms of back office spending reduction.

“We are protecting frontline resourcing by taking cuts in support costs, for example moving to much smaller and cheaper offices in Liverpool and Taunton.

“But there are diminishing opportunities for us to reduce costs in the back office. So any future cuts will inevitably impact front line regulatory activities.

“Short term funding shouldn’t mask the future pressures on running costs. As demand and public expectation rises, we will continue to find innovative ways to meet this challenge. But those returns are diminishing,” he said.

'Not the solution'

According to Jones, the only alternative to a sector-funded regulator was a “smaller, slimmer and leaner” Commission where staff “all have to work a lot harder”.

“That is the direction the Treasury are pushing us in and probably also a good proportion of the public sector," he said.

He said the Commission would struggle to cope "unless George Osborne can find some money for us somewhere – and a lot of other departments would be squealing unfair preference if he did.”

Yesterday's comments have met with criticism from some areas of the sector.

Andrew O’Brien, head of policy and public affairs at Charity Finance Group, said charging charities was “not the solution”.

“The Charity Commission is experiencing huge financial pressure, but charging charities doesn’t carry the support of the sector,” he said.

“We should be working together to make the case to government that funding the Charity Commission is a good investment, and one that brings significant social and economic benefits. In a budget of hundreds of billions, finding a few millions for regulation of charities is not a big ask.”

‘The buck stops with trustees’

Shawcross also questioned whether charity trustees were fulfilling their responsibilities properly.

He said trustees should take note of high-profile events over the summer to “reflect on whether they are all fulfilling their own duties to their own charities”.

He said that "For too long, too many trustees have outsourced their responsibilities" but that “trustees are under legal obligations to ensure their charities’ finances, reputation and property are well conducted,” he said.

“This is something we’ve been stressing all summer. The duty of trustees to take their responsibilities very seriously.

“Trustees carry a full legal responsibility for their charity, no matter what its size – whether it’s a kitchen table or a multi-million pound charity.

“No matter how many executives it employs, the buck stops with trustees,” he said.

Shawcross said it was important for trustees to take a “robust approach to ensure their organisations are properly managed”.

He added that the regulator would offer “support where possible” – particularly through its Essential Trustee guide – but that “ultimately it is incumbent on trustees to make themselves aware before taking on responsibility”.