Charities

Reforms needed

Tom Ponsonby

What is a charity? It is not possible to give a satisfactory answer to that question, nor has any comprehensive definition of a charity as a legal entity been laid down by the legislature or the judiciary. The general rule is that for a trust to be charitable it must satisfy three requirements: 1 Its objects must be of a charitable nature within the spirit and intendment of the preamble to the statute of Elizabeth, 1601, as interpreted by the courts or extended by statute.

2 It must be for the public benefit.

3 It must be exclusively charitable.

The statute of Elizabeth was repealed in 1888 but the list of charitable objects set out in the preamble has always been used as a guide to the courts in determining the legal meaning of charity. The preamble itself was repealed in 1960 but the guidelines remain the same, the courts having_ updated it by a process of analogy. For example the preamble mentions "the repair of. . . seabanks" which has led to lifeboats being regarded as charitable, and by a further analogy private fire brigades, and the "repair of churches" to 'the provision of cemeteries, churches and all religious advancement.

In 1891, Lord Macnaghten, in a speech in Pemsel's case, enumerated four classes of charitable purposes: the relief of poverty; the advancement of education; the advancement of religion; and trusts for other _purposes beneficial to the community, not falling under any of the preceding heads.

For any trust to gain charitable status it must fall within Lord Macnaghten's classification and satisfy the three requirements mentioned above.

Today the desire of organisatiohs to achieve charitable status arises not so much from a desire to possess the legal privileges that go with it, but mainly because of the substantial tax advantages accorded to registered charities. As new taNes have been introduced over' the years, charities have been exempted from them. The most recent in the long list is VAT and not far behind that is capital gains tax. However, the most valuable exemption is or course from income tax. It not only enables charities to receive income on their investments tax-free but also to recover tax paid on donations made by way of a seven-year covenant. Other tax advantages to charities include rating relief and freedom from estate duty on bequests up to £50,000.

With such substantial payments being made by the Exchequer to certain types of organisation there must be concern that the money is going to the right organisations and that there is some form of public accountability for the expenditure of that money. The Charity Commissioners have a duty under the Charities Act 1960 to maintain a register of eligible charities both in accordance with statute law and with the huge bank of case law which now exists. They also have a duty to oversee all charities but in fact rarely intervene in their running. However they will step in if there has been fraud, serious inefficiency or a breach of trust.

The Charity Commissioners' supervisory role is inevitably carried out in a very perfunctory way. How could it be otherwise when they have about 100,000 charities on their books and inadequate staff to perform this function? They review the accounts of every charity only once in every five years — but have no accountant on their staff. They will also intervene if they consider an organisation is not acting within the limits imposed on charities by the law. But, in fact, it appears that only when information is brought to them, possibly by a press report, do the commissioners investigate an already registered trust. This means that many trusts tend to be circumspect in their activities and to shun publicity. Organisations like NCCL, Amnesty and the UNA are not charities and are therefore barred from enjoying the tax advantages conferred on similar organisations that can bring their objectives within the-legally acceptable limits of the definition of a charity. It is at this point that the discontent with the present systerh of registration shows itself most strongly. The dividing line between what is and what isn't regarded as charitable has become very blurred and over the years has resulted in some very strange anomalies. Hence any organisation that promotes religion, no matter what religion, can register as a charity; for instance, the Spiritual Regeneration Movement of Great Britain, the Voice of Methodism and the Church of Jesus Christ of the Latterday Saints (Mormons), are all charities who qualify for tax handouts, while the Humanist Trust and the National Secular Society do not..

The advancement of religion may have had the essential ingredient of being "for the public benefit" in 1601 and even at the time of Lord Macnaahten's famous classification in .1891, but the benefit derived by the public from the promotion of any religion today is highly questionable.

Generally speaking, for a trust to be recognised as being purely charitable it should seek to maintain the law not to alter it; but how then to explain that, while the Sexual Law Reform Society is not eligible, the Howard League for Penal Reform is? The answer would appear to lie in the requirement of the public benefit rule — "a trust for the attainment of political objects has always been held invalid, not because it is illegal, for everyone is at liberty to advocate or promote by any lawful means a change in the law, but because the court has no means of judging whether a proposed change in the law will or will not be for the public benefit, and therefore cannot say that a gift to secure the change is a charitable gift" (per Lord Parker in Bowman u Secular Society Ltd, 1917). 'Political' organisations have always been denied charitable status on the grounds that they were agitating for changes in the law rather than seeking to protect the status quo — "any purpose of influencing legislation is a i political.purpose in this connection ... this s mainly a trust to secure a certain line of legislation and if that is so, I do not understand it to be disputed that that would not be a charitable trust" (per Rowlatt, J., IRC v Temperance Council of the Christian Churches of England and Wales, 1926).

Politics involves propaganda, and propaganda cannot fit into any of the classifications of what constitutes a charity — "Political propaganda masquerading — I do not use the word in any sinister sense — as education is not education within the statute of Elizabeth. In other words it is not charitable" (per Vaisey, J., in re Hopkinson dec'd, 1949). However the division between education and propaganda is often difficult to draw. The Commissioners in their 1969 annual report wrote, "Increasingly we are confronted by attempts to represent as educational a variety of activities which are primarily of a propagandist nature and which accordingly cannot be accepted as coming within the meaning of the advancement of education." However the Charity Commissioners have been taking a more flexible line in recent years by allowing obvious campaigning organisations like the Child Poverty Action Group to benefit from charitable status.

Another unsatisfactory aspect of the present law is the difficulty in drawing the line between private and public benefit. A fund in favour of a restricted number of people such as the Aberfan Disaster Fund can be allowed. Such funds 'exist, some to the embarrassment of their trustees who can no longer dispose of the income of the fund. These funds may be limited in ways which were sensible in former times, such as to apprentice the children of parents born and residing in a particular area, or to relieve a no longer existing suffering such as a fund for Air Raid Wardens in a particular locality. On the other hand, a fund set up to provide for the education of the children of the employees and ex-employees of a large company has been disallowed on the grounds that it caters for too small a section of the public — "There is a distinction between a form of relief extended to the whole community, yet by its very nature advantageous only to the few, and a form of relief accorded to a selected few out of .a larger number equally willing and able to take advantage of it" (per Viscount Simonds in MC Baddeley). Even the Charity Commissioners themselves admit, "Charity law is not always governed by logic nor are the decisions en tirely consistent" (Annual Report 1967). This unsatisfactory situation means that there are many organisations who are refused registra tion. However an appeal against the Charity Commissioners' decisions is to the Chancery Division of the High Court and cost is the prohibiting factor. Between 1960 and 1971 out of 1,380 refusals, only one resulted in an ap peal. There were certainly cases where an appeal might have been justified. For example the Commissioners refused to allow the promotion of better race relations as a chari table object because there was nothing analogous in the 1601 Act, and rejected a clause in the proposed constitution of local groups of the National Association for Mental Health although an identical clause had been allowed previously in the objects of the parent body.

Spectator March 16,191 The vagueness and apparent illogicality the present charity law might lead one tcl think that the answer to the problem was arrive at a more acceptable definition of' charity. This has run up against hostility fre the Charity Commissioners who believi vagueness is a virtue as it allows them to flexible. Indeed if one did have a code, would not allow new types of organisation t` emerge which the present approach allovI5 Another possibility would be to allow charito, ble status to all organisations beneficial to til;, community. However this would encounte,' difficulties of defining the meaning e's 'beneficial.' Indeed the problem of 'definitions, has been one of the difficulties about refornit ing the present law, a difficulty on wined previous attempts at reform have foundere. Many existing charities are concerned08, any reform could mean the exclusion of thei '

organisation. 'or.

Detailed examination of the situan .11 forces one to the conclusion that reform WI ' only come with an entirely new approach one which does not rely on subjective vie° and value judgements. This can only eve,, . tuate if one adopts a purely formal definv of a charity which simply calls for 3 examination of the constitution and procee9 ings of an organisation without trying tn,shi whether it is a deserving cause or not. approach would leave charities free to 01,1 new aims and methods without fearing t" their tax status would be damaged. For this reason the Charity Law Ref°„ri Committee have drafted a Bill which hope to have presented in the new Parliartie' proposing a completely new form of ganisation called a Registered VoluntarY ganisation. The idea is very simple. Volunt` organisations would have all the advantl of charities and none of the restrictions, ill they would be bound by stringent regulatir aimed at ensuring that their assets and come would not be leaked into private 110.ed One very different proposal of the comall';st is that the Registrar of Voluntary Organ„,? tions, instead of having the power to renluvi an organisation from the register, will the power to remove those in control of organisation. The reasoning behind this ner.st, approach is both to ensure the Pr°r(I' management of the funds and to stop arj ganisation being tempted to accumulate and then de-registering and distributing th.,

The overriding principle behind the cora":

tee's proposals is that registered organisatis!" should not be capable of being used for private benefit. This contrasts with e present law which insists on a public ben The proposals would banish vagueness uncertainty and positively invigorate P life by a transfusion of financial assistance all manner of organisations. The mainfa guments against the proposals are costd the financial benefit that would be gain controversial and extreme organisations. A Although not a part of the proposals, it "0 seem that the proposed supervisory P0W;eri, the Voluntary Organisations Commisslor could well be extended to the Charity missioners. The power of the CharitY u:s missioners lies in their ability to de-rek, whereas the Voluntary Organisations missioners' power lies in their abili,t);, remove those in control of an organise° thus introducing an element of publicse countability. Some charities are run perpetuating oligarchies and a methda "tp troducing a democratic element intnift management structure should be founcliectl cannot be done by nomination by an hot body, then the Commissioners shoulc!. the right to nominate an official trust e", 0

Whatever the fate of the propose" reform is long overdue. Torn Ponsonby, General SecretarY,hat Fabian Society, is chairman of the Law Reform Committee. of