The Public Administration Select Committee has warned the fundraising umbrella bodies to consider themselves “on notice” to improve self-regulation, particularly of face-to-face street fundraising.

And it has warned that the prospect of introducing charity-funded statutory regulation is a very real threat if the sector doesn’t lift its game.

The PASC report on charity regulation and the implementation of the Charities Act 2006 was released today, and its recommendations on fundraising placed particular concern on street face-to-face fundraising.

“It is clear that self-regulation has failed so far to generate the level of public confidence which is essential to the success of the system and the reputation of the charitable sector,” the report reads.

The Committee noted “very significant levels of public concern” about face-to-face fundraising - which it repeatedly refers to by the perjorative colloquialism ‘chugging’ – and said in light of the sector’s inability to combat these concerns the case for statutory regulation is “compelling”.

The cost of doing so, however, was considered drawback enough to prevent the Committee from recommending statutory regulation be enacted now; instead warning that the current system is placed “on  notice” with a review in five years’ time.

The report warned: “There should be no complacency from the charity sector about the need to rebuild public confidence in charity fundraising.”

If a statutory system of fundraising regulation were to be introduced, however, the Committee says it should be charities picking up the bill. The Charities Act 2006 set out provisions for the Charity Commission to take over regulation of public collections, but this system has not been put into effect. Instead it is the Public Fundraising Regulatory Association (PFRA) which arranges fundraising schedules with local authorities and imposes fines for code breaches.

The Charity Commission, which has suffered heavy cuts in the age of austerity, estimates it would cost it £4m a year to regulate public collections – not including the initial expense of setting up the system.

The Committee is more sanguine about ‘traditional’ street collections, such as Poppy Appeals. It recommends both that cash collections be exempted from any statutory regulation system, and that any statutory regulation focus specifically on the solicitation of direct debits.

In the absence of state regulation, the Committee repeated the opinions of Lord Hodgson, who conducted a review of the Charities Act last year, in calling on the fundraising bodies to work better together. It reiterated the need for the Fundraising Standards Board (FRSB), which regulates fundraising complaints, to improve its charity membership and public profile, saying that the Charity Commission has an onus to push charities to sign up to the system.

Just this week the FRSB and the PFRA signed a memorandum of understanding outlining their distinct roles in fundraising regulation; this follows last year the two bodies, with the Institute of Fundraising, publicly clarifying their distinct and separate functions. The Institute of Fundraising, however, has yet to sign an MOU with either the PFRA or FRSB, and the Committee itself, within the letter of its report, seemed unclear as to which body performed precisely which function in fundraising regulation.

Head of communications at the PFRA Ian MacQuillin said he viewed the Committee report as an endorsement for the continuation of self-regulation. “Self-regulation is always on notice and it always should be,” he said. “If the case for statutory regulation was that compelling, they would have made it by now.”

Asked by civilsociety.co.uk whether he thought there was a crisis of public confidence in fundraising, MacQuillin said no.

Colin Lloyd, chair of the FRSB, said: "The PASC report references significant levels of public concern about face-to-face fundraising and this should not be taken lightly. In terms of numbers, the volume of complaints reported in this area is relatively low, but any one instance of ‘public distress’ is of great concern to us. The sector must listen carefully to any such feedback about their fundraising and address it, working hard to minimise future concerns."

National exemption orders safe

The Committee also considered the regulation of house-to-house collections whereby charities – or their agents – collect used goods from households to raise money from their resale.

In general the Committee echoed the concerns and recommendations of Lord Hodgson, however it sided with charities which campaigned against the Lord’s recommendation that national exemption orders be abolished.

While most charities must apply to local authorities for a license to carry out a collection within its jurisdiction, 40-odd charities hold what is known as a ‘national exemption order’ (NEO), which enables them to run collections anywhere in the country without forewarning local authorities, let alone receiving permission or licence. The British Red Cross and British Heart Foundation were among the large charities campaigning against the removal of NEOs. Between the proposal to abolish the orders by Hodgson and today’s report, the PFRA had put its hand up to volunteer itself to regulate house-to-house collections also, should the NEO system be scrapped.

The Committee did not appear enthralled with the current system, but supported its continuation. Dismissing the proposal to do away with NEOs, the PASC report said: “While [the recommendation] was made with the intention of deregulation and supporting smaller charities, it is unlikely to have this effect in practice, and would increase the administrative costs of larger charities. Such a move would reduce the charitable funds available to such organisations and would therefore be unwise.”

More on the PASC report:

Public benefit test is critically flawed, MPs tell government

Bubb: PASC report is 'regulatory madness'

PASC criticises Charity Tribunal system

PASC supports Hodgson recommendation to fine late filers

PASC: Charities should publish lobbying spend and public income in annual returns

Commission should review its handling of the Cup Trust case, say MPs