This week the Charity Commission closed their latest consultation on their Annual Return for 2015. As one of the main regulatory tools, which makes up the Commission's Register, it is important to ask the right questions. We took a strong line at ACEVO (see our website here) in opposition to the Commission's proposals – which received third sector press coverage here, here and here. Here's our submission in full:
Association of Chief Executives of Voluntary Organisations (ACEVO)
Consultation response: Charity Commission Annual Return 2015
ACEVO welcomes the opportunity to comment on the Charity Commission’s consultation on the Annual Return for 2015. We have discussed our initial concerns with Caroline Cooke, Head of Policy Engagement and Foresight at the Commission, and would welcome the opportunity of further discussion with the Commission if this is necessary. We also have discussed our response with ACEVO’s membership of 1500 charity and social enterprise leaders, through two calls to action online and through our regional engagement work right across the UK.
We are sympathetic to the imperfect options open to the Commission for increasing the data collected about charities – and we are aware of the constraints imposed by IT resources in the short term.
We also believe, however, that some of the Commission’s proposals for the Annual Return 2015, especially the proposed burdens placed upon charities’ historic right to campaign – are disproportionate and illogical. We have grave reservations over their potential inclusion in any future Annual Return. We explain why in our submission below.
Q1 Do you agree with the proposal to introduce a question into the annual return to ask how much of a charity’s total expenditure has been on campaigning activities?
ACEVO is clear: this is a corrosive proposal for the reasons set out below.
Illogicality and irresponsibility
Charities exist for the furtherance of public benefit: to ‘do good.’ Charities do good both by providing services that help people, and also by recognising that no one charity can eliminate the harm entirely. That is why charities speak out, make connections with other charities and attempt to influence donors and statutory bodies to change the system in which the charity operates.
A charity’s service and its advocacy about the service are completely indivisible. It is illogical to suggest otherwise. Indeed, it would be a dereliction of duty for a charity seeking to alleviate harm to not speak about that harm or its experiences of alleviating harm so as to compel others to join in the struggle.
ACEVO’s Chief Executive Sir Stephen Bubb explained on BBC Radio 4’s World at One on 27 June 2014 that “charities’ work in delivering services is inextricably linked with our campaigning and advocacy roles”. To attempt to separate different parts of charities’ work towards their public benefit mission is deeply irresponsible. It risks creating the false impression that their campaigning work is somehow separable from, or an optional addition to, service delivery to beneficiaries.
On a practical level, accounting for a charity’s total spend ‘on campaigning activities’ is difficult when the Charity Commission has not precisely defined the scope of the term. In the words of one ACEVO member, “it would be hugely time consuming and difficult to define the difference between awareness raising and political lobbying”.
It is important to consider this proposal in the context of a range of pressures on charities’ ability to speak out in public on their beneficiaries’ behalf. These include limits placed on charities’ ability to speak out in an election year through the Government’s Transparency of Lobbying Act and limits on charities’ ability to criticise bad practice on the part of government by way of ‘gagging clauses’ in public service delivery contracts. These pressures – both of perception and practicality - are considerable. As such, we are strongly opposed to any regulatory measure that would increase the actual or implied pressure on charities that speak out. We trust that the Commission will agree with this analysis as the commitment expressed in its guidance document CC9, Speaking Out, is clear:
“Campaigning and political activity can be legitimate and valuable activities for charities to undertake.”
CC9 also makes clear that:
“Charities can campaign for a change in the law, policy or decisions where such change would support the charity’s purposes.”
ACEVO recommends in the strongest terms that the Charity Commission do not introduce a question on campaign spending into the Annual Return and that they resist any future pressure to do so.
Infantilisation of the public debate
We believe that the UK deserves a world class charity sector and that this requires a strategically focussed, innovative regulator. Across the world, forward thinking philanthropists are recognising the indivisibility of a non-profit organisation’s service and its voice. Mark Kramer’s article ‘Catalytic Philanthropy’, for example, refers to catalytic, next generation philanthropy as a synthesis of delivery and advocacy, or taking innovative social ideas and ‘mainstreaming’ them. It is a matter of regret that on this matter the UK’s debate, which often is world leading on the subject of philanthropy, actually appears to be regressing. The Charity Commission must work harder to lead this debate, not follow it.
Q2 Do you agree with the proposal to introduce a question to the annual return to ask how much of a charity’s income was received from:
• public service delivery
• private donations?
Q3 If we did introduce the questions set out above is it feasible for charities to provide this information?
We are not against the idea in principle, but we oppose this proposal.
Submitting income from only these two sources would not give a clear picture of charities’ income. Grant funding from statutory sources, for example, would not be covered by either of these two headings.
The SORP Committee observed that this reporting was neither in the public interest nor was it proportionate. It would certainly place an unnecessary bureaucratic burden on charities that we cannot sanction unless further persuasive argument is given.
There is no doubt that the Commission are sincere in their desire to give effect to the PASC report. Only asking for these two items, however, adumbrates a further infantilisation of the important debate around charity and public service that is regrettable.
Q4 Do you agree with the proposal to ask whether a charity has a written policy on remuneration of executive staff?
ACEVO’s Good Pay Guide for Charities and Social Enterprises, published in December 2013 is the sector leading publication on executive pay. In it we made clear our organisation’s commitment to five principles of transparency and proportionality over staff pay and the principle that sits primus inter pares: value for money. There is strong consensus across the charity sector on the need for transparency about pay – at all levels, not just in senior management. Charities are working towards this end irrespective of any pressure from the regulator.
At ACEVO we have been heartened by the positive response to these proposals and the extent to which charity remains among the most trusted of all the professions.
As such it is unclear whether a tick box of the kind proposed will make any tangible difference. The regulator should have a strategic vision for charities to follow, not simply ‘regulate’ for the sake of it. ACEVO believes it is unnecessary for the Charity Commission to ask about a ‘written policy’ on executive pay in the Annual Return. It will merely duplicate an initiative which is already widespread and self-enforced across the sector, and asking a simple yes/no question collects so little information that it will not substantively increase transparency about pay in the sector.
We do not agree with the proposal as written here. We may be amenable to a revised proposal that aligns explicitly with the SORP. Substantively, these requirements should not be extended to smaller charities; and if the question is to be included, it should explicitly be stated that answering is optional as good practice rather than as a regulatory requirement.
Q5 Do you agree with the proposal to introduce a question into the annual return for 2015 to ask if a charity has carried out a review of its financial controls during the reporting year?
We support good quality financial management in the charity sector. We have concerns, however, around whether this question is the correct way to go about getting them.
Given the diversity in the size of UK charities – by turnover and staff numbers – we do not think that it would be advantageous to ask all charities whether they have reviewed their financial controls. This would risk creating an expectation that charities should review their financial controls every year. In small charities which may not have paid staff it is hard to imagine that creating such an expectation would be advantageous to the sector’s smooth operation or to the public’s trust in it.
Furthermore, the question may not actually yield appropriate information. Charity Commission guidance CC8 contains the checklist that many charities would use. Whether capacity exists to fully instantiate those controls within the smaller charities on an annual basis is unclear. We are concerned that the annual requirement would create a perverse incentive and many smaller charities might simply wave through the ‘checks.’ This is not quality financial management but regulation by box ticking, and would not substantively deal with the problem. As such we cannot agree with this proposal.
Q6 Do you agree with the proposal to ask charities with incomes of between £10,000 and £500,000 to provide some key financial information through the annual return?
We understand that the regulator is keen to collect data about the smaller end of the charity market, but it must remember that its most basic aim must be to do no harm.
Small charities are particularly vulnerable to excessive bureaucratic burdens. ACEVO believes this proposal would, if implemented, need to be optional. We want the charity sector to be being as transparent as reasonably possible, but making this requirement mandatory could add unnecessary pressure on smaller organisations, especially those without paid staff. In the case of organisations with incomes as low as £10,000, we strongly feel that being compelled to submit this information is particularly contrary to the public interest. The only justification we can see is that it would be convenient for the regulator, which we do not feel would be sufficient.
 Mark Kramer, ‘Catalytic Philanthropy’, Stanford Social Innovation Review ((2009). http://www.ssireview.org/articles/entry/catalytic_philanthropy/.
 ACEVO, The Good Pay Guide for Charities and Social Enterprises (December 2013). https://www.acevo.org.uk/sites/default/files/ACEVO_PayGuide_20131219.pdf.
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