The Charities Bill passed from the House of Lords to the Commons on 9 November, when it received its first reading there. The version of the Bill handed down to the Commons has many important provisions, and makes welcome changes, especially of a technical nature. Robert Porter offers a selective analysis of its implications for arts charities.
Historically there are four main charitable definitions:
" the alleviation of poverty
" the advancement of religion
" the advancement of education
" the promotion of other purposes beneficial to the community.
Typically, arts charities have depended on promotion of education as a charitable purpose, and sometimes the arts themselves as a purpose beneficial to the community. The Charities Bill introduces a new list of charitable purposes to codify the existing law and a purpose not on the list cannot be charitable unless it is recognised as such by immediately pre-existing law, or by analogy to the list or that law, or by analogy to such an analogy. The list includes a purpose of the advancement of the arts, culture, heritage or science. As a result, the two most likely charitable objects for an arts charity will remain advancement of education and advancement of the arts, confirming the current position.
Public benefit
Public benefit is perhaps the most controversial issue in the Bill. To be charitable an organisation must:
(a) have exclusively charitable purposes; and
(b) be for the benefit of the public, so that any private benefit is incidental.
Historically in respect of the first three heads of charity poverty, education and religion benefit to the public has been presumed. The Bill, however, abolishes the presumption so that charities will potentially have to demonstrate public benefit in all cases. The extent to which this will make any difference is, as yet, unclear. The question has been perhaps most earnestly debated in the context of certain charities that charge, most notably independent schools and private hospitals. Since these organisations charge fees, they may exclude poorer people which raises the question about whether they should have policies permitting wider access, through, perhaps, bursary schemes and local community-access strategies. More confusing still is that interested parties cannot agree about what the law requires in respect of wider access. Arts charities often charge, and that may involve them in this debate.
The Charity Commission has recently issued guidance entitled Public Benefit the legal principles which states that the Commission will consider the following factors where high fees are charged for services or facilities:
" Does the level at which fees are set have the effect of preventing or deterring the less well-off from accessing the services or facilities?
" If so, can it be shown that the less well-off are not wholly excluded from any possible benefits, direct or indirect?
" Whether and how may the less well-off otherwise access the services, for instance through the existence of accessible insurance schemes or the provision of wider access to charitable facilities or services
" The nature and extent of the benefit provided and of any indirect public benefit.
The Bill obliges the Commission to consult as it considers appropriate and issue guidance to promote awareness and understanding of the public benefit requirement. Trustees will have to have regard to the guidance when exercising any powers or duties to which the guidance is relevant. Lord Phillips, the Liberal Democrat peer, sought to include an amendment to the Bill so that the Commission must consider the effect on public benefit of the charging policy of any charity in its consultations. This issue is of direct relevance to arts charities that charge for facilities or attendance at productions or exhibitions. Those with educational purposes may be required to demonstrate public benefit, when they were not required to do so before. Equally, arts charities that charge prices that might be said to be capable of excluding poorer people may find that they have to devise wider access schemes. It is likely that the public benefit issue will be hotly contested in the Commons, and we shall not know its outcome until the Bill has passed through there and the Commission has consulted and issued guidance.
Broader changes
A range of other provisions in the Bill may also be relevant to some arts charities:
Power to determine membership: Companies limited by Guarantee (CLG) (and, soon, the Charitable Incorporated Organisation (CIO) (see below)) have a dual structure of members and director/trustees. It can often happen that a company, because of numbers or neglect, does not keep up with who its members are. The Bill gives the Commission the power to determine that matter, a function previously reserved to the Court.
Restrictions on mortgaging: This amends Section 38 of the Charities Act 1993 which, arguably, means that while a mortgage on land to secure a loan can be permitted after obtaining proper advice in accordance with a specified procedure, a mortgage on land for a conditional grant must be cleared through the Commission. The advice procedure will now apply to both loans and grants and also to other proposed obligations.
Charitable Incorporated Organisations: The CIO is a new incorporated charitable vehicle that is under the exclusive regulation of the Charity Commission and does not have the dual regulation from the Commission and Companies House of the CLG. There are extensive conversion provisions, and a set of draft regulations. It is not yet clear if the CIO will be a substitute for, or an alternative to, the CLG, but the situation will be reviewed in five years.
Remuneration of trustees: This provides for a power for charity trustees to be paid for services they provide to the charity (other than services as a trustee) if certain conditions are met. As a result, trustees can now rely on this statutory power even if there is no analogous power in their constitution; and if the constitution confers a wider power, the trustees may rely on that.
Relief from liability for breach of trust or duty: To date, the Commission has had no power to relieve trustees from liability for breach of trust or duty, and this has caused frustration especially where trustees have been open with the Commission and it has not been able to provide them with that comfort. This section permits the Commission to relieve a trustee from a breach of trust or duty where it considers he or she has acted honestly and reasonably and ought fairly to be excused from the breach.
Trustees Indemnity Insurance (TII): To date, trustees have needed express power in their constitution or permission from the Commission before they could take out TII. The Bill entitles charities to take out TII subject to conditions.
Power to spend capital: The Bill permits unincorporated charities to spend capital if certain conditions are met. This might be useful for arts charities established as trusts who find that they cannot effectively carry out their charitable objects because they cannot spend their capital.
Robert Porter is Head of the Charities Group, Harbottle & Lewis LLP.
t: 020 7667 5000;
e: robert.porter@harbottle.com