On 14 July the Charity Commission published the reports on its first exercise in assessing the public benefit of charities which are already on the charities register. The reports are the first indication of how the Charity Commission intends to apply its public benefit guidance to registered charities. In addition to a report on each of the 12 charities assessed in the exercise, the Commission has published a more general report, ‘Emerging Findings’, setting out ‘additional information for trustees about meeting the public benefit requirement’. The papers can be viewed on the Commission’s website at

http://www.charitycommission.gov.uk/publicbenefit/default.asp.

Overview

The charities assessed

12 charities were assessed: 5 independent schools and 4 religious charities, chosen because they represented two of the categories of charitable purpose which have lost the benefit of the presumption that they are for the public benefit (advancement of education and advancement of religion), and 3 fee-charging care homes, chosen because they, as well as the schools, charge ‘high’ fees, which the Charity Commission defines as being fees which ‘many people cannot afford’.

Which passed, which failed?

8 ‘passed’ the assessment, 4 ‘failed’ – 2 independent schools and 2 care homes. All the religious charities passed.

Of those that passed, in 5 cases the Commission has made some ‘good practice’ recommendations.

Of the 4 that failed, two (St Anselm’s School Trust and Penylan House Jewish Retirement & Nursing Home) were found to be charities but ‘not currently operating for the public benefit’, essentially because they do not provide ‘sufficient’ means-tested assistance with ‘high’ fees. One (Highfield Priory School) is ‘capable of being a charity’ but found ‘not …[to] meet all aspects of the public benefit requirement’, essentially because it currently offers no means-tested assistance with high fees. No conclusion was reached in respect of the other charity (Rest Bay Convalescent Hotel) because it was found to be suffering from ‘Mission Drift’ and so was not carrying out its purposes.

What is the effect of failing the test?

The ones that failed remain on the charity register but have been given 3 months to confirm their intention to produce a plan showing how they intend to ‘meet the [public benefit] requirement’ and a further 9 months to produce such a plan. It is interesting to note that this 12 month period will expire after the next general election. These time periods appear to be borrowed from the approach taken by the Scottish charities regulator OSCR in its ‘Rolling Review’ of all the charities on the Scottish charities register. In that case, however, failure to confirm within the 3 months that the charity intended to comply with the direction would cause OSCR to remove it from the register; there is no suggestion that the Charity Commission intends to follow suit, although it is not clear what action it may take if any of the charities which failed the assessment refused to provide the confirmation sought.

What about appeal?

The Commission states that its reports are ‘final’ and not capable of appeal to the Charity Tribunal, but the basis for this is unclear. The Commission has not specified under what authority it requires the charity trustees to act. It seems probable that some form of challenge would be possible to the High Court (and/or, potentially, to the Tribunal) if any of the charities concerned wished to make one.

The basis for assessment

The Commission based its assessments entirely upon the principles set out in its public benefit guidance. However, we consider that the guidance is flawed as it does not reflect accurately the English law of public benefit. This raises a concern over decisions which are made in reliance on that guidance.

How much is ‘sufficient’ public benefit to pass the test?

The Commission denies that there is any ‘minimum or optimum amount or percentage of fee assistance that fee-charging charities should offer’. However, the suspicion remains that unofficial ‘benchmarks’ are being applied.

Is there more to come?

In its ‘Emerging Findings’ report, the Commission indicates that more assessments are planned for ‘later this year’, following a review of the costs of this initial programme and the ‘benefits achieved’. The next programme is due to include ‘other types of fee-charging charities’, some small charities and charities for which private benefit may be an issue. It seems likely that the latter class will include some membership charities. It is not clear how the Commission will select charities for the next assessment exercise. Some may volunteer, but it is not expected that all participants will be voluntary.

What is the overall effect?

The overall effect seems to be that wealthier charities will have little or no difficulty passing the Commission’s test, as they will be able to afford to offer ‘sufficient’ means-tested assistance with fees. It is charities which lack resources, but provide services which are by nature expensive, which will suffer.

What might this mean for charities?

The sample of 12 charities is a very small one from which to try to identify trends in how the Commission will apply its guidance to other charities. However, although it is a highly speculative exercise, there do seem to be some trends arising at this stage.

Charities charging high fees

As noted above, the Commission defines ‘high’ fees rather vaguely as being fees which ‘many people cannot afford’. It seems that, where charities charge high fees, the Commission is likely to expect the following:

  • That means-tested assistance must be available.

It appears that the Commission does not consider that charity trustees can have discretion to decide to try to keep fees as low as possible for all, if that means that the fees for all would still qualify as ‘high’ (see, for example, the report on Highfield Priory School).

  • That there must be some means-tested assistance up to 100% of the fees charged.

In the St Anselm’s School Trust report, it was noted that a means-tested bursary set at a maximum assistance level of 90% may still exclude those in poverty.

  • That the means-tested assistance must be ‘sufficient’ both in number of awards and as a percentage of gross income.

    It is not clear what may be considered ‘sufficient’. As indicated above, the Commission denies that it uses a ‘one size fits all’ benchmark, although there do seem to be some levels of ‘acceptability’ emerging in the sectors considered so far.

    For the schools assessed, levels of 5-15% of gross fee income were accepted, whereas 0-1% was not sufficient.

    For care homes, it is more complicated. Means-tested assistance equivalent to just under 3% of gross income can be acceptable (see the Cornwall Old People’s Housing Society report), whereas means-tested assistance at over 3% was insufficient in the case of Penylan House Jewish Retirement & Nursing Home, seemingly because it had higher levels of reserves which it was suggested might be used to subsidise access (see further below).

  • That, where means-tested assistance has to be limited, the assistance should be aimed towards yyoffering more 100% awards.

Some of the good practice recommendations in the reports suggest that the charities review the scope for ‘increasing the relative number of higher percentage awards’.

  • That there must be a budgeted strategy for means-tested assistance targeted at those who cannot yyafford the fees, including people in poverty.

This is a running thread through each of the reports relating to charities charging ‘high’ fees. The strategy should also include provision for applying unspent funds towards future subsidies.

  • That payment of fees is not a condition of access to benefit; access should be assessed on need, not yyability to pay.

A distinction between the Cornwall Old People’s Housing Society (which passed) and the Penylan House Jewish Retirement & Nursing Home (which did not) was that the literature published by Penylan House gave the impression that payment of top-up fees was required as a condition of access (although the charity would in fact often waive the top-up fees, albeit on an ad hoc basis).

  • That high fees can be mitigated if paid by someone else who can afford them, eg a local authority or yygovernment department.

The important point in the Commission’s eyes is whether someone may be denied, or deterred from seeking, access because of the inability to pay a fee.

There are various difficulties in law in linking this approach to charitable status, not least the implication that the funder would become de facto arbiter of charitable status if that status was reliant upon funding being available.

  • That ‘other opportunities’ to benefit can be offered, but they will not alone be ‘sufficient’ to mitigate yyhigh fees.

The Commission has sought to emphasise that, in each case, it took into account the ‘totality of benefits’. That seems to be true, but it also seems true that the ‘other opportunities’ to benefit were, in each case, insufficient in the absence of ‘sufficient’ means-tested assistance.

  • That reserves are available to subsidise access.yy

A factor which seems to have been relevant in the Penylan House report is that, even though it offered more means-tested assistance (by percentage of gross income) than the Cornwall Old People’s Housing Society which passed the test, it seems to have been considered that it could have offered more because it kept a relatively high level of reserves (sufficient to run the home for a year). This approach of dipping into the reserves also seems to be approved in the Commission’s ‘Lintott School’ sample report, which showed a negative reserve without any concern, in happy reliance on ‘full student rolls’ and an understanding bank. It is doubtful that charities would, or should, feel comfortable with such an approach in the current economic climate.

Of course, we cannot be sure that this is what the Commission will look for. It should also be remembered that what the Commission expects is not the same as what the law requires. Under current case law, most of the points in the above list are for the discretion of the charity trustees and a matter of good practice, rather than a legal requirement for charitable status.

As noted above, the assessments are made wholly on the basis of the Commission’s public benefit guidance. Charity trustees are obliged to ‘have regard’ to the guidance when exercising any powers or duties to which the guidance is relevant, but there is no legal requirement to comply with the guidance. Unless or until the Commission’s guidance and/or its decisions made applying the guidance are reviewed by a court, the legal basis for a decision of the Commission made on the basis of their guidance will remain unclear. This can leave charity trustees of charities which may be affected by these decisions in a dilemma over whether they should seek to comply with the requirements imposed by the Commission, even if they would not have chosen to exercise their discretion in that way in the best interests of the charity, or risk being assessed and ‘failed’ by the Commission.

Religious charities

As noted above, all the charities for the advancement of religion passed the Commission’s assessment. There has been concern in this part of the sector over how the Commission may apply its guidance, given that there remained doubts over certain aspects, such as whether proselytising may be deemed ‘harmful’ or ‘political’ (on the basis, it was suggested, that it puts forward a particular point of view) or whether charities carrying out missionary work in countries where it is not legal could also find their work is deemed to amount to ‘harm’. The reports go some way to removing some of the remaining doubts.

The ‘political’ point on proselytising was toned down in the published guidance for charities for the advancement of religion and is not taken up in the reports. It is accepted in the reports that proselytising does not amount to ‘harm’ provided it is carried out on a non-coercive and invitational basis and that nothing is expected in return for the services (see, for example, the Church Mission Society report).

For charities carrying out work abroad where this may be controversial or even illegal, provided it would be regarded as charitable here, it was accepted that it is not ‘harmful’ where the charity is aware of the risks and has policies in place to manage them (see the Church Mission Society report).

The Commission also accepts in the reports that intangible and unquantifiable benefits may be taken into account (something which has always been the case under English law provided they are capable of proof) – see, for example, the Church Mission Society report. It remains doubtful, however, whether the Commission would accept this in the absence of what it considered to be sufficient ‘quantifiable’ benefit.

‘Mission drift’

No conclusion was reached in respect of one of the reports (Rest Bay Convalescent Hotel) because it was found that it was not operating within its purposes. The trustees in that case have been asked to consider whether they are able still to carry out their purpose or whether they may need to seek an amendment in order to continue to apply their funds for charitable purposes.

This is the report which may be forgotten among the general furore which has already begun following publication of the assessment reports. However, in many respects it is the most important report because it identifies a point which should have been given greater emphasis in the Commission’s guidance, namely the need for all charity trustees to know the purposes of their charity.

Conclusion

As feared, the assessments have shown that the charities likely to have most difficulty in passing the Commission’s test are those providing a service which is expensive but which have limited resources available to subsidise payment of fees charged. Much has been made of the political debate over ‘Why is Eton a charity?’ yet Eton should expect no difficulties in passing the test when it registers with the Commission shortly, because it can afford to pass the Commission’s test. It could be argued that the Commission has missed its target, when schools charging the highest fees pass its test, but a school, such as Highfield Priory, which aims to offer school education to the greatest cross-section of pupils by keeping its fees as low as possible for all, does not.

Charities with concerns have some breathing space now before the next round of assessments is announced. Charity trustees should consider what implications the published assessments may have for their charities. Charity trustees should also compile as much ‘public benefit’ information as possible to include in their Trustee Annual Reports and to consider the relevant sample reports published on the Commission’s website. Charity trustees are not obliged to present the information in their Report in the way suggested by the Commission, but it would be prudent to be aware of what the Commission will be looking for. In the meantime, the charities which have fallen foul of the Commission’s advice will need to spend charitable resources on addressing the Commission’s concerns that they have not provided ‘sufficient’ public benefit, although the Commission has not seen fit to divulge precisely what that means.