The Charities Bill 2005

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Date added: 17-06-26

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According to the Charities Bill 2005, s1, which was introduced into the House of Lords on 18 May 2005, the definition of a charity is ‘an institution which is established for charitable purposes only and falls to be subject to the control of the High Court in the exercise of its jurisdiction with respect to charities.’ It goes on to list the a charitable purpose as being for the prevention or relief of poverty, the advancement of education, religion, health or the saving of lives, citizenship or community development, the arts, culture, heritage or science, amateur sport, human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony, environmental protection and improvement, the advancement of animal welfare or the relief of those in need (Charities Bill 2004, s2(1)). A charity, then, is something which seeks to afford some level of aid or assistance to those in need of it through financial means or through action. Despite the long and varied history of the charity, it certainly remains a valid legal concept for the years ahead, all the more so as a result of the clarifying and improving legislation which is going through Parliament currently. The new Charities Bill is the culmination of a rather protracted process of review and consideration of the existing law relating to charities and other not-for-profit organisations. It began in July 2001 when Tony Blair asked his Strategy Unit to carry out a review of the law and regulation of such groups. In September 2002 the SU produced its report which was titled Private Action, Public Benefit. This summarised the current state of the law in relation to such bodies, and made over sixty suggestions to the Government about how the law could be improved. The fact that such a review was seen as being necessary to begin with, and the fact that it identified so many issues requiring attention and change reflects how outmoded the law relating to charities was, and that while charity certainly was still a valid legal concept, with practical ramifications for those institutions granted the title as well as strong public support, large scale review and reform was needed to bring the law relating to charities up to date. The publication of Private Action, Public Benefit, was followed by a period of public consultation in which a range of interest groups were consulted, for example the Catholic Education Service. This led to the publication, in July 2003, of the Government’s Charities and Not-For-Profits: a Legal Framework. This was a response to the comments of those suggestions and responses the Government had received, as well as an acknowledgement of the fact that they had accepted almost all of the proposals made in Private Action, Public Benefit. It was then that the Government started the process of producing the draft Charities Bill which would later be presented to Parliament. It seems fair to state that the idea of charity is now, perhaps more than ever, a valid legal concept, given new impetus and freedom by the forthcoming legislative changes which will be introduced by the Charities Bill when it becomes law. Charities will be retain many of the advantages of their charitable status, without the often burdensome aspects of over-regulation. Even a cursory glance at the provisions of the Bill itself, and certainly a more in-depth consideration of the responses of interested parties to the Bill, reveal that the legislation will certainly be adequate in bringing the law of charity into the 21st century. There is nothing new in the concept of charity. Matthews explains that the concept of charity ‘derived from the ecclesiastical jurisdiction, not that of the Chancery.’ He goes on to explain that in order for charity to operate, there is no need for trusts. ‘And many legal systems have well developed laws of charity without recourse to, indeed without any knowledge of, trusts.’[1] Charitable purposes were the subject of statute as long ago as the early seventeenth century. The Charitable Uses Act 1601 listed certain charitable uses, most of which are identifiable in the current definition of charitable purposes, or at least are analogous to them. This was adapted by Lord MacNaghten in his four-fold characterisation of what is charitable: ‘Charity in its legal sense comprises four principal divisions: trusts for the relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purposes beneficial to the community, not falling under any of the preceding heads’ (Income Tax Special Purposes Comrs v Pemsel). This was further amended in 1968, in the case of Scottish Burial Reform and Cremation Society Ltd v Glasgow Corpn, in which Lord Reid stated that the ‘benefit must be of a kind within the spirit and intendment of the [Charitable Uses Act 1601] … Then they [the courts] appear to have gone further, and to have been satisfied if they could find an analogy between an object already held to be charitable and the new object claimed to be charitable.’ This has been, then, an expansion of ‘charity’ by way of analogy. Finally, in the Charity Commissioners Annual Report (1987), the Charity Commissioners state that although bound to follow the route of precedent and analogy, they try to do so constructively and imaginatively’.[2] An earlier attempt to clarify the law relating to charities occurred in 1958 in the Recreational Charities Act. This states that ‘it shall be and be deemed always to have been charitable to provide, or assist in the provision of, facilities for recreation or other leisure time occupation, if the facilities are provided in the interest of social welfare.’ Martin describes charitable trusts as being ‘trusts for purposes which benefit the public’, and ‘which on the authority of statute and common law are ‘charitable’.’[3] There are also certain fiscal benefits associated with an institution achieving charitable status. The most significant of these are in relation to taxation; charities are usually exempt from income tax, capital gains tax, corporation tax, inheritance tax and stamp duty, and can claim an 80% rebate on council tax paid on land they own. The question of whether charity remains a valid legal concept in 2006 turns on the effect of the Charities Bill, which seeks to bring the strands of the development of charities and charitable purposes together. This is a timely piece of legislation, as the development of the charity has been so protracted and piecemeal (the key developments having been highlighted above). Prior to this, the dominant piece of legislation with regard to charities was the Charities Act 1993. While this was a significant piece of legislation, it is the Charities Bill 2005 which will ensure that charity remains a valid legal concept in the years ahead. A significant aspect of the Charities Bill 2005 is that it carries a statement of compliance with the Human Rights Act 1998, made on behalf of Baroness Scotland of Asthal. This is, of course, mandatory since the passing of the latter Act which gave effect to the European Convention on Human Rights. Another major effect of this Bill is the attention it pays to smaller charities. According to the Directory of Social Change, their principal concern, and something which was addressed in the Bill, was that ‘the legislation should encourage rather than discourage the establishment and success of [smaller] charities.’[4] This is reflected in the fact that prior to this, the Charities Commission over-regulated charities, with the effect that many smaller ones were unable to operate efficiently because of these hindrances. The DSC state give the example of the rule which states that every charity must have an investment policy, even if it has no investments. The new Bill seeks to reduce this inappropriate level of regulation, and will hopefully make smaller charities (of which there are many) easier to operate. The Government, in the new Bill, commissions ‘an independent review of the burden of regulation that grant-making charities face more generally, to ensure that regulation is fair and proportionate.‘ This concern has also been expressed by the Association of Charitable Foundations, the umbrella group responsible for independent grant making charitable trusts and foundations in the UK. In their response to the Standard Information Return Consultation, the group ‘expressed concern about the possible danger of inappropriate over-regulation of grant-making charities.’[5] They go on to register concern that the Charities Commission should ‘act in a way which takes due account of the diversity of the charitable sector, in particular the special position of grant-making charities and small charities.’ in seeking to address these concerns, the new legislation updates the law relating to charities in such a way as to reflect the current state of charitable institutions; that is to say, it makes it a less onerous job to establish and run a smaller charity. The Bill is based on the premise that the Commissioner of Charities will have increased powers and responsibilities. It also introduces a new public benefit test for assessing whether an institution is actually a charity. The most significant application of this test will be in relation to independent schools, which have, until now, enjoyed charitable status. In essence, the Bill removes the assumption of public benefit (in particular in relation to independent schools) so that public benefit law will in future be applied to all charities. This is very much a modern addition to the law of charities, and both reflects that charity continues to be a valid legal concept, and that the law relating to charities has been brought into the twenty first century. No longer are people willing to assume that the providers of expensive, exclusive education are deserving of charitable status. According to the Catholic Education Service, the purpose of the Bill is ‘to provide a more open and accountable regime for all charities and to redefine charities by reference to a more stringent public-benefit test.’ This is confirmed by the Government’s response to the report from the Joint Committee on the Draft Charities Bill. This identifies the Government’s aims for the Charities Bill as being ‘to provide a legal and regulatory framework that will enable all charities … to realise their potential as a force for good in society, to encourage a vibrant and diverse sector, independent of Government, and to sustain high levels of public confidence in charities through effective regulation.’ The aims of the Bill, then, can be seen as a direct response to the concerns of various organisations linked to charities, and as such, the legislation is certainly a positive step in bringing charity legislation up to date. A further development which has been introduced in the new Bill is that it recognises, for the first time, the difference between grant-making charities, and other charities that provide services. It also amends the public confidence objective ‘to increase public trust and confidence in charities and to stimulate philanthropy’, a change which the ACF welcomes.[6] The introduction in May 2005 of the new Charities Bill is, then, the culmination of a lengthy review undertaken by this Government of the often confused and inefficient existing law relating to charities and other not-for-profit organisations. The Bill has met with, generally, a good response, and certainly seems to draw together and consolidate the various independent developments of the law in this area. Charities have had an important place in the English legal framework for centuries, and the effect of this new legislation will be to ensure their continued importance and improvement. BIBLIOGRAPHY Statutes Charities Act 1993 Charities Bill 2004 Charitable Uses Act 1601 Recreational Charities Act 1958 Cases Income Tax Special Purposes Comrs v Pemsel [1891] AC 531 Scottish Burial Reform and Cremation Society Ltd v Glasgow Corpn [1968] AC 138 Secondary sources Association of Charitable Foundations website Catholic Education Service website Directory of Social Change website Penner, J.E., The Law of Trusts (LexisNexis, 2003) Martin, J.E., Modern Equity (Oxford, 2004) Matthews, P., ‘The New Trust: Obligations Without Rights’, in Oakley (1996) Oakley, A.J., Trends in Contemporary Trust Law (Oxford, 1996) Strategy Unit, Private Action, Public Benefit (2002)

Footnotes

[1] Matthews, P., ‘The New Trust: Obligations Without Rights’, in Oakley, A.J. (Ed), Trends in Contemporary Trust Law (Oxford, 1996), p1 [2] Quoted in Martin, J.E., The Law of Trusts (LexisNexis, 2003), p495 [3] Martin, p492 [4] DSC website, news archives [5] See Association of Charitable Foundations website [6] See ACF website
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