UK: Charity Governance: Silent Witnesses

Last Updated: 10 June 2016
Article by ICSA  

Andrew O'Brien is Head of Policy and Engagement at Charity Finance Group

Anti-advocacy clause could create risks for charities receiving government grants

On 6 February the Government announced its decision to insert a new clause into all grant agreements made by central government. The aim was to prevent taxpayer funds from being used to lobby Government and Parliament.

At the time of writing, the Government has announced a pause on the implementation of this clause. Ministers have said that they will listen to stakeholders, such as charities and scientific researchers, for their thoughts on the clause.

However, charities have been worrying about this potential move since the Department for Communities and Local Government (DCLG) announced a similar measure in early 2015. Although the DCLG clause was limited to its grants and targeted at local enterprise partnerships, it did reference charities and a campaign by the Institute of Economic Affairs (IEA) to combat so-called 'sock puppet' organisations.

These are organisations which the IEA believes are receiving public money and then using that money to lobby the government for more funding or additional regulations.

Significant ramifications

Many charities have raised concerns about this clause which has been introduced with very little, if any, evidence that the sock puppet phenomenon exists. However, the ramifications for all charities that receive public money will be significant.

At first sight, the clause does not seem particularly menacing as it is restricted only to grants from central government. It would only prohibit them from 'activity intended to influence or attempt to influence Parliament, government or political parties or attempting to influence the awarding of contracts and grants, or attempting to influence legislative or regulatory action.'

The problems begin to mount, however, as soon you interrogate the clause to understand the practical implications. What does 'activity intended to influence or attempt to influence Parliament, government or political parties' mean?

The government has not been very clear so far, but has indicated – for example – that proactively responding to a call for evidence by a parliamentary committee could be in breach of the clause. There has also been no certainty that charities providing feedback on the impact of a programme on service users to Ministers or MPs would not fall foul of the rules. It is hard to comply with something when you don't know what it means.

Policed by the public

The government has said that this clause will not involve any additional reporting by charities and has given the impression that this clause will be policed by the public (and the media) rather than by government grant managers. This is where the clause is likely to keep trustees, and those staff responsible for governance, up at night.

Anyone that understands charity accounting knows that accounts are not designed in a way to enable the public to read through line by line and understand how money has been spent.

As such, although the public is able to find information about how much income charities have received, how they have generated it and what it has been spent on, there is no way to track every pound a charity spends from source to its final destination. This is going to create a reputational nightmare for charities, with a target on any charity that receives grants from government. 

As there is no publicly available information to detail how grant money has been spent, it is very easy for critics or opponents to allege the misuse of money in breach of the clause.

Justifying the clause

This danger was originally seen in the campaign by the IEA. In a paper called 'The Sock Doctrine', the IEA looked at the amount of income that charities received from government as a percentage of total income and then tried to conclude from this that some of this money must have been used to lobby government – despite there being no clear publicly available evidence to endorse this view. This paper was then used as part of the justification for the introduction of the clause itself.

When you combine this lack of information with the vagueness of the clause itself, it is not difficult to understand the governance issues that the clause will create for charities that receive public money. Moreover it is doubtful that the public and media, which are unlikely to be au fait with the ins and outs of the clause, are going to see any difference between different sources of government income.

The introduction of the clause could also not have come at a worse time. Over the past 12 months, charities have been under significant pressure from the media and from politicians.

This climate creates another reputational risk for charities that campaign and receive public funds. Any accusation of misusing public money for political purposes is likely to get significant press attention and, even if later vindicated, the damage to the reputation of the charity is likely to be long lasting.

Ironically, effective lobbying and presentation of concerns by charities and other stakeholders has led to the government pausing the implementation of the clause. Although it is too early to say whether the government will u-turn or quietly bury this proposed clause, this period of delay does give charities the chance to prepare for its implementation.

Careful reporting

Charities will need to think carefully about how they report on their use of public funds and how they manage income from government sources. They will also need to make sure that they are ready to speedily deal with enquiries made by the media and public about their use of government money.

In the era of 24-hour news, the speed of response can make the difference between a front-page story and an article buried on page 22 of the newspaper. Trustees will also need to recalculate the risks of taking public money. Is it worth the potential reputational damage?

Finally, and most importantly, charities will need to reassess the impact on beneficiaries. Is taking a public grant worth the risk of having to stand silent while government policies impact on your beneficiaries?

Sadly, this clause will put many charities in the unenviable position of having to make these choices.

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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