12: The Law Commission’s charity law project – time for that Charities Bill?

Today (Monday 14 September 2020) marks the third anniversary of the Law Commission’s report, Technical Issues in Charity Law. The detailed report ran to 466 pages and made 43 recommendations designed to ease the administration and regulation of charities. It was welcomed generally across the sector and, importantly, was accompanied by a draft Charities Bill (and explanatory notes) to implement the recommendations. The Bill is, to coin a phrase, ‘oven ready’, designed to go through a special fast-track procedure for Law Commission Bills. Sadly, however, three years on, the Charities Bill is gathering dust.

Background to the Law Commission’s project

The charity law project was listed as part of the Law Commission’s 11^th programme of reform, back in July 2011. It emerged against a backdrop of, in charity law terms, pretty intensive development, with the Charities Act 2006 (as was, now consolidated into the Charities Act 2011) still in the process of implementation and ongoing questions of uncertainty being identified for review (for example, questions around corporations established by statute or Royal Charter).

The charity law project anticipated a statutory review which was required to begin by November 2011 (within 5 years of Royal Assent of the 2006 Act). That review was conducted by Lord Hodgson and reported in July 2012, identifying a number of issues for the Law Commission to consider. Lord Hodgson’s review coincided with an inquiry carried out by the House of Commons’ Public Administration Select Committee, whose report also recommended reforms.

The accumulation of reviews led to a busy terms of reference being drawn up for the Law Commission in June 2013 – although apparently not busy enough, as a few months later the terms were updated to include social investment. Having some government support behind it, the Law Commission was tasked with prioritising social investment out of turn and its recommendations on that part were implemented in 2016.

In the meantime, the rest of the charity law project was finally able to get under way in 2015. A weighty consultation was launched asking almost 100 questions across a range of areas of charity operation, including changing purposes and amending governing documents; acquiring, disposing of and mortgaging charity land; permanent endowment; cy-près schemes and fundraising appeals; ex gratia payments; charity incorporations and mergers; charitable trusts in insolvency; certain Charity Commission powers; and the charity tribunal.

What did the Law Commission recommend?

One of the aspects which can make charity administration difficult (and hence difficult to get right) is that charities can take on many different legal forms (eg charitable company, trust or CIO) and the rules can vary according to which form it is. A number of the recommendations, therefore, aim to synchronise the rules as much as possible, so that there is more consistency whatever legal form is adopted. For example, the recommendations would align more closely the test for changing charitable purposes across charitable companies, CIOs and unincorporated charities. Similarly, they would give unincorporated charities a power to amend governing documents much more aligned with that for charitable companies and CIOs.

On charity land, an area where views across the sector were fiercely divided, the recommendation would be to retain the current framework (requiring a self-certification process with a surveyor’s report etc) but to iron out some of the technical problems and gripes arising from the legislation. These would include a simplified definition of ‘connected person’, more relevant regulations for the surveyor’s report and requiring the certificate for a corporate charity to be given by the charity not the charity trustees.

Other technical recommendations include:

• a better definition of ‘permanent endowment’ (as property which is ‘subject to a restriction on being expended which distinguishes between income and capital’);
• conferring automatic trust corporation status for corporate charities administering charitable trusts;
• correcting a drafting glitch (s311 Charities Act 2011) in relation to the register of mergers (which currently risks some gifts to the transferor charity not taking effect as a gift to the transferee on a relevant charity merger);
• similarly correcting an omission (s185 Charities Act 2011) so that the statutory power would enable charity trustees to be paid for supply of goods whether or not in connection with services; and
• some clarification and relaxation of the ex gratia payments regime.

These may appear fairly trivial in the scheme of things. However, Lord Hodgson compared the technical problems which had been identified for review as ‘unnecessary burdens on trustees [which] act like barnacles on a boat, causing a drag when all should be plain sailing’. He considered the Law Commission’s report to be ‘important. Although its recommendations may appear to be highly technical, cumulatively I believe they would have a huge impact on the sector, helping trustees to work effectively in modern-day conditions.’ He added, ‘Since the recommendations have now been consulted on extensively and are approved of by the sector, I hope the government will find time to implement them speedily.’

It’s all in the timing …

The Law Commission’s report is deliberately not ambitious or showy in its recommendations – its objective was to review a range of areas where problems in charity administration and/or regulation had been recognised and to identify smart, uncontroversial, generally technical solutions or improvements. As some of these require a legislative solution, the Law Commission prepared a Charities Bill presented with its report. The overall aim was to make it as easy as possible for the receiving government to accept and implement the reforms.

A protocol agreed between the Law Commission and the then government in 2010 sets out that, once the Law Commission has published its report, the Minister for the relevant department ‘will provide an interim response to us as soon as possible (but not later than six months after publication of the report), and will give a final response as soon as possible but within a year of the report being published’. However, as the Law Commission’s charity law project webpage states, ‘We published our report on 14 September 2017. We await a government response’.

So, what happened? The charity law project was borne out of a couple of decades of review and reform of charity law, where a need was identified for some additional fixes and tweaking; not for a major overhaul, but for a little re-tuning to make the whole engine run better – for marginal gains which could mount up to significant savings in time, money and aggravation. However, the project came to its conclusions just as the country began a period of political upheaval which, not surprisingly, attracted ministerial attention away and flooded the parliamentary timetable, even before coronavirus came on the scene. It seems the secret of reform, like comedy, is timing.

However, the problems which gave rise to the Law Commission’s report have not gone away. With charities currently facing a funding and operational crisis on a level off the scale of most risk registers, a Charities Bill which would oil, however gently, a number of the creaking wheels might be a vital addition to the recovery plan which the sector will need in the months ahead.