UK: What Now For Public Benefit?

Last Updated: 9 April 2012
Article by Nicola Evans

The Charity Commission is due to issue revised draft public benefit guidance in March 2012 for public consultation. This follows the withdrawal on 21 December 2011 of parts of its public benefit guidance after a decision of the Upper Tribunal on 2 December which would have quashed those elements of the guidance had they not been withdrawn. What might be the practical effect now for independent schools?

Why does the guidance matter?

School governors, as charity trustees, are under a statutory duty to have regard to the public benefit guidance when exercising any powers or duties to which it is relevant. Clearly, therefore, it would not be satisfactory to have to have regard to guidance which the Upper Tribunal has found to be flawed. For this reason, the public benefit guidance relating to fee-charging has been withdrawn in its entirety, while all the other public benefit guidance (including that for charities for the advancement of education) has been amended to remove parts which the Upper Tribunal found to be wrong or misleading, or where references to such parts were made. In particular, an element of one the Commission's principles of public benefit, principle 2b (suggesting that the opportunity to benefit must not be "unreasonably restricted" by ability to pay any fees charged) was "wrong". The amended guidance stands, and is subject to the statutory duty, until replaced or supplemented by revised guidance following the consultation.

How might the guidance change?

It is not yet clear how much of the guidance will be revised for consultation. Presumably some form of new guidance aimed at charities which charge fees will be produced, but all the guidance was affected to some extent. It seems, therefore, that at least the general public benefit guidance and that relating to educational charities should also be consulted upon. Key points to look out for in the revised guidance, arising from the Upper Tribunal decision, would be:

  • A recognition that the Charities Act 2006, including the supposed removal of a presumption of public benefit for certain heads of charity (advancement of education/religion, relief of poverty), did not change the law of public benefit;
  • A recognition that the principles of public benefit apply to the purposes of a charity, not its activities - the Upper Tribunal was clear that the activities carried out by a charity in pursuit of those purposes have no bearing on whether or not its purposes are for the public benefit;
  • a school's status as a charity "depends on what it was established to do not on what it does".
  • A statement that how a charity carries out its purposes is a matter of judgment for the charity trustees, acting within their purposes and their duties as charity trustees:
  1. According to the Upper Tribunal, this means, among other things, that the charity trustees cannot operate their charity so as to exclude the poor on other than a temporary basis.
  2. The Tribunal considered that there must be some provision for the "poor" which goes beyond the de minimis or merely token, but there is no rule for how this must be done (e.g. there is no requirement to offer bursaries); that is a decision properly for the charity trustees.
  3. Charity trustees should also be reminded that charities would not usually "gold-plate" their services; a charity offering luxury services could expect to be asked to explain how this was in furtherance of its charitable purposes
  4. However, none of this affects the charitable status of the institution concerned, but rather whether or not the charity trustees are acting within their duties.
  • A clearer explanation of what the "poor" can mean, e.g. it will depend upon the context, it does not necessarily mean destitute but can mean those of "modest means", the "not very well off" or, even in very limited contexts, the "quite well off".
  • A move away from a "totaliser"-style attitude of what "benefits" may "count" for public benefit purposes and whether a particular level of benefit for the "poor" is required or met, towards instead the question, as put by the Upper Tribunal, of "whether the trustees are acting consistently with their obligations".

What do charity trustees do in the meantime?

As noted above, the revised guidance stands as the Commission's guidance, to which charity trustees must have due regard under the statutory duty. School governors, as charity trustees, have the reassurance, but also the responsibility, from the Upper Tribunal's decision that the question of how to run their school is a matter for them. This does not mean they have carte blanche to act in any way they wish - they are bound to pursue their charity's objects and to do so in accordance with all the duties of a charity trustee. For example, they cannot act in such a way as no reasonable trustee would act (hence the embargo on total exclusion of the poor, as it is assumed no reasonable trustee would seek to run a charity in such a way). There is, however, no standard of "reasonableness" which governors must meet, because it is not for the court, the Tribunal or the Commission to set such a standard. The essential question for school governors, as for all charity trustees, has always been, and remains, "What are my charity's objects and, within our resources, how can we best pursue them?".

Responses to Attorney General's questions

The Upper Tribunal sought to answer questions posed by the Attorney General in relation to very specific situations regarding hypothetical educational institutions. The Charity Commission has set out the Upper Tribunal's responses to those questions on its website. School governors are not obliged to have regard to those responses, but may wish do so. It should be noted, however, that the responses are heavily caveated, because they are views given in the abstract in respect of artificial and highly individual cases. They do not (quite rightly) attempt to set out any rules or benchmark and they cannot be a substitute for the proper exercise of discretion by charity trustees with the knowledge of the actual circumstances of their charity.

Longer term?

The question of public benefit had been dealt with by the courts for centuries without apparent controversy. There are few cases on the subject because, as the Commission's general public benefit guidance acknowledges, in most cases the question of whether particular purposes are for the public benefit "will be obvious". It is only in those few cases where it is was not obvious, that the matter ever came before the courts. On the face of it, the Charities Act 2006, and the guidance which it engendered, seemed to create a problem which previously did not exist.

It is hoped that the Upper Tribunal decision may now signal some calm in this area, with the clear direction that it is charity trustees who are responsible for managing their independent schools. However, the question of public benefit and the meaning of "charity" in English law are among the points to be considered by Lord Hodgson in his current review of the operation of the Charities Act 2006, so the matter could go back before Parliament in the next few years. In a world of economic meltdown and ever greater demands for diminishing resources, charities could be forgiven for hoping that Parliament leaves well alone.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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