UK: What Next For Public Benefit?

Last Updated: 24 April 2012
Article by Nicola Evans

Nicola Evans outlines the practical impact on charities of the withdrawal of parts of the Charity Commission's guidance on public benefit. The Charity Commission is due to issue, any day now, an amended draft public benefit guidance for public consultation (the draft guidance was due to be produced by the end of March 2012 but, at the time of writing, it is still awaited).This follows the withdrawal on 21 December of its guidance on public benefit and fee-charging, as well as certain elements of its other 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decision of the Upper Tribunal on 2 December, which would have quashed those elements of the guidance had they not been withdrawn.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 practical effect might this have for charity trustees?

Why does the guidance matter?
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 for charity trustees 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 For this reason, the public benefit guidance relating to fee-charging has been withdrawn in its entirety, while all the other public benefit guidance has been amended to remove parts which the Upper Tribunal found to be wrong or misleading, or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 is likely, therefore, that the general public benefit guidance, and possibly also that relating to the educational charities, will be the subject of further consultation. 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 (relief of poverty, advancement of education/religion), did not change the law of public benefit;
  • A recognition that the principles of public benefit apply only 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; an institution'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.
  • 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.
  • 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.
  • 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  in this context, eg 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. Charity trustees have the reassurance, which itself carries a responsibility, arising out of the Upper Tribunal's decision, that the question of how to run their charity 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 trustees must meet, because it is not for the court, the Tribunal or the Commission to set such a standard. The essential question for charity trustees has always been, and remains, 'What are my charity's objects and, within our resources, how can we best pursue them?'.

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 responses to those questions on its website. Charity trustees may wish to review those responses, but are not obliged to do so. It
should be noted that the responses are heavily caveated, because they are views given concerning 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.

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. It is too early to discern whether Lord Hodgson may make any recommendations for change, but potentially 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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