Policy, Policy, campaigns & research

Charging charities for regulation: penny-wise and pound foolish

Posted 08 December 2014

jay_09_400x400Suggestions that the Charity Commission could start charging charities for their own regulation have recently started to gain some traction.

This debate has been around for a while, certainly since the huge cuts to the Commission’s budget began in earnest after 2010. It gained momentum with Lord Hodgson’s report reviewing the 2006 Charities Act, Trusted but Independent, in 2012. Hodgson recommended that ‘Government should work with the Charity Commission to develop a fair and proportionate system of charging for filing annual returns with the Commission and for the registration of new charities.’

More recently, the issue came up at the Commission’s AGM in October. Responding to a question from the audience, Chair William Shawcross said the Commission would shortly be having some kind of consultation on the issue. It subsequently emerged that the NCVO would be involved, though further details haven’t been forthcoming.

DSC’s position is that introducing charging is a bad idea – not just for charities, especially smaller ones – but for the regulator too. Others may say why not? Other regulators like Companies House charge, so why not the Commission? We’d group our objections into ‘five Ps’:

Practicality
People trying to set up (small) charities have a hard enough time scrabbling around for enough cash to get going. Charging for registration is a disincentive to civic action; it just adds another unhelpful barrier, at a time when we should removing them.

What about charging for the submission of reports and accounts? The Commission rightly bangs on about the importance of getting these done properly and in on time. They are fundamental to the whole system of charity regulation now and in the future – including greater self-regulation through improved transparency and public awareness of charities’ activities. Why make this harder to do? Why add another disincentive for the laggards? Fines for non-compliance might be a more effective option – but shouldn’t be seen as a revenue generator.

Then there’s the cost of implementing the systems required to manage and enforce payments. Would they be worth the income received? Think of the invoicing, online payment systems, setting up direct debits, chasing outstanding payments, and so on. It’s hard to see how the cost/benefit works out well, unless you’re charging a significant amount per charity.

Proportionality
Is it fair to make all charities pay? DSC would say absolutely not – but if not, who would have to and who wouldn’t? Shawcross has suggested there would be an income threshold of £100,000 above which charities were charged. Even this is a very low income level that would affect many small (but not the smallest) organisations. A charity with £100,000 income might employ a handful of staff, but will in most cases still operate at a local scale, with lots of work done by volunteers and trustees. Small amounts of money make a big difference to these organisations.

Companies House has been used as an example in the debate – they charge for all kinds of things, with fees ranging up to £100. There are around 31,000 charities above the £100,000 level. Charge each £10 and you raise £310,000 – not to be sniffed at but hardly a game-changer for the Commission. You’d need to charge closer to £100 – raising around £3.1 million – to really start filling the budgetary hole. Some of this income would also get swallowed up by the administrative costs and systems needed to process the payments.

Public Relations
It’s 2016, and you’re submitting the whizz-bang digital Annual Return via the Commission’s new uber-cyber-portal. Following hours spent at the computer, including your data disappearing three times without being saved, you get to the final page and are urged to submit your bank or credit card details. What is this? Nobody told us we were going to have to pay £100 for the pleasure of complying with the law. I’m making a complaint!

It depends on where any charging threshold is eventually set, but even if the threshold is £100,000 this could be a shock for thousands of organisations. There will need to be a public awareness effort to make people aware, or risk an avalanche of complaints and hassle which will pointlessly eat up limited resources. How much does that cost? Is it worth it?

Precedent
We’ve just had extremely welcome news from the Prime Minister of a fresh package of ‘investment’ for the Commission. However, it looks like this is mainly short-term funding to help the Commission change, rather than a reversal of the long term budgetary decline. Despite this, the Commission may still pursue charging to help cover its core costs (but surely this is now even harder to justify to charities and the public?).

Here’s the rub – if the Commission can show that it can generate substantial cash from charging, it’s an incentive for the Treasury to cut their core budget even further in the future. The pressure to charge even larger fees to make up the shortfall will become greater with every budget cycle. It’s the thin (and very dangerous) end of the wedge.

And what does charging do to the relationship between charities and the regulator? If you are being charged for a ‘service’ you expect a certain level of responsiveness and quality – even if you’re dealing with a government agency. I think the Commission needs to think long and hard about how charging could change the expectations charities have of its performance in customer service terms.

If you take this idea to its (admittedly far-fetched) conclusion, could the Charity Commission of the future operate as some kind of mutual or self-regulatory association, with income derived entirely from its members? That would be a very different creature. This isn’t yet on the horizon, but you can see how the current debate could be the starting point.

Principle
What about the views of charity donors and the wider public? In the sometimes myopic debates about charity law and regulation, they can be too often forgotten. When Joe and Jane Public donate to charities, do they expect x% of their donation to service the budget of a statutory body? I very much doubt it. What happens when the public realise that their charitable donations are basically subsidising public spending cuts?

DSC has been shouting loud and long for more resources for the Commission since before 2010. It’s vital that the Commission is adequately resourced to regulate the sector, which underpins public trust and confidence. But if the Commission does decide to go down the charging road, they may very well find in hindsight that the decision to do so was ‘penny-wise but pound foolish’.

This article was first published in Charity Times and www.charitytimes.com November 2014