Nicola Evans outlines the practical impact on charities of the withdrawal of parts of the Charity Commission's guidance on public benefit. The Charity Commission is due to issue, any day now, an amended draft public benefit guidance for public consultation (the draft guidance was due to be produced by the end of March 2012 but, at the time of writing, it is still awaited).This follows the withdrawal on 21 December of its guidance on public benefit and fee-charging, as well as certain elements of its other public benefit guidance, after a decision of the Upper Tribunal on 2 December, which would have quashed those elements of the guidance had they not been withdrawn. What practical effect might this have for charity trustees?
Why does the guidance matter?
Charity trustees are under a statutory duty to have regard to the
public benefit guidance when exercising any powers or duties to
which it is relevant. Clearly, therefore, it would not be
satisfactory for charity trustees to have to have regard to
guidance which the Upper Tribunal has found to be flawed. For this
reason, the public benefit guidance relating to fee-charging has
been withdrawn in its entirety, while all the other public benefit
guidance has been amended to remove parts which the Upper Tribunal
found to be wrong or misleading, or where references to such
parts were made. In particular, an element of one the
Commission's principles of public benefit, principle 2b
(suggesting that the opportunity to benefit must not be
'unreasonably restricted' by ability to pay any fees
charged) was 'wrong'. The amended guidance stands, and
is subject to the statutory duty, until replaced or
supplemented by revised guidance following the
consultation.
How might the guidance change?
It is not yet clear how much of the guidance will be
revised for consultation. Presumably some form of new guidance
aimed at charities which charge fees will be produced, but all
the guidance was affected to some extent; it is likely, therefore,
that the general public benefit guidance, and possibly also that
relating to the educational charities, will be the subject of
further consultation. Key points to look out for in the revised
guidance, arising from the Upper Tribunal decision, would be:
- A recognition that the Charities Act 2006, including the supposed removal of a presumption of public benefit for certain heads of charity (relief of poverty, advancement of education/religion), did not change the law of public benefit;
- A recognition that the principles of public
benefit apply only to the purposes of a charity, not its activities
- the Upper Tribunal was clear that the activities carried out by a
charity in pursuit of those purposes have no bearing on
whether or not its purposes are for the public benefit; an
institution's status
as a charity 'depends on what it was established to do not on what it does'. - A statement that how a charity carries out its purposes is a matter of judgment for the charity trustees, acting within their purposes and their duties as charity trustees.
- According to the Upper Tribunal, this means, among other things, that the charity trustees cannot operate their charity so as to exclude the poor on other than a temporary basis.
- Charity trustees should also be reminded that charities would not usually 'gold-plate' their services; a charity offering luxury services could expect to be asked to explain how this was in furtherance of its charitable purposes.
- However, none of this affects the charitable
status of the institution concerned, but rather whether or not the
charity trustees are acting within their duties.
A clearer explanation of what the 'poor' can mean in this context, eg it will depend upon the context, it does not necessarily mean destitute but can mean those of 'modest means', the 'not very well off' or, even in very limited contexts, the 'quite well off'. - A move away from a 'totaliser'- style attitude of what 'benefits' may 'count' for public benefit purposes, and whether a particular level of benefit for the 'poor' is required or met, towards instead the question, as put by the Upper Tribunal, of 'whether the trustees are acting consistently with their obligations'.
What do charity trustees do in the
meantime?
As noted above, the revised guidance stands as the Commission's
guidance, to which charity trustees must have due regard
under the statutory duty. Charity trustees have the reassurance,
which itself carries a responsibility, arising out of the Upper
Tribunal's decision, that the question of how to run their
charity is a matter for them. This does not mean they have
carte blanche to act in any way they wish - they are bound to
pursue their charity's objects and to do so in accordance
with all the duties of a charity trustee. For example, they cannot
act in such a way as no reasonable trustee would act (hence the
embargo on total exclusion of the poor, as it is assumed no
reasonable trustee would seek to run a charity in such a way).
There is, however, no standard of 'reasonableness' which
trustees must meet, because it is not for the court, the Tribunal
or the Commission to set such a standard. The essential question
for charity trustees has always been, and remains, 'What are my
charity's objects and, within our resources, how can we
best pursue them?'.
The Upper Tribunal sought to answer questions posed by the
Attorney General in relation to very specific situations
regarding hypothetical educational institutions. The Charity
Commission has set out the responses to those questions on its
website. Charity trustees may wish to review those responses, but
are not obliged to do so. It
should be noted that the responses are heavily caveated, because
they are views given concerning artificial and highly individual
cases. They do not (quite rightly) attempt to set out any
rules or benchmark and they cannot be a substitute for the
proper exercise of discretion by charity trustees with the
knowledge of the actual circumstances of their charity.
Longer term?
The question of public benefit had been dealt with by the courts
for centuries without apparent controversy. There are few cases on
the subject because, as the Commission's general public
benefit guidance acknowledges, in most cases the question of
whether particular purposes are for the public benefit 'will be
obvious'. It is only in those few cases where it is was not
obvious, that the matter ever came before the courts. On the face
of it, the Charities Act 2006, and the guidance which it
engendered, seemed to create a problem which previously did not
exist.
The question of public benefit and the meaning of 'charity' in English law are among the points to be considered by Lord Hodgson in his current review of the operation of the Charities Act 2006. It is too early to discern whether Lord Hodgson may make any recommendations for change, but potentially the matter could go back before Parliament in the next few years. In a world of economic meltdown and ever greater demands for diminishing resources, charities could be forgiven for hoping that Parliament leaves well alone.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
