Stronger charities for a stronger society: the report of the House of Lords Select Committee on Charities

Governance

On governance, the report recognises the importance of trustee training and development. It recommends that infrastructure bodies review training opportunities that exist, and address any shortcomings. At the same time, a number of recommendations are made in relation to internal policies and procedures that charities should implement to promote transparency, efficiency and diversity.

Recommendations to charities:

Charities should regularly undertake skills audits of their boards (large charities should do this annually) and ensure that there is adequate separation of executive responsibilities and oversight responsibilities. There should be regular reviews of the operation of boards and the tenure of trustees.
There should be clear time limits on trustees’ terms of office, which should be included in the Charity Commission’s draft governing documents. Where there is no time limit (for example for the founder of a charity or a family charitable foundation), the reasons should be set out in the charity’s annual report.
Trustees should not be paid, except in highly exceptional circumstances, but they should be able to claim relevant expenses.
Diversity of boards should be promoted and the Charity Commission should lead by example on this front.
All charities should seek independent evaluation of their impact and operate with a presumption of openness.
Charities should not take their positive public reputation for granted. They should maintain their focus on transparency and accountability.
All but the smallest charities should have a simple website or public social media page to provide transparency.

Recommendations to Government and sector bodies:

In keeping with the report’s strong emphasis on demonstrating impact, it is recommended that Government and the sector should continue to pursue initiatives to better understand and promote the impact of charities. The committee endorsed the Inspiring Impact programme, which provides online tools for charities to help measure and report their effectiveness. The Office for Civil Society should develop guidance on how to set appropriate goals and standardised contractual impact reporting requirements, which should be promoted beyond the public sector.
The Office for Civil Society should help to develop a new initiative to promote trusteeship to employers and employees. Government should also consult on introducing a statutory duty to allow employees of larger organisations to take time off to act as trustees.
The committee endorsed the work to update the Governance Code and recommends that the further consideration be given to best practice suggestions for governance reporting.
A template induction process for trustees should be created and infrastructure bodies and governance professionals could seek grant funding in order to create one.
Infrastructure bodies should work with others to identify further opportunities for training and developing executive leaders and staff within charities.

Commissioning, contracts and grants

The committee concluded that the commissioning landscape is skewed against smaller charities. It recommended:

a genuine partnership approach to service design and provision, involving charities, voluntary bodies, service users and beneficiaries at an early stage;
contracting authorities should embrace the recent changes to the public procurement rules, which allow for smaller contracts;
long term contracts should be the norm wherever ongoing service delivery is likely;
Government should support the development of voluntary sector bidding consortia and promote commissioning based on impact and social value, as opposed to the lowest cost;
Government’s review of commissioning should cover the impact of Payment by Results on charities and there should be an expectation that realistic and justifiable core costs will be included in public sector contracts;
more could be done to maximise the potential of the Public Services (Social Value) Act 2012. Lord Young’s proposals for extending the Act should be considered (Lord Young’s review is available here);
Government’s implementation group on commissioning practices should address the risks of larger organisations exploiting smaller charities through the commissioning and subcontracting process, and produce guidance to encourage the design of contracts in a way which prevents this; and
commissioners should pay or provide grants for charities to test new ideas and innovate.

A wider understanding in the public sector of the use and potential of grant funding is highlighted in the report, and local authorities are encouraged to maintain or revive grants wherever possible.

Sustainability

Issues of increasing bureaucracy, levies and associated costs for charities are considered in the report. Generally, the committee concluded that infrastructure bodies should work together to improve their services and ensure that all charities, and particularly smaller charities, can access their advice and support. Other measures designed to support sustainability include:

Tax policies and processes should be structured so that charities can maximise their income and keep bureaucracy to a minimum. Are there are any changes that would help charities maximise the value of Gift Aid without excessive bureaucracy? The needs of charities should be high on the agenda in relation to future changes to VAT and the Living Wage. Payroll giving should be offered as standard to all Government staff and executive agencies.
The impact of the new levy to fund the Fundraising Regulator should be monitored regularly, especially in relation to small and medium sized charities.
The committee recognises the importance of volunteers and recommends that funders be receptive to requests for resources for volunteer managers and co-ordinators. Full-time volunteering by young people should be encouraged: the committee welcomed a Government review of this area, which was announced in December 2016.
The committee considered the advantages and disadvantages of charity mergers. It recommended that the Law Commission’s recent work to address some of the barriers to mergers should be brought into law at the earliest opportunity. In the meantime, the Charity Commission should consider what support, guidance and signposting it can offer to charities seeking to merge, and should remove barriers to merger, for example in relation to liabilities such as pension arrangements.
The Charity Commission should consider cases where a time-limited structure for charities would be appropriate, and include options for time-limited structures in its governing documents.

Digital technology

The committee’s report states that charities may risk organisational stagnation and decay by not embracing digital technology. To avoid this, charities should actively consider including a digital trustee role on their boards, which would also promote board diversity. Infrastructure bodies and the technology sector should support charities by sharing best practice on innovation and digitisation across the sector, and co-ordinating training opportunities.

Charity finance

The report comments that, currently, the expectations placed on Social Investment Bonds have yet to materialise. The Government should redouble efforts to make them work better and future public funding should be reoriented towards financial products which have application to a wider range of charities and beneficiaries.

The committee’s view is that the social investment market is unlikely to reach its potential unless there are further resources to support the investment readiness of smaller charities in particular. The committee welcomes the Government’s efforts, through the Access Foundation, to broaden the accessibility of social investment to small and medium sized charities, and the measures taken thus far to reduce transaction costs for social investment and promote the market for a wider range of investors.

Regulation and the role of Government

1. Campaigning

The committee is clear about the importance of supporting advocacy by charities, saying that “through their advocacy [they] help shape our laws, government policies and society as a whole”. Whilst charities are quite properly regulated in their campaigning activities, particularly at election times, the committee stressed that any new regulation or guidance should clearly recognise that advocacy is an important and legitimate part of a charity’s role.

The committee endorses the recommendations in Lord Hodgson’s 2016 review of the Transparency of Lobbying, Non-Party Campaigning and Trade Union Administrations Act 2014, which its says will provide reassurance to charities that they will not face censure for carrying out ordinary campaigning activity during election periods.

2. Charity Commission

The committee commends the Charity Commission’s work to improve its effectiveness, but says that there is much still to do until it can be considered to be fully effective.

Charity staff and trustees with concerns should be encouraged to report them to the Charity Commission where appropriate. The Commission should ensure that charities which are proactive in reporting issues to them will be supported to help put things right.

The Charity Commission should be clearer about what support it can and cannot offer to charities and should be proactive in helping charities find appropriate sources of external support and advice.

In order to remain politically impartial, the Charity Commission should take care in all its public communications to ensure that it retains the confidence of the public and the sector.

Commenting on the Charity Commission’s proposals to consult on charging for its services, the committee expressed grave concerns. It asserted that the Treasury should, in any event, maintain adequate direct funding of the Commission.

3. Government engagement with the sector

The committee commented that Government should review its approach to engagement with the sector before policy announcements are made, with a view to ensuring that charities feel better informed about legal changes which may affect them and can provide input on new policies.

In particular, Government must improve the way it consults on matters affecting the sector in Scotland and Northern Ireland. It should also ensure that charities are better involved in regional devolution.

With regards to Brexit negotiations, the committee recommended that the Office for Civil Society undertake an extensive audit of the potential impact on charities.

The committee highlighted the importance of Compacts between public bodies and voluntary organisations. Compacts should be re-established and/or reviewed. National and local government should re-establish and/or review their Compacts in consultation with the sector. They should restate their intent to apply the principles of the Compact and include a mechanism for review to ensure they are observed.

The full report is available here.

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This information is necessarily of a general nature and doesn’t constitute legal advice. This is not a substitute for formal legal advice, given in the context of full information under an engagement with Bates Wells.

All content on this page is correct as of April 6, 2017.