34: The Charities Bill has been published – what should we expect?

In the Queen’s Speech on 11 May 2021, the government announced legislation to ‘support the voluntary sector by reducing unnecessary bureaucracy’. The Charities Bill had its first reading on 26 May and has been published together with comprehensive explanatory notes. In this blog, we look at what we can expect from the Bill (as well as what we shouldn’t).

Why do we have a Charities Bill?

Charity legislation does not come around very often and, when it does, it is often many years in the making. As previously reported, the origins of the Bill go back to (at least) 2011, when a charity law project was included in the Law Commission’s 11^th programme of reform. After a major consultation, the Law Commission published its report Technical Issues in Charity Law in September 2017. The Report made multiple recommendations for reform and attached a draft Charities Bill which forms the basis of the current Bill.

We had to wait until March 2021 before the government published its response to the Law Commission’s 2017 Report but, having done so, the government has wasted no time in bringing the Bill before Parliament.

What does the Bill do?

The Bill is designed to implement the reforms proposed in the Law Commission’s 2017 Report and accepted by government. This means that, for the most part, the Bill sets out amendments to the main charities legislation, the Charities Act 2011 (the 2011 Act), so the Bill needs to be read alongside the 2011 Act for it to make sense. Happily, the Law Commission and DCMS have produced a version of the 2011 Act marked up to show how the Act would read with the proposed changes (known as a Keeling Schedule). The DCMS has also published a Charities Bill Factsheet.

The explanatory notes to the Bill summarise its contents, noting that it will:

• give charities wider or additional powers and flexibility to amend their governing documents, decide how they procure goods and services and to make ‘ex gratia’ payments (which charities have a moral obligation, but no legal power, to make);
• clarify when property can be applied ‘cy-près’ (i.e. for similar purposes, generally where the charitable purposes cannot be carried out), including the proceeds of failed fundraising appeals;
• produce a clearer and less administratively burdensome legal framework for buying, selling, leasing and mortgaging charity land;
• clarify and expand the statutory regime that applies to permanent endowment;
• introduce a power – with appropriate safeguards – for charities to borrow from their permanent endowment and to make certain social investments using permanent endowment;
• facilitate, where appropriate, charity mergers and incorporations;
• confer additional powers on the Charity Commission to authorise charities to pay an equitable allowance, require charities to change or stop using inappropriate names and to ratify the appointment or election of charity trustees where there is uncertainty concerning the validity of their appointment or election; and
• improve and clarify certain powers of the Charity Tribunal.

That is quite a long list. Overall, the aim, as indicated in the Queen’s Speech, is to reduce unnecessary and overly bureaucratic regulation while retaining appropriate oversight, so most charities should feel the impact at some point.

Will everyone welcome the changes?

The Bill has been widely welcomed across the sector, even more so now when its promise of cutting unnecessary costs is needed by the sector more than ever. However, it is important to recognise, and be realistic, that a number of the recommendations represent compromises. This should not be surprising, given the massive variation across the charity sector – reflecting hundreds of thousands of charities, taking numerous different legal forms, operating in scores of different sub-sectors and varying in size from tiny kitchen table charities to international organisations with multi-million pound turnovers, significant investment and/or property portfolios and thousands of employees and volunteers. There is no one size fits all model.

The Bill aims to bring more clarity and simplicity where it can, but in doing so there will be changes that will probably not please everyone. For example, changes are introduced to align more closely the ways that charitable companies, CIOs (charitable incorporated organisations) and unincorporated charities can amend their governing documents, but doing so will mean that companies and CIOs may need to provide more explanation when they want to change their charitable purposes. Similarly, unincorporated charities will have a much wider power to amend their constitutions, but some charities will no longer have a separate statutory power to transfer property or change their charitable purposes (using the new power to amend their constitutions instead).

Some changes may also be seen as controversial, such as extending the Charity Commission’s power to direct a change of charity name to apply to any charity (including unregistered and exempt charities) and extending the power to working names. It remains to be seen how the extension will work in practice.

Some may also see the Bill as a missed opportunity, given how difficult it can be to get charity legislation on the statute book – for example, not all the Law Commission’s recommendations were accepted by government and other changes have happened in the meantime which might benefit from some statutory overlay, such as the question of fiduciary duties of charity members after the Supreme Court decision in the case of Lehtimӓki v Cooper. However, as noted above, the Law Commission report which led to the Bill was almost 500 pages of detailed technical analysis which emerged from a long and in-depth consultation process (comprising 3 consultations) over a number of years – a line has to be drawn somewhere or we would never get any reform at all.

The Bill is, of course, not perfect but it will introduce a number of practical fixes that overall should save charities time and money.

When will the changes be brought in?

The Bill has only just started its progress through Parliament, so it has a way to go (its 2^nd reading in the House of Lords has been announced for 7 July 2021). Its progress is not expected to be bumpy, however – it is believed to have cross-party support and is expected to go through a special procedure for Law Commission Bills, which should be a little quicker than usual. Importantly, as a Law Commission Bill, the Bill should not be prone to attempts to add new clauses on other areas of charity law which might take up Parliamentary time (sometimes referred to as making it a ‘Christmas tree’ or ‘coathanger’ Bill).

Once the Bill is enacted, it is unlikely to be brought into effect immediately. It is recognised that new or revised Charity Commission guidance will be needed to accompany a number of the provisions (eg changes to guidance on land disposals, permanent endowment, ex gratia payments and changing your constitution, among others). There is also likely to be some awareness-raising across the sector to allow time to learn about and adjust to the changes, as needed.

So, none of these changes are imminent but, after years of waiting, the Bill is now on its way. Charities can expect to hear more about it – and to have to get ready to embrace the changes – in the coming months.