The Royal Society of Edinburgh (RSE) is pleased to respond to the Scottish Executive Development Department consultation on the Draft Charities and Trustee Investment ( Scotland ) Bill. This response has been compiled by the General Secretary, Professor Andrew Miller and the Research Officer, Dr Marc Rands, with the assistance of a number of Fellows with considerable experience in this area.
The draft Bill is to be welcomed in bringing together Scots charity law requirements in one place, establishing the Office of the Scottish Charities Regulator (OSCR) as an independent statutory regulator, and modernising the regulations relating to fund raising. It will, however, be important that the definitions of charity in law are similar in Scotland and England and Wales . Such similarity will be important not only in terms of tax status, but also to prevent the re-location of charities between what are regarded as more favourable, or less onerous, jurisdictions.
One important issue is the proposals concerning the regulation of charities which are registered in England but which also operate Scotland . Particularly in the field of scientific and medical charities, many operate on a UK wide basis and this is greatly to Scotland 's benefit. These bodies are likely to resent having to undergo dual registration to operate in Scotland , when charities registered in Scotland will not have to also register elsewhere in the UK if they, for example, operate in England , and this may cause some to withdraw altogether from operating in Scotland . It would harm Scottish interests if the insistence on registering with the OSCR meant that Scottish charities find such UK sources are no longer available or less inclined to award grants to Scotland.
The specific questions in the consultation paper are now addressed below:
1: Definition of charity
Public benefit (s7-8)
In terms of the interpretation of ‘public benefit’, charities are defined in the Bill as having aims and activities which are of public benefit. But how is public benefit to be interpreted? If the Act does not answer this question, we will be left in a position where case law, predominantly laid down through the English courts, will be essential to the interpretation of the Scottish Act. This would result in a lack of transparency for citizens relying on and seeking to understand the Scottish Act.
However, the definition of ‘public benefit’ as defined in the draft is capable of being interpreted in such as way as to disadvantage some existing charities, and requires further thought. For example, in terms of educational charities, independent schools believe they have a strong case to remain as charitable organisations since they enrich the country's educational provision.
2: Establishing a statutory charities regulator in Scotland
Role of a charity regulator
While we do not agree that the Charity Regulator should be the sole arbiter in the determination of charitable status, as noted above, we do support the other functions of the Regulator. However, the proposals concerning the regulation of charities which are registered in England but which also operate Scotland could be problematic. At present charities registered in Scotland will not have to also register elsewhere in the UK if they, for example, operate in England . However, many UK charities are based in London and registered in England , with no physical presence in Scotland . If they are then to be required to register in Scotland as well, and be subject to the rigours of two regulators, in order to award funds in Scotland , they may decide to restrict themselves to operating in England . This would harm Scottish interests as many UK charities are substantial donors to activities in Scotland.
The consultation document defines those charities "operating in Scotland " as requiring to be registered with OSCR. There is, however, no definition or guidance given, either in the consultation document or draft legislation, as to what constitutes "operating in Scotland ". Perhaps the definition of "operating in Scotland " should apply only to those charities with a physical presence in Scotland or with distinct Scottish operations, provided that those charities not registered with OSCR are registered with the Charity Commissioners.
Support and advice for charities
It will be essential that the OSCR should be able to give advice to individual charities on how best to comply with the law, and to comment on charity practice and fundraising. In many cases, existing agencies and professions will be already providing advice and support, mainly to larger charities and those within specific charitable fields. However, for many smaller charities, advice from the OSCR will be both necessary and welcome.
Form of the regulator
We would welcome your views on the appropriateness of OSCR's form, appointments and functions as set out here and in the draft Bill.
We agree with the proposal that the OSCR should become a Non-Ministerial Department under the new law, as this will make liaison with the Charity Commission for England and Wales much easier. Any perceived advantage to a charity of being registered in another country would thus be dispelled. It will, however, be important to safeguard the OSCR's independence by drawing from a wide spectrum of Scottish society in appointing non-executive members, including the charity field, following open appointment procedures.
3: How charities should be governed
We agree with the need to set out clearly and explicitly the responsibilities of the individuals concerned in running charities. However, as the term 'charity trustee' is extensively used in England and Wales and is equally well understood in Scotland, the introduction of ‘charity steward’ could cause confusion. The obligations of a charity trustee will also be defined by charity law in the same way as those of a trustee of a trust will be defined by trust law.
Duties of charity stewards
We agree with the proposed duties for charity trustees and that charities governance should be independent from all interests external to individual charities. Depending on the size, complexity and history of individual charities, there is likely to be considerable variation in the ways in which board members are appointed, but there should be no problems with such diversity provided the mechanisms for appointment are clearly laid out in the constitutions of individual charities.
The proposal for asking prospective charity trustees to vouch that they are not disqualified would make for good practice and would be a protection for the charity.
4: Powers to deal with wrong-doing in charities
OSCR Investigations and Actions
Many charities in the health and care fields find it difficult to raise the funds they require for the services they provide and to identify sufficient high calibre people who are willing to devote their time and expertise by serving as Trustees. Such charities often have long term commitments to the individuals and the professionals they support and employ. They also often need to take important decisions with major financial and legal implications without the certainty that future funds for the charity will be secure. It will therefore be important that such Trustees, provided that they have not acted fraudulently or recklessly, are not expected to place their own personal savings and assets at risk through their voluntary and altruistic involvement in the charity.
Appeals against OSCR decisions
We support an accessible appeals procedure for charities that wish to challenge OSCR's decisions, but it will be important to ensure the independence of the appointment of the external appeal board, both from the OSCR and Scottish Ministers.
5: Regulating charity fundraising
Professional fundraisers should be members of, and vouched for by, an appropriate body. If any professional fundraiser is convicted of any fraud or other misdemeanour, he or she should be struck off and banned for life from practising. It may also be beneficial for charities annual accounts to indicate what proportion of their income has been expended on fundraising.
6: Improving the operating environment for charities
We welcome the reforms to make charity re-organisation easier and the proposals for the redistribution of funds in dormant accounts, which are a great improvement on current practice.
We also welcome the proposal for a new legal form which will allow charities to become corporate bodies with limited liability for members and trustees would welcome an opportunity of being involved in a further consultation about the proposed Scottish Charitable Incorporated Organisation. This will provide a less cumbersome route than the present whereby some charities have become limited companies with dual legislative and reporting requirements. There is also considerable public misunderstanding about charities becoming limited companies.
Impact of proposed reforms
The demands of OSCR on charities should be minimal, as most do not have access to in-house professional expertise.
In responding to this consultation the Society would like to draw attention to the following Royal Society of Edinburgh response which is of relevance to this subject: Review of Funding for the Voluntary Sector (July 2001)