As you may be aware, the Charity Commission published an open letter on 21 July 2015 to the General Secretary of the Independent Schools Council. The aim was to remind her (and the wider audience for which the letter was intended) that independent schools must meet a certain level of public benefit in order to maintain the favourable status they hold as charities. This letter was published as a result of a debate in the House of Lords where it was questioned in the Upper House how independent schools could justify their charitable status against the backdrop of the Charities (Protection and Social Investment) Bill 2015-16 (the ‘Bill’). More particularly, it was argued that some charitable independent schools could do more to share their facilities, for example, with the wider community.
The House of Lords proposed that this public benefit requirement become a statutory provision, and movements were made to include this obligation on independent schools in the Bill, with amendments being tabled. The Charity Commission were wary however of putting a statutory obligation on just one sub-group of the charity sector, which could lead to an unfair compromise in the independence of these charities. To try and prevent these amendments to the Bill therefore, the Charity Commission asked to send their open letter first to see what affect this might have on the independent schools sector. It is an important principle of charity law that trustees have the freedom to carry out their duties, acting in what they see, in their independent judgment, to be in the best interests of their individual charity.
A stronger Charity Commission
This call to action by the Charity Commission, and its attempt to engage in dialogue with the independent schools sector, was a useful reminder that one of the main aims of the Bill is to strengthen the Charity Commission’s powers. The Charity Commission is to be ‘refreshed’ to tackle abuse of charities more effectively in order to maintain the ‘high public confidence in charities’. Imposing statutory obligations directly on charities would undermine the capacity and scope of the Charity Commission to regulate the sector.
Yellow or Red Card?
The Bill has now passed through Parliament and awaits Royal Assent, the last stage before a bill becomes law. How then can independent schools ride the wave of change which seems inevitable for the charity sector? How will charities cope when faced with a Charity Commission better equipped with regulatory powers by the Bill?
When the Bill becomes law, the Charity Commission will be given new statutory powers to issue ‘official warnings’ to all charities.This warning shot, so to say, will allow the Charity Commission to express concern at a charity’s workings, without being obliged to open a full investigation of the charity and its governance under section 46 of the Charities Act 2011. Rob Wilson MP, the Minister for Civil Society, has described the power to issue an official warning as being “like a yellow card, whereas statutory inquiry and the corrective and remedial powers that follow are more of a red card”. In terms of independent schools, it could be that these official warnings are issued if it is considered that the public benefit test is not being met.
A welcomed substantive amendment was made to the Bill before it was finally agreed by both houses of parliament: originally there was no right of appeal against an official warning from the Charity Commission. A final amendment was made however to enable the Charity Commission to vary or withdraw an official warning. The issuing of an official warning must also be preceded now by the giving of notice to the charity and after providing an opportunity for the charity to make representations. Some argued that it would deter the Charity Commission from using the power to issue official warnings if there were an added level of administration and cost in defending the use of the warning in the Charity Tribunal on appeal. However it seems the power is intended to target low-level non-compliance and so the Charity Tribunal would be reserved for more serious cases. The capacity to make representations therefore is a useful defence for charities who may face this ‘mark’ being placed against their name. The fact of the matter is however those charities should avoid getting themselves into the situation where they are facing an official warning in the first place. Good governance is crucial to making sure an institution maintains its integrity, if anything is to be learnt from the demise of Kids Company.
Alongside these official warnings, the Charity Commission will give details of the remedial action needed to put things right. For independent schools, this could be the steps that are required for the school to benefit its community, such as the sharing of facilities, or offering more bursaries to children in the local area. It should be remembered that if it thinks fit, the Charity Commission can publish these official warnings. Independent Schools may from time to time therefore be open to a greater level of scrutiny.
It was announced following the Public Bill Committee Stage that proposed amendments which would enshrine in legislation the requirement for independent schools to engage with their communities and local state schools was withdrawn. This consequently leaves matters in the hands of the Charity Commission. Trustees and governors must therefore prepare to embrace the new legislation as a whole and ensure that their school meets its public benefit requirements, to avoid the unfavourable consequence of an official warning.