David Ainsworth: Charity regulation is not fit for purpose

21 Sep 2018 Voices

David Ainsworth looks at the state of charity regulation, and finds that it could be improved with radical change.

In recent months, a lot of issues have arisen with charity regulation. There are questions over safeguarding. There are problems with caseload. Some charities aren’t even registered.

It’s worth asking what changes might be made.

Fewer regulators

The UK has too many charity regulators and registrars, all with different remits and powers: the Charity Commission for England and Wales; OSCR, the Scottish charity regulator; the Charity Commission for Northern Ireland; the Fundraising Regulator; its Scottish equivalent; the Financial Conduct Authority which registers charitable community benefit societies; various regulators and quasi-regulators for schools and churches and hospitals and museums and other sub-sectors.

Some are statutory, some are nominally independent. Some are too weak. Some are not very interested in charities. Some are transparent, some opaque. The Charity Commission, which a few years ago was heavily criticised, is very much improved, but struggles with the level of expectation placed upon it.

All of these regulators exist in the shadow of bigger beasts - most notably HM Revenue & Customs. Because the main benefit of being a charity is the tax breaks, the sector is pretty vulnerable to tax fraud, and HMRC effectively has a shadow framework of registration and regulation in place.

The ideal position would be to have one regulator and registrar for all charitable activities, with specialist units where necessary for particular types of charity or activity - including fundraising, as I've written previously.

That body should follow the same reporting framework as HMRC and Companies House, and charities should ideally file information simultaneously to all three, in a manner acceptable to the taxman. Although that idea, for now, seems to have gone by the board.

A single charity register

More than half the charities in the UK aren’t on the Charity Commission register. Half are not on any register, and a significant number are without any primary regulator. 

In England, the government has been threatening to register one group of churches for a quarter of a century, but has delayed it seven times because no one has the resources to do it. There are innumerable other exceptions from registration. 

In Northern Ireland, where there has never historically been a regulator, the new CCNI estimates that it still won’t have all charities registered until around 2030.

It’s impossible to regulate organisations if you don’t know who they are and you haven't seen their accounts.

A tightening of charity status

Conversely, many of the bodies which do appear on the Charity Commission’s register shouldn’t be there. Either they’re too political, or they’re controlled by the state, or their services are unduly restricted to people with the ability to pay, or they are simply better regulated by someone else.

There is an argument to remove many classes of charity from the register, including, but not limited to: think tanks, exam boards, sector skills bodies, independent schools, private hospitals, universities, housing associations.

In total, probably a third of the register by turnover - probably three or four thousand charities - should be regulated elsewhere.

Stronger public benefit rules

At the moment in England and Wales, a charity is defined by what it is, not what it does. So long as you exist to do good, it doesn’t matter whether you actually achieve anything.

It should be your actions, not your purposes, which ultimately make you charitable. That would make it much easier to shut down organisations delivering little benefit. As I’ve written elsewhere, it would also allow us to refocus on public benefit, not money, as the main tool for charity accountability.

The SORP, the main document which governs charity accounting, needs to be rewritten from the ground up - at least the section on reports, not accounts. We need to think about whether annual accounts are the right tool to ensure charities’ accountability to the public.

Bigger charities, at least, should have some duty to actually report meaningfully on their activities. If they are not be actively inspected and graded on quality, as other public benefit institutions are, then they should at least provide some information to the public. And should be funded to do so.

Stronger safeguarding regulation

Many charities which work with vulnerable individuals do not come under sufficient scrutiny when it comes to safeguarding. In contrast to the careful approach found in schools and hospitals, the way charities are treated appears odd.

A recent Commission investigation found that 1,700 charities working with vulnerable individuals do not even have a safeguarding policy, let alone good procedures. DfID is worried enough that it recently proposed setting up another regulator to scrutinise safeguarding in the charities it works with.

An effective charity regulator would be an inspecting body, with a dedicated safeguarding unit, and specialists within that unit in international aid, children, the sick, the elderly, and the disabled.

More support

Finally, the regulator of charities should not just be a scrutineer, although that should probably be its primary function. The regulator also provides guidance and enables best practice. Small charities in particular need interaction with the regulator to help them understand the law.

You could make the case that the Commission's services are so valuable to small charities that they should just be paid for by grantmaking trusts, rather than waiting for some kind of intercession from government. I suspect an advice and guidance hub, with statutory backing, would be more use than any equivalent amount of project funding.

More money

The obvious conclusion from this is that we need a step change in funding. Probably it needs at least £100m a year. Maybe more.

This seems an outlandish figure but it isn’t - not really.

At present, there are 168,000 registered charities in England and Wales with a turnover of well over £70bn. If we add in Scotland and Northern Ireland, it would probably rise to 200,000 charities with £90bn. If we include unregistered charities, the number rises to 400,000, although the income doesn’t change that much.

It’s completely unrealistic to regulate this many bodies if the total expenditure on regulation is – as currently – around £35m.

I looked at various other regulators and how they were funded, and they closest parallel is probably Ofsted, the schools regulator, which manages 100,000 schools and childcare providers, with a total budget of £80bn or so. Its funding is £140m a year.

It’s not obvious why two similar-sized sectors, working with similarly vulnerable beneficiaries, should have such radically different regulatory schemes.

It’s obvious, from recent scandals, and the current struggles of all charity regulators to keep up with their responsibilities, that the amount we spend is completely inadequate.

The amount needed for adequate charity regulation is actually chicken feed to the government, which was recently happy to invest that (and more) in a tax relief on small donations which in the event did not materialize.

It seems implausible to me – and I suspect to most – that better regulation is a worse use of cash than these unstructured tax breaks. But this is a case we must make more forcefully to the government.

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