HOUSE OF LORDS

Select Committee on Charities

Report of Session 2016–17

Stronger charities
for a stronger society

Ordered to be printed 14 March 2017 and published 26 March 2017

Published by the Authority of the House of Lords

HL Paper 133
Select Committee on Charities
The Select Committee on Charities was appointed by the House of Lords on 25 May 2016 to
consider issues related to sustaining the charity sector and the challenges of charity governance.

Membership
The Members of the Select Committee on Charities are:
Baroness Barker Baroness Jenkin of Kennington
Lord Bichard Lord Lupton
Lord Chadlington Baroness Pitkeathley (Chairman)
Lord Foulkes of Cumnock Lord Rooker
Baroness Gale Baroness Scott of Needham Market
Lord Harries of Pentregarth Baroness Stedman-Scott

Declaration of interests
See Appendix 1.
A full list of Members’ interests can be found in the Register of Lords’ Interests:
http://www.parliament.uk/mps-lords-and-offices/standards-and-interests/register-of-lords-
interests

Publications
All publications of the Committee are available at:
http://www.parliament.uk/charities-adhoc

Parliament Live
Live coverage of debates and public sessions of the Committee’s meetings are available at:
http://www.parliamentlive.tv

Further information
Further information about the House of Lords and its Committees, including guidance to
witnesses, details of current inquiries and forthcoming meetings is available at:
http://www.parliament.uk/business/lords

Committee staff
The staff who worked on this Committee were Luke Hussey (Clerk to October 2016), Matt
Korris (Clerk from October 2016), Simon Keal (Policy Analyst) and Gabrielle Longdin
(Committee Assistant).

Contact details
All correspondence should be addressed to the Select Committee on Charities, Committee
Office, House of Lords, London SW1A 0PW. Telephone 020 7219 6075. Email
hlcharitiesadhoc@parliament.uk
CONTENTS

Page
Summary 3
Chapter 1: Introduction 5
The changing role of charities 5
The focus of the Committee 6
Figure 1: Voluntary organisations by area of activity (2013/14) 7
The work of the Committee 8
Chapter 2: The history and shape of the charity sector 10
Charities and charity law 10
Regulation and the role of government 13
Box 1: Exempt and excepted charities 14
The shape and funding of the charity sector 15
Figure 2: Proportion of charities by annual income and
proportion of the income of the sector that they receive 16
The contribution of charities 17
Chapter 3: Improving governance and accountability 21
Good governance 21
The role of trustees 23
Trustee skills 24
Trustee training 25
Board diversity and turnover 27
Diversity of the Charity Commission’s board 30
Executive leadership 31
Payment of trustees 33
Transparency, accountability and impact 34
Financial reporting 35
Governance reporting 37
Evaluation and impact reporting 38
Chapter 4: Funding: grants, contracts and commissioning 41
The decline of public sector grants 41
Figure 3: Charities’ income from government contracts and
grants, 2000/01 to 2013/14 (£bn, 2013/14 prices) 41
Charities and contracts 42
Commissioning processes 45
Commissioning skills and co-operative development of contracts 45
Public Services (Social Value) Act 2012 47
Financial and planning challenges 49
Payment by Results 49
Core costs 51
Duration of contracts 53
Innovation by charities 54
A revitalised role for grants 55
Chapter 5: Supporting sustainability 58
Fundraising 58
Economic and tax policy 59
Support within the charity sector 61
Role of volunteers 62
Expectations and trust 66
Mergers 68
Closures 71
Chapter 6: Charities and digital technology 73
The potential of digital technology 73
Digital fundraising 73
Awareness raising 74
Engagement 74
The challenges of digital for the charity sector 75
Helping charities to embrace digital technology 77
Chapter 7: Alternative forms of charity finance 79
Social investment: potential and barriers 79
Social investment and small charities 80
Investment capacity and skills 82
Investor expectations 83
Social Impact Bonds 85
Chapter 8: Regulation and the role of government 87
Office for Civil Society: priorities, initiatives and sector
engagement 87
Local government engagement 89
Charities and devolution 91
National and local compacts 93
Legislation 95
The role of charity advocacy 96
Impact on charities of the UK’s departure from the European
Union 99
Regulation of the charity sector 100
Summary of conclusions and recommendations 106
Appendix 1: List of Members and declarations of interest 119
Appendix 2: List of witnesses 122
Appendix 3: Call for evidence 130
Appendix 4: Note of Committee visit to Body & Soul 133
Appendix 5: Note of Committee visit to the Charity Commission 136
Appendix 6: Note of Committee visit to Manchester 139
Appendix 7: Note of roundtable discussion in Westminster 146
Appendix 8: Note of roundtable discussion in Cardiff 150
Appendix 9: Acronyms 153

Evidence is published online at http://www.parliament.uk/charities-adhoc

and available for inspection at the Parliamentary Archives (020 7219 3074).

Q in footnotes refers to a question in oral evidence.

 Stronger charities for a stronger society 3

SUMMARY
Charities are the eyes, ears and conscience of society. They mobilise, they provide,
they inspire, they advocate and they unite. From small local organisations
run entirely by volunteers to major global organisations with turnover in the
hundreds of millions, their work touches almost every facet of British civic life.
We are living through a time of profound economic, social and technological
change and the environment in which charities are working is altering
dramatically. These changes have posed new challenges for charities, resulted
in some high-profile failures, and led to greater scrutiny of the sector than ever
before. However, the overwhelming majority of charities continue to do excellent
work and trust in the sector fundamentally remains strong.
The funding of charities has changed significantly over the last decade. Public
sector grants have been replaced in most instances with contracts, often with
complex commissioning processes. These have disadvantaged smaller charities,
which struggle to bid for services at scale, and constrained the valuable
innovation that charities can bring to service delivery. We therefore recommend
that Government provides support for the development of voluntary sector
bidding consortia, and takes steps to promote commissioning based on impact
and social value rather than simply on the lowest cost. We also recommend the
strengthening of social value considerations in public sector commissioning, to
recognise the added benefits of charities’ involvement in service delivery, and
urge local authorities to consider grant programmes wherever possible.
Charities have faced challenges in funding their core costs for many years.
However, this has been exacerbated by the move to contract funding, which is
often tightly defined and does not allow for costs incurred outside the specific
terms of the contract. Separately, there has been pressure on charities to reduce
“back office” costs and an increasing expectation that all money donated should
go to the frontline. The result has been further pressure on charities’ viability
and sustainability. Charities cannot operate unless their core costs are met.
We recommend that public sector commissioners should have regard for the
sustainability of the organisations which they commission to deliver services and
that realistic and justifiable core costs should be included in contracts, just as
would happen in the private sector. We also recommend longer-term contracts,
wherever possible, to ensure that the services can be delivered sustainably by
charities with the capacity to plan effectively for the future. We propose that
funders should provide more resources for volunteer managers so that charities
can make the best possible use of the generous contribution of their volunteers
and support their efforts.
Good governance is fundamental to a strong charity sector. Charities need
strong governance, with robust structures, processes and good behaviours,
in order to deliver effectively for their beneficiaries. We call for new efforts to
provide training and development for trustees and recommend that charity
boards should undertake greater self-reflection, examining their behaviours,
processes and skills. We also believe that infrastructure bodies need to identify
the shortcomings in provision of governance advice and training for charities
and do more to raise awareness of the support that currently exists.
We have concerns about the lack of diversity among trustees, which limits the
experience and knowledge of charity boards. Among our recommendations to
4 Stronger charities for a stronger society

remedy this, we believe that the Government should hold a public consultation
on introducing a statutory duty to allow employees of organisations over a
certain size to take a limited amount of time off work to perform trustee roles.
Charities’ record in the use of digital platforms is mixed. While some charities are
at the cutting edge of new technology, others have yet to realise its potential with
regard to fundraising, volunteering and communications. To raise awareness of
their work, and be transparent and accountable, all but the smallest charities
need to have a simple website or social media page. In addition, charities should
actively consider including a digital trustee role on their boards.
Social investment has been heavily promoted by Government as a new form
of income for charities. However, alongside the potential advantages, there are
also barriers, particularly for smaller charities which may not have the capacity
to take investment or for which investment may not be suitable. Government
and sector leaders need to do more to address the reasons for high transaction
costs and work to bring them down. In particular, expected rates of return can
be prohibitively high, and investors should be encouraged to have more realistic
expectations of the potential for returns from social investment.
Alongside all these changes, the Government needs to improve the way it consults
the charity sector when developing new policies. It caused unnecessary concern
and pressure as a result of the proposed “anti-advocacy” clause in grant awards
and in relation to the Transparency of Lobbying, Non-Party Campaigning
and Trade Union Administration Act 2014, both of which threatened the vital
advocacy role of charities. We also believe there should be better consultation
with the devolved administrations and infrastructure organisations when
developing legislation on reserved matters which may impact charities in
Scotland and Northern Ireland.
Withdrawal from the European Union is bound to have an impact on the charity
sector, with estimates that the sector receives around £200m a year from the
EU, primarily through the European Social Fund. We recommend that the
Office for Civil Society undertakes an audit of the potential impact of Brexit on
charities and brings forward proposals to address any negative effects.
The role of the Charity Commission has come under particular scrutiny in
recent years, following inquiries by parliamentary committees and the National
Audit Office. We are encouraged by the subsequent progress the Commission
has made, but we believe it has more work to do before it can be deemed a fully
effective and efficient regulator. One particular area on which it might focus is
charity mergers, where there is scope for more support and guidance.
The Charity Commission is currently considering whether to charge charities
in order to fund part of its operation. We raise concerns about the impact
of a charge, both for the charity sector and for the Commission itself. If the
Commission chose to proceed, it would need to be clear about how a charge
would benefit charities and strengthen the sector overall. Any charging model
must ensure that the burden does not fall upon small charities which will not be
able to afford it.
Charities face greater operational and environmental pressures than ever before,
but their principle is enduring and charities have always helped society through
periods of upheaval. We are confident they will do so again.
 Stronger charities for a stronger
society
Chapter 1: INTRODUCTION

The changing role of charities

1. With a history dating back to the pre-modern era, charities form a vital part
of civil society in the United Kingdom. From small local organisations run
entirely by volunteers to major global organisations with turnover in the
hundreds of millions, their work touches almost every facet of British society.
No understanding of the country can be complete without an understanding
of how charities operate and the challenges and opportunities they are likely
to face now and in the future.
2. The environment in which charities work has changed dramatically in recent
years, particularly for those which are in receipt of public funding. There has
been a significant shift in funding of charities, with many grants replaced by
contracts, alongside a reduction in the overall level of public money available.
The growth of contracts has brought with it new challenges for charities,
particularly those bidding for and delivering commissioned work, along
with greater expectations of professionalism and the ability to demonstrate
measurable outcomes from their work.
3. Small- and medium-sized charities have arguably faced greater difficulties
adapting to this new environment, particularly in terms of their financial
skills and resources. These charities are the lifeblood of the sector, with
major capacity for innovation and the ability to form strong bonds with
local communities and people in need. It is important that, as charities’
roles change and develop, we prepare and support the sector to meet the
challenges ahead and thrive into the future.
4. At the same time, there have been some high-profile failures in the charity
sector. In August 2015, the youth charity Kids Company closed shortly
after receiving a £3 million Government grant to facilitate an emergency
restructure, following years of weak finances and questions about their
work. Critical reports followed from the National Audit Office1 and from the
House of Commons Public Administration and Constitutional Affairs Select
Committee2 (PACAC). PACAC concluded that the charity’s trustee board
“failed to protect the interests of the charity and its beneficiaries” and that
“successive Governments failed to carry out adequate due diligence.”3
5. Also in summer 2015, newspapers published a series of reports alleging that
some of the best known charities in the UK—including Oxfam, Save the
Children, the NSPCC and the RSPCA—had used exploitative and unethical
fundraising methods. Particular attention focused on the case of 92-year-old

1 National Audit Office, Investigation: the Government’s funding of Kids Company (October 2015): https://
www.nao.org.uk/report/investigation-the-governments-funding-of-kids-company [accessed 14
March 2017]
2 Public Administration and Constitutional Affairs Committee, The Collapse of Kids Company: lessons
for charity trustees, professional firms, the Charity Commission, and Whitehall (Fourth Report, Session
2015–16, HC 433)
3 Ibid.
6 Stronger charities for a stronger society

poppy seller Olive Cooke, who took her own life in May 2015, who was found
by a report of the Fundraising Standards Board to have been “distressed and
overwhelmed” by the huge number of requests for donations she received
from charities.4 It should be noted that her family said that, while the charity
requests had been “intrusive”, they were not to blame for her death.5
6. These events cast a negative light on the sector, including, regrettably, on
the vast majority of charities which were uninvolved.6 As a result, there are
greater expectations on charities in terms of their governance, accountability,
transparency and demonstration of impact. There are also questions about
levels of public trust in charities, though trust in the sector overall remains
high, and above that of many other sectors.7
7. Charities are also facing change as a result of the ways that digital technologies
have reshaped society, particularly in terms of how people give their time
and their money. These changes bring challenges but also considerable
opportunities for charities, with new ways to raise money, to mobilise support
and to communicate more effectively.
8. At the same time as these fundamental changes are happening, the support
available to the sector has been under considerable pressure. Many of the
infrastructure bodies and umbrella organisations in the charity sector have
faced funding challenges of their own and their capacity to support charities
has been stretched. At a national level the budget of the Charity Commission
has reduced and they have had to focus primarily on their regulatory role
and do less supporting and enabling work.
9. We are living through a time of profound economic, social and
technological change and the environment in which charities are
working is altering dramatically. We do not believe that this is a
temporary aberration: such disruptive changes are likely to become
the norm.
10. However, charities have always helped society through periods of
upheaval. We are confident they will do so again. It is our intention
that the recommendations in this report will go some way to ensuring
that they do.

The focus of the Committee

11. In this context, on 25 May 2016 this Committee was appointed “to consider
issues related to sustaining the charity sector and the challenges of charity
governance, and to make recommendations.”
12. Our report focuses on charities in England and Wales, as the regulation of
charities is devolved in Scotland and Northern Ireland. However we took
evidence from charity regulators and umbrella bodies from both devolved
nations, to examine potential lessons which may be applied in England and

4 Fundraising Standards Board, FRSB Investigation into Charity Fundraising Practices instigated by
Mrs Olive Cooke’s case (January 2016): https://www.fundraisingregulator.org.uk/wp-content/
uploads/2016/09/FRSB-Investigation-Report-Into-Charity-Fundraising-Practices-Instigated-by-
the-Mrs-Cooke-Case1.pdf [accessed 14 March 2017]
5 ‘Olive Cooke death: Poppy seller had depression, inquest hears’, BBC News (20 May 2015): http://
www.bbc.co.uk/news/uk-england-bristol-32810487 [accessed 14 March 2017]
6 Written evidence from Lord Low of Dalston (CHA0142)
7 Trust in the charity sector is discussed further in Chapter 5.
 Stronger charities for a stronger society 7

Wales. Many of the issues we consider in this report are relevant to charities
across the United Kingdom.
13. The charity sector is far from homogeneous. Charities vary considerably in
their size, the issues they work on and the types of work they undertake.
We are mindful that while we heard from many charities in the course of
our work, there were more operating in the welfare and support space than
from other sectors, such as those involved in culture and sport. This in part
reflects the fact that more charities are primarily involved in social services
(18% of registered charities) than any other activity (see Figure 1). Much
of our report and recommendations will apply equally across all parts of
the charity sector, but we are conscious that circumstances differ and, for
example, discussions on contracts and services may be less relevant for some
charities than for others. Charities based in the UK that are involved in
delivering overseas aid face a range of specific challenges that we do not seek
to address through this report.

Figure 1: Voluntary organisations by area of activity (2013/14)

Social services
Culture and recreation
Religion
Grant-making foundations
Parent teacher assoications
Development
Education
Village halls
Playgroups and nurseries
Health
Scout groups and youth clubs
Environment
International
Law and advocacy
Housing
Research
Employment and training
Umbrella bodies
0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

Source: NCVO, UK Civil Society Almanac 2016

14. We took the decision from the outset to focus primarily on the interests
of small- and medium-sized charities, as they comprise the overwhelming
majority of the charity sector, and because recent inquiries have tended to
focus on issues that are more relevant to larger charities.8 While some of
the issues we discuss in this report are pertinent to larger charities, we have
attempted, where possible, to frame our arguments and cite evidence in such
a way as to emphasise smaller organisations.

8 Such as the House of Commons Public Administration and Constitutional Affairs Committee
inquiries, The collapse of Kids Company and The 2015 charity fundraising controversy, and the independent
review of charity fundraising regulation led by Sir Stuart Etherington. We note with approval that the
forthcoming Inquiry into the Future of Civil Society, to be chaired by Julia Unwin, will consider
the “preponderance of small and medium sized charities”. https://www.civilsociety.co.uk/news/
foundations-back-inquiry-into-the-future-of-civil-society.html [accessed 14 March 2017]
8 Stronger charities for a stronger society

15. With this in mind, and having sought evidence on the key challenges and
opportunities facing the charity sector, we decided to focus in particular on
issues of charity governance, funding and sustainability, as well as looking at
the potential of new forms of charity finance such as social investment, and
the role of local and national government in supporting the sector.
16. We have a firm desire not to increase the bureaucratic burden on charities—
either directly or indirectly—as a result of our recommendations. Our
intention is that our recommendations will help to make charities more
efficient, effective and resilient, while decreasing the bureaucratic burden
upon them wherever possible.
17. In preparing our report and formulating our recommendations, we chose
to bear in mind the words of two of our witnesses. Dawn Austwick, Chief
Executive of the Big Lottery Fund, told us that:
“The sector should be confident and lead, and in so doing we should
all celebrate the many successes that there are in the charitable world.
I fear there is lack of confidence and a slight sense of being battered.
You cannot run the Big Lottery Fund without, every morning, being
overwhelmed by what people in this country achieve in the charity sector.
It is glorious and a wonder. I guess we would really want to encourage
both ourselves and others to note that, mark it and celebrate it; hence for
the sector to be more confident.”9
18. In a similar vein, Philippa Charles from the Garfield Weston Foundation
said:
“While we appreciate that the charity sector has had quite a tough time
recently, we are struck every day by extraordinary people, of very great
quality, who come and inspire our trustees with their stories and their
plans for their organisations. In many ways, it is a very strong sector and
something we can have confidence in.”10
19. There is much to celebrate in the charity sector and we want to encourage
charities to have greater confidence in themselves.

The work of the Committee

20. Over the course of our inquiry we received 184 submissions of written evidence
and took oral evidence from 52 witnesses during 22 evidence sessions. In
order to hear from a wider range of smaller charities, we convened three
roundtable events—in London, Manchester and Cardiff—to discuss the
issues that they were facing.11 In Manchester we met with representatives of
the Greater Manchester Combined Authority and the Greater Manchester
Centre for Voluntary Organisation. In London we also visited the HIV
support charity Body & Soul and met with the Charity Commission at their
offices. We are grateful to all those who gave up their time to make the visits
and roundtables worthwhile, and to all who gave evidence to us. Notes of all
our visits and roundtables are contained in Appendices 4–8.

9 Q 178 (Dawn Austwick)

10 Q 127 (Philippa Charles)
11 We are grateful to the Small Charities Coalition, the Greater Manchester Centre for Voluntary
Organisation and Levenshulme Inspire, and the Wales Council for Voluntary Action for their help in
arranging these events.
 Stronger charities for a stronger society 9

21. We are also grateful to Rosie Chapman, who served as the Committee’s
specialist adviser, for her advice and insight.
22. Our report concentrates on:

• The history and the shape of the charity sector (Chapter 2)

• How to improve the governance of charities, in particular the skills

and support for trustees, and how to make them more accountable and
transparent (Chapter 3)

• The funding challenges for charities as a result of the move from grants
to contracts, and how to support charities accessing public funds
(Chapter 4)

• Issues relating to the sustainability of the sector, including fundraising,

volunteering, infrastructure bodies and support, and mergers
(Chapter 5)

• The challenges and potential for charities as a result of developments in

digital technologies (Chapter 6)

• Alternative forms of charity finance, such as social investment

(Chapter 7)

• The role of government and the Charity Commission (Chapter 8)

We make 100 conclusions and recommendations, which are summarised at
the end of this report.
10 Stronger charities for a stronger society

Chapter 2: THE HISTORY AND SHAPE OF THE CHARITY

SECTOR

Charities and charity law

23. Until relatively recently, legislation governing charities was limited. Before
the passage of the Charities Act 2006, the only statutory definition of a
charity in England was contained in the preamble to a 1601 Statute. The
definition of ‘charitable purposes’ was developed entirely through case law
with reference to this preamble.12
24. Systems and processes for management and oversight of the charity sector
are also relatively young. While piecemeal attempts were made over the
centuries, the appointment of a permanent board of Charity Commissioners
in 1853 was the first attempt to provide formal supervision of the sector.
This was followed over a century later by the Charities Act 1960, which was
the first truly modern system of oversight.13
25. The Charities Act 2006 provided statutory definitions of a charity and of a
charitable purpose for the first time. A charity is defined by the Act as an
institution which is established for charitable purposes only, and is subject to
the jurisdiction of the High Court. A charitable purpose is defined as such if it
falls within a list of 12 purposes including poverty relief, the advancement of
education, advancement of the arts, advancement of religion or advancement
of health. A purpose may be deemed charitable if it is already recognised
as such in existing charity law.14 In addition, the Act also introduced the
Charitable Incorporated Organisation (CIO) structure, though this did not
come into effect until early 2013. The structure enables charities to have
corporate body status without becoming companies. The Charities Act
2006 was consolidated along with other legislation relating to charities in the
Charities Act 2011.
26. The 2006 Act further modernised the role of the Charity Commission and its
oversight powers. Most notably, it introduced a “public benefit requirement”
to be met for charities in order to be registered by the Charity Commission.
While charities have always been required to work for the public benefit,
previous law deemed that charitable purposes were by definition for the
public benefit. The 2006 Act essentially reversed this assumption, stating
that “it is not to be presumed that a purpose of a particular description is for
the public benefit.”15
27. The specific interpretation of public benefit is not set out in legislation but
is left to the Charity Commission and, where necessary, the courts. The
Charity Commission has published guidance detailing its interpretation of
public benefit, and requires registered charities to explain how they have

12 Explanatory notes to the Charities Bill [Bill 83 (2005–06)-EN]

13 Lord Hodgson of Astley Abbotts CBE, Trusted and Independent: Giving charity back to charities:
Review of the Charities Act 2006 (July 2012): https://www.gov.uk/government/uploads/system/uploads/
attachment_data/file/79275/Charities-Act-Review-2006-report-Hodgson.pdf [accessed 14 March
2017]
14 Charities Act 2006, sections 1–2. These provisions have since been replaced by the Charities Act 2011,
sections 1–3.
15 Charities Act 2006, section 3. This provision has since been replaced by the Charities Act 2011,
section 4.
 Stronger charities for a stronger society 11

carried out their purpose for the public benefit in their trustees’ annual
reports.16
28. The 2006 Act was criticised by the House of Commons Public Administration
Select Committee in its 2014 post-legislative scrutiny report for introducing
a “critically flawed” approach to the issue of the public benefit requirement.
Noting that the Commission’s public benefit guidance had resulted in
“costly legal battles” with the Independent Schools Council and with the
Plymouth Brethren Christian Church, it argued that Parliament should
revisit the legislation and explicitly set the criteria for public benefit rather
than delegating it to the Charity Commission.17
29. Shortly afterwards, Lord Hodgson of Astley Abbotts undertook a review of
the operation of the 2006 Act as set out in the original legislation. This
review, Trusted and Independent: Giving charity back to charities, published in
July 2012, covered a range of areas including statutory public benefit tests, the
Charity Commission and charity regulation, exempt charities, complaints
about charities, fundraising and social investment.18
30. Key recommendations of Lord Hodgson’s review included that:

• The Charity Commission should be able to charge for filing annual

returns and for charity registration.

• Charities should have more flexibility to make ex gratia payments, with

a threshold to be set below which Charity Commission consent is not
needed; charities with an income above £1 million should also have an
automatic right to pay trustees.

• As a matter of good practice, trusteeship should be limited to a matter

of three terms of three years each. Charities which do not work in this
way should explain why in their annual report.

• There should be stronger Charity Commission powers to remove

trustees.

• There should be a single self-regulatory body for fundraising.

• Charities should be given the power to make social investments.

• The income threshold for charity registration should be raised from

£5,000 to £25,000.

• Processes for merger and incorporation should be streamlined.19

31. The Government did not accept all the recommendations of Lord Hodgson’s
report. In particular, it rejected his proposals to introduce powers of automatic

16 The Charity Commission, ‘Public benefit: rules for charities’: https://www.gov.uk/guidance/public-

benefit-rules-for-charities [accessed 14 March 2017]
17 Public Administration Select Committee, The role of the Charity Commission and “public benefit”: Post-
legislative scrutiny of the Charities Act 2006 (Third Report, Session 2013–14, HC 76)
18 Lord Hodgson of Astley Abbotts CBE, Trusted and Independent: Giving charity back to charities:
Review of the Charities Act 2006 (July 2012): https://www.gov.uk/government/uploads/system/uploads/
attachment_data/file/79275/Charities-Act-Review-2006-report-Hodgson.pdf [accessed 14 March
2017]
19 Ibid.
12 Stronger charities for a stronger society

trustee payment for large charities, for recommended limits to trustee terms,
and to raise the income threshold for Charity Commission registration.20
32. Some recommendations were, however, incorporated in the Charities
(Protection and Social Investment) Act 2016. The Act granted the Charity
Commission new powers to remove and disqualify trustees in certain
circumstances, as well as powers to direct winding up, to apply property to
another charity, or to specify that certain actions not be taken. The Act also
granted charities a general power to make social investments.
33. Separately, following the 2015 charity fundraising concerns, an independent
review led by Sir Stuart Etherington of the National Council for Voluntary
Organisations (NCVO) proposed a range of changes to the way that
fundraising regulation operates.21 These included:

• The existing Fundraising Standards Board (FRSB) should be replaced

by a new regulator.

• The new regulator should be funded by a levy on all organisations

reporting an annual fundraising expenditure of £100,000 or more.

• This regulator should take on the powers of the Public Fundraising

Association (PFRA) in relation to face-to-face fundraising.

• The new regulator should also take over the powers of the Institute of
Fundraising (IoF) with regard to overseeing the fundraising Code of
Practice.

• The new regulator should establish a Fundraising Preference Service

where individuals can register if they no longer wish to be contacted for
fundraising purposes.22
34. These proposals were accepted by sector bodies and Government, and a
new Fundraising Regulator was established in January 2016 with the
powers set out above. The House of Commons Public Administration and
Constitutional Affairs Committee described the body as the “last chance”
for fundraising self-regulation,23 and the Charities (Protection and Social
Investment) Act 2016 granted the Government a reserve power to direct
that fundraising regulation be carried out by the Charity Commission in the
event that the new regulator failed to perform adequately.24
35. Other recent legislation relating to the sector has included the Public Services
(Social Value) Act 2012 and the Transparency of Lobbying, Non-party
Campaigning and Trade Union Administration Act 2014.

20 Cabinet Office, Government response to The Public Administration Select Committee’s Third Report of
2013–14: The role of the Charity Commission and “public benefit”: Post-legislative scrutiny of the Charities
Act 2006 and Lord Hodgson’s statutory review of the Charities Act 2006: Trusted and Independent, Giving
back to charities, Cm 8700, September 2013: https://www.gov.uk/government/uploads/system/uploads/
attachment_data/file/237077/Response-charities-legal-framework.pdf [accessed 14 March 2017]
21 NCVO, Regulating fundraising for the future: Trust in charities, confidence in fundraising regulation
(September 2015): https://www.ncvo.org.uk/images/documents/policy_and_research/giving_and_
philanthropy/fundraising-review-report-2015.pdf [accessed 14 March 2017]
22 Ibid.
23 Public Administration and Constitutional Affairs Committee, The 2015 charity fundraising controversy:
lessons for trustees, the Charity Commission, and regulators (Third Report, Session 2015–16, HC 431)
24 Charities (Protection and Social Investment) Act 2016, section 14
 Stronger charities for a stronger society 13

36. The former Act, often known as the Social Value Act, requires public sector
commissioners to consider how contracts might provide additional social
value beyond that specified in the terms of the contract itself, for example
by supporting employment in a local area or by improving access to services.
The Act has been considered favourable to charities and social enterprises
on the basis that they are established for the public benefit and so can deliver
additional social value as part of their mission.
37. The latter Act, often known as the Lobbying Act, introduced new regulations
in relation to the activities of registered “non-party campaigners” (including
charities engaged in campaign activity) in the run up to General Elections.
The Act introduced constituency limits on campaign spending, expanded
the list of ‘qualifying matters’ to be counted towards spending limits for non-
party campaigners, and lowered the expenditure thresholds above which
bodies undertaking activity in an election period would have to register with
the Electoral Commission.25
38. The Act received some criticism in the charity sector and elsewhere for its
perceived ‘chilling effect’ on the work of charities,26 and was also the subject
of a review by Lord Hodgson of Astley Abbotts, published in March 2016.
The review recommended a number of technical changes to the operation of
the law, including changes to the definition of campaigning, reduction of the
regulated campaign period to four months before the election, and changes
to rules on joint campaigning.27

Regulation and the role of government

39. Charities set up in England or Wales must register with the Charity
Commission unless they are specified as exempt28 or excepted29 from
registration or their income is below £5,000 a year.30 There are around
75,000 excepted charities, and around 14,000 exempted charities in
England and Wales.31 Further detail about exempt and excepted charities is
set out in Box 1. Charities in Scotland and Northern Ireland are regulated
respectively by the Office of the Scottish Charity Regulator (OSCR) and the
Charity Commission for Northern Ireland (CCNI) and all charities in their
jurisdictions are required to register.

25 Lord Hodgson of Astley Abbotts CBE, Third Party Election Campaigning - Getting the Balance
Right (March 2016): https://www.gov.uk/government/uploads/system/uploads/attachment_data/
file/508568/2904969_Cm_9205_Complete_Text_V0.5.pdf [accessed 14 March 2017]
26 ‘Charities warn ‘gagging law’ stops them campaigning on election issues’, The Independent (18
February 2015): http://www.independent.co.uk/news/uk/politics/charities-warn-gagging-law-stops-
them-campaigning-on-election-issues-10054889.html [accessed 14 March 2017]
27 Lord Hodgson of Astley Abbotts CBE, Third Party Election Campaigning - Getting the Balance
Right (March 2016): https://www.gov.uk/government/uploads/system/uploads/attachment_data/
file/508568/2904969_Cm_9205_Complete_Text_V0.5.pdf [accessed 14 March 2017]
28 The Charity Commission, ‘Exempt charities (CC23)’: https://www.gov.uk/government/publications/
exempt-charities-cc23 [accessed 14 March 2017]
29 The Charity Commission, ‘Guidance: Excepted Charities’: https://www.gov.uk/government/
publications/excepted-charities/excepted-charities--2 [accessed 14 March 2017]
30 Other than Charitable Incorporated Organisations, all of which must register, regardless of income.
31 Joint Committee on the Draft Protection of Charities Bill, Draft Protection of Charities Bill (Report of
Session 2014–15, HC 813, HL Paper 108), para 39
14 Stronger charities for a stronger society

Box 1: Exempt and excepted charities

• “Exempt charities” are institutions which cannot be registered with the

Commission and are not subject to its direct regulatory jurisdiction. They
were initially granted the exemption because they were considered to be
adequately supervised by another body or authority. The exempt charities
are those institutions that are comprised in Schedule 3 to the Charities
Act 2011. Examples of such charities are most universities in England and
the boards of trustees of various specified museums and galleries.
• “Excepted charities” are charities that have been excepted from the
requirement to register with the Charity Commission and have an annual
income of less than £100,000. Such excepted charities do not have to
meet the requirements that flow from registration such as filing annual
accounts, but do come under the Commission’s regulatory jurisdiction.
Types of charities that are excepted include scouts and guides units,
non-public facing armed services funds, Parochial Church Councils and
certain Christian religious denominations. Small charities with an annual
income of less than £5,000 are excepted.
40. All registered charities must send an annual return to the Commission, must
inform the Commission of changes to governing documents or trustees, and
must report any serious incidents in their charity to the Commission as soon
as possible. As well as charity registration, the Commission is responsible for
taking enforcement action, ensuring charities meet their legal requirements,
making available information about all registered charities, and providing
online advice and guidance.32
41. The operations of the Commission have received scrutiny in recent years,
most notably from the National Audit Office and the House of Commons
Public Accounts Committee. The Committee published a report in January
2014 stating that the Commission had “not regulated the charity sector
effectively” and had placed “insufficient emphasis on the monitoring and
investigation of charities.”33
42. The National Audit Office made similar criticisms in its 2013 report, stating
that the Commission was “reactive” and made “little use of its statutory
enforcement powers.”34 Its follow-up report in 2015 was more positive,
stating that the Commission had developed a new business model with the
intention of using risk assessment and data analysis to guide its work, that
it was updating its approach to assessing regulatory risk, and that it had
improved its follow-up checks but was not addressing all issues that might be
expected.35
43. As well as the Charity Commission’s regulatory oversight of charities, the
Government retains a role in overseeing and supporting the sector, as well
as administering grants and contracts. The Office for Civil Society (OCS)

32 The Charity Commission for England and Wales, ‘About us’: https://www.gov.uk/government/
organisations/charity-commission/about [accessed 14 March 2017]
33 Committee of Public Accounts, The Charity Commission (Forty-second Report, Session 2013–14, HC
792)
34 National Audit Office, The regulatory effectiveness of the Charity Commission (December 2013): https://
www.nao.org.uk/wp-content/uploads/2013/11/10297–001-Charity-Commission-Book.pdf [accessed
14 March 2017]
35 National Audit Office, Follow-up on the Charity Commission (January 2015): https://www.nao.org.uk/
wp-content/uploads/2015/01/Follow-up-on-the-charity-commission.pdf [accessed 14 March 2017]
 Stronger charities for a stronger society 15

is responsible for areas of policy including social action, civil society sector
support, social enterprise and social investment, and the National Citizen
Service and youth policy. Previously part of the Cabinet Office, the OCS
was relocated to the Department for Culture, Media and Sport in July 2016.
44. The Government has been particularly supportive of social investment as a
means of diversifying the income of the charity sector, and has introduced
initiatives including Social Investment Tax Relief and Social Impact Bonds.
The Government has also established the independent social investment
institutions Big Society Capital and Access: The Foundation for Social
Investment, the latter intended in particular to improve the accessibility of
social investment to small- and medium-sized charities and social enterprises.
45. In 2016 the Government attracted controversy by proposing that an “anti-
advocacy clause” would be included in all future government grants,
forbidding any use of public money for advocacy work on the part of charities.36
Just before our inquiry began, the Government chose to ‘pause’ the proposals
for further consultation,37 and subsequently amended their plans.38

The shape and funding of the charity sector

46. There are currently 167,000 registered charities in England and Wales.39
Organisations with an annual income of less than £100,000 make up almost
three quarters (73%) of the sector, while the largest charities, with an annual
income of £5m or above, make up just 1% of the sector. However, the
largest charities account for 72% of the income for the sector (see Figure 2).40
An NCVO study in 2013/14 found that charities with an income of over
£1 million were 3% of the sector numerically but accounted for over 80% of
the sector’s income.41

36 Cabinet Office, ‘Government announces new clause to be inserted into grant agreements’: https://
www.gov.uk /government/news/government-announces-new-clause-to-be-inserted-into-grant-
agreements [accessed 14 March 2017]
37 Cabinet Office, ‘Update on a new clause to be inserted into grant agreements’: https://www.gov.uk/
government/news/update-on-a-new-clause-to-be-inserted-into-grant-agreements [accessed 14 March
2017]
38 See section on the role of charity advocacy in Chapter 8.
39 The Charity Commission, ‘Recent charity register statistics: Charity Commission’: https://www.
gov.uk/government/publications/charity-register-statistics/recent-charity-register-statistics-charity-
commission [accessed 14 March 2017]
40 Ibid.
41 NCVO, ‘UK Civil Society Almanac 2016: size and scope’: https://data.ncvo.org.uk/a/almanac16/size-
and-scope [accessed 14 March 2017]
16 Stronger charities for a stronger society

Figure 2: Proportion of charities by annual income and proportion of the

income of the sector that they receive

80%

70%

60%

50%

40%

30%

20%

10%

0%
£0 to £10,000 £10,001 to £100,001 to £500,001 to £5,000,000 plus
£100,000 £500,000 £5,000,000
% of charities % of charity sector income

Source: Charity Commission, Recent charity register statistics, https://www.gov.uk/government/publications/

charity-register-statistics/recent-charity-register-statistics-charity-commission [accessed 14 March 2017]. Charities
where the annual income bracket is not yet known have been excluded.

47. Organisations delivering social services accounted for almost a quarter of

the voluntary sector’s spending in 2013/14. This was followed by culture
and recreation (12%) and health (11%).42 The most common recorded
beneficiary group of charities is children and young people (with 28% of
charities specifying this group), followed by the general public (21%), the
elderly (14%) and people with disabilities (13%).43
48. Many of our witnesses emphasised the considerable diversity in the size of
charities, the areas they focus on and the types of work they undertake.44 We
also heard about the variety of organisational structures, such as community
groups, social enterprises and Community Interest Companies, that form
part of the voluntary and community sector.45
49. We recognise and celebrate the enormous range and variety within
the charity sector. The large charities, that raise the most money
and are most widely known, are only a tiny fraction of the 167,000
registered charities in England and Wales, let alone the many social
enterprises, small voluntary bodies and community groups besides.
We acknowledge that the issues raised in this report may affect

42 NCVO, ‘UK Civil Society Almanac 2016: spending’: https://data.ncvo.org.uk/a/almanac16/spending-4

[accessed 14 March 2017]
43 NCVO, ‘UK Civil Society Almanac 2016: beneficiaries’: https://data.ncvo.org.uk/a/almanac16/
beneficiaries-2 [accessed 14 March 2017]
44 Q 116 (Martin Sime) and written evidence from Charity Law and Policy Unit, School of Law and
Social Justice, University of Liverpool (CHA0104), Charity Tax Group (CHA0122), Children England
(CHA0173), Clinks (CHA0084), Professor John Mohan, Dr David Clifford and Dr Rose Lindsey
(CHA0158), Mr Andrew Purkis (CHA0146), Public Relations and Communications Association
(CHA0030), Stella Smith (CHA0060) and The Institute of Chartered Accountants in England and
Wales (CHA0168)
45 Q 72 (Jane Wilson) and written evidence from Community Sector Coalition (CHA0171) and Social
Enterprise UK (CHA0117)
 Stronger charities for a stronger society 17

different parts of the sector in different ways and that while there are
common principles for charities, practices may necessarily diverge.
50. Government income to the charity sector has fallen in absolute terms since
the financial year 2009/10, with central government income peaking at
£7 billion and local government income at £7.9 billion that year. Central
government income then fell in absolute terms in each of the subsequent three
years before a slight increase to £6.8 billion in 2013/14. Local government
income saw a similar picture, reaching a low point of £7.2 billion in both
2011/12 and 2012/13 before rising to £7.4 billion in 2013/14.46
51. The form of income from government, local and national, has also changed
significantly. In 2003/04, income for the sector from government grants
(£6.1bn) and contracts (£5.8bn) was roughly equal. Since then, however,
the value of grants has declined and in 2013/14 was £2.8bn. By contrast,
income from contracts has grown, up to £12.2bn in 2013/14.47 The current
Government and its coalition predecessor have also placed a particular
emphasis on the ability of charities and other voluntary organisations to
demonstrate positive and measurable outcomes from their work, notably by
the increasing use of ‘Payment by Results’ contracts (whereby all or part of
the payment depends on the provider achieving outcomes specified by the
commissioner).48
52. The effect of this transition to contracts, and of the government’s policy
priorities, have been that the largest charities (those with an income of over
£100 million) have benefited most from the recent increase in government
income, owing to their ability to bid for the large-scale contracts offered by
central and local government. Conversely, the NCVO notes that “small and
medium sized charities did not recover income lost from government since
2009/10”, perhaps owing to difficulties with bidding for larger contracts with
a reduced focus on quality and an emphasis on Payment by Results.49 These
issues are explored further in Chapter 4.

The contribution of charities

53. During our inquiry we heard about the wide variety of contributions that
charities make and about the values they contribute to society. In different
parts of the sector, different causes and campaigns are championed, such as:
cultural charities, providing access to the arts; sporting charities, engaging
people in sporting activities; animal welfare charities caring for pets and
wildlife; social services charities supporting people at home; and international
aid charities helping people abroad. (See Figure 1 for a breakdown of
voluntary organisations by area of activity).

46 NCVO, ‘UK Civil Society Almanac 2016: Income from Government’: https://data.ncvo.org.uk/a/
almanac16/income-from-government [accessed 14 March 2017]
47 Ibid.
48 National Audit Office, Outcome-based payment schemes: government’s use of payment by results (June
2015): https://www.nao.org.uk/wp-content/uploads/2015/06/Outcome-based-payment-schemes-
governments-use-of-payment-by-results.pdf [accessed 14 March 2017] and NCVO, Payment by Results
and the voluntary sector (April 2014): https://www.ncvo.org.uk/images/documents/about_us/media-
centre/payment-by-results-and-the-voluntary-sector-april-2014.pdf [accessed 14 March 2017]
49 NCVO, ‘UK Civil Society Almanac 2016: Income from Government’: https://data.ncvo.org.uk/a/
almanac16/income-from-government [accessed 14 March 2017]
18 Stronger charities for a stronger society

54. We were told that charities provided scrutiny and challenge and represent the
views of those less able to be heard on their own.50 Charities were described
as catalysts for change.51 Action Against Hunger said that charities “play
a crucial role as a non-partisan watchdog of government actions and the
actions of any individual or corporation that may have negative impact on
communities.”52
55. Charities can also inspire collective action and philanthropy, and build social
capital.53 Matthew Taylor from the Royal Society of Arts (RSA) said the
sector was “committed in one way or another to social benefit” and that it
“seeks to achieve that in part by mobilising the voluntary efforts of people.”54
56. We heard that charities played an important role in community cohesion
with a valuable convening power to bring people from different backgrounds
together.55 We also heard that charities had intimate knowledge of the
communities and areas in which they operated and that, along with their
values, made them more likely to be trusted.56 Locality said that:
“In increasingly uncertain times, the role that community anchor
organisations play is more important than ever. They stimulate active
citizenship and civic participation through volunteering and community
organising, and act as a catalyst for community cohesion, bringing
together diverse groups to work together for the local neighbourhood.
Community anchors build and harness a huge amount of social capital
in their local communities. Through their strong relationships with
vulnerable and excluded groups locally, they support people to have
a voice in their local community and shape neighbourhood priorities.
Community anchor organisations also often play an important role in
reinvigorating common assets locally, which ensures that communities
can directly control the important activity in their neighbourhoods.”57
57. Asheem Singh from the Association of Chief Executives of Voluntary
Organisations (ACEVO) noted the role of faith charities in social cohesion:
“That is one of the great under-explored areas by the secular bit of the
sector. Sometimes it feels that ne’er the twain shall meet, but one of the
things we want to do over the course of the next year is to investigate

50 Written evidence from British Red Cross (CHA0162), Bolton Community and Voluntary Services
(CHA0064), Lucy Caldicott (CHA0170), Citizens Advice Newcastle (CHA0108), Civil Exchange
(CHA0141), Community Southwark (CHA075), Mr Andrew Purkis (CHA0146), Rural Community
Council of Essex (CHA0096) and Visionary (CHA0174)
51 Written evidence from Locality (CHA0133), National Association for Voluntary and Community
Action (CHA0076) and Oxfam GB (CHA0113)
52 Written evidence from Action Against Hunger (CHA0078)
53 Written evidence from Action with Communities in Rural England (ACRE) (CHA0085), Civil
Exchange (CHA0141), Common Vision (CHA0136), Camelot UK Lotteries Ltd (CHA0115), Calouste
Gulbenkian Foundation (CHA0163), Locality (CHA0133), Voluntary Organisations Disability Group
(CHA0050) and VONNE (CHA0123)
54 Q 41 (Matthew Taylor)
55 Q 21 (Rebecca Bunce), Q 46 (David Cutler), Q 61 (Paul Hackwood, Aamer Naeem), and written
evidence from Bolton Community and Voluntary Services (CHA0064), Charities Aid Foundation
(CHA0089), Children England (CHA0173), Foundation for Social Improvement (CHA0057) and Mr
Wally Harbert (CHA0019)
56 Written evidence from Charity Law and Policy Unit, School of Law and Social Justice, University
of Liverpool (CHA0104), Community Links Bromley (CHA0100), Localgiving (CHA0016), MHA
(CHA0124), Dr Therese O’Toole and Dr Ekaterina Braginskaia (CHA0116) and Pilotlight (CHA0073)
57 Written evidence from Locality (CHA0133)
 Stronger charities for a stronger society 19

the social capital-building capabilities of the faith sector in this country,

because they are considerable.”58
58. Aamer Naeem from Penny Appeal said that faith organisations could
“leverage the faith conversation as well as the humanitarian conversation.”59
Both he and Paul Hackwood, from the Church Urban Fund, talked about
the social cohesion work undertaken by the Near Neighbours programme,
engaging multi-ethnic, multi-faith civil society.60
59. We also heard that charities were the framework for philanthropy and civil
society values.61 Many of our witnesses emphasised the unique altruistic
values of charities to society.62 Paul Hackwood spoke about charities being
“values led”, something that was particularly prominent for faith-based
charities.63 Common Vision talked about the ability of charities to promote
positive public behaviour.64
60. We heard that by operating as a charity, and having the beneficiary at the
heart of the service, people get better support than might be provided by
other sectors.65 Many witnesses told us that charities provide support to
people who are disadvantaged66 and fill gaps in the services offered by the
public and private sectors.67 People and Work Talwrn set this in context and
suggested that charities should be wary of simply picking up what the state
had left behind:
“During the twentieth century charities adapted as the State took on
many of their traditional roles. As the State now moves away from non-
statutory interventions, charities will need to change again but it would
be wrong for them to just pick up what the State is walking away from,
even if they had the resources to do so. The challenge, and opportunity,
is to do things differently and better.”68
61. We also heard about the contribution of charities as employers, with the
sector estimated to employ 827,000 people in the UK.69
62. Richard Jenkins from the Association of Charitable Foundations concluded
that: “At the end of the day, charity is an expression of human passion,
resourcefulness, a sense of injustice and the need to do something.”70
58 Q 20 (Asheem Singh)
59 Q 62 (Aamer Naeem)
60 Q 61 (Paul Hackwood, Aamer Naeem)
61 Written evidence from RSM UK (CHA0120)
62 Written evidence from British Heart Foundation (CHA00152), Sense, The National Deafblind and
Rubella Association (CHA0040), Small Charities Coalition (CHA0140) and Voluntary Organisations
Disability Group (CHA0050)
63 Q 62 (Paul Hackwood)
64 Written evidence from Common Vision (CHA0136)
65 Written evidence from Clinks (CHA0084) and Lloyds Bank Foundation for England and Wales
(CHA0031)
66 Written evidence from Action Against Hunger (CHA0078), Lucy Caldicott (CHA0170), Charity
Tax Group (CHA0122), Chilterns MS Therapy Centre Ltd (CHA0066), Citizens Advice Newcastle
(CHA0108) and Community Links Bromley (CHA0100)
67 Written evidence from Alzheimer’s Research UK (CHA0074), Chilterns MS Therapy Centre
Ltd (CHA0066), Home-Start Slough (CHA0068), Hospice UK (CHA0130), London Funders
(CHA0090), MHA (CHA0124), Together for Short Lives (CHA0144), Visionary (CHA0174) and
Wellcome Trust (CHA0164)
68 Written evidence from People and Work Talwrn (CHA0034)
69 Written evidence from British Heart Foundation (CHA0152), National Council for Voluntary
Organisations (CHA0148) and Sense, The National Deafblind and Rubella Association (CHA0040)
70 Q 36 (Richard Jenkins)
20 Stronger charities for a stronger society

63. Charities play a fundamental role in our civic life. They are often in
the front line of support for the most vulnerable and are therefore
in the best place to assess their needs. They not only provide. They
inspire and innovate and through their advocacy help shape our laws,
government policies and society as a whole.
64. We note that the Minister for Civil Society, Rob Wilson MP, said in December
2015 that he wanted “government to be one partner among many” for the
charity sector, “a helping hand rather than crutch.”71
65. We believe that the Government, the rest of the public sector and
the private sector should foster robust and meaningful partnerships
with the charity sector and support and facilitate charities whenever
possible.

71 Cabinet Office, ‘Giving Tuesday 2015: Rob Wilson speech’: https://www.gov.uk/government/speeches/

giving-tuesday-2015-rob-wilson-speech [accessed 14 March]
 Stronger charities for a stronger society 21

Chapter 3: IMPROVING GOVERNANCE AND

ACCOUNTABILITY

Good governance
66. Improving the governance of charities to ensure they operate effectively was a
priority for many of our witnesses.72 Some witnesses suggested that charities
may have given less attention to governance during a period of financial
challenge, with their resources devoted to staffing and front-line services.73
67. The Charity Commission for England and Wales told us that governance
was also one of their top priorities and that they were undertaking research
“to evaluate current issues within the trusteeship of charities and to set a
baseline for improvement.”74
68. We heard various suggestions for the characteristics that constitute good
governance of charities. Action in Rural Sussex said: “Good governance of
charities is about ensuring assets and resources are subject to careful and
rigorous stewardship, including their efficient application to each individual
charity’s purposes.”75
69. Marged Griffiths, from the charity Y Bont, pointed to the ‘Five Ss’, articulated
by former Charity Commissioner Julia Unwin,76 as the foundation of good
governance:
“stewardship to manage all the matters effectively; scrutiny,
checking details and asking questions; strategy, thinking ahead and
direction; support of staff, volunteers and service-users; and stretch in
encouraging us to continue to improve, develop and adapt to changing
times.”77
70. Shaks Ghosh from Clore Social Leadership said she would add a sixth ‘S’ to
the list:
“which is skills, that actually they are concerned about the skills around
the board table, the skills within the organisation to do the job and …
this issue about the changing needs of the organisation and the board
and this continual need to update the skills. Where you see a board doing
that, I think you are starting to see signs of really good governance.”78
71. The voluntary Governance Code for the sector, Good Governance,79 was
referred to by a number of witnesses who said that they endorsed it and
used it as a benchmark.80 The Code is the product of a Steering Group
72 See, for example, Q 29 (Karl Wilding), Q 36 (Richard Jenkins), Q 63 (Aamer Naeem) and written
evidence from Association of Chairs (CHA0156), Comic Relief (CHA0126), ICSA: The Governance
Institute (CHA0093) and New Philanthropy Capital (CHA0055)
73 Q 28 (Rebecca Bunce), Q 30 (Richard Jenkins), Q 31 (Andrew O’Brien) and Q 144 (Daniel Hurford)
74 Q 208 (Kenneth Dibble)
75 Written evidence from Action in Rural Sussex (CHA0001)
76 Julia Unwin, ‘The five Ss in governance’, Getting on Board (19 October 2015): http://www.
gettingonboard.org/news/4585134114/The-five-Ss-in-governance/10242909 [accessed 14 March
2017]
77 Q 97 (Marged Griffiths)
78 Q 98 (Shaks Ghosh CBE)
79 Good Governance: A Code for the Voluntary and Community Sector, http://www.governancecode.org
[accessed 14 March 2017]
80 Written evidence from Action Against Hunger (CHA0078), Association of Chairs (CHA0156),
National Council for Voluntary Organisations (CHA0148) and Royal Mencap Society (CHA0154)
22 Stronger charities for a stronger society

composed of the National Council for Voluntary Organisations (NCVO), the

Association for Chief Executives of Voluntary Organisations (ACEVO), the
Small Charities Coalition, the Association of Chairs, ICSA: The Governance
Institute and the Wales Council for Voluntary Action (WCVA), supported
by the Charity Commission, the Clothworkers’ Company and the Barrow
Cadbury Trust.
72. The Code sets out key principles for charity governance and covers areas
including organisational purpose and direction, leadership, integrity, decision
making, risk and control, diversity, board effectiveness and transparency
and accountability.81 A consultation has recently concluded on proposals to
revise and update the Code.82 The Charity Commission emphasised their
support for the Code and their hope that the consultation would facilitate
debate about governance standards in the sector and how the bar could
be raised.83 The Commission announced in February 2017 that it would
withdraw its guidance, The Hallmarks of an Effective Charity (CC10), in favour
of the Governance Code and “would refer charities to the Code as setting
out relevant standards of good practice.”84 This makes the Governance Code
the de facto standard for the sector.
73. We were cautioned against a one-size-fits-all model of governance, given
the diversity of the charity sector.85 We also heard about a number of other
tailored governance codes used by specific types of charities86 and about
a number of projects that aim to support good governance in the charity
sector.87
74. A number of witnesses emphasised the importance of charity boards
reviewing their governance arrangements on a regular basis.88 We were also
told about the importance of succession planning for good governance and
continuous professional development to ensure that skills become embedded
in organisational culture.89
75. The Association of Chairs said that: “there is no single magic bullet that will
transform charity governance. The reality is that it takes sustained effort and
investment to build good governance. It is a long term endeavour and is as
much about culture as it is about resources.”90

81 The Charity Governance Code Steering Group: Charity Governance Code consultation document
(November 2016): http://www.governancecode.org/wp-content/uploads/2017/02/NC940_good_
governance_11.pdf [accessed 14 March 2017]
82 Rosie Chapman, the specialist adviser to our inquiry, is involved in leading the review of the Governance
Code. We stress that the views in this report are ours and ours alone.
83 Written evidence from Charity Commission for England and Wales (CHA0114)
84 Charity Commission for England and Wales, New code of governance consultation — a response from the
Charity Commission for England and Wales (February 2017): https://www.gov.uk/government/uploads/
system/uploads/attachment_data/file/588964/New_code_of_governance_consultation.pdf [accessed
14 March 2017]
85 Written evidence from MHA (CHA0124)
86 Written evidence from The Chartered Institute of Public Finance and Accountancy (CHA0079) and
National Union of Students (CHA0111)
87 Q 144 (Daniel Hurford) and written evidence from National Council for Voluntary Organisations
(CHA0148)
88 Written evidence from Action Against Hunger (CHA0078), RSPCA (CHA0070) and RSM UK
(CHA0120)
89 Q 114 (David Robb) and written evidence from Church Army (CHA0003), The Foyer Federation
(CHA0180), Gloucestershire Rural Community Council (GRCC) (CHA0069), Royal National
Lifeboat Institution (CHA0153) and SkillShare North East Ltd (CHA0106)
90 Written evidence from Association of Chairs (CHA0156)
 Stronger charities for a stronger society 23

76. Robust governance requires good structures, processes and

behaviours. It demands strategy and foresight as well as a culture of
scrutiny, support and challenge. While the whole sector should aspire
to a high standard of governance, larger charities will necessarily
have to adopt more rigorous processes than smaller ones to ensure
they meet that aim.
77. We welcome the work to update the voluntary Governance Code
for the charity sector. We also welcome the Charity Commission’s
decision to refer to it as the benchmark for governance in the charity
sector.

The role of trustees

78. The role of trustees in good governance was described by witnesses in a
variety of ways. These included providing strategic direction to ensure that
the charity meets its purpose,91 acting as the guardian of its values and
reputation,92 stewarding its assets and finances,93 and acting as ambassadors
for its cause.94 Frances McCandless from the Charity Commission for
Northern Ireland concluded that: “Thriving healthy charities need to
be independent, and they need to be driven and overseen by skilled and
enthusiastic trustees.”95
79. There was widespread recognition that being a trustee had become more
challenging, as the environment for charities had changed substantially,
particularly as a result of increased financial pressures and significant
shifts in funding models.96 There were also additional legal and regulatory
requirements to comply with, such as new data protection regulations and
fundraising standards.97 The Charity Commission noted that navigating
these challenges required “strong strategic leadership and the ability to take
managed risks; we see many boards failing to rise to the occasion.”98
80. The Cranfield Trust said that in their experience “many trustees are not
really familiar with the role, its requirements and responsibilities.”99 Other
witnesses suggested that, following the collapse of Kids Company, trustees
had become more conscious of their responsibilities.100

91 Q 97 (Eve Martin) and written evidence from Alzheimer’s Research UK (CHA0074), Big Society
Capital (CHA0087), People’s Postcode Lottery (CHA0099), Springboard Project (CHA0011), The
Woodland Trust (CHA0150) and World Horse Welfare (CHA0127)
92 Written evidence from Devon Air Ambulance Trust (CHA0083)
93 Written evidence from Big Society Capital (CHA0087), The Chartered Institute of Public Finance
and Accountancy (CHA0079) and Common Vision (CHA0136)
94 Written evidence from Battersea Dogs & Cats Home (CHA0143) and The Foyer Federation
(CHA0180)
95 Q 114 (Frances McCandless)
96 Written evidence from Charity Commission for England and Wales (CHA0114), Charity Finance
Group (CHA0092) and Churches’ Legislation Advisory Service (CHA0098)
97 Written evidence from Association of Chairs (CHA0156), Charity Tax Group (CHA0122), Comic
Relief (CHA0126), Guide Dogs (CHA0109), The Institute of Chartered Accountants in England and
Wales (CHA0168) and Wincanton Community Venture (CHA0022)
98 Written evidence from Charity Commission for England and Wales (CHA0114)
99 Written evidence from The Cranfield Trust (CHA0103)
100 Note of the Committee visit to Body & Soul, Appendix 4
24 Stronger charities for a stronger society

81. We were also told that, given the voluntary nature of trusteeship, it was
important that trustees were not overburdened with responsibility or
regulation, as this might make it difficult to recruit trustees.101

Trustee skills
82. The importance of trustee skills and experience for good governance was a
frequent theme in the evidence we received. The changing world in which
charities operate, with new funding models, digital tools and far greater
expectations of accountability and transparency, was seen to have added new
requirements to the traditional expectations of trustees.
83. A wide range of skills were identified as needing to be represented on trustee
boards, depending on the size of the charity, how it operated and what it
did.102 Finance and fundraising skills were seen as a high priority by many
of our witnesses, particularly given the challenging economic conditions.103
The NCVO suggested that: “The lack of sufficient finance skills and
fundraising knowledge have especially been at the heart of some of the most
recent governance failures.”104 We were told by a number of charities about
the difficulties they faced recruiting treasurers on to their trustee boards.105
84. Other skills identified as important on trustee boards were legal and business
knowledge, risk management, communication skills, chairing skills, team
working, an ability to nurture organisational culture, foster creativity, and a
willingness to ask difficult and challenging questions of the executive.106 A
number of witnesses suggested that charities should undertake skills audits
of their trustee boards to evaluate the skills and recruit to fill any gaps.107
85. We heard that it was important for trustee boards to have an understanding
of technology in order to support charities looking to innovate using digital
tools.108 We consider this further in Chapter 6.
86. We were also told that it was important that trustee boards had experience
of the voluntary sector, knowledge of and enthusiasm for the subject area of
the charity’s work, and an understanding of the perspective of beneficiaries.109
Eve Martin from Brook cautioned, however, that: “it is critical that trustees

101 Written evidence from Churches’ Legislation Advisory Service (CHA0098), Oxfam GB (CHA0113)
and Rural Community Council of Essex (CHA0096)
102 Written evidence from National Council for Voluntary Organisations (CHA0148)
103 See for example, Q 98 (Marged Griffiths) and written evidence from Charity Tax Group (CHA0122),
Comic Relief (CHA0126), Community Links Bromley (CHA0100), Esmée Fairbairn Foundation
(CHA0044), Stella Smith (CHA0060) and vInspired (CHA0118)
104 Written evidence from National Council for Voluntary Organisations (CHA0148)
105 Note of roundtable discussion in Westminster, Appendix 7, note of roundtable discussion in Cardiff,
Appendix 8, and written evidence from Church Mission Society (CHA0014), Reach Volunteering
(CHA0058), Mr Brian Winder (CHA0017), Stella Smith (CHA0060) and The Institute of Chartered
Accountants in England and Wales (CHA0168)
106 Q 98 (Eve Martin) and written evidence from Action Against Hunger (CHA0078), Association of
Chairs (CHA0156), Lucy Caldicott (CHA0170), Chilterns MS Therapy Centre Ltd (CHA0066),
Comic Relief (CHA0126), Institute of Risk Management (IRM) (CHA0039), National Council for
Voluntary Organisations (CHA0148) and vInspired (CHA0118)
107 Note of roundtable discussion in Westminster, Appendix 7, and written evidence from Church Army
(CHA0003), RSM UK (CHA0120) and Wales Council for Voluntary Action (CHA0097)
108 Written evidence from Citizens Advice (CHA0177) and National Council for Voluntary Organisations
(CHA0148)
109 Written evidence from Comic Relief (CHA0126), Community Links Bromley (CHA0100), The
Swinfen Charitable Trust (CHA0007), vInspired (CHA0118) and Wincanton Community Venture
(CHA0022)
 Stronger charities for a stronger society 25

have a range of skills and expertise relevant to the charity, but not exclusively
from the charity field, otherwise their vision becomes too narrow.”110
87. Alongside all the skills and knowledge, we also heard that it was imperative
that trustees devoted time to their governance functions, which could be a
challenge for smaller charities.111 Andrew O’Brien from the Charity Finance
Group said:
“It requires time and effort to understand your organisation’s business
model and its financial situation and sustainability, and you need to invest
that time and understanding, and not just pass it off to the treasurer,
chair, chief executive or finance director. You need to understand it
yourself, but you can understand it.”112
88. He added that it was important not to give the impression that trustees were
not capable of performing challenging governance tasks:
“If you genuinely have the needs of your beneficiaries at the heart of
your decision-making, if there is a regular flow of correct and accurate
financial information to your board, and you have an inquiring and
challenging board that uses its common sense, judgment and experience
to ask the right questions—that is why it is there—you can successfully
financially govern your organisation. What we have to be honest
about—I commend the Charity Commission for its work on that—is the
commitment it means.”113
89. We believe that it is essential that charities regularly undertake skills
audits of their trustee boards to ensure that they have the necessary
capabilities to undertake their vital governance role. For large
charities, this should be an annual occurrence.

Trustee training
90. We were told that there should be a new focus on training and continuous
professional development for charity boards in order to improve trustee
skills.114 The Charity Evaluation Working Group suggested that the
resources, training and guidance currently available to charity leaders and
managers should also be available to trustees.115 Barnardo’s said that it
would be helpful to have a centrally maintained store of knowledge and best
practice for trustees to consult.116 We also heard that there were free and low-
cost online training available to address some areas of need.117
91. Voluntary Organisations’ Network North East argued that, while
infrastructure bodies in the sector were able to help charities gain skills,
they often lacked the resources to deliver programmes locally.118 They said
that the training offered by national organisations was disproportionately

110 Q 98 (Eve Martin)

111 Q 98 (Eve Martin, Marged Griffiths)
112 Q 39 (Andrew O’Brien)
113 Ibid.
114 Q 208 (Kenneth Dibble) and written evidence from Charity Commission for England and Wales
(CHA0114), Charity Law and Policy Unit, School of Law and Social Justice, University of Liverpool
(CHA0104) and Royal National Lifeboat Institution (CHA0153)
115 Written evidence from Charity Evaluation Working Group (CHA0067)
116 Written evidence from Barnardo’s (CHA0172)
117 Q 91 (Professor John Mohan) and Q 138 (Helen Milner OBE)
118 Infrastructure bodies are considered further in Chapter 5.
26 Stronger charities for a stronger society

London-based, which imposed prohibitive costs for organisations based

elsewhere in the country.119 Action Against Hunger also said that while there
were a multitude of training providers, they were not always affordable for
charities.120
92. This problem was acknowledged by Andrew O’Brien:
“You are absolutely right that we need to focus on the smaller end of the
market … there is a massive gap; 97% of our sector is under £1 million.
A lot of our training across the sector is aimed at those who can pay for
it, usually the bigger organisations. We need to focus more on the needs
of the smaller ones, and they are insatiable.121
93. As part of skills audits of boards, charity chairs should be looking to identify
where training for trustees can fill gaps in their capacity. However, the
Association of Chairs told us that, of the charities they had surveyed, 46%
of boards had no budget for board development.122 Charity Leaders argued
that it was vital that trustee boards learnt in teams as well as individually, to
allow the board to bond and better understand one another.123
94. Our witnesses also said that it was essential to have more formal and
rigorous induction processes for new trustees.124 Locality suggested that it
was “often incorrectly assumed” that trustee skills were easily transferrable
from the private sector, and stressed that board development and training
was important given the different business models and environments that
charities operated within.125
95. We note that the revised Governance Code suggests that trustees receive
an appropriately resourced induction on joining the board that covers all
areas of the charity’s work and gives the opportunity for ongoing learning
and development.126 ICSA: The Governance Institute suggested that large
charities should seek to appoint a governance professional to support trustees
in their role.127
96. A range of other suggestions were made for supporting trustee skills,
including secondments and mentoring between charities128 and capacity
building through peer-group learning among trustees and with business
leaders from the private sector.129 Business in the Community said that
there was a growing diversification in the relationships between businesses

119 Written evidence from VONNE (CHA0123)

120 Written evidence from Action Against Hunger (CHA0078)
121 Q 37 (Andrew O’Brien)
122 Written evidence from Association of Chairs (CHA0156)
123 Written evidence from Charity Leaders (CHA0139)
124 Written evidence from Charity Law and Policy Unit, School of Law and Social Justice, University
of Liverpool (CHA0104), Comic Relief (CHA0126), Directory of Social Change (CHA0128),
Foundation for Social Improvement (CHA0057), RSM UK (CHA0120), RSPCA (CHA0070), The
Tim Parry Johnathan Ball Foundation for Peace (CHA0038) and Tree of Hope (CHA0041)
125 Written evidence from Locality (CHA0133)
126 The Charity Governance Code Steering Group, Charity Governance Code Consultation document
(November 2016) para 6.6: http://www.governancecode.org/wp-content/uploads/2017/02/NC940_
good_governance_11.pdf [accessed 14 March 2017]
127 Written evidence from ICSA: The Governance Institute (CHA0093)
128 Written evidence from Action Against Hunger (CHA0078), Pilotlight (CHA0073) and Royal National
Lifeboat Institution (CHA0153)
129 Written evidence from Action Against Hunger (CHA0078), Chilterns MS Therapy Centre Ltd
(CHA0066), Comic Relief (CHA0126), London Funders (CHA0090), Lucy Caldicott (CHA0170),
Stella Smith (CHA0060), vInspired (CHA0118) and Wincanton Community Venture (CHA0022)
 Stronger charities for a stronger society 27

and charities, from traditional giving and fundraising to “more complex,

integrated social/shared value delivery models.”130 They suggested that there
was greater value that could be leveraged from these more equal relationships,
but that they required greater effort and sophistication to establish.131 The
RNLI agreed that skills in the charity sector could be enhanced through
“networking within sectors and mentoring with other business leaders”132
and Stella Smith said that “confidential support from established leaders
and talented individuals from outside the sector might be most helpful.”133
97. Training and development are essential for charity trustees in order
for the sector to work effectively. It is the responsibility of charities’
chairs to ensure that this vital activity takes place. We recommend that
the sector’s infrastructure bodies review the training opportunities
that exist, identify where there may be shortcomings in provision,
particularly for small charities, and take action to address them.
They could assist charities by publishing collated information about
available training and providing a platform for users to rate the
value of courses they have accessed.
98. Induction processes are essential so that new trustees have a well-
established understanding of the charity and of their responsibilities.
Trustees need to feel confident and well-informed in order to provide
strategic direction, oversight and challenge. We welcome the inclusion
in the Governance Code of appropriately resourced inductions for all
new trustees.
99. We believe that smaller charities would benefit from having
free access to a template induction process. We recommend that
grant-making bodies consider applications from infrastructure
organisations and governance professionals to develop such a best
practice template.
100. There is greater potential for charities to benefit from better
connections to the business community and vice versa. We
recommend that the Government takes fresh measures to get more
senior business leaders directly involved with charities to foster
those relationships and maximise their value.

Board diversity and turnover

101. The skills needs of charity boards were linked to a lack of diversity among
trustees. The Charity Commission told us that trustee boards “lack diversity,
having particular demographic characteristics.”134 David Robb from the
Office of the Scottish Charity Regulator (OSCR) said that “diverse boards
make better decisions and are better placed to sustain charities in a changing
environment”135 and Lord Hodgson of Astley Abbotts suggested that a lack
of diversity on boards could lead to a charity becoming “a bit narrowly led.”136

130 Written evidence from Business in the Community (CHA0155)

131 Ibid.
132 Written evidence from Royal National Lifeboat Institution (CHA0153)
133 Written evidence from Stella Smith (CHA0060)
134 Q 208 (Kenneth Dibble)
135 Q 114 (David Robb)
136 Q 91 (Lord Hodgson of Astley Abbotts CBE)
28 Stronger charities for a stronger society

102. We were told that it was important to make trusteeship more accessible.137
Matthew Taylor from the RSA said: “We would make governance a bit easier
if we made it more possible for people of working age to be able to serve in a
trustee capacity without having to ask an enormous favour of their employer.”138
Eve Martin from Brook suggested that employers should be encouraged to
promote trusteeship as part of staff development.139 We also heard that more
should be done to educate the public on what being a trustee means and
entails, in order to encourage a wider range of people to participate.140
103. FaithAction said that the role of trustees should carry as much prestige as that
of magistrate.141 The NCVO went further and suggested that the law should
be amended to extend employees’ existing right to take reasonable time
off for volunteering for “certain public duties (e.g. to serve as magistrates,
councillors or on the governing bodies of schools).”142
104. We were told about the value of having beneficiaries of charities as their
trustees.143 Eve Martin told us that her board was more diverse because of
the presence of co-opted trustees from the age range of their service users.
She said that it resulted in:
“a completely different dynamic of a board and changes things quite a
lot, and it is nothing but positive. I cannot say how positive it is. I would
really urge other charitable boards to think seriously about how they
recruit and develop young trustees.”144
105. We acknowledge that recruitment of trustees is challenging for many
charities, especially when seeking trustees with particular skill sets.
However, we believe that trustee diversity is important, as boards
with a range of skills, experiences, ages and backgrounds are likely to
lead to better governance.
106. We believe that more can be done by the Government, the Charity
Commission, infrastructure bodies and by charities themselves to
promote trusteeship and incentivise people to become trustees. In
particular, there is greater scope to enable disadvantaged people to
become trustees and thus improve diversity.
107. We recommend that the Office for Civil Society works with other
departments and business leaders to develop a new initiative to
promote trusteeship to employees and employers and thereby
encourage greater participation and diversity. The initiative should
encourage employees to see both the selfless, charitable value of
trusteeship and the personal benefits in the form of skills and career
development. Employers should be encouraged to give greater
recognition to trustee roles in recruitment and progression of their
staff.

137 Q 114 (Frances McCandless)

138 Q 50 (Matthew Taylor)
139 Q 98 (Eve Martin)
140 Written evidence from ICSA: The Governance Institute (CHA0093), RSM UK (CHA0120) and
Stella Smith (CHA0060)
141 Written evidence from FaithAction (CHA0015)
142 Written evidence from National Council for Voluntary Organisations (CHA0148)
143 Q 114 (David Robb) and note of the Committee visit to Body & Soul, Appendix 4
144 Q 99 (Eve Martin)
 Stronger charities for a stronger society 29

108. We further recommend that the Government holds a public

consultation on the possibility of introducing a statutory duty to
allow employees of organisations over a certain size to take a limited
amount of time off work to perform trustee roles.
109. We also heard that it was important to ensure that there was turnover on
charities’ boards to ensure that governance skills were regularly refreshed.145
Lord Hodgson of Astley Abbotts told us that trustees:
“should serve for three three-year terms, they should be reappointed
at the end of every third year and it would be expected that they would
be appointed for a second term, and a third term if they did well. It
would not be a legal requirement; it would be a ‘comply or explain’
requirement.”146
110. Lord Hodgson added that the rotation of trustees was “a way of keeping the
sector fresh and providing an effective check on professional staff who may
have all the tensions between executives and non-executives.”147 Eve Martin
said that it was important to have time limits for trustees to avoid boards
becoming complacent and averse to change.148
111. David Robb from the OSCR said that:
“The notion [of maximum terms of office for trustees] is not contentious,
but implementing it can be hard for charities. They are often behind the
sentiment, but they are not quite sure how to start going about it, so if
we can start offering some practical things along the way towards more
diversity and a better pipeline for succession planning, we could make
progress.”149
112. The revised Governance Code proposes that trustees are appointed for an
agreed length of time, subject to any applicable re-election and statutory
provisions. It suggests that if a trustee is to serve for more than nine years,
then this should be subject to a rigorous review by the trustee board that
takes into account the need for progressive refreshing of the board.150 Lord
Hodgson noted that there may be cases in which a time limit should not
apply:
“if someone is the founder, they have a reason for continuing a little
longer as long as it is explained in the annual report that is fine. That
enables the public, the Charity Commission or whoever, to know that
somebody is there in a special position and it deals with the fact that a
founder can be over-mighty and can rule the roost too much.”151
113. We agree that there should be a time limit for individuals to
serve as trustees, along with a maximum term of office, and we
endorse the proposed inclusion of such time limits in the revised

145 Written evidence from Citizens Advice (CHA0177) and National Council for Voluntary Organisations
(CHA0148)
146 Q 91 (Lord Hodgson of Astley Abbotts CBE)
147 Ibid.
148 Q 98 (Eve Martin)
149 Q 114 (David Robb)
150 The Charity Governance Code Steering Group, Charity Governance Code Consultation document
(November 2016) para 6.5.3: http://www.governancecode.org/wp-content/uploads/2017/02/NC940_
good_governance_11.pdf [accessed 14 March 2017]
151 Q 91 (Lord Hodgson of Astley Abbotts CBE)
30 Stronger charities for a stronger society

Governance Code. We recommend that the materials and draft

articles of association provided by the Charity Commission include
a suggestion of time limits.
114. We recognise that in some circumstances, such as family trusts or
in respect of the role of the founder of a charity, there may be good
reasons for not imposing a time limit. We agree with Lord Hodgson
of Astley Abbotts that these charities should explain their reasons for
this in their annual report in order to aid transparency.
115. We believe that, irrespective of trustee time limits, charities should
regularly review the operation of their boards and the tenure of their
trustees and chair to ensure that their governance is sufficiently
robust. For large charities, this should be an annual occurrence.

Diversity of the Charity Commission’s board

116. We also heard concerns about the board of the Charity Commission. The
NCVO said: “We would like to see a greater role for Parliament in future
in how the board is appointed, and we are especially keen that it has an
independent chair with cross-party support.”152
117. During our inquiry, the Charity Commission made new appointments to
its board, which prompted criticism from the sector. ACEVO said that “the
process of appointment was opaque and undemocratic” and that “not a
single board member has the deep and cross-cutting experience of charity
governance and regulation experienced by those on the front line.”153 Debra
Allcock Tyler, Chief Executive of the Directory of Social Change, said that
it was “a pity that there is now no one on the Commission board who has
actually run a charity full-time.”154
118. William Shawcross, the Chairman of the Charity Commission, told us that:
“It is always useful that anybody on the Charity Commission board has
previous experience in the charity sector. I think I am right in saying that
every member of our board has been a trustee of one or more charities.
I agree with you that that is important.”155
119. Kenneth Dibble, Legal Director at the Charity Commission, said that in the
charity sector “trustee boards continue to lack diversity.” He went on to say
that they recommended “improving diversity of trustees, the availability of
equality guidance training and support for trustees.”156
120. We acknowledge the challenges that the Charity Commission faces
in securing a diverse board, however the regulator cannot expect to
hold the sector to a higher standard than it is able to achieve itself. We
recommend that the Commission is mindful of the example it sets
to the sector and that when filling future vacancies it explicitly seeks
to recruit individuals with a range of skills, charity experiences and
demographic characteristics, such as age, gender, ethnicity and
152 Q 21 (Karl Wilding)
153 ‘Appointments process for Charity Commission board members ‘broken’, says Acevo’, Third Sector
(1 December 2016): http://www.thirdsector.co.uk/appointments-process-charity-commission-board-
members-brokensays-acevo/governance/article/1417395 [accessed 14 March 2017]
154 Ibid.
155 Q 203 (William Shawcross)
156 Q 208 (Kenneth Dibble)
 Stronger charities for a stronger society 31

geography. We expect to see the results of this approach in the next

set of board appointments.

Executive leadership
121. In addition to skilled trustees overseeing a charity’s activity, good governance
also requires strong executive leadership skills in order to run the charity
effectively on a day-to-day basis. The challenge of running a charity was
emphasised by a number of our witnesses. Professor John Mohan, from the
Third Sector Research Centre, University of Birmingham, told us that:
“A colleague in this research field referred to running small charities as
“juggling on a unicycle”, which seemed quite apt for the range of tasks
and the complex balancing acts that people have to engage in.”157
122. The Lloyds Bank Foundation for England and Wales said that:
“The skills and qualities needed to run a small charity can differ
substantially to those involved in running a multi-million pound
organisation. Underpaid and over-worked, small charity chief executives
have to be able to multi-task and take a hands-on approach to the day-to-
day running of the charity whilst also leading on strategy and external
relations. These chief executives need to be innovative and passionate to
rise to the incredible challenges they face, often supporting individuals
at a local level one day and taking on big businesses and Government
the next.”158
123. ICSA: The Governance Institute told us that, while the skills required to
lead and manage a charity were no different from those required in any
other type of organisation, the expectations placed upon charity leaders
were different from other sectors, such as in relation to salary levels, business
practices, funding arrangements, and strategic decisions about how to
achieve charitable objects.159
124. ACEVO highlighted the strain that charity leaders were facing:
“calls to our “CEO in Crisis Line” were up 40% last year, so that issue
is deteriorating and not ameliorating. Calls to our governance helpline
increased by 160% last year … It is a serious issue.”160
125. Some of our witnesses argued that the sector was lacking adequate leadership
skills. Paul Stallard, the former chair of the Public Fundraising Association,161
said that poor management performance had arisen due to “light-touch”
oversight and the “absence of strict rules and regulations” in the sector.162
The Devon Air Ambulance Trust suggested that inadequate and risk-
averse leadership and governance encouraged people to “play safe, not rock
the boat.”163 The Association of Chairs said that the relationship between
“trustees and the senior management team and especially between Chair
and CEO is crucial.”164

157 Q 91 (Professor John Mohan)

158 Written evidence from Lloyds Bank Foundation for England and Wales (CHA0031)
159 Written evidence from ICSA: The Governance Institute (CHA0093)
160 Q 28 (Asheem Singh)
161 The Public Fundraising Association merged into the Institute of Fundraising in August 2016.
162 Written evidence from Mr Paul Stallard (CHA0049)
163 Written evidence from Devon Air Ambulance Trust (CHA0083)
164 Written evidence from Association of Chairs (CHA0156)
32 Stronger charities for a stronger society

126. Clinks and Clore Social Leadership both said that more support was needed
to help people working in the charity sector to move into leadership roles and
to thrive once in post.165 Clore Social Leadership observed that it was hard
for new managers and for trustees to access leadership training, and in the
current climate the sector needed to emphasise the benefits of leadership
skills and encourage greater participation in leadership development.166
127. The Paul Hamlyn Foundation said that grants should be given to sector
leaders to help them develop their organisations’ work.167 However, ICSA:
The Governance Institute argued that “the sector as a whole is not terribly
great at using charitable funds to invest in the future skills and development
of trustees, managers and others seeking to contribute fully to the sector.”168
128. Charities recognise that training and development for leaders and
staff is important, however there are still significant shortcomings
in terms of available training and levels of take-up. We therefore
recommend that infrastructure bodies in the sector take the lead
on working with government, academics and research institutions,
and with the business community, to identify further opportunities
to support and fund leadership programmes.
129. We were told that it was important for the trustees and the chief executive to
be a “real leadership team” in order to ensure good governance.169 Asheem
Singh from ACEVO told us that:
“The principal issue that chief execs in crisis report is a breakdown in
governance, which is not about not filling in a form or the register but
about the relationship between the chief exec and trustees. Getting that
relationship right is key to making this work. We need to support both
the trustees and the chief execs to ensure that governance works well.”170
130. Our witnesses stressed that trustees should focus on their strategic role so
far as possible and avoid intervening in executive matters unless necessary.
Shaks Ghosh told us that for trustees: “the more you get involved with the
day-to-day management and operations of a charity, the less able you are to
take the foresight view, the longer view of what is required.”171
131. However, we heard from many smaller charities at our roundtable events that,
because they were dependent on volunteers, they were reliant on trustees
pitching in to help the operation of the charity. They said that this made
it harder to maintain separation of executive and trustee responsibilities.172
Other witnesses also noted the risks of blurring the distinction between
operations and oversight, and said that it was important to understand the
difference between governance and management.173

165 Written evidence from Clinks (CHA0084) and Clore Social Leadership (CHA0132)
166 Written evidence from Clore Social Leadership (CHA0132)
167 Written evidence from Paul Hamlyn Foundation (CHA0059)
168 Written evidence from ICSA: The Governance Institute (CHA0093)
169 Written evidence from Pilotlight (CHA0073)
170 Q 28 (Asheem Singh)
171 Q 102 (Shaks Ghosh CBE)
172 Note of roundtable discussion in Cardiff, Appendix 8
173 Written evidence from Mr Len Jones (CHA0004), Mr Andrew Purkis (CHA0146) and Rural
Community Council of Essex (CHA0096)
 Stronger charities for a stronger society 33

132. Shaks Ghosh suggested that in such situations charities should:

“be very careful that it is done deliberately rather than by drift. If you
find the chair or board members starting to work on operational issues,
because they have to because there is no other way, they need to be very
deliberate about it and to think about how quickly they can move back
into their role as being the strategic custodians of the organisation.”174
133. We agree that maintaining a separation of executive and oversight
responsibilities is important for good governance. Governance
is about making sure that charities do the right things, while
management is about making sure that those things are done right.
In a few cases, for the smallest of charities, we acknowledge that a
complete separation of roles may be difficult, but it should remain
the aspiration nonetheless.
134. We recommend that the Governance Code Steering Group reflect in
the Code the importance of executive and trustee relationships and
the clear separation of their roles and responsibilities.

Payment of trustees
135. The contentious question of whether charities should be permitted to pay
trustees for their work has been a recurring one in the charity sector, and a
number of our witnesses set out the tensions around such a move.175
136. A few witnesses suggested that trustees should be paid, particularly trustees
of larger charities.176 Plan International argued that the voluntary nature of
trustees limited the pool of talent and the skills available to the sector.177 We
are aware that in a number of cases charity trustees, primarily chairs, do
receive some remuneration.178
137. However, more of our witnesses said that that the voluntary nature of
trusteeship was important and that trustees should not be paid.179 Eve Martin
told us that “there is something really good about this being a voluntary role
and that you do it because you are passionate about what the charity is doing
and because you believe in it.”180 Stella Smith noted that the payment of
trustees would not automatically mean that trustees became more skilled181
and Shaks Ghosh of Clore Social Leadership said that other options should
be considered before payment, such as using training opportunities as an
incentive.182
138. The Association of Chairs reported that just 38% of charity chairs they had
surveyed said they received expenses.183 The Charity Law and Policy Unit at

174 Q 100 (Shaks Ghosh CBE)

175 Written evidence from ICSA: The Governance Institute (CHA0093), MHA (CHA0124), RSM UK
(CHA0120) and Sense, The National Deafblind and Rubella Association (CHA0040)
176 Written evidence from Plan International UK (CHA0102) and Mr Paul Stallard (CHA0049)
177 Written evidence from Plan International UK (CHA0102)
178 The Charity Commission’s guidance on trustee expenses and payment can be found at https://
www.gov.uk/government/publications/trustee-expenses-and-payments-cc11/trustee-expenses-and-
payments [accessed 14 March 2017]
179 Written evidence from the Association of Chairs (CHA0156), Churches’ Legislation Advisory Service
(CHA0098) and Directory of Social Change (CHA0128)
180 Q 98 (Eve Martin)
181 Written evidence from Stella Smith (CHA0060)
182 Q 98 (Shaks Ghosh CBE)
183 Written evidence from Association of Chairs (CHA0156)
34 Stronger charities for a stronger society

the University of Liverpool suggested that wider provision of insurance for

trustees might encourage more people to take the role.184
139. We believe that the voluntary principle of trusteeship is an important
one and that trustees should not receive payment for undertaking
the role. In highly exceptional circumstances, where people are
otherwise unable to act as a trustee, it may be acceptable to consider
some form of remuneration. The explanation and justification for
such arrangements must be set out in the charity’s annual report.
140. More broadly, trustees should be able to claim relevant expenses to
ensure that financial considerations do not unduly deter people from
taking up the role.

Transparency, accountability and impact

141. Many of our witnesses said that charities should proactively seek to be more
transparent and accountable about the way they operate and how they use
their funds.185 ICSA: The Governance Institute said that “good governance
cannot exist in a vacuum. It requires accountability and transparency to
ensure decisions are being made in the furtherance of the charitable objects.”186
The Governance Code suggests that there should be a presumption that
charities are open and accountable unless there is good reason not to be.187
142. Karl Wilding from NCVO said that:
“We have been very clear, and many of NCVO’s members have been
clear, that greater levels of scrutiny of charities are right and proper.
There is no point in shooting any messengers on this issue, so we have to
up our game in explaining the decisions we make, for example, and being
transparent about how we are run. We probably also have more to do in
explaining to the public how modern charities work. In some respects,
the public have quite an outdated understanding of the word “charity”
and how charities work, and we have to do more to communicate to
them how we now work.”188
143. The National Association for Voluntary and Community Action (NAVCA)
suggested that charities had not been good at explaining how they operate
and that “maybe there is an unrealistic expectation (or idealistic view) that
charities can deliver all that they do without paid staff and government
funding.”189
144. Comic Relief made the positive case for transparency:
“To be properly accountable to beneficiaries, donors and the general
public, charities must ensure that they are genuinely committed to
transparency, with a strong set of policies and principles. Transparency
184 Written evidence from Charity Law and Policy Unit, School of Law and Social Justice, University of
Liverpool (CHA0104)
185 Written evidence from the Charity Commission for England and Wales (CHA0114), Save the Children
(CHA0149), Stella Smith (CHA0060), Social Enterprise UK (CHA0117) and the True and Fair
Foundation (CHA0138)
186 Written evidence from ICSA: The Governance Institute (CHA0093)
187 The Charity Governance Code Steering Group, Charity Governance Code Consultation document
(November 2016), p 4: http://www.governancecode.org/wp-content/uploads/2017/02/NC940_good_
governance_11.pdf [accessed 14 March 2017]
188 Q 15 (Karl Wilding)
189 Written evidence from National Association for Voluntary and Community Action (CHA0076)
 Stronger charities for a stronger society 35

is not simply being compliant, but being confident, rigorous and proud
of your work and clear about the success it has achieved. When a
programme has not worked as hoped, the need for transparency and
accountability is even greater to enable the charity to explain the reasons
why and learnings.”190
145. We heard that it was important for charities to consider accountability to
different groups—funders and donors, beneficiaries and the public, and the
Charity Commission and other regulators—and in different respects, such
as finance, governance and their charitable activities.191
146. New Philanthropy Capital said:
“In terms of accountability the charity sector model is unique. If a
business produces a product consumers will not buy, they will suffer
from falling profits. If a government makes ‘courageous decisions’ that
are deeply unpopular they can be voted out. But if a charity delivers
a substandard service to the people they are working to help, these
beneficiaries lack the ability to act directly … This makes accountability
to beneficiaries a hugely important issue for charities.”192
147. We were also told that expectations of transparency had increased in recent
years.193 Battersea Dogs & Cats Home said:
“In the current climate charities are expected to be increasingly transparent
and are therefore sharing more information and measurements with the
public. This information should be meaningful and can include details
such as the impact a charity has had, its achievements, income and
expenditures, long term plans and commitments.”194
148. We also heard about the potential for digital technologies to improve charities’
accountability and transparency. These issues are considered further in
Chapter 6.
149. Accountability and transparency are essential for charities to ensure
they function properly, deliver for their beneficiaries and retain the
trust of the public. In order to respond to the greater expectations
upon them, charities need to operate with a presumption of openness.
We believe that it is important for all but the very smallest charities
to have a simple website or public social media page to provide that
transparency.

Financial reporting
150. The NCVO said that:
“Transparency around charity funding has improved significantly
in recent years. Many charities publish detailed information on their
website about their activities and how they allocate the funds they

190 Written evidence from Comic Relief (CHA0126)

191 Written evidence from Impetus – The Private Equity Foundation (CHA0131) and Royal National
Lifeboat Institution (CHA0153)
192 Written evidence from New Philanthropy Capital (CHA0055)
193 Written evidence from National Council for Voluntary Organisations (CHA0148) and The UK
Sustainable Investment and Finance Association (CHA0125)
194 Written evidence from Battersea Dogs & Cats Home (CHA0143)
36 Stronger charities for a stronger society

receive. However there are areas where this could [be] strengthened
further such as senior executive pay.”195
151. The Charity Tax Group emphasised the importance of “full compliance
with all reporting and accounting requirements” for accountability,196 while
the RNLI said that the work carried out by the Charities Statements of
Recommended Practice (SORP) Committee197 was “key to this” and that
“there must be robust sanction where charities fail to adhere to such rules to
ensure a healthy charity sector.”198
152. Rebecca Bunce from the Small Charities Coalition noted that it was
important that accounting requirements on charities were proportional:
“[The] reporting that you would expect from a larger charity might not
be the same as you would expect from a smaller charity … We have
to be very careful that, when accounts are submitted with possibly
less information, it is not seen as not being transparent but is seen as
proportional to the size of the charity.”199
153. The Woodland Trust said: “we propose the watchword for accountability
should be ‘transparency without bureaucracy’. At the moment it feels as
though there is rather too much of the latter.”200
154. The Charity Commission suggested that there were issues with the quality
of financial reporting and data it received in relation to “both the extent of
compliance and the quality of information that comes in.”201
155. We heard from a number of sources that there was an increased focus on
transparency among charity donors.202 Karl Wilding said that:
“They want to understand not just where the money goes but how
decisions are made about where it goes. With colleagues, I would
like to think about not how we can give charities more regulation or
instructions on what to do but how we can support and inspire them
to do much more to be transparent and accountable in how they spend
their money.”203
156. We do not believe that significant additional regulation of the sector
through increased mandatory reporting requirements would be
desirable, as this would be a substantial bureaucratic burden on
smaller charities.

195 Written evidence from National Council for Voluntary Organisations (CHA0148)
196 Written evidence from Charity Tax Group (CHA0122)
197 The Charities SORP provides recommendations for accounting and reporting, in particular, how
accounting standards should be applied in the context of charities and how to account for charity
specific transactions. The aim of a SORP is to bring consistency of accounting treatment within a
particular sector and to facilitate accounts to be prepared to give a ‘true and fair’ view. See http://www.
charitysorp.org/about-the-sorp [accessed 14 March 2017]
198 Written evidence from Royal National Lifeboat Institution (CHA0153). See also written evidence
from Mr Ian Clark (CHA0161).
199 Q 23 (Rebecca Bunce)
200 Written evidence from The Woodland Trust (CHA0150)
201 Q 14 (Sarah Atkinson)
202 Q 131 (Dr Beth Breeze) and written evidence from Battersea Dogs & Cats Home (CHA0143) and
National Council for Voluntary Organisations (CHA0148)
203 Q 15 (Karl Wilding)
 Stronger charities for a stronger society 37

157. However, as we said at paragraph 149, we believe that it is important

for all but the very smallest charities to have a simple website or
social media page, and they should use that to set out their basic
organisational and financial information. We recommend that public
sector funders and other donors should evaluate the transparency of
charities when considering requests for funding.

Governance reporting
158. We heard about the importance for good governance of reporting on
governance activities. New Philanthropy Capital suggested that charities
should report on their governance processes to the Charity Commission.204
Patrick Taylor said that as part of their annual reporting, charity trustees
should affirm that they have read the charity’s articles and all necessary
Charity Commission guidance documents.205
159. The NCVO proposed that all charity funders should make strong governance
arrangements a condition of funding.206 Philip Lawford said that, in the case
of the Linbury Trust, this was already the case: “You very much do your
due diligence up front, but ultimately you are backing a person or a team of
people to deliver what they say they are going to do. We rely very much on
due diligence in advance.”207
160. ICSA: The Governance Institute suggested that:
“As with corporate governance developments, there is a role for
stakeholders in actively helping improve governance arrangements in
charities. Whether it is members actively engaging in the formalities
of an AGM, or challenging in an appropriate way the decisions of the
board, or even questioning the ongoing relevance of the charity, there
is a role for stakeholders in helping to keep the trustees true to the
charitable objects.”208
161. Patrick Taylor made a number of suggestions for greater member involvement
in membership charities, such as a requirement to allow members to
propose resolutions and to have them voted on at AGMs, a requirement to
provide a venue for member discussion on proposed changes to the charity’s
constitution, and improving the availability of AGM minutes and accounts
to members.209
162. We also heard about the importance of individual trustees being accountable
and sanctions being applied for misbehaviour. The Charity Commission told
us that they were starting to work with the new powers to disqualify trustees
granted to them by the Charities (Protection and Social Investment) Act
2016,210 but, as Lord Hodgson of Astley Abbotts noted, it was too early to
measure its effectiveness.211
163. We recommend that the Governance Code Steering Group set out
best practice suggestions for governance reporting by charities. This
204 Written evidence from New Philanthropy Capital (CHA0055)
205 Written evidence from Mr Patrick Taylor (CHA0020)
206 Written evidence from National Council for Voluntary Organisations (CHA0148)
207 Q 125 (Philip Lawford)
208 Written evidence from ICSA: The Governance Institute (CHA0093)
209 Written evidence from Mr Patrick Taylor (CHA0020)
210 Q 9 (Sarah Atkinson)
211 Q 90 (Lord Hodgson of Astley Abbotts CBE)
38 Stronger charities for a stronger society

might involve charities including in their annual report a statement

that they follow the Governance Code, or a similar specialist
governance code relevant to their work, and report any actions they
have taken over the year in light of the Code.

Evaluation and impact reporting

164. The move from grant funding to contracts and the increasing expectations
of transparency have put a greater focus on how charities measure and
demonstrate the impact they make. There was widespread agreement among
our witnesses that charities should be accountable and be able to demonstrate
the outcomes of their work.212
165. Battersea Dogs & Cats Home said that:
“Accountability and transparency are essential for charities. In the
current climate charities are expected to be increasingly transparent
and are therefore sharing more information and measurements with the
public. This information should be meaningful and can include details
such as the impact a charity has had, its achievements, income and
expenditures, long term plans and commitments.”213
166. A number of charities told us about the impact and transparency reporting
they undertake.214 Some charities, including Citizens Advice and Oxfam,
said that they carried out research to understand the difference they make,215
however the Cranfield Trust said that “many charities are not investing in
this work.”216 Some charities noted that it was difficult to secure sufficient
funding to support impact measurement.217
167. Impetus told us that: “Impact measurement is a crucial supporting
competence but frequently turns into an exercise in impressing funders and
commissioning, rather than in understanding current impact and the steps
needed to take to improve.”218 The Institute of Risk Management suggested
that there was scope for improving annual reports through a greater focus
on outcomes and value for money and including case studies of “actual
or anonymised beneficiaries.”219 New Philanthropy Capital argued that
trustee boards should be required to report on their impact to the Charity
Commission.220
168. Some of our witnesses raised concerns about impact measurement, especially
for small charities. The Association of Charitable Foundations stated
that impact measurement should not “distort action”221 while the Charity
Evaluation Working Group commented that expectations for charities to
report on impact should be “proportionate, realistic and feasible.”222 Body &
212 Q 161 (Nick Pickles) and written evidence from Impetus – The Private Equity Foundation (CHA0131),
Sheila McKechnie Foundation (CHA0184), Springboard for Children (CHA0121) and the United
Kingdom Accreditation Service (CHA0032)
213 Written evidence from Battersea Dogs & Cats Home (CHA0143)
214 Written evidence from Save the Children (CHA0149), Together for Short Lives (CHA0144) and
World Vision UK (CHA0048)
215 Written evidence from Citizens Advice (CHA0177) and Oxfam GB (CHA0113)
216 Written evidence from The Cranfield Trust (CHA0103)
217 Written evidence from Giving Evidence (CHA0027) and MyBnk (CHA0186)
218 Written evidence from Impetus – The Private Equity Foundation (CHA0131)
219 Written evidence from Institute of Risk Management (IRM) (CHA0039)
220 Written evidence from New Philanthropy Capital (CHA0055)
221 Written evidence from Association of Charitable Foundations (ACF) (CHA0082)
222 Written evidence from Charity Evaluation Working Group (CHA0067)
 Stronger charities for a stronger society 39

Soul told us that they had to report on their work to different public funders
in a variety of ways, and that adhering to lots of different reporting standards
was a bureaucratic burden.223
169. MHA, the Methodist charity and housing association, said that the practice
of producing impact statements was:
“widespread in large charities, but may be difficult for smaller charities
to undertake, as there are no set standards for such publications. It
also requires experienced and skilled trustees and executive team[s] to
recognise the need for excellent stewardship for donors and clarity of
communication to beneficiaries and donors. A guideline for a model
Impact Statement may be worthy of consideration.”224
170. From the perspective of one large donor, Philippa Charles, from the Garfield
Weston Foundation, said that smaller organisations were “generally very
good at coming back to us” to report on how they had spent their funds.225
The Robertson Trust observed that “supporting organisations to develop
their self-evaluation skills has also enabled them to become more reflective
and has the potential to develop a process of learning and improvement
across their activities.”226
171. Gen Maitland Hudson of Power to Change commented that collecting
information on impact was “not necessarily all about quantifying or finding
hard measures … it is potentially about improving on some of those softer
measures and supporting small charities to be more systematic.”227 However,
she noted that there was not currently a method of collecting information
which was consistently recognised by the sector as being reputable, and that
there was a challenge to develop this.228
172. We heard that frameworks to incentivise charities to report on their impact
were currently limited. For example, Charity Leaders observed that Charity
Commission guidance made little reference to impact assessment, instead
focusing on the legal and financial responsibilities of trustees.229
173. A number of our witnesses supported the Inspiring Impact project, a cross-
sector programme funded by the Office for Civil Society, aiming to change
the way the voluntary sector thinks about impact by providing online tools
for charities to help measure and report their effectiveness.230 Gen Maitland
Hudson spoke about the Impact Management Programme run by New
Philanthropy Capital, which helped charities with the practical challenges of
data collection and analysis.231
174. All charities should be seeking independent evaluation of their
impact on their beneficiaries, in order to ensure that they are

223 Note of the Committee visit to Body & Soul, Appendix 4

224 Written evidence from MHA (CHA0124)
225 Q 126 (Philippa Charles)
226 Written evidence from The Robertson Trust (CHA0077)
227 Q 52 (Gen Maitland Hudson)
228 Ibid.
229 Written evidence from Charity Leaders (CHA0139)
230 Written evidence from Association of Charitable Foundations (ACF) (CHA0082), Charity Evaluation
Working Group (CHA0067), Impetus – The Private Equity Foundation (CHA0131), Institute of
Risk Management (CHA0039), Missing People (CHA0094), National Association for Voluntary and
Community Action (CHA0076) and New Philanthropy Capital (CHA0055)
231 Q 55 (Gen Maitland Hudson)
40 Stronger charities for a stronger society

delivering for them and to demonstrate this to beneficiaries, funders

and the public. The form of such evaluation may vary considerably,
depending on the size of the charity and the type of work it is engaged
in. We recommend that public sector commissioners assess such
evaluation when awarding contracts.
175. We welcome initiatives such as Inspiring Impact that seek to
assist charities in demonstrating impact. We recommend that the
Government and the charity sector continue to pursue initiatives to
better understand and promote the impact of charities.
176. We recommend that the Office for Civil Society (OCS) develops
guidance for the rest of the public sector on how to set contractual
impact reporting requirements appropriately and in a standardised
fashion in order to reduce the bureaucratic burden on charities. The
OCS should promote its work beyond the public sector in order to
maximise its reach and value.
177. We endorse the suggestion in the Governance Code that charities
should provide regular information to stakeholders that enables
them to measure the charity’s success in achieving its purposes. Such
activity ensures that the focus of the charity and its stakeholders is
centred on the needs of and outcomes for beneficiaries.
 Stronger charities for a stronger society 41

Chapter 4: FUNDING: GRANTS, CONTRACTS AND

COMMISSIONING

The decline of public sector grants

178. Grant funding from national and local government has traditionally been a
significant source of income for the charity sector.232 However, grant funding
from government has declined since 2003/04, when charity income from
grants was estimated by the NCVO to be £6.1 billion, and by 2013/14 it
was just £2.8 billion. At the same time, charity income from government
contracts has increased substantially, from £5.8 billion in 2003/04 to
£12.2 billion in 2013/14.233

Figure 3: Charities’ income from government contracts and grants,

2000/01 to 2013/14 (£bn, 2013/14 prices)

15

12.5

10
£ (billion)

7.5

2.5

0
1
0
01

4
8
4

/1
/1
/0

/0

/0

/1

/1

/1
/0
/0

/0

/0

/0
/

10
09
00

01

02

08

11

12

13
07
03

04

05

06

20
20
20

20

20

20

20

20

20
20
20

20

20

20

Goverment contracts Government grants

Source: NCVO, UK Civil Society Almanac 2016

179. The NCVO suggested that the transition from grants to contracts had
benefitted the largest charities at the expense of smaller ones. They said that
the largest charities:
“will have been the best placed to secure increasingly large-scale contracts
offered by central and local government. Conversely, small and medium
sized charities did not recover income lost from Government since
2009/10. These organisations have consistently reported problems in
bidding for contracts, from the increasing scale of contracts, to reduced

232 Charities have also received funding from other public bodies such as NHS Trusts, the European
Union, devolved and regional governments and a range of non-departmental public bodies (NDPBs).
233 NCVO, ‘UK Civil Society Almanac 2016: Income from Government’: https://data.ncvo.org.uk/a/
almanac16/income-from-government [accessed 14 March 2017]
42 Stronger charities for a stronger society

focus on quality, and payment-by-results mechanisms that disadvantage

smaller providers.”234
180. Paul Streets of the Lloyds Bank Foundation for England and Wales also told
us that the redistribution of funding from grants to contracts had led to a
gain by larger charities at the expense of smaller ones. He said that between
2008 and 2013 the income from government to charities with an income of
between £25,000 and £1 million fell by up to 38%, while income to charities
with an income of more than £100 million went up by 38%.235
181. The NCVO said that the move from grants to contracts had led to a “different
operating environment for charities, and a different relationship with
Government; one where charities are seen mainly as service providers and
have to compete amongst each other to win contracts.”236 Rebecca Bunce of
the Small Charities Coalition told us that the reduction in grant funding was
making it harder to support good governance among small charities.237

Charities and contracts

182. The transition from grants to contracts, and the challenges for smaller
charities bidding for and operating contracts, were frequent topics in the
evidence we received.
183. We heard that contracts were increasingly large, and that this excluded
smaller charities from accessing them. The Lloyds Bank Foundation said
that the proliferation of larger public service contracts meant that new types
of charity had emerged, which had little interest in meeting local community
need, but were instead “driven by market share” and “prepared to slash
costs to win contracts, with little regard to service quality.”238 They added
that, in many cases, small contracts had been “rounded up into ever larger
contracts over larger geographical areas, forcing smaller charities out of
the market place” and that in some cases larger providers had “collude[d]
with commissioners to develop ever larger contracts and undercut smaller
providers.”239
184. New Philanthropy Capital said that the transition from grants to larger
contracts had “locked out smaller, more specialist organisations, with some
charities struggling to even continue their existence.”240 Some of the small
charities we spoke to in Cardiff told us that they were unable to bid for many
contracts because they required a larger scale or wider geographical reach
than they were able to offer.241
185. Locality told us that financial pressures on local authorities resulted in
larger contracts, covering multiple areas and specialisms, and greater
standardisation of services, in order to avoid the costs associated with
multiple smaller contracts.242 They added that “scale in commissioning can
also often mean that community organisations are delivering public services

234 NCVO, ‘UK Civil Society Almanac 2016: Income from Government’: https://data.ncvo.org.uk/a/
almanac16/income-from-government [accessed 14 March 2017]
235 Q 57 (Paul Streets OBE)
236 Written evidence from National Council for Voluntary Organisations (CHA0148)
237 Q 28 (Rebecca Bunce)
238 Written evidence from Lloyds Bank Foundation for England and Wales (CHA0031)
239 Ibid.
240 Written evidence from New Philanthropy Capital (CHA0055)
241 Note of roundtable discussion in Cardiff, Appendix 8
242 Written evidence from Locality (CHA0133)
 Stronger charities for a stronger society 43

as part of a supply chain which can also bring financial pressures, including
through a lack of referrals and inability to plan cash-flow.”243
186. We also heard that seeking funding through funding bids was expensive and
potentially restrictive.244 MyBnk told us that:
“To maximise our chance of funding we must orientate the application to
the funder’s vision e.g. a particular age group, geography or innovation.
This results in the majority of funding being restricted and, although we
are fully costed, free (unrestricted) reserves are low.”245
187. We heard that small- and medium-sized charities had ethical concerns about
their ability to fulfil contracts where they face acute cost pressures. The
Lloyds Bank Foundation for England and Wales told us that “unlike larger
competitors, they are not prepared to threaten service quality by cutting
prices, with grantees reporting that they have not bid for contracts knowing
that they would not be able to deliver an effective service at the price available
through a contract.”246
188. In order to help smaller voluntary organisations bid for contracts, NCVO
said that Government should provide some support for the development
of voluntary sector consortia, which it described as “a vital route, through
collaboration, to innovation and efficiency savings” but which had little
statutory support following the closure of funding streams such as the
Community Right to Challenge grant fund which had been administered by
the Social Investment Business.247
189. The Lloyds Bank Foundation for England and Wales said that partnerships,
consortia and mergers had been suggested as a way for small- and medium-
sized charities to respond to commissioners’ demands for scale. They added
that “while they can offer opportunities, they can present challenges in
themselves, particularly where commissioners have gone so far as to specify
that charities must merge as a condition of a contract.”248 New Philanthropy
Capital advocated a commissioning approach “that provides a level playing
field, where competition is focused on who can deliver the greatest impact,
not necessarily at the lowest cost.”249
190. The Minister for Civil Society, Rob Wilson MP, told us that the Government
had been having an “open policy discussion” with charities, including smaller
charities, “to explore the scope for Government and the voluntary sector to
find ways around the barriers that currently exist” to small charities’ ability
to bid for and fulfil public service contracts.250
191. He also said that, as a result of The Public Contracts Regulations 2015,
public sector commissioners awarding large contracts were required to
explain why they had not been broken up into smaller ones.251 He added
that “a number of charities are perhaps taking on contracts because they feel

243 Ibid.
244 Written evidence from Springboard Project (CHA0011)
245 Written evidence from MyBnk (CHA0186)
246 Written evidence from Lloyds Bank Foundation for England and Wales (CHA0031)
247 Written evidence from National Council for Voluntary Organisations (CHA0148)
248 Written evidence from Lloyds Bank Foundation for England and Wales (CHA0031)
249 Written evidence from New Philanthropy Capital (CHA0055)
250 Q 213 (Rob Wilson MP)
251 The Public Contracts Regulations 2015 (SI 2015/102)
44 Stronger charities for a stronger society

they have to. I would strongly advise them not to do that.”252 We understand,
however, that given the financial pressures on charities and the move in public
funding from grants to contracts (see Figure 3), there are strong incentives
and justifiable reasons for charities to apply for contracts.
192. In December 2016, the Government announced new measures and an
implementation group to help small charities “shape and deliver” public
services. These included a “public services incubator” to record and overcome
barriers to the involvement of small charities in public contracts; exploring
the development of a “commissioning kitemark” which commissioners
could use to show that they were friendly to small charities; and recruiting
a “voluntary, community and social enterprise crown representative” to
champion commissioning practices that help small charities.253 We also
note that recent changes to EU public procurement directives encourages
contracting authorities to break contracts up into smaller “lots” to allow for
greater participation from smaller organisations.254
193. The commissioning landscape is skewed against smaller charities.
We recommend that contracting authorities embrace the recent
changes to public procurement rules, which allow for smaller
contracts, potentially giving charities better access to funding
opportunities.
194. We welcome the Government’s recent announcement on new
measures to improve commissioning and help small charities get
commissioned. We recommend that Government provides support
for the development of voluntary sector bidding consortia, and takes
steps to promote commissioning based on impact and social value
rather than simply on the lowest cost.
195. We also heard that small charities being used as subcontractors by large
charities or private sector organisations as part of big contracts were at risk of
exploitation. Lord Hodgson of Astley Abbotts said that commissioners were
by their nature risk averse, and so the “default option is to award contracts
to large organisations with smaller local charities as subcontractors.” He
added that “too often this means that the large organisations take the vanilla
flavoured cases and leave the harder cases to the smaller local organisation.”255
196. The Lloyds Bank Foundation told us that:
“Smaller charities report problems of ‘bid candy’ whereby prime
providers use smaller charities to add knowledge and legitimacy to
their bids then later fail to pass referrals and money to the smaller
subcontractee. The Foundation has even heard examples where larger
organisations have demanded that small charities do not negotiate or
discuss applications with other prime providers, only to be left out of the

252 Q 213 (Rob Wilson MP)

253 Department for Culture, Media and Sport, ‘Putting small charities at the heart of public services’:
https://www.gov.uk /government /news/putting-small-charities-at-the-heart-of-public-services
[accessed 14 March 2017]
254 Crown Commercial Service, A brief guide to the 2014 EU public procurement directives (October 2016):
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/560261/Brief_Guide_
to_the_2014_Directives_Oct_16.pdf [accessed 14 March 2017]
255 Written evidence from Lord Hodgson of Astley Abbotts CBE (CHA0026)
 Stronger charities for a stronger society 45

larger organisation’s bid and having lost the opportunity to work with
other primes.”256
197. Charities have a long and distinguished history of delivering services and,
with their focus on the needs of their beneficiaries, the quality of the services
they provide can be better than those delivered by other organisations (see
Chapter 2). Charities should not be dissuaded from seeking funding through
contracts in order to deliver services.
198. We recommend that the Government’s implementation group on
commissioning practices considers the risks of larger organisations
exploiting smaller charities through the commissioning and
subcontracting process. We recommend that Government guidance
on public sector commissioning should highlight these risks and
encourage the design of contracts in a way which prevents such
practice so far as is possible.

Commissioning processes
Commissioning skills and co-operative development of contracts
199. We heard that the close proximity of small charities to their beneficiaries
meant they were better placed to understand the needs of their beneficiaries
and the services required to support them, than those responsible for
commissioning services. We also heard that cuts in local authority budgets
meant staff no longer had the experience and expertise of commissioning for
the relevant sector.257
200. Action in Rural Sussex told us that the desire of some commissioners for
control over the terms of service delivery was a weakness in practice. They
said that:
“commissioners have to make a choice between short term control in
order to deliver a narrowly defined service definition on the one hand
and long term impact on the other. Long term impact is achieved by
giving ownership and control to a charity, or a group of charities working
together, that provides them with an incentive to find a route towards
sustainability.”258
201. We heard about the potential of “co-designed” services, in which
commissioners, suppliers, beneficiaries and service users are all involved
in developing services to alleviate these difficulties. Such services were
said to be better for beneficiaries and could lead to long-term savings
for commissioners. Councillor Stephen Powers from Newcastle City
Council told us that their “co-operative” approach to service design and
delivery “involves, beyond just the council commissioner service, working
collaboratively with education providers, with the voluntary and community
sector and with business leaders, to make sure that we are making a holistic
offer to people.”259
202. Andrew Seager from Citizens Advice told us that they had successful
experience of co-designed services in relation to preventing excess winter
256 Written evidence from Lloyds Bank Foundation for England and Wales (CHA0031)
257 Note of meeting with Greater Manchester Centre for Voluntary Organisation, Appendix 6, and note
of roundtable discussion in Cardiff, Appendix 8
258 Written evidence from Action in Rural Sussex (CHA0001)
259 Q 157 (Councillor Stephen Powers)
46 Stronger charities for a stronger society

deaths and developing an advice centre commissioning strategy in

Birmingham.260 He added, however, that commissioners sometimes paid
mere “lip service” to co-design, and that it “needs the proper level of
investment; it needs to start at the beginning of a commissioning process.”261
Jacob Tas from Nacro said: “If it is fake, if it is just as a good show, of course
it is waste of everybody’s time, and usually it is very short-lived.”262 Dan
Scorer from Mencap also expressed concern as to whether involvement was
taking place at a sufficiently early stage. He said that:
“we see wide variation in practice in early engagement of people with
learning disability and their families when changes to services are
being discussed: whether the consultation process is itself accessible, so
whether information is made available in an easy read format that people
can access; and whether consultation events on the service redesign
are widely publicised so that people with learning disability and their
families can genuinely engage in the process of designing services.”263
203. Barnardo’s told us that:
“there remains a concern that legacy commissioning practice and
behaviours are not yet fully adjusting to take advantage of the strategic
partnering concept. Barnardo’s believes that this means there is a risk that
the opportunities for genuine dialogue and co-design and production
that are integral to true strategic partnering are being missed.”264
204. We also heard about initiatives related to ‘whole systems commissioning’,
whereby different types of services are commissioned together in order to
provide more holistic support to beneficiaries, and a related approach of
‘whole person commissioning’, where the needs of beneficiaries are the
starting point and services are designed around them.265
205. Dan Scorer of Mencap gave the example of the Transforming Care
programme, which was initiated after the Winterbourne View abuse scandal.
The programme is intended to support people with learning disabilities to
move from institutional settings into the community. He told us that such a
change:
“obviously requires a huge amount of co-ordination between health
services and local authority social services, which in many areas has not
existed previously. It requires the pooling of budgets to remove the risk
of disputes about who is paying for what when people may be moving
out of an NHS-funded service and back into a local authority-funded
service in the community.”266
206. This view was echoed by Andrew Seager, who said that: “fundamentally, we
are here to help individuals, and individuals do not fit into neat little funding
streams or boxes. Without integration, you commission vertically on those

260 Q 192 (Andrew Seager)

261 Ibid.
262 Q 192 (Jacob Tas)
263 Q 192 (Dan Scorer)
264 Written evidence from Barnardo’s (CHA0172)
265 Q 195 (Jacob Tas, Andrew Seager) and written evidence from FaithAction (CHA0015) and London
Funders (CHA0090)
266 Q 195 (Dan Scorer)
 Stronger charities for a stronger society 47

various points and not bottom upwards about what an individual needs.”267
London Funders concurred with these views. They told us that:
“the role and purpose of charities cannot be seen in isolation, in the
review team’s view. Charities should be part of an integrated system
that works to improve peoples’ lives. National governments, local
government, health commissioners, independent and statutory funders,
businesses, politicians and communities themselves each have a role to
play.”268
207. We believe it is important that local authorities and other public
service commissioners adopt a partnership approach to service
design and provision, involving charities, other voluntary bodies,
service users and beneficiaries in the commissioning process from
an early stage. We do not believe that meaningful relationships of this
kind are common, and as a result charities are losing out on potential
work and funds and commissioners are missing out on the values,
knowledge of local needs and innovation that charities bring to service
delivery. Public sector commissioners need to embed a genuine
partnership approach in their structures, processes, contracts and
cultures to ensure that the best possible results are achieved.
208. Public service commissioners should also be encouraged to
commission different types of services together. They should consider
the potential of whole systems commissioning and whole person
commissioning, with services and the commissioning process being
designed around the needs of beneficiaries. This will result in better
services for end-users and also long-term savings for commissioners.

Public Services (Social Value) Act 2012

209. One commissioning mechanism that should benefit small- and medium-
sized charities is the Public Services (Social Value) Act 2012 (commonly
known as the Social Value Act). The Act requires all public bodies in England
and Wales to consider how the services they commission and procure might
improve the economic, social and environmental well-being of an area.
210. “Social value” was described by Social Enterprise UK as “a way of thinking
about how scarce resources are allocated and used.”269 This involves looking
beyond simply the price of an individual contract to also consider the value
that would be delivered to the community through a contract. An example
of this would be a commitment from a potential contractor to provide local
employment opportunities as part of the contract.
211. The Cabinet Office commissioned Lord Young of Graffham to carry out
a review of the effectiveness of the Social Value Act, which was published
in February 2015.270 Lord Young concluded that, while there was growing
awareness of social value among public bodies, this was not reflected by the

267 Q 195 (Andrew Seager)

268 Written evidence from London Funders (CHA0090)
269 Social Enterprise UK, Public Services (Social Value) Act 2012 — A brief guide (February 2012): http://
www.socialenterprise.org.uk/uploads/files/2012/03/public_services_act_2012_a_brief_guide_web_
version_final.pdf [accessed 14 March 2017]
270 Cabinet Office, Social Value Act Review (February 2015): https://www.gov.uk/government/uploads/
system/uploads/attachment_data/file/403748/Social_Value_Act_review_report_150212.pdf [accessed
14 March 2017]
48 Stronger charities for a stronger society

number and value of procurements. He said that there had been inconsistent
practice in bidding and commissioning and that commissioners often lacked
the ability to measure and quantify social outcomes.271
212. Lord Young recommended that the Cabinet Office should do more to
promote awareness of social value, and to promote better understanding of
how to apply the Act.272 He considered options for extending the Act, by
strengthening the language, replacing the requirement to “consider” social
value with alternatives such as “account for”, or by making consideration
of social value mandatory, or by making the Act apply more broadly. He
concluded that such an extension “would not be beneficial to the Act at this
early stage of development.”273
213. The uses of the Social Value Act were a frequent theme in our evidence. A
number of successes were reported: Peter Holbrook of Social Enterprise UK
told us that the Department of Health had been “particularly embracing
of social value as a concept” and that the Ministry of Defence had also
undertaken innovative social value initiatives.274 He added that the Act
should be supported with statutory guidance so that commissioners had a
clearer idea of how to secure the best value for money through social value.275
214. Councillor Robert Light from the Local Government Association suggested
that the Act had had a positive impact. He cited the example of Chelmsford
City Council, which in its commissioning procedure required tenderers to
set out the percentage of staff they would employ from the local area and
the percentage of value arising from the contract which might reasonably be
expected to be returned to the local economy.276 Councillor Stephen Powers
from Newcastle City Council told us that “we have absolutely built social
value into our whole design process when it comes to commissioning services
and procuring services. We have done that right from the start rather than
it being an afterthought at the end.”277 The representatives from the Greater
Manchester Combined Authority told us that social value in commissioning
gave them a lot of flexibility in their decision-making and said they wanted
to make more use of it.278
215. We also, however, received some evidence that the Act was yet to function
as effectively as it might. Andrew Seager from Citizens Advice told us that,
while he welcomed the Act, “we have little experience of it coming through
and making a difference.” He said that social value considerations were not
necessarily in every tender and that, where they were included, they often
did not contribute to more than 5% of the overall score on which a tender
would be judged. He suggested that some commissioners might still view
social value as an “afterthought.”279
216. Locality proposed that commissioners should be required to incorporate
social value into their contracts, rather than merely considering it.280 NCVO

271 Ibid.
272 Ibid.
273 Ibid.
274 Q 74 (Peter Holbrook CBE)
275 Ibid.
276 Q 146 (Councillor Robert Light)
277 Q 152 (Councillor Stephen Powers)
278 Note of meeting with Greater Manchester Combined Authority, Appendix 6
279 Q 194 (Andrew Seager)
280 Written evidence from Locality (CHA0133)
 Stronger charities for a stronger society 49

echoed this recommendation, arguing that commissioners should be required

to “’account’ for and report on social value in their commissioning,” and
that the Act should be extended to cover goods and works.281
217. New Philanthropy Capital said that the Act had “not delivered the many
significant changes that were hoped for” and that, while they had advocated
for and welcomed many of the recommendations contained in Lord Young’s
review, “it is disappointing there has been little progress since in improving
how the Social Value Act works.”282
218. The Office for Civil Society told us that “we continue to support procurers
to improve the way they commission services, including through sharing
best practice on implementing the Public Services (Social Value Act) 2012.”283
They said that they had recently published the first two in a series of eight case
studies on the Act, under its Social Value Implementation and Measurement
Project and that “as well as giving a practical insight, the case studies are
intended to serve as starting points for initiating new ideas and for sparking
innovative thinking.”284
219. In February 2017 the Minister for Civil Society, Rob Wilson MP, announced
another review of the Social Value Act to consider its progress.285
220. While the Government has taken some steps to promote the
implementation of the Public Services (Social Value) Act 2012 and
to encourage wider awareness of social value among public sector
commissioners, we believe more could be done to maximise its
potential. We welcome the Government’s new review of the Act and
hope that it will result in further improvements.
221. We believe there is merit in considering the options for extending
the Public Services (Social Value) Act 2012 as set out by Lord Young
of Graffham. We recommend as a first step that the Government
requires public sector commissioners to “account for” rather than
merely “consider” social value. We further recommend that the
Government sets measurable targets for the use of social value in
commissioning and outlines the steps it will take if those targets are
not met.

Financial and planning challenges

Payment by Results
222. The use of Payment by Results (PbR) schemes in contracts was raised by
many of our witnesses. PbR contracts can take a number of forms and can
be commissioned by national government, local government or other public
bodies. They are most commonly understood to be based on payments
tied to the delivery of specific outcomes or outputs. A 2011 Cabinet Office
white paper stated that “open commissioning and payment by results are
critical to open public services”, and that “payment by results will build yet
more accountability into the system—creating a direct financial incentive to
281 Written evidence from National Council for Voluntary Organisations (CHA0148)
282 Written evidence from New Philanthropy Capital (CHA0055)
283 Written evidence from Office for Civil Society, Department for Culture, Media and Sport (CHA0160)
284 Ibid.
285 ‘Minister announces review of Social Value Act’, Civil Society News (10 February 2017): https://www.
civilsociety.co.uk/news/minister-announces-review-of-social-value-act.html [accessed 14 March
2017]
50 Stronger charities for a stronger society

focus on what works, but also encouraging providers to find better ways of
delivering services.”286
223. We received evidence criticising the widespread use of PbR contracts,
including from Civil Exchange which informed us that contracts under the
Work Programme “have often been poorly designed, transferring financial
risk to institutions that are already financially vulnerable and leading to
poorer services for people with complex needs.”287
224. The Lloyds Bank Foundation noted that PbR contracts were often unsuitable
for small- and medium-sized charities because they lack the upfront capital
or risk capacity to be able to take them on.288 Locality told us that “the
financial risk which is transferred through the payment by results model
is often borne largely by the weaker partner. This requires sophisticated
management information systems to evidence performance and manage
risk.”289
225. Locality also suggested that, where a PbR contract did not incorporate a
sufficient upfront payment, it could cause charities cash flow problems and
possibly mean that upfront costs had to be funded through reserves or other
income sources.290 The Springboard Project told us that contracted payments
often arrived late and required charities to dip into their reserves to cover
them. They noted it was “very difficult” to build up reserves from restricted
contracted funding.291 The NCVO told us that the use of reserves or the sale
of assets by charities to fund ongoing expenditure left them “vulnerable to
further financial shocks”.292
226. Andrew Seager from Citizens Advice told us that they had resisted Payment
by Results in subcontracting because they were concerned about the risk of
delivering services without a guarantee of receiving payment for the work.293
Dan Scorer from Mencap added that the two key issues were accountability
and transfer of risk:
“clearly, we have to be accountable for delivering outcomes, and payment
by results delivers that, but when you are talking about transfer of risk,
the financial model has to work for specialist organisations that are
trying to work with people who have more complex needs and has to
recognise the journey that those individuals will go on.”294
227. Dan Corry of New Philanthropy Capital told us that Payment by Results
contracts may have some benefits for charities:
“Charities have to be very clear whether they want to get involved in
these contracts or not because they can pull you away from the mission.
A lot of them feel, though, that they can achieve more if they have some
freedom via outcome-based contracts, which causes them cash flow and

286 HM Government, Open Public Services White Paper, Cm 8145, July 2011, paragraphs 5.4, 5.16: https://
www.gov.uk/government/uploads/system/uploads/attachment_data/file/255288/OpenPublicServices-
WhitePaper.pdf [accessed 14 March 2017]
287 Written evidence from Civil Exchange (CHA0141)
288 Written evidence from Lloyds Bank Foundation for England and Wales (CHA0031)
289 Written evidence from Locality (CHA0133)
290 Ibid.
291 Written evidence from Springboard Project (CHA0011)
292 Written evidence from National Council for Voluntary Organisations (CHA0148)
293 Q 191 (Andrew Seager)
294 Q 191 (Dan Scorer)
 Stronger charities for a stronger society 51

risk problems but nevertheless gives them a bit more freedom to deliver
in the way they think is right, which is a good thing.”295
228. In 2015 the National Audit Office (NAO) published a report on outcome-
based payment schemes, which concluded that PbR was not suited to all
public services and that commissioners should justify their use of PbR over
other delivery mechanisms. They said that contracting with PbR had costs
and risks that the Government often underestimated, that commissioners
should devote more time and effort to designing an appropriate payment
mechanism and that they should actively plan and manage provider
performance.296
229. The NCVO recommended that the Government should systematically collect
evidence on the use of PbR so that practice could be improved and that
commissioners should be required to use the NAO’s analytical framework for
decision makers when considering PbR contracts. They also suggested that,
when developing new PbR programmes, the Government should support
the voluntary sector in building skills in financial planning, risk assessment
and the modelling of contracts.297
230. Where contracts—especially those involving Payment by Results—
are used for service delivery, public sector commissioners should give
greater consideration to the sustainability of organisations which are
commissioned to deliver services. The Government should examine
whether its guidance to public sector commissioners needs to be
amended to ensure that this happens. At the same time, charities
need to ensure that they have the cash flow to support undertaking
work within such schemes.
231. We recommend that the Government’s review of commissioning
considers the impact of Payment by Results contracts on charities
and examines what support the sector needs to engage in service
delivery in a sustainable manner.

Core costs
232. Many of our witnesses reported that charities had increasing difficulty
funding their core costs.298 Core costs for charities may include staffing,
project management, office costs, accountancy, and regulatory compliance.
The Robertson Trust reported the results of a survey of its grant holders,
which found that 85% saw “lack of funding for core costs” as one of the three
biggest challenges facing their charity.299
233. The Charity Finance Group told us that charities have had to remove such
costs from funding bids, on the basis that local and central government
commissioners were not prepared to pay them.300 The Springboard Project
said that they had received advice to “strip out any administrative or back
295 Q 57 (Dan Corry)
296 National Audit Office, Outcome-based payment schemes: government’s use of payment by results (June
2015): https://www.nao.org.uk/wp-content/uploads/2015/06/Outcome-based-payment-schemes-
governments-use-of-payment-by-results.pdf [accessed 14 March 2017]
297 Written evidence from National Council for Voluntary Organisations (CHA0148)
298 Q 129 (Dr Beth Breeze) and written evidence from Charity Finance Group (CHA0092), Charity
Futures (CHA0183), Finchingfield Guildhall Charitable Incorporated Organisation (CHA0063),
Locality (CHA0133) and National Association for Voluntary and Community Action (CHA0076)
299 Written evidence from The Robertson Trust (CHA0077)
300 Written evidence from Charity Finance Group (CHA0092)
52 Stronger charities for a stronger society

office costs to have even a remote chance of success” of funding from BBC
Children in Need.301 MyBnk said that funding was offered for ‘front-line’
services only and did not cover the ‘back-office costs’ that made services
possible.302
234. The Garfield Weston Foundation said that only 25% of applicants asked for
funding for core costs and that charities told them that they were afraid of
seeking this funding for fear of being turned down.303 Philippa Charles from
the Garfield Weston Foundation said that:
“charities are inevitably under significant pressure to ensure that their
costs are as lean as possible in that kind of environment, which has the
unintended consequence of placing pressure on them, in some cases,
not to apply for their core and running costs. That sometimes concerns
us, because it can disguise the true cost of delivering a very important
service.”304
235. Citizens Advice said that, while various funders were willing to support
new projects, few were interested in covering core costs or in keeping their
programmes running day-to-day.305 New Philanthropy Capital said that, as
the public were unlikely to donate to cover the costs of management capacity
and strategic capability, “funders and government need to consider how they
can support organisations to be more effective in delivering their mission.”306
236. Dr Beth Breeze from the Centre for Philanthropy at the University of Kent
told us that covering core costs in service delivery had “always been a problem
historically”, and that it was being exacerbated by the concept of the “golden
pound”, the notion that all money received by charities must go directly to
beneficiaries “and not a penny is wasted on things like getting an accountant
to do your accounts properly or all the other things that you need to do.”307
237. Philip Lawford of the Linbury Trust said that he would always seek to ensure
that charities were able to cover their overheads if they were bidding for
funding for a new project. He said that “the more thoughtful donor would
expect overheads to be included, because they have to be paid for somehow.”308
238. Some charities and sector representatives called for provision for “full cost
recovery” in public sector commissioning, including the Small Charities
Coalition and the Charity Finance Group.309 The Institute for Voluntary
Action Research (IVAR) reported the findings of a survey which indicated
that voluntary organisations were increasingly having to borrow to cover
working capital, and reported the view of one respondent that “full cost
recovery” should not just include direct and indirect costs, but also the
requirement to produce unrestricted surpluses to finance reserves, working
capital and funds for innovation and development.

301 Written evidence from Springboard Project (CHA0011)

302 Written evidence from MyBnk (CHA0186)
303 ‘Small charities ‘too afraid’ to ask for core costs, says major funder’, Civil Society News (8 June 2016):
https://www.civilsociety.co.uk/news/small-charities-too-afraid-to-ask-for-core-costs-says-major-
funder.html [accessed 14 March 2017]
304 Q 126 (Philippa Charles)
305 Written evidence from Citizens Advice (CHA0177)
306 Written evidence from New Philanthropy Capital (CHA0055)
307 Q 129 (Dr Beth Breeze)
308 Q 129 (Philip Lawford)
309 Written evidence from Charity Finance Group (CHA0092) and Small Charities Coalition (CHA0140)
 Stronger charities for a stronger society 53

239. Charities cannot operate unless their core costs are met. We
recommend that public sector commissioners should be expected to
have regard for the sustainability of the organisations which they
commission to deliver services. This should include an expectation
that realistic and justifiable core costs are included in contracts.

Duration of contracts
240. We heard that service delivery contracts tend to be brief in duration, typically
lasting for one or two years, which made it difficult for charities to plan for
financial sustainability.
241. The NCVO reported that short contracts had become standard in
commissioning, and that they often exacerbated bureaucracy, “leaving
little time to embed and improve a service before bidding starts afresh.”310
Barnardo’s noted that, while this was not a new problem, it was seeing it “not
only persist but also become increasingly challenging in the current, tough
commissioning climate.”311
242. The Cranfield Trust observed that, where charities were particularly
dependent on a small number of contracts for their income, “this tends to lead
to short term planning based on these income sources, rather than setting
an independent agenda based on beneficiary needs or factors affecting their
beneficiary group.”312
243. Dan Scorer from Mencap told us that the requirement to demonstrate
immediate impact often created problems in relation to the fulfilment of
short term contracts. He said:
“Looking at employment support, a current issue is that many
programmes are designed to get people into work within 12 months.
Clearly, if you are dealing with people who are further away from the
labour market who you think you can make significant progress within
that time, you face two issues. One is that you will not get payment
within that time. The other is that if you do not get someone in work
within 12 months, you get nothing at all.”313
244. Charity consultant and commentator Stella Smith told us that:
“Charities invest significant amounts of time and energy filling
in funding applications often with limited success. When they are
successful, funding is often for just 3 years. By the time staff have been
recruited, inducted and skilled up this often only leaves 2.5 years to
deliver on the project outcomes. In reality the last eight to six months of
the project staff are often preoccupied with trying to extend the funding
or find other jobs.”314
245. New Heights—Warren Farm Community Project told us that short-term
funding regimes were also prevalent among grant-makers, and asked “how
can a community charity provide local residents with confidence of on-going
delivery of essential services when funding commitments are always short-

310 Written evidence from National Council for Voluntary Organisations (CHA0148)
311 Written evidence from Barnardo’s (CHA0172)
312 Written evidence from The Cranfield Trust (CHA0103)
313 Q 194 (Dan Scorer)
314 Written evidence from Stella Smith (CHA0060)
54 Stronger charities for a stronger society

term?”315 It proposed that there should be a mechanism whereby during the

penultimate year of a funding period, an independent evaluation could assess
whether there was an ongoing need for the service and, if so, recommend
any measures required, including a “continuation funding commitment” if
ongoing need was established.316
246. The Lloyds Bank Foundation said that there were examples of local
authorities entering into longer term partnerships with charities to ensure
sustainability and more effective planning. For example, Camden Council
offered “strategic partner funding” for the sector of up to seven years “to
provide unprecedented security.”317
247. Councillor Robert Light from the Local Government Association told us that
“because of the changing nature of local authority services and finances, local
government has shied away a little bit from longer term contracts, because
there have been instances where, if you are tied into a long contract and your
financial resources are much reduced, that ties your hands very much.”318 He
added, however, that there were examples across the country of statutory and
voluntary organisations “working together to reconfigure services”, which
enabled local authorities to give longer-term funding commitments where
appropriate.319
248. Councillor Anne Brown from Essex County Council expressed a similar
view, stating that council contracts were “getting longer as we get more
confident in each other.” She added that “as I see it, the duration of contracts
will get longer and they will improve.”320
249. We recognise that local authorities are limited in their ability to offer
significant long-term funding, given that the size of their annual funding
settlements from central government cannot be predicted. However, annual
or biennial commissioning and tendering is a costly burden for both local
authorities and charities alike.
250. Long-term contracts, with appropriate break clauses for performance
and viability, should be the norm wherever ongoing service delivery
is likely. Public sector funders should seek to commission services
over a longer period wherever possible, to ensure that the services
can be delivered sustainably by charities with the capacity to plan
effectively for the future.

Innovation by charities
251. Another frequently raised topic was the impact of the transition to contract
income on charities’ ability to innovate. We were told that prescriptive
contracts had a detrimental impact on service quality because providers no
longer had the flexibility or resources to invest in improvement or alternative
delivery mechanisms.321
252. The National Council for Voluntary Organisations told us that “payment
by results inhibit rather than encourage innovation” and that public sector
315 Written evidence from New Heights — Warren Farm Community Project (CHA0009)
316 Ibid.
317 Written evidence from Lloyds Bank Foundation for England and Wales (CHA0031)
318 Q 143 (Councillor Robert Light)
319 Ibid.
320 Q 151 (Councillor Anne Brown)
321 Written evidence from Charity Finance Group (CHA0092)
 Stronger charities for a stronger society 55

contracts were often structured in a restrictive way which limited the ability
of charities to save money which could be invested in risk-taking. They
recommended that commissioners provide capital to support charities in
early-stage innovation and public procurement processes.322
253. Civil Exchange observed that “tightly determined contracts have squeezed
out the potential to innovate and deliver services in different ways, the very
reason why charities might have been considered a better provider than the
public or private sectors in the first place.”323 Jacob Tas from Nacro said:
“The more open the delivery model is to you to interpret, the greater the
chance that you can bring innovation and new ideas to the fore.”324
254. The Young Barnet Foundation said that “public service contracts tended to
just address the project costs, with no surpluses” that could be invested in
development or sustainability.325 This links to our consideration of funding of
core costs, above, and unrestricted funds that charities can use to innovate.
255. During our visit to Cardiff, we also heard that charities faced an inverse
pressure: that in some cases they wished simply to provide important services
to the best of their ability, but that they sometimes felt under pressure to
develop ideas that would be deemed innovative or different simply to secure
funding, rather than to improve services to beneficiaries. They also suggested
that when some public sector funders requested innovation, they were only
really interested in cost efficiencies rather than in improving the quality of
services.326
256. Tightly-prescribed contracts that dictate the process of delivery,
rather than the desired outcome, can be the greatest inhibitor
of innovation. We therefore recommend that public sector
commissioners refrain from setting overly-detailed requirements
for the mechanisms of service delivery.
257. Additionally, restrictive commissioning practices can hinder
charities’ capacity for innovation by limiting their working
capital. We recommend that, where appropriate, public sector
commissioners pay or provide grants for charities to test new
ideas and innovate during both the early scoping and development
of services, and their later delivery. Such funding would generate
positive returns, through supporting new and more effective ways of
working, while also contributing to the sustainability of the charity
sector and generating potential cost-savings for commissioners.

A revitalised role for grants

258. Many of our witnesses emphasised the positives of grant funding compared
to contracts. Paul Hackwood from Church Urban Fund said that: “grants
are an easier way to do it, and it is easier to make them accountable than
commissioning processes that become quite complicated.”327 The Greater
Manchester Centre for Voluntary Organisation told us that:

322 Written evidence from National Council for Voluntary Organisations (CHA0148)
323 Written evidence from Civil Exchange (CHA0141)
324 Q 190 (Jacob Tas)
325 Written evidence from Young Barnet Foundation (CHA0101)
326 Note of roundtable discussion in Cardiff, Appendix 8
327 Q 65 (Paul Hackwood)
56 Stronger charities for a stronger society

“so often a grant is the most efficient and effective way to commission
an outcome, or to invest in the long term work of a small organisation.
Investing in small organisations is in turn often the best and best value
way to achieve the outcome and can bring immense added value as
well.”328
259. Dawn Austwick from the Big Lottery Fund told us that her organisation had
a particular approach to grant making, which involved a commitment “to
the notion of the engagement of citizens, people, end-users, service users,
beneficiaries … in the process of thinking about our grant making and in
looking at the organisations that we might fund”.329
260. The Directory of Social Change argued that grants from all sources offered
a range of benefits over other sources of income, including the ability to
adapt to change; invest in local economies; support communities and the use
of community resources; nurture innovation; and sustain services.330 They
said that:
“Grants give organisations freedom to respond to changing priorities,
conditions and beneficiary needs. They reduce the risk of tying
organisations down into services that aren’t working, and can allow
organisations to redeploy resources where they are most needed. Grants
are especially good for small organisations, which succeed by drawing
on resources in the community to deliver their project. By engaging the
understanding and skills of the area’s people, the needs and capacity of
the community are more likely to be met and sustained.”331
261. Richard Jenkins of the Association of Charitable Foundations noted that
sources of grant funding had moved considerably towards foundations in
recent years, with foundations now giving more in grants (£2.5 billion) than
government (£2.2 billion). He added:
“One thing that strikes me about what charitable foundation grants can
do is that they might not be big in scale, but they are almost unique in
their currency. Grants can do things that other forms of funding cannot.
It offers flexibility and a bit of freedom for innovation.”332
262. Matthew Taylor from the RSA observed that grant funding gave an
“intangible element” of benefit with regard to service provision which could
not be replicated through tightly specified contracts.333 He said that certain
parts of the public sector, such as care commissioning groups, “are going back
to a bit of grant funding because they are, possibly, starting to realise that in
the act of defining everything through a contract you lose something.”334
263. The Big Lottery Fund told us that they tried to use grant funding to support
the sustainability of charities, notably through its Reaching Communities
and Building Capabilities programme, in which grant holders were offered
£15,000 to support internal initiatives such as marketing plans, governance

328 Note of meeting with Greater Manchester Centre for Voluntary Organisation, Appendix 6
329 Q 167 (Dawn Austwick)
330 Directory of Social Change, ‘Grants for Good Campaign’: https://www.dsc.org.uk/grantsforgood
[accessed 14 March 2017]
331 Written evidence from Directory of Social Change (CHA0128)
332 Q 31 (Richard Jenkins)
333 Q 47 (Matthew Taylor)
334 Ibid.
 Stronger charities for a stronger society 57

reviews or income generation reviews.335 Gemma Bull from the Big Lottery
Fund said that it was “very much our role to try to support civil society and
charity to be ready for anything and to be able to take the lead in their own
organisational development. That is hugely important to us.”336
264. While acknowledging the increasing financial constraints that public
sector bodies are under, we emphasise the important role that grant
funding plays in ensuring the sustainability of charities, particularly
with regard to innovation. There should be a wider understanding in
the public sector of the use and potential of grant funding for charities
and their beneficiaries, drawing on the practices of institutions such
as the Big Lottery Fund.
265. We heard that some councils continued to operate grant funds. Councillor
Stephen Powers from Newcastle City Council told us that they maintained
a grant fund “focused on building individual and community resilience,
linked to the council’s overarching priorities around tackling inequalities,
decent neighbourhoods, a working city and a fit-for-purpose council.”337 He
also said that they were currently undertaking a review to determine the
future focus of the fund, with reference to financial pressures.338
266. Councillor Anne Brown from Essex County Council told us that it ran a
Community Initiatives Fund (CIF), to help charities build capacity, introduce
new initiatives and create innovative programmes. She added that the CIF
incorporated six-monthly evaluation reports in order to monitor outcomes
and spending.339
267. However the NCVO noted that local authority grant programmes had been
closing, community budgets had been reduced, and that some services that
had been provided by charities were returning to direct council delivery.340
The Esmée Fairbairn Foundation told us that cuts to arts and leisure budgets,
and closures of libraries, sports and arts facilities, had “affected many small
organisations delivering creative and entrepreneurial programmes of support
for communities through those venues.”341
268. We recognise the significantly reduced funding available to local
authorities. Nevertheless, grant funding has great potential in
sustaining a healthy civil society and in enabling communities to
benefit from charities’ capacity to innovate. We recommend that local
authorities should bear this in mind in the course of their financial
planning, and maintain or revive grants wherever possible.
269. We draw the attention of the Government’s review of commissioning practices
to all the recommendations in this Chapter, and we expect to see the ones at
paragraphs 194, 198, 207–208, 230–231, 239, 250 and 256 addressed as part
of their work.

335 Q 172 (Dawn Austwick)

336 Q 173 (Gemma Bull)
337 Q 156 (Councillor Stephen Powers)
338 Q 156 (Councillor Anne Brown)
339 Ibid.
340 Written evidence from National Council for Voluntary Organisations (CHA0148)
341 Written evidence from Esmée Fairbairn Foundation (CHA0044)
58 Stronger charities for a stronger society

Chapter 5: SUPPORTING SUSTAINABILITY

Fundraising
270. Fundraising practices have changed dramatically in recent years, as charities
have sought to respond to the challenging financial environment and
pressure to operate in a more business-like fashion. These developments
have led to considerable attention and scrutiny. A cross-party review (the
Etherington Review) of fundraising regulation was published in September
2015 and the House of Commons Public Administration and Constitutional
Affairs Committee (PACAC) reported in 2016 on issues around fundraising.
Both reports concluded that a new, more proactive fundraising regulator was
required to tackle the problems that they identified and strengthen public
trust and confidence in the sector.342
271. The new Fundraising Regulator was established in January 2016 and from
July 2016 took over responsibility for fundraising regulation, complaints
handling and adjudications from the Fundraising Standards Board, and the
codes of fundraising practice from the Institute of Fundraising and Public
Fundraising Association.343
272. As a result of these developments, we consciously chose not to focus on
fundraising in our inquiry.344
273. The new regulator was, however, welcomed by a number of our witnesses.345
The British Heart Foundation, while supporting the new regulator,
stressed that “instances of malpractice in charitable fundraising are by far
the minority” and that “the implementation of stricter controls must not
disproportionately constrict a charity’s ability to develop relationships with
donors and raise funds to carry out its charitable aims.”346 Paul Stallard
suggested that the high-profile stories relating to charity fundraising had
occurred not from ill-intent but were “more to do with the inability of some
to cope with the ever increasing size and scale of their operations.”347
274. We were told that it was important for the new regulator to strike the
right balance between regulation and compliance, to allow fundraising to
take place in a fair and consistent environment, and to be proportionate
in its dealings with smaller charities.348 A common point of concern was
the financial burden of funding the new regulator, with a number of our
witnesses suggesting that it would fall disproportionately on medium-sized

342 NCVO, Regulating Fundraising for the Future: Trust in charities, confidence in fundraising regulation,
(September 2015): https://www.ncvo.org.uk/images/documents/policy_and_research/giving_
and_philanthropy/fundraising-review-report-2015.pdf [accessed 14 March 2017] and Public
Administration and Constitutional Affairs Committee, The 2015 charity fundraising controversy: lessons
for trustees, the Charity Commission, and regulators (Third Report, Session 2015–16, HC 431)
343 Fundraising Regulator, ‘Homepage’: https://www.fundraisingregulator.org.uk [accessed 14 March
2017]
344 We note that, during the course of our inquiry, the Information Commissioner fined two large
charities for their misuse of data for fundraising purposes. Information Commissioner’s Office, ‘ICO
investigation reveals how charities have been exploiting supporters’: https://ico.org.uk/about-the-
ico/news-and-events/news-and-blogs/2016/12/ico-investigation-reveals-how-charities-have-been-
exploiting-supporters [accessed 14 March 2017]
345 Written evidence from Battersea Dogs & Cats Home (CHA0143), MHA (CHA0124) and Save the
Children (CHA0149)
346 Written evidence from British Heart Foundation (CHA0152)
347 Written evidence from Mr Paul Stallard (CHA0049)
348 Written evidence from British Heart Foundation (CHA0152) and Institute of Fundraising (CHA0119)
 Stronger charities for a stronger society 59

charities.349 The Fundraising Regulator has subsequently announced the

introduction of a voluntary levy to be applied to all charities which spent
£100,000 or more per year on fundraising.350 The levy will be charged at a
varying rate, beginning at £150 per year for those charities which spend less
than £150,000 a year on fundraising, and rising in stages to a maximum of
£15,000 per year for those charities whose annual fundraising spend is more
than £50 million a year.
275. We welcome the action that has been taken to address the concerns
about fundraising practices in the charity sector. The new Fundraising
Regulator has only recently been established and therefore we do
not recommend that further changes are made to the regulatory
landscape for the time being.
276. We are conscious of the concerns from the sector that the voluntary
levy to fund the Regulator may be disproportionately burdensome
for small- and medium-sized charities. We recommend that the
new Fundraising Regulator continually monitors the impact of the
levy, particularly on small- and medium-sized charities, and makes
changes if appropriate.

Economic and tax policy

277. We heard a range of views about various elements of tax and economic
policy, particularly relating to Gift Aid and Value Added Tax (VAT).351 Her
Majesty’s Revenue & Customs (HMRC) estimated that charities received
tax relief to the value of £3.67bn in 2015/16. The largest contributor to this
figure was national non-domestic rate (business rate) relief, at £1.79bn,
followed by Gift Aid payments at £1.26bn.352
278. The Charity Tax Group said that the Government’s efforts to simplify the
eligibility requirements for Gift Aid in the Small Charitable Donations and
Childcare Payments Act 2017 was a positive development,353 but a number
of witnesses told us that there was still scope to simplify the rules on Gift
Aid and improve take-up.354 We note that the recent legislation was a missed
opportunity to do more to improve Gift Aid processes for charities.
279. The Charity Tax Group told us that: “Irrecoverable VAT (tax which
charities cannot recover due to various special exempts and zero ratings that
it receives) costs charities over £1 billion a year.”355 A number of witnesses
argued for a change in the VAT regulations on buildings used for charitable

349 Written evidence from Action Against Hunger (CHA0078), Church Army (CHA0003), Church
Mission Society (CHA0014), Health Poverty Action (CHA0037) and Together for Short Lives
(CHA0144)
350 Fundraising Regulator, ‘Information & registration for fundraisers: Levy’: https://www.
fundraisingregulator.org.uk/information-registration-for-fundraisers/levy [accessed 14 March 2017]
351 In March 2017 the NCVO announced that it would establish an independent commission to review the
charity tax system. ‘NCVO to establish independent commission to review charity tax system’, Civil
Society News (1 March 2017): https://www.civilsociety.co.uk/news/ncvo-to-establish-independent-
commission-to-review-charity-tax-system.html [accessed 14 March 2017]
352 HM Revenue & Customs, UK Charity Tax Relief Statistics 1990–91 to 2015–16 (June 2016):
https://w w w.gov.uk /gover nment /uploads/system /uploads/attachment _data /f ile/532722/ U K
CharityTaxReliefStatisticsCommentary.pdf [accessed 14 March 2017]
353 Written evidence from Charity Tax Group (CHA0122)
354 Written evidence from Centre for Philanthropy, University of Kent (CHA0072), Hallé Concerts Society
(CHA0045), Institute of Fundraising (CHA0119), National Council for Voluntary Organisations
(CHA0148) and Wales Council for Voluntary Action (CHA0097)
355 Written evidence from Charity Finance Group (CHA0092)
60 Stronger charities for a stronger society

purposes,356 while Cancer Research UK said that the VAT rules on shared
facilities was a “significant disincentive to collaboration” between charities,
including universities, and industry.357
280. We also heard from small charities that the increase in the National Living
Wage (NLW) was a challenge for their operation. They told us that while
businesses had been reassured that the cost of paying for the NLW would
be counterbalanced by cuts to corporation tax, charities—which do not pay
corporation tax—would have no such relief in relation to rising staff costs.358
281. The Church Army suggested that the Government should do more to
promote payroll giving (the donation of money to charity directly from
someone’s wages or pension without paying tax on it), in particular by
extending payroll giving to more Government staff.359 The Minister for Civil
Society, Rob Wilson MP, said that:
“I am writing to quite a few businesses, because there is a campaign
going on at the moment to encourage more companies to offer payroll
giving to their staff. At the moment, it raises about £130 million a year.
It is an easy, simple and tax-efficient way to give, and I would like to
encourage a lot more businesses to get involved in it. There is a big
campaign going on at the moment.”360
He also said that not every government department currently offered payroll
giving.361
282. It is imperative for the charity sector that tax policies and processes
are structured to ensure that charities are able to maximise their
income and that bureaucracy is kept to a minimum.
283. We welcome the Government’s changes to Gift Aid as part of the
Small Charitable Donations and Childcare Payments Act 2017. We
recommend that the Office for Civil Society works closely with Her
Majesty’s Revenue & Customs (HMRC) to examine whether there
are further changes that would help charities maximise the value of
Gift Aid and minimise bureaucracy.
284. We recommend that the Office for Civil Society works with HMRC to
ensure that the needs of charities are high on the agenda in relation
to future changes to VAT and the National Living Wage.
285. We recommend that the Office for Civil Society works to improve
significantly the awareness and availability of payroll giving by
companies. In addition, there is no excuse for any Government
department not offering payroll giving to their employees. The
Government must set an example in this regard by ensuring that
payroll giving is offered to staff as standard by all departments and
executive agencies.

356 Written evidence from Association of Medical Research Charities (CHA0151) and National Village
and Community Halls Network (CHA0086)
357 Written evidence from Cancer Research UK (CHA0035)
358 Note of roundtable discussion in Cardiff, Appendix 8
359 Written evidence from Church Army (CHA0003)
360 Q 217 (Rob Wilson MP)
361 Ibid.
 Stronger charities for a stronger society 61

Support within the charity sector

286. There was strong support for more guidance, training and capacity building
for charities on a wide range of subjects, including governance, finances,
fundraising and organisational development. We also heard calls for better
communication between the sector and local and national government.362
These are all functions that the various infrastructure bodies, or umbrella
bodies, in the charity sector might be expected to play.
287. Seamus McAleavey from the Northern Ireland Council for Voluntary Action
(NICVA) explained the types of support that they offered to charities:
“We do quite a lot across a broad range of topics, such as good
governance; governance support, helping organisations with their
governing documents and the like; providing information to them about
what is going on in a very broad range of topics; and helping them face
some of the realities of their situation. We provide quite a lot of training
in niche areas such as management and leadership, to help people in
organisations to do better whatever they are focused on.”363
288. We heard, however, that the availability of support for charities from these
sources had diminished and that there had been a significant loss of support
from local Councils for Voluntary Service (CVSs).364 CVSs are charities
that offer a variety of services and support for local charities and voluntary
groups in an area, such as training, or advice on funding.365 We also heard
from Rural Community Councils, which perform similar roles and seek
to support charities in rural areas with the distinct challenges they face.366
The small charities we heard from at our roundtable events suggested that
infrastructure bodies were under the same pressure as other charities, and
that while there were active CVSs in metropolitan areas such as London,
Manchester and Cardiff, elsewhere they had declined or disappeared
altogether.367 Other witnesses argued that there needed to be more support
from local government for CVSs.368
289. At a national level, Karl Wilding from the NCVO said that there were too
many infrastructure bodies in the sector.369 The NCVO’s data suggested that
in 2013/14 there were 1,160 umbrella bodies, making up 0.7% of voluntary
organisations.370 However, ACEVO and the Small Charities Coalition said
there were valuable roles for infrastructure bodies representing different
groups.371

362 Written evidence from Lloyds Bank Foundation for England and Wales (CHA0031), NCVO
(CHA0148) and Pilotlight (CHA0073)
363 Q 115 (Seamus McAleavey)
364 Q 36 (Richard Jenkins) and written evidence from Springboard Project (CHA0011) and VONNE
(CHA0123)
365 The acronym CVS is also sometimes used as Centre for the Voluntary Sector, Council for the Voluntary
Sector or Community Voluntary Services, though the organisation it describes is usually the same.
366 Written evidence from Action with Communities in Rural England (ACRE) (CHA0085),
Gloucestershire Rural Community Council (CHA0069) and Rural Community Council of Essex
(CHA0096)
367 Note of roundtable discussion in Westminster, Appendix 7, and note of roundtable discussion in
Cardiff, Appendix 8
368 Written evidence from Bolton Community and Voluntary Services (CHA0064) and Young Barnet
Foundation (CHA0101)
369 Q 16 (Karl Wilding)
370 NCVO, ‘UK Civil Society Almanac 2016: Scope Data’: https://data.ncvo.org.uk/a/almanac16/scope-5
[accessed 14 March 2017]
371 Q 16 (Asheem Singh and Rebecca Bunce)
62 Stronger charities for a stronger society

290. Small charities in particular need access to timely advice and

support, and infrastructure bodies play an invaluable role by
providing guidance and services. As with charities themselves, they
are diverse, and come in different sizes and have different focuses
depending on their intended beneficiaries.
291. Infrastructure bodies must ensure that they work together effectively,
both to ensure they survive and so that they can improve the services
they offer charities. They should explore collaborative service models
to raise awareness among charities of the support available, and
improve the accessibility and coherence of this support.

Role of volunteers
292. The charity sector relies heavily on volunteers and many charities told us that
they could not do their work without them.372 The Association of Volunteer
Managers suggested that the economic benefit of volunteering could exceed
£50 billion a year,373 while other witnesses highlighted the value of volunteers
in community cohesion.374
293. Professor John Mohan told us that volunteering rates were high and had
been fairly stable since the first reliable national studies in the early 1980s.375
He noted that there were significant variations in volunteering rates between
different geographical areas and between different socio-economic groups,
and that some analysis suggested that volunteering may have declined
recently as a result of economic austerity. He said that:
“The implication was that adverse economic circumstances have
detectable and relatively immediate effects on engagement, weakening
the capacities of communities to cope.”376
294. Karl Wilding said that volunteering had changed in other ways in recent
years:
“We have moved away from what you might call a substitute labour
model, where people give 35 or 40 hours a week to the same organisation
over the course of their life, to one that is much more flexible and
footloose and is based on the idea of microvolunteering where people
give relatively small amounts of time.”377
295. We also heard that younger people were placing greater importance on
volunteering as part of gaining skills to help their employment prospects,

372 Written evidence from British Red Cross (CHA0162), Charity Law and Policy Unit, School of Law
and Social Justice, University of Liverpool (CHA0104), Clinks (CHA0084), Community Links
Bromley (CHA0100), MHA (CHA0124), National Association for Voluntary and Community Action
(CHA0076), RSM UK (CHA0120), RSPCA (CHA0070), Small Charities Coalition (CHA0140) and
Together for Short Lives (CHA0144)
373 Written evidence from Association of Volunteer Managers (CHA0065)
374 Written evidence from British Red Cross (CHA0162), RSPCA (CHA0070), Rural Community
Council of Essex (CHA0096), Stella Smith (CHA0060) and vInspired (CHA0118)
375 Q 92 (Professor John Mohan) and supplementary written evidence from Professor John Mohan
(CHA0188)
376 Supplementary written evidence from Professor John Mohan (CHA0188)
377 Q 27 (Karl Wilding). A similar point was made in the written evidence from Carolyn Cordery
(CHA0159).
 Stronger charities for a stronger society 63

a pattern one of our witnesses described as “self-interested altruism.”378

Community Southwark said that:
“Where once the main motivation for volunteers was around
philanthropy, there are now more pressing motivations around gaining
experience to find paid employment, isolation, creating new networks,
supporting passions and interests.”379
296. Pilotlight suggested that an increase in young people volunteering might be
linked to “an environment which allows for increased flexibility and digital
engagement with volunteering.”380 The potential for digital technology to
communicate with and mobilise supporters is discussed further in Chapter 6.
297. Lloyds Bank Foundation and the Small Charities Coalition both suggested
that charities had become increasingly dependent on volunteers, in part
due to funding cuts.381 The Foundation for Social Improvement said that
volunteers were no longer just a “helping hand.”382
298. Karl Wilding suggested that the increasing use of volunteers had prompted
charities to think about how they change their business models.383 Visionary
argued that that an over-reliance on volunteers risked hindering the growth
of a charity384 and Age UK Runnymede and Spelthorne noted that charities
using volunteers to deliver services were at risk, as volunteers could not be
compelled to work.385
299. We heard from some witnesses that volunteers were increasingly taking on
professional responsibilities akin to those of employees and that this risked
conflicts with professional staff.386 The Association of Volunteer Managers
told us that:
“Volunteers play a significant and complementary role to paid
professionals, but the boundaries between staff and volunteers are
becoming increasingly blurred and we need to ensure that employment
legislation and unions take this into account. Examples include
Ambulance Service First Responders, Special Constables and individuals
within communities voluntarily taking on the responsibility for running
libraries.”387
300. Karl Wilding said that:
“all the evidence from the volunteer managers we work with tells us that
volunteers do not want to replace paid staff in the sense that they do not
want to put people out of jobs, but they absolutely recognise that they
can contribute something to a service over and above what the paid staff
delivering that service do.”388

378 Written evidence from The Brain Tumour Charity (CHA0145)

379 Written evidence from Community Southwark (CHA0075)
380 Written evidence from Pilotlight (CHA0073)
381 Written evidence from Lloyds Bank Foundation for England and Wales (CHA0031) and Small
Charities Coalition (CHA0140)
382 Written evidence from Foundation for Social Improvement (CHA0057)
383 Q 15 (Karl Wilding)
384 Written evidence from Visionary (CHA0174)
385 Written evidence from Age UK Runnymede and Spelthorne (CHA0028)
386 Written evidence from Lord Hodgson of Astley Abbotts CBE (CHA0026)
387 Written evidence from Association of Volunteer Managers (CHA0065)
388 Q 27 (Karl Wilding)
64 Stronger charities for a stronger society

301. We heard from a number of small charities that to use volunteers effectively
they need a volunteer manager, which costs money. They told us that finding
funding for volunteer managers was particularly difficult,389 as the costs of
volunteers in terms of terms of recruitment, training and management were
not recognised by funders.390
302. Training and support for volunteers are all the more important if they are
undertaking roles similar to or in place of paid staff.391 However charities,
particularly smaller charities, have limited resources and capacity to provide
for the development of their volunteers.
303. A number of our witnesses suggested there was a need for a fresh vision and
drive behind volunteering. Matthew Taylor reflected that there might be an
opportunity to rethink the place of volunteering in society given the changes
taking place:
“How we think about a society where being a volunteer has the same
status as being an employee, and it is an important part of how people
feel they are fulfilled, develop and grow in their lives, is a big opportunity.
We still kind of think that the big thing in your life is your work, and
you then might do a bit of volunteering on the side. It may be that in 30
years it is reversed.”392
304. Karl Wilding said that:
“Volunteering and delivering services are compatible, but we need a
clear vision about what the role of volunteering is, and we need to ensure
that we adequately support volunteers in discharging the work they do.”393
305. And Professor John Mohan said:
“what is important is to consider the basis on which you appeal to
people for more voluntary support. It needs to be a positive one, one
that is not just about bailing out public services, and it needs to send a
message that volunteers are not just a managed resource, but they are
making a positive, independent contribution in their own right to an
organisation.”394
306. In terms of practical suggestions, Martin Sime from the Scottish Council
for Voluntary Organisations (SCVO) told us that there was a significant
opportunity to increase volunteering through allowing unemployed people
to volunteer without risking losing their benefits. He said:
“if you could persuade the DWP [Department for Work and Pensions]
to remove all the barriers to unemployed people volunteering, you would
do charities a great favour because we would be able to get a whole lot of
people engaged in our work in a way that was good for them and good
for us.”395

389 Note of the Committee visit to Body & Soul, Appendix 4, and note of roundtable discussion in Cardiff,
Appendix 8
390 Written evidence from Age UK Runnymede and Spelthorne (CHA0028)
391 Ibid.
392 Q 45 (Matthew Taylor)
393 Q 27 (Karl Wilding)
394 Q 92 (Professor John Mohan)
395 Q 123 (Martin Sime)
 Stronger charities for a stronger society 65

307. Lesley Michaelis suggested that organisations could provide incentives to

encourage staff to volunteer, such as “extra holiday, extra training, and
flexible hours” and they could reward staff that volunteer through appraisals
and promotion criteria.396 The NCVO said that a new Access to Volunteering
Fund, along the lines of a scheme piloted in 2009, could encourage more
disabled people to become volunteers.397
308. The Minister, Rob Wilson MP, told us that one of his key priorities was
increasing social action and volunteering.398 On 14 December 2016 he
announced an independent review “to look at how to increase participation in
full-time social action by young people.”399 He said that: “By helping others,
young people can also transform their own lives. Full-time volunteering can
provide meaning and purpose, as well as allowing young people to gain the
skills they need to transition into full-time work or study.”400
309. Charities are the primary conduits for volunteering in the United
Kingdom and as such they play a very valuable role in civil society.
Charity law and policy should promote and support the role of
volunteers, and constraints on volunteering should be reviewed and
addressed.
310. Harnessing and maximising the efforts of volunteers is central to the
principle and the practice of many charities, and comes with a cost.
Volunteers may need managing, supporting and training. Investing
in volunteers, where possible, is a way of respecting their contribution
as well as increasing their value to the charity.
311. Funders need to be more receptive to requests for resources for
volunteer managers and co-ordinators, especially where charities
are able to demonstrate a strong potential volunteer base. We
recommend that Government guidance on public sector grants and
contracts is amended to reflect this and set a standard for other
funders.
312. There is scope for further efforts by the Government to allow people
to incorporate volunteering into their lives. We recommend that, in
line with our earlier recommendation on trusteeship (see paragraph
107), the Office for Civil Society should work with other departments,
the public sector and businesses to encourage greater flexibility for
employees to take time off for charitable work.
313. The patterns of volunteering are changing. Younger people may be more
likely to participate in one-off actions and digital volunteering rather than the
traditional volunteering activities of older generations. There are, however,
opportunities to encourage younger people to participate in more traditional
volunteering, in order to boost their credentials for employment.

396 Written evidence from Lesley Michaelis (CHA0061)

397 Written evidence from National Council for Voluntary Organisations (CHA0148)
398 Q 210 (Rob Wilson MP)
399 Department for Culture, Media and Sport, ‘Call for more opportunities to support young people
volunteering in the community’ (December 2016): https://www.gov.uk/government/news/call-for-
more-opportunities-to-support-young-people-volunteering-in-the-community [accessed 14 March
2017]
400 Ibid.
66 Stronger charities for a stronger society

314. We welcome the Minister’s review of full-time volunteering by young

people. This should be encouraged, by Government, by infrastructure
bodies and by employers, with the caveat that volunteering should
be a springboard to, not a substitute for, paid employment. Getting
young people volunteering early in life may also have longer-term
benefits by encouraging a future willingness to volunteer.

Expectations and trust

315. The expectations on charities have increased significantly in recent years.
A greater level of scrutiny has been directed towards charities and greater
accountability and transparency are expected of them. We discussed how
charities can be more accountable and transparent in Chapter 3. Karl
Wilding noted that:
“Charities are no different from all other institutions, in that they face
a greater level of scrutiny over how they work. The fact that they do
good in and of itself is no longer good enough. How they do that good is
something that people are increasingly asking questions about.”401
316. Martin Sime from the SCVO told us that:
“we have come to understand that public trust is the cornerstone of
sustainability. If there is such a thing as a sustainable charity, it is one
that enjoys lots of support from the public.”402
317. ICSA suggested that there were greater expectations of charity leaders
compared to other sectors, with the public more willing to voice moral
judgments as to how charities are run.403 There is also a greater expectation
from funders to demonstrate impact, which we discussed in Chapter 3.
318. The charity sector has recently experienced high profile failings in respect
of fundraising and governance, as we noted in the introduction to this
report. The Charity Commission said that its research into public trust and
confidence in charities in 2016 had found a significant drop for the first time
since they began tracking public trust in 2005.404 They noted that:
“Time will tell whether this is a long term trend or a short term dip but
it is our view that both the leadership of the sector and the regulator
should respond to this drop in confidence.”405
319. The picture is complicated. Dr Eddy Hogg told us that his research had
found that people “on the whole trust charities” and “have high expectations
of them.”406 Survey research by nfpSynergy in autumn 2016 found that
charities had risen to being the fourth most trusted public institution after
the NHS, schools and the armed forces. This was a rise from twelfth place
a year before.407 On the other hand, Edelman’s 2017 trust barometer showed

401 Q 15 (Karl Wilding)

402 Q 115 (Martin Sime)
403 Written evidence from ICSA: The Governance Institute (CHA0093)
404 Written evidence from Charity Commission for England and Wales (CHA0114)
405 Ibid.
406 Written evidence from Dr Eddy Hogg (CHA0134)
407 nfpSynergy, ‘nfpSynergy Trust in Charities Research — Autumn 2016 update’ (2 December 2016):
https://nfpsynergy.net/press-release/nfpsynergy-trust-charities-report-december-2016 [accessed 14
March 2017]
 Stronger charities for a stronger society 67

a small fall in trust in NGOs in the UK from the previous year,408 though
the definitions of charities in each survey were not the same and they were
therefore not directly comparable.
320. nfpSynergy suggested that:
“we need other measures of the health of the sector. For instance, the
growth in income of different sizes of charities, levels of individual
giving and volunteering, the number of new charities, and (perhaps
most difficult of all) the differences that charities make.”409
321. We heard varying opinions on impacts that a loss of trust might have had on
the sector.410 However a common theme was that the small number of high
profile failures should not be allowed to tarnish the good work of charities
more broadly. FaithAction said:
“We are concerned that the great work that many smaller charities do
often goes unnoticed, unrecorded and unappreciated. Such organisations
may do an excellent job but do not necessarily invest in making their
work known; their work should still be championed.”411
322. Lord Hodgson of Astley Abbotts also emphasised that it was important not
to forget the positives:
“It is very easy … to end up talking about the negatives. The charity
sector does a lot of very, very good work and it is important that we keep
it in perspective … we need to remember that there is a lot of good work
going on there all the time.”412
323. Paul Stallard suggested that the Government should appoint a “charity
tsar” to speak for the sector to help ameliorate trust issues.413 Mr Diarmuid
McDonnell and Dr Alasdair Rutherford suggested that the Charity
Commission might strengthen public trust and confidence in charities
through greater transparency in its regulatory work.414
324. We believe that charities continue to enjoy a very positive public
reputation—one of which other sectors would be envious—and are a
highly valued part of public life.
325. That trust cannot be taken for granted, however, and charities should
continue to be mindful of the impact of recent negative publicity,
as well as of any indication that trust may be declining. The sector
has learned hard lessons and charities need to be conscientious
and scrupulous in order to retain that trust, maintaining their
focus on transparency and accountability. We believe that the
recommendations in this report will help them to do so.

408 Edelman, ‘2017 Edelman Trust Barometer Global Report’: http://www.edelman.com/global-results

[accessed 14 March 2017]
409 nfpSynergy, ‘nfpSynergy Trust in Charities Research — Autumn 2016 update’ (2 December 2016):
https://nfpsynergy.net/blog/ten-things-it-useful-know-about-trust-charities-and-other-bodies
[accessed 14 March 2017]
410 Q 44 (Matthew Taylor), Q 100 (Marged Griffiths) and written evidence from Clore Social Leadership
(CHA0132) and Mr Elliot Harris (CHA0185)
411 Written evidence from FaithAction (CHA0015)
412 Q 96 (Lord Hodgson of Astley Abbotts CBE)
413 Written evidence from Mr Paul Stallard (CHA0049)
414 Written evidence from Mr Diarmuid McDonnell and Dr Alasdair Rutherford (CHA0023)
68 Stronger charities for a stronger society

Mergers
326. The duplication of work by some charities was raised as an issue by some
of our witnesses, who suggested that collaborations, partnership work and,
where appropriate, mergers should be considered more frequently to improve
the service they deliver to their beneficiaries. Matthew Taylor from the RSA
told us that:
“charities are not as good at collaboration as they ought to be. There
is too much of what Freud called “the narcissism of small differences”;
charities that are, basically, around the same thing are competing with
each other, when they would do much better to collaborate with each
other or to merge.”415
327. Mencap noted that:
“There are many charities which occupy the same policy space and try
to operate on the same problems. This … has implications for financial
sustainability with a number of charities focused on raising support
from a limited pool of donors. This could be addressed by closer co-
operation or mergers.”416
328. The proposed revised Governance Code suggests that charity boards should
undertake or oversee strategic reviews that should consider partnership
working, merger or dissolution if other organisations are seen to be fulfilling
similar charitable purposes more effectively.417
329. A number of witnesses gave examples of successful mergers.418 Family
Action said that they had merged with Friendship Works “to make both
organisations stronger by combining our talents and diversifying our service
delivery.”419 Simon Prior-Palmer described the benefits of the merger of the
two largest cancer research charities to form Cancer Research UK, and the
collaboration and division of responsibilities between Cancer Research UK,
Macmillan and Marie Curie.420
330. The Brain Tumour Charity said that the gradual consolidation of brain
tumour charities over 20 years had “helped to enhance the scope of research,
support, information and fundraising for the cause of helping people
personally affected by a brain tumour and finding breakthroughs to tackle
the disease.”421 They noted that despite the merger there were “over 50
charities for this purpose still in existence.”422

415 Q 48 (Matthew Taylor)

416 Written evidence from Royal Mencap Society (CHA0154). See also written evidence from Mr John
Dale (CHA0005).
417 The Charity Governance Code Steering Group, Charity Governance Code Consultation document
(November 2016) para 1.4.2: http://www.governancecode.org/wp-content/uploads/2017/02/NC940_
good_governance_11.pdf [accessed 14 March 2017]
418 Written evidence from Lloyds Bank Foundation for England and Wales (CHA0031) and True and
Fair Foundation (CHA0138)
419 Written evidence from Family Action (CHA0135)
420 Written evidence from Mr Simon Prior-Palmer (CHA0187)
421 Written evidence from The Brain Tumour Charity (CHA0145)
422 Ibid.
 Stronger charities for a stronger society 69

331. Some of our witnesses were more cautious about mergers. Lloyds Bank
Foundation said that:
“not all mergers are successful and nor should small and medium-sized
charities be forced to merge, as they have been in some situations. Other
forms of partnership working can be more effective, whether formally
or informally and the resources need to be available to facilitate this.
It also needs to be recognised that in other cases, partnership working
is not suitable and organisations should have the ability to remain
autonomous.”423
332. Locality suggested that while mergers might appear to be a viable option,
they were not necessarily a sustainable solution:
“These actions might build temporary sustainability but it often subverts
purpose and can lead to mission drift in the longer term and potentially
failure to meet original needs locally. This will therefore lead to the need
for new grassroots organisations being set up in their place in order to
address this unmet need.”424
333. Richard Jenkins from the Association of Charitable Foundations said:
“in my walk from Clapham to Stockwell, from the big supermarket to the
place where I live in Stockwell, I pass four Sainsbury Locals. We could
take a lesson from the private sector. Locally based, small high street
organisations doing substantially similar things may not necessarily be a
bad thing. It is the best way to be close to the beneficiary group you are
trying to reach. I would be sceptical that merger is going to be the silver
bullet. At the end of the day, charity is an expression of human passion,
resourcefulness, a sense of injustice and the need to do something.
You would not want to say to anyone that they should be doing that
somewhere else.”425
334. We also heard about the risks and challenges of mergers between charities.
The Wales Council for Voluntary Action noted that: “Mergers can be
delicate and complex to navigate, and when charities fail can have severe
consequences both on the services provided and the reputations and financial
stability of the charities involved.”426
335. The Esmée Fairbairn Foundation detailed the barriers to successful mergers,
ranging from liability issues, poor financial knowledge and management, high
costs, and a lack of desire to merge.427 Gloucestershire Rural Community
Council also suggested that the legal requirement for trustees to act in the
interests of their own charity might discourage mergers even when conditions
were right.428
336. Lord Hodgson of Astley Abbotts added that:
“One of the difficulties at present is that there are a number of technical
problems that stop charities merging, such as, notably, legacies. If

423 Written evidence from Lloyds Bank Foundation for England and Wales (CHA0031)
424 Written evidence from Locality (CHA0133)
425 Q 36 (Richard Jenkins)
426 Written evidence from Wales Council for Voluntary Action (CHA0097)
427 Written evidence from Esmée Fairbairn Foundation (CHA0044)
428 Written evidence from Gloucestershire Rural Community Council (CHA0069)
70 Stronger charities for a stronger society

two charities merge and one charity disappears, under the present
law, legacies left to that charity are voided. That cannot be what was
intended. What was meant was that, if it is all done properly and all the
boxes are ticked, those legacies should be valid.”429
337. We also heard that mergers were too often a last resort for charities. Both
the Cranfield Trust and NAVCA noted that a “rescue” scenario was not
desirable and a lot more difficult to manage successfully.430 Family Action
said that the sector needed “to learn that not all mergers are a result of
failure, and they should not be a last resort.”431
338. We heard that strong, effective governance and mutual understanding by
both boards were essential to making mergers work.432 The Esmée Fairbairn
Foundation said that, alongside governance and leadership, successful
mergers occurred when organisations had a healthy financial forward plan, a
positive approach to the merger, and time to consider all the options available.
They added, however, that mergers often failed owing to disagreements over
pension and lease liabilities as well as redundancy costs.433
339. Some of our witnesses suggested that the Charity Commission should
increase support for mergers to help avoid duplication of effort in the charity
sector.434 Kenneth Dibble noted that the Commission had historically had
a mergers unit to help charities, though this had not undertaken proactive
work and now no longer existed.435
340. The Office for Civil Society told us that:
“In relation to mergers the Government (and its predecessors) has put in
place measures to encourage and support mergers, or make the process
of merger simpler. However, anecdotal evidence suggests that many
mergers in the charity sector arise as a result of the financial distress
of one of the parties, and that relatively few mergers are strategically
driven.”436
341. The WCVA said that for mergers to work it was important to have access to
clear and accessible guidance and that charities needed to be “aware of the
type of support that is available and how they can access it.”437 Lord Hodgson
of Astley Abbotts pointed out that the Law Commission was preparing a
technical Bill that would make a number of “quite technical but nevertheless
important changes” to the law which should make it easier for charities to
merge.438
342. We believe that mergers can often be considered a measure of success
and maturity, and a reflection of a charity keeping a proper focus on

429 Q 95 (Lord Hodgson of Astley Abbotts CBE)

430 Written evidence from The Cranfield Trust (CHA0103) and National Association for Voluntary and
Community Action (CHA0076)
431 Written evidence from Family Action (CHA0135)
432 Written evidence from Devon Air Ambulance Trust (CHA0083) and Wales Council for Voluntary
Action (CHA0097)
433 Written evidence from Esmée Fairbairn Foundation (CHA0044)
434 Written evidence from Institute of Risk Management (CHA0039) and Tree of Hope (CHA0041)
435 Q 206 (Kenneth Dibble)
436 Supplementary written evidence from Office for Civil Society, Department for Culture, Media and
Sport (CHA0165)
437 Written evidence from Wales Council for Voluntary Action (CHA0097)
438 Q 90, Q 95 (Lord Hodgson of Astley Abbotts CBE)
 Stronger charities for a stronger society 71

its beneficiaries. Staff, trustees and volunteers should reflect upon

the possibilities for mergers and consult with their beneficiaries
where opportunities may exist. Mergers should not be seen as a sign
of failure.
343. We note that it would be easier to avoid overlapping work in the
charity sector by discouraging charities with similar purposes
from being established where existing charities in the same field
are working well and delivering for their beneficiaries. However, we
would not want to discourage people from establishing new charities,
which could be the effect of such a system. We also note that only
the Charity Commission could realistically undertake such a task,
but that the Commission currently has neither the structure nor the
financial capacity to carry out this work.
344. We welcome the Law Commission’s work to address some of
the legal and technical barriers to charities looking to merge. We
recommend that the Government brings forward the Bill at the
earliest opportunity.
345. We recommend that the Charity Commission, as part of its emphasis
on enabling regulation, considers what support and guidance it can
offer to charities seeking to merge, and provides signposts to help
that may exist elsewhere. The Commission should take a positive
approach to assisting charities that choose to merge and assist
in removing any barriers that may exist, notably with regard to
liabilities such as pension arrangements.

Closures
346. We heard that charity closures were more likely to occur when trustees fail
to recognise the charity’s financial position until it is too late. The Office for
Civil Society said that:
“Where trustees have an up-to-date grasp of the charity’s financial
circumstances and plan ahead properly, it is usually possible to have a
more orderly winding-up, including in some cases making provision for
some of the charity’s services to transfer to another charity, or at least
identify alternative provision for service-users.”439
347. We heard that charities should be required to maintain larger reserves in order
to guard against disorderly closure,440 however we note that in the current
economic environment such a suggestion would be unrealistic for many
charities. Clinks said that charities they had surveyed were already at risk of
using reserves at an unsustainable rate to maintain services.441 Localgiving
said that 42% of the groups they had surveyed had used their reserves in the
last 12 months.442 Voluntary Organisations’ Network North East (VONNE)
said that only 43% of the charities they surveyed in the North East had
reserves to last up to three months and 53% planned to or were likely to use
reserves in the coming financial year.443 The Charity Finance Group said

439 Supplementary written evidence from Office for Civil Society, Department for Culture, Media and
Sport (CHA0165)
440 Written evidence from Mr Len Jones (CHA0004)
441 Written evidence from Clinks (CHA0084)
442 Written evidence from Localgiving (CHA0016)
443 Written evidence from VONNE (CHA0123)
72 Stronger charities for a stronger society

that 54% of charities reported in a survey that they could not increase their
reserves, even if they wanted to do so.444
348. Academics from the Bristol Business School said that: “Compounding the
challenge is the notion that holding reserves within the charity sector has
been considered taboo by significant regularity bodies and advisors to the
sector.”445
349. In some circumstances, closures may be the right option for charities. An
example of this would be small foundations or memorial funds that have
delivered on their objective and no longer have the resources to continue.
The NCVO said that:
“Charities may naturally dissolve if their charitable purpose is achieved,
or where the trustees decide their purpose can be best achieved by
transferring assets to another organisation with similar objects.”446
350. Where such an outcome can be anticipated, it is preferable that the charity
is set up with an expected time limit at its foundation, making it easier to
close when the moment arrives. An example would be the Diana, Princess
of Wales Memorial Fund that consciously chose to spend all its resources to
fulfil its mission and closed in an orderly manner after 12 years of operation.447
351. Time-limited structures are a good option for ensuring that small
charities such as memorial foundations are able to dissolve when
they have delivered on their charitable objectives. A merged or closed
charity does not necessarily mean a failed charity.
352. We recommend that the Charity Commission include options for
time-limited structures in the model governing documents that they
produce for charities, as such clauses would prompt new charities
to consider their lifespan from their inception.

444 Written evidence from Charity Finance Group (CHA0092)

445 Written evidence from Elizabeth Green, Dr Felix Ritchie, Dr Glenn Parry and Dr Peter Bradley
(CHA0052)
446 Written evidence from National Council for Voluntary Organisations (CHA0148)
447 Other examples include The Tubney Charitable Trust, Giving our all: reflections of a spend out charity:
http://www.issuelab.org/resources/17440/17440.pdf [accessed 14 March 2017] and The Queen’s
Trust, which is aiming to spend its remaining funds by 2020: http://www.queenstrust.org.uk [accessed
14 March 2017]
 Stronger charities for a stronger society 73

Chapter 6: CHARITIES AND DIGITAL TECHNOLOGY

The potential of digital technology

353. The integration of digital technologies into people’s lives and the changing
nature of communications, particularly through social media, have
significantly changed the environment charities operate within. These
changes present new challenges but also considerable opportunities for
charities.
354. Nick Pickles from Twitter told us that there were a growing number of small
charities and social enterprises that had been established and were only
possible as a result of digital technology.448 On our visit to Manchester, the
Greater Manchester Centre for Voluntary Organisation said that small, local
charities that had been the “well-kept secrets” of the charity sector were
now a bit less secret, as a result of a growing trend towards having an online
presence.449
355. David Robb from OSCR said that:
“The realities of operating in a digital age mean that most charities have
a website, although not all; we have lots of Brownie packs and mother
or parent and toddler groups, and for them maintaining a website might
not be realistic. However, for single-instance charities, it would be pretty
unusual to find one without a website these days.”450
He also noted that: “A lot more charities have Facebook accounts than have
websites.” 451

Digital fundraising
356. Many of our witnesses talked about the potential for digital technology to
assist with fundraising.452 David Skelton from Google said that: “In terms of
fundraising, a really strong benefit of digital is that you can reach a bigger
audience more quickly, more widely and in a more scalable way.”453 Charity
Checkout spoke about the potential for online donation systems to increase
charities’ revenue.454 Chester Mojay-Sinclare said:
“We have seen examples of charities increase their overall giving from
donors by up to 600% purely through adopting digital fundraising
methods, the basic and essential fundraising methods being a mobile-
optimised website, an embedded payment system within their site
enabling them to accept online credit and debit card payments, direct
debits and various methods such as those. Digital can play a huge part in
helping charities to be more sustainable, to raise more income from their
local communities, but also in service delivery.”455

448 Q 164 (Nick Pickles)

449 Note of meeting with Greater Manchester Centre for Voluntary Organisation, Appendix 6
450 Q 108 (David Robb)
451 Ibid.
452 Written evidence from Alzheimer’s Research UK (CHA0074), Localgiving (CHA0016) and RSM UK
(CHA0120)
453 Q 161 (David Skelton)
454 Written evidence from Charity Checkout (CHA0051)
455 Q 133 (Chester Mojay-Sinclare)
74 Stronger charities for a stronger society

357. The Charities Aid Foundation said that their research had found that “young
people are much more likely to engage in digital giving than older audiences,
with a particular appetite for donating through apps as well as demonstrating
their support for causes via social media.”456

Awareness raising
358. Digital technology and especially social media were also seen as powerful
new tools for charities to gain attention and promote their cause.457 Helen
Milner, from the Tinder Foundation,458 said that digital technology meant
relevance and reach, in a world where many people expected to run their
lives digitally and use their phone for all kinds of services.459 Nick Pickles
said that it was:
“an opportunity for charities to communicate with the world on
whatever issue they are working on without intermediaries. Ten years
ago, you might have needed to know someone at a newspaper or to be
invited on television, or you might have needed an advertising budget.
Now you can jump that, so it levels the playing field for small and large
organisations.”460
359. The Centre for Philanthropy at the University of Kent similarly noted the
power of social media to open new opportunities for more specialist causes,
such as the “ice bucket challenge” campaign for motor neurone disease.461
Nick Pickles added that it had changed the ways that charities campaign:
“It is about constantly educating and persuading people. Rather than
spending all your energy on an awareness week in one week of the year,
you are now working every day to try to change the social conversation.
While a lot of charity work is focused on fundraising and awareness
raising, there is also an opportunity for digital and social media to help
drive social change, not just to raise awareness but to try to deal with
some of the underlying issues.”462

Engagement
360. Digital communications also allow for better engagement with existing
supporters, volunteers and beneficiaries.463 Community Links Bromley said
that:
“Engaging in communication with your supporters in a direct way
releases a world of opportunity. Not only is it low cost compared to
traditional media, it can also reach out to a far wider range of people, of
all ages, in different countries around the world. Keeping social media
up to date is key to keeping people interested in the content you have to
share.”464
456 Written evidence from Charities Aid Foundation (CHA0089)
457 Written evidence from Sense, The National Deafblind and Rubella Association (CHA0040),
RSPCA (CHA0070), Community Links Bromley (CHA0100), Comic Relief (CHA0126), RSM UK
(CHA0120), Visionary (CHA0174), Sheila McKechnie Foundation (CHA0184) and Foundation for
Social Improvement (CHA0057)
458 The Tinder Foundation has since been renamed the Good Things Foundation.
459 Q 133 (Helen Milner OBE)
460 Q 160 (Nick Pickles)
461 Written evidence from Centre for Philanthropy, University of Kent (CHA0072)
462 Q 160 (Nick Pickles)
463 QQ 160–161 (David Skelton)
464 Written evidence from Community Links Bromley (CHA0100)
 Stronger charities for a stronger society 75

361. Devon Air Ambulance noted that it allowed charities to “build more trust
and showcase the impact of their work,” although they noted that this “works
best for causes that are generally attractive to the public.”465 Alzheimer’s
Research UK suggested that greater use of digital services increased the
pressure to show that donations were being used appropriately.466
362. David Skelton from Google and Nick Pickles from Twitter noted that not
only did digital technology help to demonstrate impact to the public and
to funders, it could help charities understand their own impact through
the use of analytics.467 Chester Mojay-Sinclare said that technology helped
charities with service delivery468 and RSM UK said that it allowed them “to
manage data and processes more efficiently and effectively.”469 We heard that
charities could use technology to reduce costs, and improve their finance
and administration processes.470
363. Citizens Advice told us that:
“The shift to a modern technology approach has required investment
from our reserves, to cover double-running of services while we moved
on from traditional approaches and suppliers, but has significantly
reduced ongoing operating costs.”471

The challenges of digital for the charity sector

364. Some of our witnesses said that charities were lagging behind on digital
technologies and not making the most value of them. Asheem Singh said
that: “If you are asking me, however, whether the charity sector as a whole is
one of the leading industries in the use of the internet and social and digital
technology to drive efficiency within its organisations, regrettably the answer
is probably no.”472 Do-it.org said that: “The sector as [a] whole is lagging at
least five years behind the corporate sector in terms of utilising digital tools.
This is a great concern as technology evolves at an ever faster pace.”473
365. Charity Checkout reported that:
“A recent in-house study conducted by Charity Checkout of 500 recently
registered charities from May/June 2016 showed that, of the 60% with
websites, 45% were not mobile responsive and over 85% lacked ‘an
attractive and professional design’ in the view of the assessor.” 474
They also noted that 62% of the charities they examined did not have a
regular giving option within their online donation system and were therefore
potentially missing out on income.475
366. Helen Milner said that it was important to understand that there was a
continuum of usage of digital technologies by the charity sector, from digitally
465 Written evidence from Devon Air Ambulance Trust (CHA0083)
466 Written evidence from Alzheimer’s Research UK (CHA0074)
467 Q 160 (David Skelton) and Q 163 (Nick Pickles)
468 Q 133 (Chester Mojay-Sinclare)
469 Written evidence from RSM UK (CHA0120)
470 Written evidence from Churches’ Legislation Advisory Service (CHA0098) and Wales Council for
Voluntary Action (CHA0097)
471 Written evidence from Citizens Advice (CHA0177)
472 Q 25 (Asheem Singh)
473 Written evidence from Do-it.org (CHA0046)
474 Written evidence from Charity Checkout (CHA0051)
475 Ibid.
76 Stronger charities for a stronger society

immature charities, through to the digitally innovative. She cited the Lloyds
Bank UK Business Digital Index, which found that “49% of charities are
digitally immature” and had “no skills whatsoever, no confidence and no
awareness.”476 This compared to 38% of small businesses.477
367. The Cranfield Trust also noted differences within the charity sector between
charities of different sizes: “With a far more competitive funding environment
and many more communication channels open through social media,
small- to medium-sized charities are racing to catch up with marketing
and communications skills in order to compete with larger charities with
established marketing activity.”478
368. A range of issues were highlighted as constraints for charities, particularly
smaller charities, seeking to exploit fully the value of digital technology.479
Localgiving told us that “many small, local groups lack the capacity, skills
and confidence to fully benefit from this technology.”480
369. A lack of funding and resources was another reason for charities not being able
to fully embrace digital technology. The Foundation for Social Improvement
said that:
“Small charities often face a difficult trade-off, [they] want to innovate
but if innovation requires investment they are often not able to move
forward as they have minimal resources for development [and] instead
the majority of their income is needed to cover service delivery. This
suggests small charities are still far behind in the digital arena in
comparison to larger charities, who are more likely to be able to afford
to direct resources to this area.” 481
370. The Cranfield Trust pointed out that: “It takes a lot of time and energy to
remain active and afloat on social media, and to take advantage of profile
raising activities as soon as they arise.”482 Survivors UK noted that: “There
is a high pool of talent in the not-for-profit sector in this field but salaries are
not competitive with the commercial sector and so turnover can be high.”483
Other concerns raised included expensive and poor quality broadband access
and digital exclusion.484
371. We also heard that risk aversion and a lack of organisational flexibility were a
problem.485 NAVCA said that “charities need to be bolder, and boards need
a greater appetite for risk, if the sector is to adapt and deliver greater impact
in a changing world.”486 Rebecca Bunce from the Small Charities Coalition
476 Q 133 (Helen Milner OBE)
477 Lloyds Bank, UK Business Digital Index 2016 (October 2016): https://resources.lloydsbank.com/pdf/
uk-business-digital-index-2016.pdf [accessed 14 March 2017]
478 Written evidence from The Cranfield Trust (CHA0103)
479 Written evidence from The Brain Tumour Charity (CHA0145), Foundation for Social Improvement
(CHA0057), National Village and Community Halls Network (CHA0086) and St Ann’s Hospice
(CHA0167)
480 Written evidence from Localgiving (CHA0016)
481 Written evidence from Foundation for Social Improvement (CHA0057)
482 Written evidence from The Cranfield Trust (CHA0103)
483 Written evidence from SurvivorsUK (CHA0169)
484 Q 25 (Rebecca Bunce), Q 135 (Helen Milner OBE) and written evidence from Bolton Community and
Voluntary Services (CHA0064), Community Southwark (CHA0075), Charity Checkout (CHA0051)
and National Village and Community Halls Network (CHA0086)
485 Written evidence from Alzheimer’s Research UK (CHA0074) and National Village and Community
Halls Network (CHA0086)
486 Written evidence from National Association for Voluntary and Community Action (CHA0076)
 Stronger charities for a stronger society 77

highlighted the consequences that resulted from trustees not understanding

digital technology sufficiently.487 We discussed trustee skills further in
Chapter 3.
372. Helen Milner said that trustees who were risk averse on digital tools were
approaching the issue from the wrong starting point:
“If they are saying, ‘Digital feels like a risk’, they are asking themselves
the wrong question. They should be saying, ‘What is our strategy?
Where do we want to be in three years’ time? How are we going to get
there? Do we want to help more people and how are we going to reach
them?’ Digital ought then, naturally, to become part of that solution.”488
373. Chester Mojay-Sinclare added that:
“By far the biggest risk that is posed, if we continue the way we are with
the lack of digital adoption in the charity sector, is to small charities,
which potentially could become obsolete without the funding and the
ability to access the funding that they need through their supporters. I
would urge charities not to be too cautious, although I understand why
they are.”489
374. Nick Pickles suggested that it was not necessarily small charities that would
struggle with adapting to digital technology. He said that it was “sometimes
harder for larger organisations that are more hierarchical and that have staff
who have been working in a certain way for a long time, to change, whereas
smaller and newer organisations can embrace technology quicker.”490

Helping charities to embrace digital technology

375. We were told that more training was needed to help charities develop digital
skills. Do-it.org suggested that more digital training should be facilitated by
the Government.491 Alzheimer’s Research UK said that: “Greater learning
from the private sector could support charity innovation, given the right
culture of support for charitable risk-taking.”492 We also heard about the
training and resources offered by Google, Twitter and the Tinder Foundation,
among others, and that many free tools and training exist.493
376. Home-Start Slough suggested that more could be done to co-ordinate the
development and promotion of software for the charity sector.494 ACEVO
said that there was a role for infrastructure bodies in the sector to do more to
co-ordinate the technology and tools available to the sector.495 David Skelton
emphasised that such tools need not be expensive for charities.496
377. While there were calls for more money to support innovation, we heard that
there were already a range of bodies with funds, such as Comic Relief’s Tech
for Good fund, Nominet Trust’s Social Tech Seed Fund and Nesta’s Impact
487 Q 25 (Rebecca Bunce)
488 Q 134 (Helen Milner OBE)
489 Q 134 (Chester Mojay-Sinclare)
490 Q 162 (Nick Pickles)
491 Written evidence from Do-it.org (CHA0046)
492 Written evidence from Alzheimer’s Research UK (CHA0074)
493 Q 160 (David Skelton), Q 164 (Nick Pickles), Q 134 (Helen Milner OBE), and written evidence from
Wales Council for Voluntary Action (CHA0097)
494 Written evidence from Home-Start Slough (CHA0068)
495 Q 25 (Asheem Singh)
496 Q 160 (David Skelton)
78 Stronger charities for a stronger society

Investments.497 Helen Milner said that charities struggling with digital

should seek to employ people who already had the skills to help bring about
a culture change in their organisations:
“I do not mean just employing some young people who can do the social
media for them. I mean absolutely bringing people in who understand
the transformational effect of digital within helping them to achieve
their strategic goals and strategic vision.”498
378. She added that such people “are not expensive. You just have to know where
to find them.”499 NACVA made a similar argument, telling us that the sector
“needs a more diverse trustee base, and new skills such as expertise in digital,
if organisations are to thrive in the modern world.”500
379. Chester Mojay-Sinclare from Charity Checkout said:
“I would like to see that every new charity has a technology trustee or a
digital trustee, much in the same way that the majority of them have a
treasurer or something like that. That would do several things. It would
bring a focus to digital. It would create a role to which younger people
would be drawn, and younger people would lean towards trusteeship
more. That could be quite a simple way of attracting more of these skills,
because there are a lot of digitally savvy people out there and, if the path
into charity was clear and open, we would see many more such people
taking leadership roles.”501
380. The capacity of the charity sector to embrace digital technology
varies considerably, and while some are at the cutting edge of the use
of technology, others risk organisational stagnation and decay by not
embracing it successfully. This is a risk to the charity sector.
381. Charities should actively consider including a digital trustee role on
their boards. We note the potential benefits to board diversity that
would be likely to result from adopting such an approach.
382. We recommend that infrastructure bodies share knowledge and best
practice on innovation and digitisation across the sector and co-
ordinate training opportunities, at minimal cost, for charities with
limited digital experience. We recommend that the Big Lottery Fund
provides support to enable this.
383. The technology sector should work to ensure that charities can
develop the skills and capacity to fully engage with the digital realm.
This may include the more widespread promotion of training and
development opportunities, particularly to smaller charities with
limited experience of digital engagement.

497 Q 136 (Helen Milner OBE)

498 Q 134 (Helen Milner OBE)
499 Ibid.
500 Written evidence from National Association for Voluntary and Community Action (CHA0076)
501 Q 134 (Chester Mojay-Sinclare)
 Stronger charities for a stronger society 79

Chapter 7: ALTERNATIVE FORMS OF CHARITY FINANCE

Social investment: potential and barriers

384. The Government has been keen to promote social investment as a new way
of financing charity work. Social investment is any investment activity which
has an expectation of both a positive social outcome and a financial return,
which would usually be below the market rate. It can take the form of loans,
equity, ‘quasi equity’ (where the lender takes their returns as a proportion
of the organisation’s future revenue), overdraft facilities or Social Impact
Bonds (SIBs).502
385. The Government has sought to grow the market for social investment through
a range of initiatives and incentives, telling us that “social investment brings
new finance into the social sector, and many of those who have accessed
social investment have also increased their impact by scaling up their services
or creating new services that wouldn’t have otherwise been commissioned.”503
386. Announcing its social investment strategy in 2016, the Government said that
“the UK is widely recognised as the most advanced social investment market
in the world”, having created the world’s first social investment tax relief
and the first ever social impact bond. They had the ambition to have a SIBs
market “worth more than £1 billion by the end of this parliament.”504
387. The Government also established Big Society Capital, an independent
financial institution, to grow social investment in the UK by making and
arranging investments to charities and social enterprises, as well as to promote
the social investment sector and encourage engagement from investors and
financial institutions.505 The Office for Civil Society told us that Big Society
Capital and private match investors had made £587 million new investment
available for the social sector through intermediaries. £195 million of this
had been drawn down and was in use by charities and social enterprises.506
388. We heard that social investment was a useful tool for charities in the right
circumstances, and that it had the potential to grow considerably both as a
source of charity finance and as a means of engaging more people in financial
support to the sector. Geoff Burnand from Investing for Good told us that
the potential scale of social finance compared to grants was much larger, “so
the opportunity of getting those funds into the market is pretty significant,
if you can do it. It can also represent less challenging capital, it can be more
patient.”507
389. Sir Harvey McGrath of Big Society Capital told us that “the market is there
and it is growing. It is part of the toolkit. It is not a panacea.”508 He said
that while social investment would continue to grow in importance, it would

502 NCVO, ‘What is Social Investment?’: https://knowhownonprofit.org/funding/social-investment-1/

what-is-social-investment [accessed 14 March 2017]
503 Written evidence from Office for Civil Society, Department for Culture, Media and Sport (CHA0160)
504 Cabinet Office, Social investment: a force for social change, 2016 strategy (March 2016): https://www.gov.uk/
government/uploads/system/uploads/attachment_data/file/507215/6.1804_SIFT_Strategy_260216_
FINAL_web.pdf [accessed 14 March 2017]
505 Written evidence from Office for Civil Society, Department for Culture, Media and Sport (CHA0160)
506 Ibid.
507 Q 76 (Geoff Burnand)
508 Q 179 (Sir Harvey McGrath)
80 Stronger charities for a stronger society

continue to be a relatively small element of charity income because “the

business models of many charities simply do not support repayable funding.”509
390. Dr Beth Breeze from the Centre for Philanthropy at the University of Kent
said that social investment was not new: “Collaborative philanthropy and
associational philanthropy are called by new names like crowd funding
and social investment.”510 Andrew O’Brien of the Charity Finance Group
said that “the sector was borrowing consistently between £1 billion and £2
billion over the ten years before ministers discovered social investment and
decided they wanted to make it a term.”511 He added that the vast majority
of the charity sector was working in areas of market failure, “so the idea that
you can commercialise those services and try to generate a surplus that could
pay an investor is in most cases quite limited.”512
391. Jonathan Jenkins from Social Investment Business told us that while the
Government had been very supportive in creating the social investment
“ecosystem”, there had been less of a focus on how to provide money that
had “more relevance to a greater selection of frontline deliverers.”513 This
point was echoed by the Charities Aid Foundation, which argued that the
majority of social investment demand was for simple repayable finance, and
that a “finance first” view of the market might result in a proliferation of
products for which there is little demand.514 Social Enterprise UK similarly
noted that while social investment had “considerable promise”, it had yet to
live up to expectations and said that it was “not a replacement for grants or
income from other sources.”515
392. The Minister for Civil Society Rob Wilson MP told us that social investment
“is not there to displace other forms of finance, such as voluntary income,
trading or grants. It is not there to replace that.” He added that the most
important benefit of social investment was that it could be continually
reinvested, as a sustainable form of finance. He said that he believed
the Government had promoted social investment “in a balanced and
proportionate way, and a way that, over time, charities will find more and
more attractive.”516
393. Social investment has potential to improve the range of financial options
for some, though not all, charities. As the market grows and matures, there
needs to be a continued focus on improving its accessibility to investors and
charities alike.

Social investment and small charities

394. To date, social investment has largely been associated with larger loans and
has thus been perceived to be less accessible or appropriate for small- and
medium-sized charities. During our roundtables in Cardiff and Manchester,
a number of small charities told us that social investment was of no interest
to them, either because it was seen to be high risk, because interest rates

509 Q 179 (Sir Harvey McGrath)

510 Q 126 (Dr Beth Breeze)
511 Q 34 (Andrew O’Brien)
512 Ibid.
513 Q 85 (Jonathan Jenkins)
514 Written evidence from Charities Aid Foundation (CHA0089)
515 Written evidence from Social Enterprise UK (CHA0117)
516 Q 212 (Rob Wilson MP)
 Stronger charities for a stronger society 81

were prohibitively high, or simply because it was not applicable to their

organisation.517
395. Cliff Prior from Big Society Capital told us that:
“The biggest gap is for smaller amounts of social investment going into
smaller and younger charities, but there are a number of problems. The
transaction cost may be just as high as a much bigger investment, so it
becomes somewhat unviable. Newer organisations are inherently more
risky, so the price goes up.”518
396. The NCVO said that “smaller organisations may experience difficulty in
accessing social investment due to the higher cost of borrowing smaller
amounts.”519 Karl Wilding told us that “it is probably very difficult to [lend]
sums below £150,000 or £200,000 because the cost of doing the deal is
too high.”520 Jane Wilson from City Healthcare Partnership said that they
had found that “often you can only have one bite at the cherry, or one
opportunity” to obtain social investment and suggested that it needed to be
more accessible and equitable.521
397. To seek to remedy these issues, the Government set up Access: The
Foundation for Social Investment (the Access Foundation) to make it easier
for charities and social enterprises in England to access social investment.522
The Foundation has £45 million to commit and recently opened its first
fund for lending to charities and social enterprises in south west England.523
398. The Access Foundation told us that:
“Blended finance is helping to make social investment more relevant
to charities and social enterprises by connecting the varying objectives
of investors with the current needs of social organisations. It’s helping
to make sure that supply of social investment matches demand from
charities and social enterprises. The principle of blending finance is to
mix together a number of sources of capital, each investor with their
own objectives and requirements, and create an investment product
which better meets the needs of charities and social enterprises.”524
399. Cliff Prior from Big Society Capital explained to us that the purpose
of blending grant with the loan was partly to “blend into the deal to the
charity”, and partly to cover the transaction costs incurred by investment
intermediaries, who may otherwise have been put off facilitating the loans by
their small scale relative to the cost of the transaction.525
400. Jonathan Jenkins from the Social Investment Business explained that, as
a social investor, they were “working alongside grant givers, because they

517 Note of roundtable discussion in Manchester, Appendix 6, and note of roundtable discussion in
Cardiff, Appendix 8
518 Q 180 (Cliff Prior)
519 Written evidence from National Council for Voluntary Organisations (CHA0148)
520 Q 19 (Karl Wilding)
521 Q 80 (Jane Wilson)
522 Written evidence from Access: The Foundation for Social Investment (CHA0095)
523 Ibid.
524 Ibid.
525 Q 180 (Cliff Prior)
82 Stronger charities for a stronger society

have done their due diligence already; they have sunk costs in what they are
doing, and we might be able to support that.”526
401. The Minister told us that:
“we have set up the Access Foundation, with a big endowment, and it is
there to support charities, to grant funds if they have problems getting
to scale, to give the support that they need to get to the point where they
can take on these types of contracts. We have put mechanisms in place
to make sure that the support is there, if they want and need it.”527
402. Cliff Prior of Big Society Capital told us that, in addition to blended finance,
social investment tax relief could be a useful tool for mitigating transaction
costs for smaller loans. He told us that “a tax relief giving investors a 30%
return—a 30% tax break—means that a deal that would be too expensive
because of the transaction costs can come right down.”528
403. We welcome the Government’s efforts, through the Access
Foundation, to broaden the accessibility of social investment to
small- and medium-sized charities.

Investment capacity and skills

404. Another challenge to the potential of social investment for smaller charities
is their capacity to receive investment. Lord Hodgson of Astley Abbotts told
us that “many of us feel that social investment is a real opportunity to scale
up the funding available to charities, but it requires charities being prepared
to make the changes necessary to take the money on board.”529 Rebecca
Bunce of the Small Charities Coalition told us that “most people do not even
think of going to social investment, because they do not have the skills to be
able to consider that as a model.”530
405. The Access Foundation told us that “managing repayable finance is a new
proposition for many organisations in the sector. It requires business planning,
systems and skills for managing impact and financial information, robust
governance and strong leadership amongst many other things.”531 They
noted that charities and social enterprises needed greater skills and capacity
in relation to leadership, governance, data analysis, impact management,
finance and business modelling, and risk appetite.532
406. The Institute for Voluntary Action Research (IVAR) referred to the results
of a survey conducted in 2013, which found that most charities using social
investment only approached one investor. Charities also reportedly found the
social investment market to be “opaque and confusing”, and did not usually
compare loan terms, interest rates, or lender experience in the sector.533 IVAR
added that “charities do not know, and it remains difficult to find out, what
range and type of finance different lenders provide and which to approach
for particular needs and in particular circumstances.” They noted that the

526 Q 87 (Jonathan Jenkins)

527 Q 213 (Rob Wilson MP)
528 Q 180 (Cliff Prior)
529 Q 95 (Lord Hodgson of Astley Abbotts CBE)
530 Q 19 (Rebecca Bunce)
531 Written evidence from Access: The Foundation for Social Investment (CHA0095)
532 Ibid.
533 Written evidence from Institute for Voluntary Action Research (CHA0091)
 Stronger charities for a stronger society 83

nature of marketing and promotion by social lenders made it difficult for

charities to differentiate between lenders, products and offers of support.534
407. The Office for Civil Society acknowledged that “there are barriers for
social enterprises and charities to take on investment from capacity and
capability to knowledge, skills and awareness.” It stated that it continued
to take “extensive” steps to improve the investment market for social sector
organisations, including enabling charities to purchase capacity building
support through the £14 million Investment and Contract Readiness Fund,
and through the £10 million Social Incubator Fund, which supported
incubator organisations that provide finance and advice to social start-ups.535
408. Caroline Mason of the Esmée Fairbairn Foundation gave a different
perspective, telling us that “the social investment market I do not think
really understands the absolute fabric of the social sector.” She observed that
investment needs differed between different sectors and that “you probably
need to know quite a lot about the underlying context in which those charities
operate, and I think many social investors do not.”536 Ben Jupp from Social
Finance Ltd said that it was “worth putting in the time to make sure there
is an aligned interest between the needs of individuals and communities,
the right interests of local government and central government, and those of
investors.”537 Caroline Mason concluded that charitable organisations were
in many cases having to balance grant funding, contract funding, trading
revenue, volunteering time and donations along with social investment, “so
their blend and mix is complex.”538
409. Cliff Prior expressed concern that, while a significant amount of money
had been put into investment readiness in recent years, the same did not
appear to be the case for future years. He told us that “the concern is that
most of those programmes are ending. With over half a billion in the last 10
years, the only thing we can identify in the next few years is £25 million. So
there is a risk there.”539 The Access Foundation informed us that it would be
looking at investment readiness, and that it had been granted an endowment
of £60 million from the Cabinet Office to spend over 10 years on funding
future initiatives. They told us that “we believe that helping more charities
and social enterprises to be investment ready in this way will increase the
demand for and effective use of social investment from the sector.”540
410. The social investment market is unlikely to reach its potential
unless further resources are put into the investment readiness of
smaller charities. We welcome the endowment granted to the Access
Foundation for this purpose. The Government must continue to
monitor this issue and provide additional resources to support
charities to ensure that they are not left behind as the market expands.

Investor expectations
411. Another challenge with the social investment market was that of the financial
expectations of investors. We heard that high interest rates deterred charities

534 Ibid.
535 Written evidence from Office for Civil Society, Department for Culture, Media and Sport (CHA0160)
536 Q 85 (Caroline Mason)
537 Q 84 (Ben Jupp)
538 Q 85 (Caroline Mason)
539 Q 183 (Cliff Prior)
540 Written evidence from Access: The Foundation for Social Investment (CHA0095)
84 Stronger charities for a stronger society

from engaging with social investment, and that in some cases charitable
organisations had taken on unsustainable levels of debt.541
412. Locality told us that “some members who accessed debt finance have found
themselves heavily, and in some cases unsustainably, indebted. Social finance
intermediaries have found they need to charge high interest rates to reflect
risk and their own running costs and as elsewhere in the financial market
place finance for the most innovative new projects is limited.”542
413. Andrew O’Brien told us that members of his organisation found social
investment to be “frightfully expensive. It is more expensive than going to
a high street bank, and that creates an issue. Why would you go to a social
investor when you can get the money cheaper elsewhere?”543 He added that,
in his experience, private investors were not necessarily engaging in the
market for philanthropic reasons:
“When I first started looking into that space, I thought private investors
assumed they would not make the same level of return they would get in
the private sector but were doing it for social good reasons, but it seems
now that we are not only trying to deliver very complex services; they
want to make even more money on them. That is a tension we need to
resolve fairly quickly.”544
414. Geoff Burnand agreed that “the cost of financing that comes through the
wholesale lenders can be expensive—too expensive.” He also argued that the
cost of capital from Big Society Capital was “unrealistic for this market”, and
that this “is a significant drain … on the way this market could develop.”545
415. Peter Holbrook of Social Enterprise UK told us that there were “a number
of environmental conditions” which meant that higher rates of return were
currently being sought from social enterprises than from private enterprises.
These included that many social enterprises were seeking small loans, the
transaction costs for which were the same as for larger loans, and that this
was borne out in the cost of capital. He noted that the Government, the sector
and intermediaries were trying to simplify transaction processes so “that
products can be taken directly off the shelf rather than every transaction
being created from a bespoke perspective.”546 He added that the market was
maturing partly through initiatives such as crowdfunding and community
shares, which involved a retail offer to individual consumers who were
willing to take higher levels of risk or accept lower levels of return, rather
than to institutional investors.547
416. Tim Jones of Allia told us that high rates of interest for social investment
loans often came about because the nature of the market was different to
that of other providers of finance and capital to the sector. He said:
“You have to deal with the costs of the intermediary, their overheads,
their governance structure, what their requirements might be, and make
sure that the pricing covers that. You have to deal with the price of

541 Note of meeting with Greater Manchester Centre for Voluntary Organisation, Appendix 6
542 Written evidence from Locality (CHA0133)
543 Q 34 (Andrew O’Brien)
544 Ibid.
545 Q 77 (Geoff Burnand)
546 Q 77 (Peter Holbrook CBE)
547 Ibid.
 Stronger charities for a stronger society 85

your capital and the regulatory regime within which you operate … the
effective rate of interest can be rather more than they were hoping for
because of the structure of the supply that is coming to them.”548
He also noted issues related to the securitisation limit for bonds that he
described as “very high”, and added that the costs for charities could be
“prohibitive.”549
417. Sir Harvey McGrath told us that, while there were some investors who were
willing to lend below market rates, “there is a huge swathe of the mainstream
market that will not. As this market evolves, we are working with a clearing
mechanism that will bring together those various elements and, over time,
will bring down some of those costs that, for some organisations today, do
look high in absolute terms.”550
418. We welcome the measures being taken in the sector to seek to reduce
the transaction costs for social investment and to promote the market
to a wider range of investors who would be willing to accept lower
rates of return. Government and sector leaders should do more to
address the reasons for high transaction costs and work to bring them
down. Investors should also be encouraged to have more realistic
expectations of the potential for returns from social investment.

Social Impact Bonds

419. Social Impact Bonds (SIBs) are outcome-based contracts between public
and private sector bodies. The public body agrees to pay for interventions
on the basis that improvements in social outcomes will be delivered. The
private provider pays for the intervention upfront, and is repaid by the public
body on condition that significant social impact is achieved.551 Often, private
providers will contract charities to carry out the intervention, while retaining
the financial risk.
420. The Office for Civil Society also told us that its Centre for Social Impact
Bonds works across Government to encourage other departments to develop
and commission SIBs. This has included working with the Department
for Communities and Local Government on an outcomes fund for SIBs to
support rough sleepers into stable accommodation, and with the Department
of Health’s Work and Health Unit to develop a SIB fund supporting people
with mental health problems into work.552
421. We heard evidence, however, that the advantages and potential of SIBs may
be more limited than the Government has suggested. Geoff Burnand told
us that “it is a mystery to me why you would look to develop a new market
with a very complicated product”, adding that “it is incomprehensible to
mainstream investors and broadly irrelevant to many front-line, smaller
organisations.”553 Social Enterprise UK told us that “even the strongest

548 Q 181 (Tim Jones)

549 Ibid.
550 Q 181 (Sir Harvey McGrath)
551 NCVO, ‘Social Impact Bonds’: https://knowhownonprofit.org/funding/social-investment-1/
investment-types/social-impact-bonds [accessed 14 March 2017]
552 Written evidence from Office for Civil Society, Department for Culture, Media and Sport (CHA0160)
553 Q 78 (Geoff Burnand)
86 Stronger charities for a stronger society

advocates of SIBs admit that they will never be relevant to the vast majority
of charities and social enterprises.”554
422. Peter Holbrook also informed us that SIBs “have received a disproportionate
amount of government attention, government resources, and investment
focus.” He added that, while SIBs were appropriate in certain circumstances,
there were other forms of social finance that could be equally effective as
well as being cheaper and similar, but that the Government had “become
a hostage to their own fortune in some respects. They have developed this
totem, the social impact bond, and are now committed to achieving success
with it.”555
423. Sir Harvey McGrath of Big Society Capital told us that, of the £1.5 billion
in the social investment market, only around £15 million were in SIBs. He
added that “the concept is one that is potentially very significant” but that
“it is a young market and one that is finding its way because these structures,
as you can imagine, in terms of agreeing those contract terms, are difficult to
negotiate; they are difficult to monitor.”556
424. RSM UK told us that, while SIBs could be an “exciting way of raising funds
to enable a scaling up of activity”, they rely inherently on a beneficiary
making a cashable saving and being able to transfer part of that saving to an
investor. Since the required outcomes were usually only realised at a point
some time in the future, it was very difficult for public bodies to commit to
SIBs. They suggested that a way to encourage greater use of SIBs would be
for the Government to underwrite the lending.557
425. Social Impact Bonds can be a useful tool for both charities and the
public sector in reducing the cost risk of particular interventions.
However, they are only relevant where they produce a saving that can
be transferred to a private investor, and that limits their potential
contribution to the mix of alternative finance options for charities.
426. The expectations placed upon Social Impact Bonds have yet to
materialise and we believe the Government’s focus on them has been
disproportionate to their potential impact. While the Government
should redouble its efforts to make them work better, future public
funding should be reoriented towards financial products with
application to a wider range of charities and beneficiaries.

554 Written evidence from Social Enterprise UK (CHA0117)

555 Q 78 (Peter Holbrook CBE)
556 Q 182 (Sir Harvey McGrath)
557 Written evidence from RSM UK (CHA0120)
 Stronger charities for a stronger society 87

Chapter 8: REGULATION AND THE ROLE OF GOVERNMENT

Office for Civil Society: priorities, initiatives and sector engagement

427. The Office for Civil Society (OCS) is responsible for policy and support to
charities and the voluntary sector, while the Charity Commission acts as the
regulator. Previously based in the Cabinet Office, the OCS was relocated to
the Department for Culture, Media and Sport (DCMS) in July 2016.
428. The policy priorities of the Office for Civil Society, set out in the 2015–20
departmental plan for the Cabinet Office, include:

• Supporting social investment, innovation, and an independent and

capable voluntary sector

• Guaranteeing every child a place on the National Citizen Service

• Scaling up social impact bonds and Payment by Results

• Supporting an increase in public service mutuals.558

429. The OCS told us that it sees the Government’s role in relation to the charity
sector in the following terms:
“It is responsible for ensuring that charities have an effective legal and
regulatory framework that supports public trust and confidence in
charity; Government is a direct funder, through programmes such as
the Local Sustainability Fund, a commissioner of services, and a partner
in designing and delivering public services and tackling social issues at
local, regional, national and international levels.”559
430. It added that “supporting small charities continues to be a priority”, and
that the £20 million Local Sustainability Fund, launched towards the end
of the last parliament, was intended to support this part of the sector in
particular as a “direct response to sector concerns that small and medium
charities were struggling more than others to adapt to the challenging
operating environment.”560 The OCS also noted that it had launched a Small
Charities Fundraising Training Programme, designed to help small charities
to fundraise more effectively, and that it had been engaging in a “policy
conversation” with the voluntary sector with the intention of helping more
charities to become involved in the delivery of public services.561
431. We heard a range of evidence from other organisations as to how the Office
for Civil Society currently operates, and what its priorities should be. The
Small Charities Coalition told us that, following the change of department,
the OCS should continue to focus on embedding its work across Government
and on how different departments focus and engage with the sector. They
added that “it may be that a more formal network of OCS leads is required
across all departments to ensure that work is strategically embedded.”562

558 Written evidence from the Office for Civil Society, Department for Culture, Media and Sport
(CHA0160)
559 Ibid.
560 Ibid.
561 Ibid.
562 Written evidence from Small Charities Coalition (CHA0140)
88 Stronger charities for a stronger society

432. Health Poverty Action told us that the move of department for the OCS
may cause problems and that “the lack of clarity around new roles and
responsibilities within DCMS mean it could be more difficult to collaborate
and influence any decisions made which will have an impact on the charity
sector.”563 The National Association for Voluntary and Community Action
(NAVCA) took a similar view, stating that the departmental move “was a
downgrading, making it impossible to fulfil its role of being an advocate
for civil society across Government.”564 It added that there was a risk that
the OCS might simply become a delivery agency for the National Citizen
Service “and a few other less funded programmes.”565
433. The Social Investment Business told us that the move to the DCMS might
make it more difficult to promote understanding of social investment across
government, but that it might provide an opportunity to “imbed how social
investment can help deliver policy outcomes across an entire department.”566
434. We also heard criticism that the Government did not engage effectively with
the charity sector, especially when developing new policies and initiatives.
Mencap told us that “recent Government policy announcements have too
often been rushed, ill thought through and thus destabilising to the sector”
and that “there is also an impression in the charitable sector that the
Government are hostile to feedback or discussion.”567
435. Karl Wilding from the NCVO echoed this view, telling us that there had
been a period “based on constructive engagement in both the delivery of
services and the design of policies” but that this had been replaced by “a
more distant relationship, which is, I suggest, more instrumentalist, where
government sees charities as just one of a number of independent sectors that
are potentially useful in the delivery of services.”568 Richard Jenkins from the
Association of Charitable Foundations suggested that the Government no
longer appeared to see itself as the “curator and champion” of the charity
sector, and that as it had reduced its strategic funding programmes, there
were “fewer strategic partners around.”569
436. Alzheimer’s Research UK told us that “Government is not perceived to be
championing the sector by highlighting its vital contribution to society or
providing measures of support.” It added that “Government decision-making
discounts the unique perspective of the sector” and that efforts should be
made to engage the sector through channels of communication that support
the value of charity expertise.”570
437. We also heard evidence on the proper role of government in relation to
charities and wider civil society. The Cranfield Trust told us that “the role of
the OCS in particular should be around charity excellence—through sharing
examples, highlighting opportunities, networking with support providers and
communicating resources to charities.” It added that many smaller charities
were not aware of the Government’s role in supporting the sector beyond
funding and so “there is a great opportunity for focused communications to
563 Written evidence from Health Poverty Action (CHA0037)
564 Written evidence from National Association for Voluntary and Community Action (CHA0076)
565 Ibid.
566 Written evidence from Social Investment Business (CHA0137)
567 Written evidence from Royal Mencap Society (CHA0154)
568 Q 21 (Karl Wilding)
569 Q 35 (Richard Jenkins)
570 Written evidence from Alzheimer’s Research UK (CHA0074)
 Stronger charities for a stronger society 89

feature smaller organisations—the majority of charities—where they have

particular strengths in performance.”571
438. On a similar theme, the Centre for Philanthropy told us that “the role for
Government is to enable and encourage all charities to maximise their
voluntary income, which involves paying attention to the distribution and
destination of causes, as well as to raising the general propensity to give
and the total amounts given.”572 It suggested a range of initiatives to help
the Government better fulfil this role, including increasing investment in
capacity building, and promoting and supporting volunteer fundraisers.573
439. Unite the Union told us that the Government should take a “hands off
approach to the sector’s activities” and instead concentrate on “building
coherent support, regulation and infrastructure that enables the sector to
develop and excel, building infrastructure skills and funding that strengthens
autonomy and advocacy.”574
440. The Minister for Civil Society Rob Wilson MP said that:
“In terms of supporting the sector, the most important thing that the
Government can do is to make sure that we maintain an effective legal
and regulatory framework for charities, and to promote, encourage and
support civil society in a number of ways … in essence, we want to
increase social action, develop a culture of giving in this country, support
a strong and diverse voluntary sector and empower communities to look
after themselves.”575

Local government engagement

441. The relationship for charities with local and regional government is of
particular importance. As the NCVO noted, the majority of charities are
local and their engagement with the state is most likely to be with local
government.576
442. A considerable proportion of the public income received by charities comes
from local government, including through grants and contracts. As with
the picture at the national level, charity income from local government has
been under pressure. While income from local government increased to £7.4
billion in 2013/14, from £7.2 billion the previous year, it remains well below
its peak of £8.1 billion in 2007/08.577
443. The Lloyds Bank Foundation reported a similar picture with its own figures,
telling us that many small-and medium-sized charities received a significant
proportion of their income from local government grants, but that the value
of government grants overall had declined by 64% since 2008/09.578
444. The Esmée Fairbairn Foundation told us that of all the recent changes
affecting charities, loss of local government funding “had the most significant

571 Written evidence from The Cranfield Trust (CHA0103)

572 Written evidence from Centre for Philanthropy, University of Kent (CHA0072)
573 Ibid.
574 Written evidence from Unite the Union (CHA0105)
575 Q 209 (Rob Wilson MP)
576 Written evidence from National Council for Voluntary Organisations (CHA0148)
577 NCVO, ‘UK Civil Society Almanac 2016: Income from Government’: https://data.ncvo.org.uk/a/
almanac16/income-from-government [accessed 14 March 2017]
578 Written evidence from Lloyds Bank Foundation for England and Wales (CHA0031)
90 Stronger charities for a stronger society

effect on those organisations we fund.” They cited in particular the example

of youth services, noting that their reduction had not just affected the services
themselves but also those voluntary organisations which used youth clubs to
reach and help the most disadvantaged young people.579
445. We heard a range of evidence from both the charity sector and local
government representatives on how relations between the two sectors had
developed in recent years. Daniel Hurford from the Welsh Local Government
Association told us that charities had a vital role in local communities as:
“they have access and engagement with parts of the community that
local authorities cannot always reach. It is also about challenging local
authorities and public services, challenging the status quo, bringing
innovation into play, and, increasingly … an approach of co-production
where the third sector and charities work very closely with local
authorities in designing and delivering services.”580
446. Councillor Robert Light from the Local Government Association added
that, while funding reductions had created pressures on local authorities and
charities to make savings, it had also created opportunities to work together
to restructure services:
“We have seen a situation where, in relation to some of those contracts,
such as for adult social care, which many of the big charities have with
local authorities, those charities have been able to engage in service
reconfiguration in a very positive way, driving innovation and helping
local authorities. We have seen both bodies helping each other to address
a major significant issue.”581
447. Councillor Stephen Powers told us that he saw local charities as key to
local innovation, and that Newcastle City Council’s focus had been “on
identifying innovations that generate both community benefit and cash-flow
efficiency.” He added, however, that there were some skills shortages in the
charity sector locally, particularly with regard to digital innovation, so the
focus of the council had been on “upskilling the sector” in data analysis,
evaluation and impact assessment.582
448. We heard that, in addition to financial support, local government had a
role in championing the charity sector in their areas. The Young Barnet
Foundation told us that local authorities should be working with local
charities to help build their capacity, particularly in light of the widespread
expectation that charities will take responsibility when statutory local
services are reduced or removed due to funding cuts.583 Bolton Community
and Voluntary Services said that “the role of Local Government should be
to allocate adequate resource to a local infrastructure organisation so that
the voluntary and community sector can engage local structures through its
membership, whilst retaining independence.”584
449. We also heard that local government should avoid competing with the charity
sector, or duplicating resources and effort where charities were already

579 Written evidence from Esmée Fairbairn Foundation (CHA0044)

580 Q 141 (Daniel Hurford)
581 Q 142 (Councillor Robert Light)
582 Q 153 (Councillor Stephen Powers)
583 Written evidence from Young Barnet Foundation (CHA0101)
584 Written evidence from Bolton Community and Voluntary Services (CHA0064)
 Stronger charities for a stronger society 91

providing a valuable local service. Age UK Runnymede & Spelthorne told

us that in their area the County Council had established ‘hubs’ to provide
information and advice services, even though such services were already
provided by many charities in Surrey.585

Charities and devolution

450. We also heard evidence on the experience of charities in Scotland and
Northern Ireland where charity law and regulation is devolved, as well as on
the opportunities and challenges of devolution to the English regions.
451. We were told by representatives of the sector in Northern Ireland and Scotland
that UK legislation did not always take account of the impact on the charity
sectors in devolved areas. Frances McCandless of the Charity Commission
for Northern Ireland told us that issues including tax and company law, data
protection legislation and fundraising self-regulation had “consequences”,
but that the Northern Ireland Commission had only been consulted at a
late stage.586 Seamus McAleavey from NICVA echoed this view, telling us
that issues affecting the sector were not always properly communicated to
devolved areas by Westminster:
“Charity law is a devolved matter, but there are lots of other things
that have an impact, particularly issues of tax and financial matters.
Sometimes, Westminster departments flag up some of those issues and
engage with us—the Department for Exiting the EU has been over and
has engaged with us on the Brexit issue—but a whole range of things
never hit our agenda at all … we often find out about them too late. If
something is likely to impact on Scotland, Wales or Northern Ireland,
people need to be thinking about that and flagging that.”587
452. Similarly, Martin Sime from the SCVO told us that engagement by the
Westminster Government with voluntary sector issues in Scotland was “an
episodic thing rather than systematic engagement.”588
453. Small charities we spoke to during our visit to Cardiff told us that the
existence of devolved government helped charities, even though charity law
was not devolved in Wales, as it enabled closer contact with government
representatives on the issues facing the charity sector in Wales. This meant
that the Welsh Government was perceived to be closer to the concerns
and priorities of the charity sector than was the case with the Westminster
Government, and thus able to be more responsive to the issues they were
facing.589
454. On our visit to Manchester we heard from local government and voluntary
sector representatives on the ways in which they were seeking to take
advantage of the localisation of budgets and powers to provide for a strong
voluntary sector. The representatives from the Greater Manchester Combined
Authority (GMCA) told us that they valued charities and that, while there
had formerly been a paternalistic relationship between local authorities and

585 Written evidence from Age UK Runnymede & Spelthorne (CHA0028)

586 Q 112 (Frances McCandless)
587 Q 122 (Seamus McAleavey)
588 Q 122 (Martin Sime)
589 Note of roundtable discussion in Cardiff, Appendix 8
92 Stronger charities for a stronger society

charities, they were keen to change this and they had established a third
sector partnership group to ensure that the voice of the sector was heard.590
455. The representatives from the Greater Manchester Centre for Voluntary
Organisation (GMCVO) said that relationships between local government
and the charity sector in Greater Manchester were probably better than
elsewhere, but that more work was needed to strengthen the partnership.
They had some concerns that the amalgamation of local authorities to form
the GMCA meant that some of the power was being drawn up and away
from the more local level of individual authorities and that this could risk
weakening relationships between local authorities and the voluntary sector.
The GMCVO representatives concluded that it was still early days for
devolution in Manchester, but they were hopeful that it might help bring
more funding to the area and give the sector a chance to demonstrate a
distinctive “Greater Manchester way of doing things.”591
456. Views of the English devolution experience to date were mixed. The Lloyds
Bank Foundation for England and Wales told us that “devolution has largely
failed to involve local charities and communities” and that “small and
medium-sized charities need to be involved in strategic decisions at the start
of the devolution process so they have the ability to shape processes that
will most benefit local communities.” They argued that a requirement for
the involvement of small- and medium-sized charities should be included in
future devolution deals.592
457. Locality said that devolution had “the potential to bring about a renaissance
in neighbourhood level governance and community empowerment, as well as
the opportunity to harness the capacity and expertise of local organisations
in public service transformation.”593 They added, however, that if there was
not proper engagement with the community sector and wider civil society,
there was a risk that devolution would be “a technocratic exercise which
simply shifts marginal responsibilities between different parts of the public
sector, adding new layers of sub-regional governance which actually push
influence, power and resources away from local people.”594
458. Councillor Robert Light said that: “I would urge, and hope the Committee
would urge, the voluntary sector to engage with the devolution agenda”
because it provided considerable opportunities for large and small charities
alike. He added that “that ability to have a more consistent approach, to
engage with an organisation based around an economic area rather than just
lines on a map, which is what many local authorities are, will help voluntary
sector organisations.”595
459. The NCVO emphasised that, in order for devolution to be truly successful,
power passed down to local authorities would have to be passed onward to
local communities, with voluntary organisations acting as a conduit between
citizens and local authorities. They said that “without proper dialogue with
civil society there is a risk that devolution will see poor commissioning

590 Note of meeting with Greater Manchester Combined Authority, Appendix 6

591 Note of meeting with Greater Manchester Centre for Voluntary Organisation, Appendix 6
592 Written evidence from Lloyds Bank Foundation for England and Wales (CHA0031)
593 Written evidence from Locality (CHA0133)
594 Ibid.
595 Q 147 (Councillor Robert Light)
 Stronger charities for a stronger society 93

practices applied at a combined authority level”, in particular the aggregation

of services into larger contracts that exclude smaller charitable providers.596
460. NAVCA referred us to a document it had produced in conjunction with
Locality, entitled Devolution for People and Communities,597 which set out
principles of devolution for charities and the voluntary sector including
representation of the voluntary and community sector within new leadership
structures, ensuring accountability through effective community engagement,
and working with local organisations to transform public services. They
added that “devolution has largely been viewed around the devolution deals
but it is equally important to encourage policies that transfer power to people
and communities through transforming public services.”598
461. Regional devolution in England is a significant opportunity for
charities to develop stronger and closer relationships with decision-
makers and commissioners and to become more closely involved in
the design and delivery of services. There are valuable lessons that
can be learned from the experience of some charities in Wales that
have benefitted from devolution.
462. While the Government has been willing to devolve powers and budgets
in certain areas, we believe it has been insufficiently committed
to engagement with charities and other external bodies to help
devolution work in practice.
463. Central Government needs to understand better, and take account
of, the implications of devolution for charities and civil society. There
needs to be a proper dialogue between charities and new regional
administrations at every stage of the devolution process, and
voluntary sector representatives should be involved in leadership
structures and decision-making where appropriate. We recommend
that the Office for Civil Society works closely with the Department
for Communities and Local Government and infrastructure bodies
to ensure that this happens.
464. In addition, the Government must improve the way it consults
with devolved administrations and infrastructure organisations
when developing legislation on reserved matters which may impact
charities in Scotland and Northern Ireland.

National and local compacts

465. Compacts exist between government and voluntary sector bodies at both
national and local levels. Compacts are voluntary agreements that are
intended to promote partnerships between public bodies and voluntary
organisations. At a local level, they usually cover local public bodies
such as councils, police and fire services and health commissioners. At a
national level, all Government departments are signed up to the principles
of the national Compact, which was last reviewed in 2010.599 However, the

596 Written evidence from National Council for Voluntary Organisations (CHA0148)
597 NAVCA and Locality, Devolution for People and Communities: https://www.navca.org.uk/
assets/000/000/121/Devolution_key_principles_FINAL_original.pdf [accessed 14 March 2017]
598 Written evidence from National Association for Voluntary and Community Action (CHA0076)
599 Compact Voice, ‘About Compact’: http://www.compactvoice.org.uk/about-compact [accessed 14
March 2017]
94 Stronger charities for a stronger society

Commission for the Compact, which had an important monitoring role, was
abolished in 2011.600
466. The principles of the national Compact are a strong, diverse and independent
civil society; effective and transparent design and development of policies,
programmes and public services; responsive and high-quality programmes
and services; clear arrangements for managing service changes; and an equal
and fair society.601
467. The NCVO told us that “the Compact provides a framework which helps
guide the relationship between Government and the sector at every level.
It recognises that Government and the sector fulfil complementary roles
in the development of public policy and the delivery of services, and that
Government has a role in not only providing legitimacy to civil society, but
also in respecting its independence in all areas of society.”602
468. The evidence we heard on the status of compacts indicated that, while they
were a positive initiative, their principles were not always adhered to in
practice, and that awareness of them was not always high. Civil Exchange
told us that “the Compact has been repeatedly broken by Government”, for
example in its lack of consultation over legislation affecting the charity sector,
such as the Transparency of Lobbying, Non-party Campaigning and Trade
Union Administration Act 2014. They argued that a new Compact was
needed, “supported by a new state funded agency to promote and enforce it,
which is independent and accountable directly to Parliament.”603
469. Others took a similar view on the Government’s failure to observe Compact
principles in practice, including the Sheila McKechnie Foundation which
said that the Compact “established some key principles for consultation
which serve as excellent practice, but are not being followed”,604 and Unite the
Union, which told us that “the Compact is largely ignored when politically
expedient.”605 David Cutler of The Baring Foundation told us that “I really
regret the demise of the compact as a framework between the state and the
Government” and that “a lot of things that have gone wrong would not have
gone wrong if we had continued to subscribe to that principle.”606
470. The NCVO concluded that “now more than ever before is the time for
government, led by the Office for Civil Society, to restate and demonstrate
its support for the Compact principles as a framework for respectful
collaboration between the voluntary and statutory sectors, while recognising
their separation and the independence of the voluntary sector.”607
471. We heard similar evidence that local compacts may be in need of renewal.
Councillor Robert Light from the Local Government Association told us
that “they are probably not the highest on the agenda at the moment and the

600 Independence Panel, Voluntary Sector Independence (July 2011), p 15: http://www.independencepanel.
org.uk/wp-content/uploads/2011/10/Independence-Panel_Report-webcopy.pdf [accessed 14 March
2017]
601 Compact Voice, ‘About Compact’: http://www.compactvoice.org.uk/about-compact [accessed 14
March 2017]
602 Written evidence from National Council for Voluntary Organisations (CHA0148)
603 Written evidence from Civil Exchange (CHA0141)
604 Written evidence from Sheila McKechnie Foundation (CHA0184)
605 Written evidence from Unite the Union (CHA0105)
606 Q 50 (David Cutler)
607 Written evidence from National Council for Voluntary Organisations (CHA0148)
 Stronger charities for a stronger society 95

time is probably now for a refresh … we need to push the LGA and others to
reinvigorate the compacts a little more.”608
472. Daniel Hurford from the Welsh Local Government Association told us that
compacts risked being purely symbolic if they were not taken seriously by
partners. He told us that the Welsh Government had considered making
compacts statutory, but that most Welsh local authorities had them and their
effectiveness was not necessarily related to the strength of the Compact itself:
“It is largely down to the organisations, the interpersonal relationships and
the history between the local third sector and the local authority.”609
473. Councillor Anne Brown told us that Essex County Council was currently
reviewing its compact with the intention of making it a more practical guide
to best practice, for both local public services and for the local voluntary
sector.610 Councillor Stephen Powers told us that Newcastle City Council
had recently refreshed its compact and said:
“It is not the bit of paper that defines the relationship. It is the people
working together to make good on the commitment to that compact,
and working relationships are most important rather than what is in its
detail. For me, the compact is, above all, a commitment to dialogue, to
fairness and to respect between our different organisations.”611
474. Compacts are a valuable statement of principle about the relationships
between government, both local and national, and the voluntary
sector. We recommend that, where compacts do not currently exist,
they are re-established in consultation with the sector.
475. We also recommend that, where they have not done so recently,
national and local government should review their compacts in
collaboration with the voluntary sector to ensure that they continue
to be fit for purpose, reflecting the changing role of charities. They
should restate their intent to apply the principles of the compact and
include a mechanism for review to ensure that they are observed.

Legislation
476. There have been a number of recent pieces of legislation concerning the
charity sector, most directly the Charities Act 2006, the Charities Act 2011,
and the Charities (Protection and Social Investment) Act 2016. The Public
Services (Social Value) Act 2012 and the Transparency of Lobbying, Non-
Party Campaigning and Trade Union Administration Act 2014 have also
been of significant importance to the sector, and during the course of our
inquiry the Small Charitable Donations and Childcare Payments Act 2017
was passed.
477. In addition, the Law Commission has recently undertaken a series of
consultations on a number of technical matters relating to charity law, and
intends to publish a final report on these matters along with a draft bill in
the summer of 2017.612

608 Q 148 (Councillor Robert Light)

609 Q 148 (Daniel Hurford)
610 Q 158 (Councillor Anne Brown)
611 Q 158 (Councillor Stephen Powers)
612 Law Commission, ‘Charity Law, selected issues’: http://www.lawcom.gov.uk/project/charity-law-
selected-issues [accessed 14 March 2017]
96 Stronger charities for a stronger society

478. Although some of the proposals we heard for reforms to support charities
might require primary legislation, we did not detect an appetite in the
evidence we heard for major new legislation affecting the sector. For
example, World Horse Welfare told us that “we do not believe there is a
need to change arrangements nor is there a need for more legislation. Most
charities are well-governed, there is plenty of support available for trustees
to fulfil their duties, and the Charity Commission can take a more proactive
role in imposing consequences for bad practice.”613
479. We were, however, told that when Government prepares legislation it
should consult more widely, and seek a fuller understanding of the impacts
of certain laws, particularly on smaller charities. Age UK Runnymede &
Spelthorne told us that “it would be good if those making and agreeing
legislation recognise that any one rule can have a profound effect on smaller
organisations, and take this into account.”614
480. The Wellcome Trust told us that “we are concerned that changes to regulation
often impact civil society organisations in a way that does not appear to
have been properly considered and does not reflect the primary driver of
the proposals. We believe that this is often due to insufficient consideration
of the breadth of the charity sector, and variations in sizes, structures and
funding models.”615 They cited examples including changes to the Research
& Development Expenditure Credit which meant that charities were no
longer eligible, and changes to the Corporation Tax Code 2010 which
imposed additional charges on charities.
481. The Churches’ Legislation Advisory Service described “the huge—and
increasing—amount of regulation and legislation that trustees are expected
to be aware of and to comply with” as a “major pressure” on churches as
charities.616 The Institute of Chartered Accountants in England and Wales
took a similar view, telling us that “charity legislation and accounting
requirements can be complex and charities may have to use highly specialised
professionals to comply with them. This can be costly and add to the
disadvantages faced by small charities.”617
482. We note that charities rarely feel fully consulted about proposed new
laws and regulations, and that this increases the risk of unintended
consequences. This particularly applies to smaller charities, which
do not have the resources to devote to additional legal and regulatory
compliance.

The role of charity advocacy

483. We heard considerable concern from charities about the Government’s
perceived attitude to advocacy and lobbying. This was in relation both to
the Transparency of Lobbying, Non-Party Campaigning and Trade Union
Administration Act 2014 (often known as the Lobbying Act) and the
controversy in early 2016 regarding the proposed “anti-advocacy clause” in
Government contracts, by which charities would be forbidden to use public
funds to advocate on behalf of their beneficiaries.

613 Written evidence from World Horse Welfare (CHA0127)

614 Written evidence from Age UK Runnymede & Spelthorne (CHA0028)
615 Written evidence from Wellcome Trust (CHA0164)
616 Written evidence from Churches’ Legislation Advisory Service (CHA0098)
617 Written evidence from the Institute of Chartered Accountants in England and Wales (CHA0168)
 Stronger charities for a stronger society 97

484. Karl Wilding of NCVO told us that the Lobbying Act was a “good example of
where the relationship has gone wrong” between charities and Government,
as the sector had received no warning that the planned legislation was
expected.618 The Brain Tumour Charity told us that the Lobbying Act had
“created legal uncertainty for charities about the extent to which they can
campaign in the run-up to regional and national elections … this legislation,
whilst well intentioned, has created an additional regulatory burden on many
charities who receive no public funding.”619
485. The Charity Law and Policy Unit of the University of Liverpool said that the
Act had been “a minefield for charities in terms of the interaction between
charity law and electoral law” and that the confusion had created a “chilling
effect” on charities’ campaigning activities.620 Homeless Link said that
the Act was seen as “part of a culture in which charities may be afraid of
expressing opinions which could be seen to be critical of Government.”621
486. The Voluntary Organisations Disability Group concurred with this
view, stating that “the Lobbying Act has made charities more cautious at
speaking out on policy implementation issues and done much to inhibit
dialogue between charities and government. Charities are often best placed
to understand and articulate the interests of people who experience social
inequality and this has been a key feature of their contribution to society
over centuries.”622
487. Lord Hodgson of Astley Abbotts’ review of the Act proposed a number
of changes to reduce its scope and increase its focus. These included that
the definition of relevant campaigning should be changed to cover only
activity that intended to influence voters (as opposed to activity that could
be “reasonably regarded” as influencing them); that the regulated campaign
period should be reduced from a year to four months; and that there should
be changes to registration and reporting rules to prevent arbitrary restrictions
on joint campaigning.623
488. We believe that Lord Hodgson of Astley Abbotts’ proposals for a
review of the rules set out in the Transparency of Lobbying, Non-
Party Campaigning and Trade Union Administration Act 2014 are
eminently sensible and will provide reassurance to charities that
they will not face censure for carrying out ordinary campaigning
activity during election periods. We recommend that the Government
implement Lord Hodgson’s recommendations in full.
489. We also heard criticism in relation to the Government’s proposal to introduce
an “anti-advocacy clause” in public sector grant agreements. The Public
Relations and Communications Association described it as a “gagging
clause” which should be resisted. It compared the proposal by analogy to the
notion that private outsourcing companies such as Capita might be forbidden

618 Q 21 (Karl Wilding)

619 Written evidence from The Brain Tumour Charity (CHA0145)
620 Written evidence from Charity Law and Policy Unit, School of Law and Social Justice, University of
Liverpool (CHA0104)
621 Written evidence from Homeless Link (CHA0012)
622 Written evidence from Voluntary Organisations Disability Group (CHA0050)
623 Lord Hodgson of Astley Abbotts CBE, Third Party Election Campaigning - Getting the Balance
Right (March 2016): https://www.gov.uk/government/uploads/system/uploads/attachment_data/
file/508568/2904969_Cm_9205_Complete_Text_V0.5.pdf [accessed 14 March 2017]
98 Stronger charities for a stronger society

from having a public affairs function owing to their receipt of public money.624
The Scottish Council for Voluntary Organisations described the proposal as
one which would “harm the prospect of vigorous or even evidential debate
on public policy.”625
490. Bond said that there was a lack of clarity around the proposed clause, stating
that many charities were “concerned that the broad drafting of this clause
could restrict important opportunities to pass on valuable insights on policy
to government and to MPs and Peers.”626 The Small Charities Coalition said
that “any quietening of small charities voices only diminishes government’s
capacity to make good decisions and understand the populations they serve.”627
491. Towards the end of our evidence programme, the Government announced
new grants standards that made clear that activities such as contributing to
consultations, giving evidence to Parliament or taking part in public policy
debate would not be covered by rules against advocacy.628 The new standards
were largely welcomed by the sector, with Sir Stuart Etherington of NCVO
stating that the “new guidance is crystal clear in saying that activities such as
raising issues with ministers and civil servants, responding to consultations
and contributing to the general policy debate are not only permitted but
actively welcomed.”629
492. We welcome the Government’s decision not to proceed with a
restrictive anti-advocacy clause in public sector grant agreements.
493. In relation to charities’ ability to advocate on behalf of their causes, we
also heard concerns about the Charity Commission’s initial guidance on
campaigning during the EU referendum, which had been interpreted as
restricting their ability to speak on the issue. Bond told us that the guidance
risked further undermining public trust in charities, and reducing the
legitimate contributions charities could make to the democratic debate.630
NAVCA described it as an unwelcome intervention in the “legitimate and
valuable role that charities have in civil society” and a “negative development
in the relationship between charities, government and the regulator.”631
While the guidance was subsequently revised, it clearly created a negative
impression in the sector in relation to their freedom to comment and advocate
on relevant issues.
494. Kenneth Dibble, Legal Director at the Charity Commission, acknowledged
to us that the guidance had been imperfect and that lessons had been learned.
He told us:
“If there is a lesson to be learned from that piece of guidance, it is about
the way we positioned it and our style of communication. There were
some immediate concerns about the width of the guidance, and at
that point we revisited the guidance and reissued it to deal with those

624 Written evidence from Public Relations and Communications Association (CHA0030)
625 Written evidence from Scottish Council for Voluntary Organisations (CHA0181)
626 Written evidence from Bond (CHA0129)
627 Written evidence from Small Charities Coalition (CHA0140)
628 Cabinet Office, ‘New standards announced for Government grants’: https://www.gov.uk/government/
news/new-standards-announced-for-government-grants [accessed 14 March 2017]
629 NCVO, ‘Charities welcome new grants standards’: https://www.ncvo.org.uk/about-us/media-centre/
press-releases/1607-charities-welcome-new-grants-standards [accessed 14 March 2017]
630 Written evidence from Bond (CHA0129)
631 Written evidence from the National Association for voluntary and Community Action (CHA0076)
 Stronger charities for a stronger society 99

particular concerns, which we were happy to do. The general message

about that particular guidance is that the style with which it was written
did look restrictive, even though it was technically correct in law. That
is a lesson on making any future guidance that we need to take away.”632
495. Charities are the eyes, ears and conscience of any society; advocacy is
a central part of their work and a sign of a healthy democracy. Whilst
charities are quite properly regulated in their campaigning activities,
particularly at election times, any new regulation or guidance should
clearly recognise that advocacy is an important and legitimate part
of their role and be set out in clear and unambiguous language.
496. Just as charities must be judicious in their activities, in order to
remain politically impartial, the Charity Commission must take care
in its public communications to ensure that it retains the confidence
of the public and the charity sector.
497. Poor consultation and ill-thought-through policy proposals have
caused serious unease and disruption to the work of charities.
We recommend that the Government reviews its approach to
engagement with the charity sector before policy announcements
are made, with a view to ensuring that charities feel better informed
about legal changes which may affect them and have a greater
opportunity to provide input on new policies.

Impact on charities of the UK’s departure from the European Union

498. We heard some evidence in relation to the impact of the UK’s forthcoming
departure from the European Union on the charity sector. The Institute of
Fundraising told us that charities receive around £200 million from the EU
each year.633 Much of this comes from European Structural and Investment
Funds (ESIF), in particular the European Social Fund (ESF).
499. The Royal Mencap Society described the ESF as a “major source of revenue”,
which helped support fairer living standards and greater job opportunities,
in particular for young people and the long-term unemployed. They added
that the ESF was scheduled to fund a total of €4.9 billion of services in the
UK between 2014 and 2020 (including services not delivered by charitable
organisations).634 They called on the Government to underwrite ESF funding
and replace it once the process of withdrawal was complete. The charities
we spoke to at our roundtable in Cardiff also noted the challenge that the
withdrawal of EU funding would pose.635
500. The Association of Medical Research Charities told us that departure from
the EU would have a particular impact on their part of the sector, as EU
membership offered considerable research funding and opportunities for
collaboration.636 The Brain Tumour Charity concurred, telling us that there
was “concern that the UK Government would not be able to guarantee the
level of funding currently leveraged by [Higher Education Institutions] and
researchers from the EU.”637 The British Heart Foundation noted that the

632 Q 204 (Kenneth Dibble)

633 Written evidence from Institute of Fundraising (CHA0119)
634 Written evidence from Royal Mencap Society (CHA0154)
635 Note of roundtable discussion in Cardiff, Appendix 8
636 Written evidence from Association of Medical Research Charities (CHA0151)
637 Written evidence from The Brain Tumour Charity (CHA0145)
100 Stronger charities for a stronger society

UK obtained the second highest contribution across all EU member states

from Horizon 2020, the current EU research and innovation programme.638
501. The Small Charities Coalition told us that “there are concerns that the
loss of EU funding will impact heavily on small charities, both in money
previously budgeted for devolution and current funds provided by the EU
and distributed either directly or through intermediaries to small charities.”639
The NCVO said that Government should “ensure the sector is involved in
the negotiation process led by the Department for Exiting the European
Union. It is important that formal engagement opportunities are in place to
ensure the sector’s views and contributions can be fed into the discussions.”640
502. Minister for Civil Society Rob Wilson MP told us:
“We recognise that charities will be affected by exiting the EU, and there
are a broad range of implications. Different parts of the charity sector
could be affected in different ways. The important thing is that we are
listening to their concerns and talking to them about the opportunities
as well as the potential pitfalls that might arise from Brexit. We have
looked at some of the funding issues, particularly around the European
Social Fund, which is about £200 million worth of funding. One
positive thing is that all the legislation is local, incountry legislation, not
European legislation, so the disentanglement in the charity sector is not
as big a problem as in other areas of the economy.”641
503. He added that “if charities show strong value for money in projects going
forward, they will continue to be funded”, and that the Government was
holding ongoing roundtable meetings with sector representatives to discuss
issues arising from the UK’s withdrawal from the EU.642
504. As part of its ongoing engagement with the charity sector in relation
to the UK’s withdrawal from the EU, the Office for Civil Society
should undertake an audit of the potential impact of Brexit on
charities. This should include the impact of loss of funding as well as
on research collaboration. We recommend that the OCS publish its
assessment by the end of 2017.

Regulation of the charity sector

505. Following criticism of its regulatory abilities from, among others, the House
of Commons Public Accounts Committee and the National Audit Office in
2013–14, the Charity Commission undertook to focus on its regulatory role
and to become more proactive in this regard.
506. Lord Hodgson of Astley Abbotts told us that the Commission “has to be
a regulator; public trust and confidence in the sector depends on there
being an effective regulator. Such a role is not compatible with acting as a
‘cheerleader’ for the sector.”643 Karl Wilding of NCVO said “having a strong
regulator is good for public trust and confidence in charities”,644 though he

638 Written evidence from British Heart Foundation (CHA0152)

639 Written evidence from Small Charities Coalition (CHA0140)
640 Written evidence from National Council for Voluntary Organisations (CHA0148)
641 Q 215 (Rob Wilson MP)
642 Ibid.
643 Written evidence from Lord Hodgson of Astley Abbotts CBE (CHA0026)
644 Q 21 (Karl Wilding)
 Stronger charities for a stronger society 101

warned against it confusing “strong” regulation with “tough”, and suggested

its approach had at times undermined public trust.
507. On the Commission’s performance, Minister for Civil Society Rob Wilson
MP told us that “the Charity Commission is performing extremely well …
there have been a number of different reviews over recent years … they all
said the same thing: that the Charity Commission was not a robust enough
regulator. We have changed that, and I think the Charity Commission is
doing a very good job. According to the most recent assessment of how it is
doing, it is making good progress.”645
508. On our visit to the Commission we heard about the work that had been done
to improve their operation, and in particular on their digital transformation
programme to enhance the efficiency and quality of their regulatory
functions.646 The Commission’s chief executive Paula Sussex set this in the
context of a 40% cut in their budget.647
509. At our roundtables with small charities, some participants spoke of their
concern about the risk of seeking guidance from the Charity Commission
if they suspected something had gone wrong, in case it resulted in punitive
actions.648 One of our participants likened the Commission to Ofsted (the
Office for Standards in Education, Children’s Services and Skills), saying
that it was “only there to tell you off”.649 At our roundtable in Cardiff we
were told that the Commission was an “overstretched resource” and some
took the view that a separate Commission may be of benefit to Wales as
devolved agencies were perceived to be more effective and engaged.650
510. We commend the Charity Commission’s efforts to improve the
effectiveness of its regulatory functions, particularly in the context of
reduced resources. There is much still to do until it can be considered
to be fully effective, however.
511. Charity staff and trustees who have concerns with regard to their
charities should be encouraged to report them to the Charity
Commission where appropriate. We recommend that the
Commission makes clear that those charities which are proactive in
reporting issues to them will be supported to help put things right.
512. We heard some evidence, however, that the Charity Commission’s regulatory
focus may have come at the expense of its other role as an advisor and
enabler to the charity sector. The Lloyds Bank Foundation told us that “in
response to significant resource constraints, the Commission appears to be
moving away from an advisory role. The implications of this for small- and
medium-sized charities is that they lack support on the interpretation of
legal requirements.”651
513. The Association of Charitable Foundations told us that it had observed the
effects of the reduction in the Commission’s advice and support functions,
as it had received more calls from organisations and members of the public

645 Q 211 (Rob Wilson MP)

646 Note of Committee visit to the Charity Commission, Appendix 5
647 Q 2 (Paula Sussex)
648 Note of roundtable discussion in Westminster, Appendix 7
649 Note of roundtable discussion in Manchester, Appendix 6
650 Note of roundtable discussion in Cardiff, Appendix 8
651 Written evidence from Lloyds Bank Foundation for England and Wales (CHA0031)
102 Stronger charities for a stronger society

seeking technical information.652 The Charity Law and Policy Unit at the
University of Liverpool told us that the advice function of the Commission
“remains very important” and that “a structural split of its advice and
regulatory functions would remove some fear among charities that seeking
advice will attract regulatory attention with its attendant reputational risks.”653
514. The NCVO agreed that the Charity Commission should continue its focus
on the regulation of charities, but added that it should consider a model
of “enabling regulation.” It described this model as being “based on the
recognition that the best way to ensure the regulated community understands
and fulfils its obligations is to provide appropriate guidance and tools.”654
515. The NAVCA told us that:
“the Charity Commission should be a regulator not, as some suggest, a
cheerleader for the sector. The Commission is there to make sure that the
public can be confident in charities, a role more important than ever in
the wake of falling levels of trust. There is plenty to do to ensure boards
prioritise impact and good governance, and the Charity Commission
should concentrate on this.”655
516. In addition, the role of the Commission in promoting and supporting
trusteeship was a particularly frequent theme of evidence. The Abbeyfield
Society told us that the Commission should take a more proactive role in
the recruitment of trustees by putting trustee guidance into context and
promoting the benefits of being a trustee.656 Similarly, the Association of
Chairs told us that the Commission should be promoting chairs and trustees,
but noted that it did not currently provide any specific advice or support for
chairs.657
517. On the same subject, the NCVO said that “the Charity Commission should
review the information and guidance it makes available to new trustees, both
in terms of its content and how it is communicated to trustees, so that it
is widely disseminated but most importantly it sends the right message to
trustees about the importance of their role, their responsibilities and the
importance of continually investing in their skills.”658
518. Sarah Atkinson, Director of Policy and Communications, from the Charity
Commission told us that:
“guidance is a really important part of our job as a regulator, to ensure
that trustees understand the rules and are able to keep within the rules,
which most of them want to do and are able to do if they understand the
framework in which they are operating.”659
519. Paula Sussex, the Chief Executive of the Commission noted that it handled
around 1,500–1,600 “permission and consent” cases each year which
fulfilled part of its enabling role. She added that “since the strategic plan, we
652 Written evidence from Association of Charitable Foundations (CHA0082)
653 Written evidence from Charity Law and Policy Unit, School of Law and Social Justice, University of
Liverpool (CHA0104)
654 Written evidence from National Council for Voluntary Organisations (CHA0148)
655 Written evidence from National Association for Voluntary and Community Action (CHA0076)
656 Written evidence from The Abbeyfield Society (CHA0062)
657 Written evidence from Association of Chairs (CHA0156)
658 Written evidence from National Council for Voluntary Organisations (CHA0148)
659 Q 5 (Sarah Atkinson)
 Stronger charities for a stronger society 103

have had a clear focus on understanding what compliance and enforcement

means … as we move into the second year we are putting a good deal more
focus on the enablement strand across the piece.”660
520. In light of the Charity Commission’s reduced budget, and its
necessary focus on regulatory work, it should seek to be clearer to
charities about what support it can and cannot offer. It should also
be more proactive in helping charities to find the most appropriate
sources of external support and advice.
521. The future funding structure for the Charity Commission was noted as an
issue, as the Commission had indicated that it might seek to introduce a
charge to cover some of its work.
522. Kenneth Dibble, Legal Director at the Charity Commission, told us that
the Commission had had the power to charge for its services since 1992.
He said that it had not chosen to do so because “it would be counter to our
regulatory mandate, because if charities were charged for registration they
might not wish to register, so it acted in a contrary way.”661
523. Lord Hodgson of Astley Abbotts, who had previously recommended some
form of charging mechanism in his review of the Charities Act 2006, told us
that:
“in my view some form of hybrid funding is both appropriate and
inevitable. I believe that the general public would accept that it is not
unreasonable that the charity sector which receives £billions in tax relief
should be asked to put some very small percentage back into helping
maintain an effective regulatory structure.”662
524. The Chairman of the Charity Commission, William Shawcross, told us:
“Given the fact that we cannot expect the Treasury to give us more
when everybody else is being cut, it is imperative that I seek funding
from the sector. This will be a huge cultural change, because ever since
the commission was created in 1853 it has been funded by the taxpayer.
Government officials and others have made clear to me that we should
try to reduce the burden on the taxpayer of the £21 million that now
finances us.”663
525. He added that “many sectors pay for their own regulator, and the regulator
still remains at an arm’s length from the sector that is paying them. It will
be a cultural change but we have to face it”, and he expressed a wish that
small charities should be excluded from the burden of any payment.664 He
also confirmed that the Commission’s preferred method of charging was an
annual fee to be on the register. Kenneth Dibble told us that as part of an
internal reorganisation the Commission was structuring its operational units
into more discrete functions, but that it was not yet at the point where it was
considering generating revenue through marketing and selling particular
services.665

660 Q 10 (Paula Sussex)

661 Q 201 (Kenneth Dibble)
662 Written evidence from Lord Hodgson of Astley Abbotts CBE (CHA0026)
663 Q 201 (William Shawcross)
664 Ibid.
665 Q 206 (Kenneth Dibble)
104 Stronger charities for a stronger society

526. William Shawcross told us that he hoped any funding to come from charging
charities would be additional to the funding the Commission received from
Government, and not simply a replacement for cuts to Government funding.
He added that he hoped the Commission could “gradually relieve the burden
on the taxpayer”, but that this would be a “long process.”666 The point was
also made by Lord Hodgson of Astley Abbotts, who told us that charging
“will of course require an undertaking from the Treasury that if the sector
does provide some funding there will not be an immediate commensurate
reduction in the Treasury grant.”667 The Charity Commission subsequently
wrote to us to say that the Treasury had “clarified that any funding by the
sector would be in addition to existing grant in aid.”668
527. The Wellcome Trust told us that any charging plan “does not take into
account the breadth and variation across the sector” and that “imposing
additional costs on smaller charities may have a disproportionate effect on
their ability to work for the public good.”669
528. On 3 January 2017 Chairman William Shawcross said that the Commission
was considering a model by which the largest charities would pay between
£60 and £3,000 per year to fund the regulator, depending on the size of
the charity. He added that a public consultation on the proposal would take
place “very soon.”670 At the time of writing, no consultation has yet been
published.
529. The Minister for Civil Society, Rob Wilson MP, told us that:
“Charities want further services beyond the policeman/regulatory
functions, and if they want those services then they will have to contribute
something towards them. There is no suggestion that Government will
step out completely from funding the Charity Commission, because we
have already made a commitment, but it is wise to have a look at other
ways to fund things.”671
530. We recognise the resource pressures and the wider economic climate
that have led the Charity Commission to consider charging charities
an annual fee to be on the register. Any charging model must ensure
that the burden does not fall upon small charities which will not be
able to afford it. This should be established not just at the outset of
any charging regime, but by continual monitoring and testing of the
impact of charging, with changes made to lift the burden on charities
where necessary.
531. A mandatory charge for registered charities would mark a
fundamental change in the sector’s relationship with its regulator.
No longer merely an independent overseer, it would become a body
in which charities themselves have a financial stake, and to which
they are required to divert funds which might otherwise be spent on
their beneficiaries. Charities might, not unreasonably, seek to be

666 Q 201 (William Shawcross)

667 Written evidence from Lord Hodgson of Astley Abbotts CBE (CHA0026)
668 Written evidence from Charity Commission for England and Wales (CHA0192)
669 Written evidence from Wellcome Trust (CHA0164)
670 ‘William Shawcross says consultation on charging could come by end of January’, Third Sector (10
January 2017): http://www.thirdsector.co.uk/william-shawcross-says-consultation-charging-end-
january/governance/article/1420360 [accessed 14 March 2017]
671 Q 211 (Rob Wilson MP)
 Stronger charities for a stronger society 105

represented on the board of the Charity Commission to ensure they

have a say in how the money is spent. It might also prompt calls for
the regulator to become fully independent of government.
532. It is not yet clear that the Charity Commission has taken full account
of the potential impact of charging for regulation. A charge would
by definition have an immediate financial impact on charities and
their beneficiaries. It may also have an impact on the confidence of
the public, who may question why their donations are being used to
subsidise an arm of Government. Nor is it clear that the Commission
yet understands how charities’ expectations of it as a regulator
may change if they are required to pay for its upkeep. If charging
is mishandled, there are significant risks for the strength of the
charity sector, its relationship with the regulator, and overall public
confidence and trust in charities.
533. Because of these issues, we have grave concerns about the
Commission proceeding with any proposal to charge charities. We
recommend that the Charity Commission makes clear how a charge
would benefit charities and strengthen the sector overall. To achieve
such clarity, the Commission must be transparent from the outset as
to how additional revenue from charities would be spent, and what
services would be delivered or enhanced in return. The Commission
must set out how it envisages its supporting and enabling role
developing or expanding if a charge for registration was introduced.
534. We welcome the assurance given to the Charity Commission by the
Treasury that any funding from the sector would be in addition to,
and not a replacement for, funding from the Government. This is
essential. The purpose of any charge must be to enhance the ability
of the Commission to operate effectively, not to take money from
charities to help Government meet its fiscal targets.
535. We recommend that the Treasury maintains adequate direct funding
of the Charity Commission, irrespective of any proposal from the
Commission to seek additional funding from other sources.
536. The charity sector faces many challenges but also has so much to celebrate
and be optimistic about. We hope that our report and its recommendations
will go some way to ensuring that charities thrive in the years to come and
have greater confidence in themselves.
106 Stronger charities for a stronger society

SUMMARY OF CONCLUSIONS AND RECOMMENDATIONS

The role and contribution of charities

1. We are living through a time of profound economic, social and technological
change and the environment in which charities are working is altering
dramatically. We do not believe that this is a temporary aberration: such
disruptive changes are likely to become the norm. (Paragraph 9)
2. However, charities have always helped society through periods of upheaval.
We are confident they will do so again. It is our intention that the
recommendations in this report will go some way to ensuring that they do.
(Paragraph 10)
3. We recognise and celebrate the enormous range and variety within the charity
sector. The large charities, that raise the most money and are most widely
known, are only a tiny fraction of the 167,000 registered charities in England
and Wales, let alone the many social enterprises, small voluntary bodies and
community groups besides. We acknowledge that the issues raised in this
report may affect different parts of the sector in different ways and that while
there are common principles for charities, practices may necessarily diverge.
(Paragraph 49)
4. Charities play a fundamental role in our civic life. They are often in the front
line of support for the most vulnerable and are therefore in the best place to
assess their needs. They not only provide. They inspire and innovate and
through their advocacy help shape our laws, government policies and society
as a whole. (Paragraph 63)

Improving governance and accountability

5. We believe that the Government, the rest of the public sector and the private
sector should foster robust and meaningful partnerships with the charity
sector and support and facilitate charities whenever possible. (Paragraph 65)
6. Robust governance requires good structures, processes and behaviours.
It demands strategy and foresight as well as a culture of scrutiny, support
and challenge. While the whole sector should aspire to a high standard of
governance, larger charities will necessarily have to adopt more rigorous
processes than smaller ones to ensure they meet that aim. (Paragraph 76)
7. We welcome the work to update the voluntary Governance Code for the
charity sector. We also welcome the Charity Commission’s decision to refer
to it as the benchmark for governance in the charity sector. (Paragraph 77)

Trustee skills and training

8. We believe that it is essential that charities regularly undertake skills audits
of their trustee boards to ensure that they have the necessary capabilities to
undertake their vital governance role. For large charities, this should be an
annual occurrence. (Paragraph 89)
9. Training and development are essential for charity trustees in order for
the sector to work effectively. It is the responsibility of charities’ chairs to
ensure that this vital activity takes place. We recommend that the sector’s
infrastructure bodies review the training opportunities that exist, identify
where there may be shortcomings in provision, particularly for small charities,
 Stronger charities for a stronger society 107

and take action to address them. They could assist charities by publishing
collated information about available training and providing a platform for
users to rate the value of courses they have accessed. (Recommendation 1)
(Paragraph 97)
10. Induction processes are essential so that new trustees have a well-established
understanding of the charity and of their responsibilities. Trustees need
to feel confident and well-informed in order to provide strategic direction,
oversight and challenge. We welcome the inclusion in the Governance Code
of appropriately resourced inductions for all new trustees. (Paragraph 98)
11. We believe that smaller charities would benefit from having free access to
a template induction process. We recommend that grant-making bodies
consider applications from infrastructure organisations and governance
professionals to develop such a best practice template. (Recommendation 2)
(Paragraph 99)
12. There is greater potential for charities to benefit from better connections to
the business community and vice versa. We recommend that the Government
takes fresh measures to get more senior business leaders directly involved
with charities to foster those relationships and maximise their value.
(Recommendation 3) (Paragraph 100)

Board diversity and turnover

13. We acknowledge that recruitment of trustees is challenging for many
charities, especially when seeking trustees with particular skill sets. However,
we believe that trustee diversity is important, as boards with a range of skills,
experiences, ages and backgrounds are likely to lead to better governance.
(Paragraph 105)
14. We believe that more can be done by the Government, the Charity
Commission, infrastructure bodies and by charities themselves to promote
trusteeship and incentivise people to become trustees. In particular, there is
greater scope to enable disadvantaged people to become trustees and thus
improve diversity. (Paragraph 106)
15. We recommend that the Office for Civil Society works with other departments
and business leaders to develop a new initiative to promote trusteeship to
employees and employers and thereby encourage greater participation and
diversity. The initiative should encourage employees to see both the selfless,
charitable value of trusteeship and the personal benefits in the form of skills
and career development. Employers should be encouraged to give greater
recognition to trustee roles in recruitment and progression of their staff.
(Recommendation 4) (Paragraph 107)
16. We further recommend that the Government holds a public consultation
on the possibility of introducing a statutory duty to allow employees of
organisations over a certain size to take a limited amount of time off work to
perform trustee roles. (Recommendation 5) (Paragraph 108)
17. We agree that there should be a time limit for individuals to serve as trustees,
along with a maximum term of office, and we endorse the proposed inclusion
of such time limits in the revised Governance Code. We recommend that
the materials and draft articles of association provided by the Charity
Commission include a suggestion of time limits. (Recommendation 6)
(Paragraph 113)
108 Stronger charities for a stronger society

18. We recognise that in some circumstances, such as family trusts or in respect

of the role of the founder of a charity, there may be good reasons for not
imposing a time limit. We agree with Lord Hodgson of Astley Abbotts that
these charities should explain their reasons for this in their annual report in
order to aid transparency. (Paragraph 114)
19. We believe that, irrespective of trustee time limits, charities should regularly
review the operation of their boards and the tenure of their trustees and chair
to ensure that their governance is sufficiently robust. For large charities, this
should be an annual occurrence. (Paragraph 115)
20. We acknowledge the challenges that the Charity Commission faces in
securing a diverse board, however the regulator cannot expect to hold the
sector to a higher standard than it is able to achieve itself. We recommend
that the Commission is mindful of the example it sets to the sector and
that when filling future vacancies it explicitly seeks to recruit individuals
with a range of skills, charity experiences and demographic characteristics,
such as age, gender, ethnicity and geography. We expect to see the results of
this approach in the next set of board appointments. (Recommendation 7)
(Paragraph 119)

Executive leadership
21. Charities recognise that training and development for leaders and staff
is important, however there are still significant shortcomings in terms
of available training and levels of take-up. We therefore recommend that
infrastructure bodies in the sector take the lead on working with government,
academics and research institutions, and with the business community, to
identify further opportunities to support and fund leadership programmes.
(Recommendation 8) (Paragraph 128)
22. We agree that maintaining a separation of executive and oversight
responsibilities is important for good governance. Governance is about
making sure that charities do the right things, while management is about
making sure that those things are done right. In a few cases, for the smallest
of charities, we acknowledge that a complete separation of roles may be
difficult, but it should remain the aspiration nonetheless. (Paragraph 133)
23. We recommend that the Governance Code Steering Group reflect in
the Code the importance of executive and trustee relationships and the
clear separation of their roles and responsibilities. (Recommendation 9)
(Paragraph 134)

Payment of trustees
24. We believe that the voluntary principle of trusteeship is an important one
and that trustees should not receive payment for undertaking the role. In
highly exceptional circumstances, where people are otherwise unable to act
as a trustee, it may be acceptable to consider some form of remuneration.
The explanation and justification for such arrangements must be set out in
the charity’s annual report. (Paragraph 139)
25. More broadly, trustees should be able to claim relevant expenses to ensure
that financial considerations do not unduly deter people from taking up the
role. (Paragraph 140)
 Stronger charities for a stronger society 109

Transparency, accountability and impact

26. Accountability and transparency are essential for charities to ensure they
function properly, deliver for their beneficiaries and retain the trust of the
public. In order to respond to the greater expectations upon them, charities
need to operate with a presumption of openness. We believe that it is
important for all but the very smallest charities to have a simple website or
public social media page to provide that transparency. (Paragraph 149)
27. We do not believe that significant additional regulation of the sector through
increased mandatory reporting requirements would be desirable, as this
would be a substantial bureaucratic burden on smaller charities. (Paragraph
156)
28. However, as we said at paragraph 149, we believe that it is important for all
but the very smallest charities to have a simple website or social media page,
and they should use that to set out their basic organisational and financial
information. We recommend that public sector funders and other donors
should evaluate the transparency of charities when considering requests for
funding. (Recommendation 10) (Paragraph 157)
29. We recommend that the Governance Code Steering Group set out best
practice suggestions for governance reporting by charities. This might
involve charities including in their annual report a statement that they follow
the Governance Code, or a similar specialist governance code relevant to
their work, and report any actions they have taken over the year in light of
the Code. (Recommendation 11) (Paragraph 163)
30. All charities should be seeking independent evaluation of their impact on
their beneficiaries, in order to ensure that they are delivering for them and
to demonstrate this to beneficiaries, funders and the public. The form
of such evaluation may vary considerably, depending on the size of the
charity and the type of work it is engaged in. We recommend that public
sector commissioners assess such evaluation when awarding contracts.
(Recommendation 12) (Paragraph 174)
31. We welcome initiatives such as Inspiring Impact that seek to assist charities in
demonstrating impact. We recommend that the Government and the charity
sector continue to pursue initiatives to better understand and promote the
impact of charities. (Recommendation 13) (Paragraph 175)
32. We recommend that the Office for Civil Society (OCS) develops guidance
for the rest of the public sector on how to set contractual impact reporting
requirements appropriately and in a standardised fashion in order to
reduce the bureaucratic burden on charities. The OCS should promote
its work beyond the public sector in order to maximise its reach and value.
(Recommendation 14) (Paragraph 176)
33. We endorse the suggestion in the Governance Code that charities should
provide regular information to stakeholders that enables them to measure
the charity’s success in achieving its purposes. Such activity ensures that
the focus of the charity and its stakeholders is centred on the needs of and
outcomes for beneficiaries. (Paragraph 177)
110 Stronger charities for a stronger society

Funding: grants, contracts and commissioning

Contracts and commissioning processes
34. The commissioning landscape is skewed against smaller charities. We
recommend that contracting authorities embrace the recent changes to
public procurement rules, which allow for smaller contracts, potentially
giving charities better access to funding opportunities. (Recommendation
15) (Paragraph 193)
35. We welcome the Government’s recent announcement on new measures to
improve commissioning and help small charities get commissioned. We
recommend that Government provides support for the development of
voluntary sector bidding consortia, and takes steps to promote commissioning
based on impact and social value rather than simply on the lowest cost.
(Recommendation 16) (Paragraph 194)
36. We recommend that the Government’s implementation group on
commissioning practices considers the risks of larger organisations exploiting
smaller charities through the commissioning and subcontracting process.
We recommend that Government guidance on public sector commissioning
should highlight these risks and encourage the design of contracts in a way
which prevents such practice so far as is possible. (Recommendation 17)
(Paragraph 198)
37. We believe it is important that local authorities and other public service
commissioners adopt a partnership approach to service design and provision,
involving charities, other voluntary bodies, service users and beneficiaries
in the commissioning process from an early stage. We do not believe that
meaningful relationships of this kind are common, and as a result charities
are losing out on potential work and funds and commissioners are missing out
on the values, knowledge of local needs and innovation that charities bring
to service delivery. Public sector commissioners need to embed a genuine
partnership approach in their structures, processes, contracts and cultures
to ensure that the best possible results are achieved. (Paragraph 207)
38. Public service commissioners should also be encouraged to commission
different types of services together. They should consider the potential of
whole systems commissioning and whole person commissioning, with
services and the commissioning process being designed around the needs of
beneficiaries. This will result in better services for end-users and also long-
term savings for commissioners. (Paragraph 208)
39. While the Government has taken some steps to promote the implementation
of the Public Services (Social Value) Act 2012 and to encourage wider
awareness of social value among public sector commissioners, we believe
more could be done to maximise its potential. We welcome the Government’s
new review of the Act and hope that it will result in further improvements.
(Paragraph 220)
40. We believe there is merit in considering the options for extending the Public
Services (Social Value) Act 2012 as set out by Lord Young of Graffham.
We recommend as a first step that the Government requires public sector
commissioners to “account for” rather than merely “consider” social value.
We further recommend that the Government sets measurable targets for the
use of social value in commissioning and outlines the steps it will take if
those targets are not met. (Recommendation 18) (Paragraph 221)
 Stronger charities for a stronger society 111

Financial and planning challenges

41. Where contracts—especially those involving Payment by Results—are
used for service delivery, public sector commissioners should give greater
consideration to the sustainability of organisations which are commissioned
to deliver services. The Government should examine whether its guidance
to public sector commissioners needs to be amended to ensure that this
happens. At the same time, charities need to ensure that they have the cash
flow to support undertaking work within such schemes. (Paragraph 230)
42. We recommend that the Government’s review of commissioning considers
the impact of Payment by Results contracts on charities and examines
what support the sector needs to engage in service delivery in a sustainable
manner. (Recommendation 19) (Paragraph 231)
43. Charities cannot operate unless their core costs are met. We recommend
that public sector commissioners should be expected to have regard for the
sustainability of the organisations which they commission to deliver services.
This should include an expectation that realistic and justifiable core costs
are included in contracts. (Recommendation 20) (Paragraph 239)
44. Long-term contracts, with appropriate break clauses for performance and
viability, should be the norm wherever ongoing service delivery is likely.
Public sector funders should seek to commission services over a longer period
wherever possible, to ensure that the services can be delivered sustainably by
charities with the capacity to plan effectively for the future. (Paragraph 250)

Contracts and innovation

45. Tightly-prescribed contracts that dictate the process of delivery, rather
than the desired outcome, can be the greatest inhibitor of innovation.
We therefore recommend that public sector commissioners refrain from
setting overly-detailed requirements for the mechanisms of service delivery.
(Recommendation 21) (Paragraph 256)
46. Additionally, restrictive commissioning practices can hinder charities’
capacity for innovation by limiting their working capital. We recommend
that, where appropriate, public sector commissioners pay or provide grants
for charities to test new ideas and innovate during both the early scoping
and development of services, and their later delivery. Such funding would
generate positive returns, through supporting new and more effective ways
of working, while also contributing to the sustainability of the charity sector
and generating potential cost-savings for commissioners. (Recommendation
22) (Paragraph 257)

A revitalised role for grants

47. While acknowledging the increasing financial constraints that public sector
bodies are under, we emphasise the important role that grant funding plays in
ensuring the sustainability of charities, particularly with regard to innovation.
There should be a wider understanding in the public sector of the use and
potential of grant funding for charities and their beneficiaries, drawing on
the practices of institutions such as the Big Lottery Fund. (Paragraph 264)
48. We recognise the significantly reduced funding available to local authorities.
Nevertheless, grant funding has great potential in sustaining a healthy civil
society and in enabling communities to benefit from charities’ capacity to
112 Stronger charities for a stronger society

innovate. We recommend that local authorities should bear this in mind in

the course of their financial planning, and maintain or revive grants wherever
possible. (Recommendation 23) (Paragraph 268)

Supporting sustainability
Fundraising
49. We welcome the action that has been taken to address the concerns about
fundraising practices in the charity sector. The new Fundraising Regulator
has only recently been established and therefore we do not recommend that
further changes are made to the regulatory landscape for the time being.
(Paragraph 275)
50. We are conscious of the concerns from the sector that the voluntary levy
to fund the Regulator may be disproportionately burdensome for small-
and medium-sized charities. We recommend that the new Fundraising
Regulator continually monitors the impact of the levy, particularly on
small- and medium-sized charities, and makes changes if appropriate.
(Recommendation 24) (Paragraph 276)

Economic and tax policy

51. It is imperative for the charity sector that tax policies and processes are
structured to ensure that charities are able to maximise their income and
that bureaucracy is kept to a minimum. (Paragraph 282)
52. We welcome the Government’s changes to Gift Aid as part of the Small
Charitable Donations and Childcare Payments Act 2017. We recommend
that the Office for Civil Society works closely with Her Majesty’s Revenue &
Customs (HMRC) to examine whether there are further changes that would
help charities maximise the value of Gift Aid and minimise bureaucracy.
(Recommendation 25) (Paragraph 283)
53. We recommend that the Office for Civil Society works with HMRC to
ensure that the needs of charities are high on the agenda in relation to future
changes to VAT and the National Living Wage. (Recommendation 26)
(Paragraph 284)
54. We recommend that the Office for Civil Society works to improve significantly
the awareness and availability of payroll giving by companies. In addition,
there is no excuse for any Government department not offering payroll giving
to their employees. The Government must set an example in this regard by
ensuring that payroll giving is offered to staff as standard by all departments
and executive agencies. (Recommendation 27) (Paragraph 285)

Infrastructure bodies
55. Small charities in particular need access to timely advice and support, and
infrastructure bodies play an invaluable role by providing guidance and
services. As with charities themselves, they are diverse, and come in different
sizes and have different focuses depending on their intended beneficiaries.
(Paragraph 290)
56. Infrastructure bodies must ensure that they work together effectively, both
to ensure they survive and so that they can improve the services they offer
charities. They should explore collaborative service models to raise awareness
 Stronger charities for a stronger society 113

among charities of the support available, and improve the accessibility and
coherence of this support. (Paragraph 291)

Role of volunteers
57. Charities are the primary conduits for volunteering in the United Kingdom
and as such they play a very valuable role in civil society. Charity law and
policy should promote and support the role of volunteers, and constraints on
volunteering should be reviewed and addressed. (Paragraph 309)
58. Harnessing and maximising the efforts of volunteers is central to the principle
and the practice of many charities, and comes with a cost. Volunteers may
need managing, supporting and training. Investing in volunteers, where
possible, is a way of respecting their contribution as well as increasing their
value to the charity. (Paragraph 310)
59. Funders need to be more receptive to requests for resources for volunteer
managers and co-ordinators, especially where charities are able to demonstrate
a strong potential volunteer base. We recommend that Government guidance
on public sector grants and contracts is amended to reflect this and set a
standard for other funders. (Recommendation 28) (Paragraph 311)
60. There is scope for further efforts by the Government to allow people to
incorporate volunteering into their lives. We recommend that, in line with
our earlier recommendation on trusteeship (see paragraph 107), the Office
for Civil Society should work with other departments, the public sector and
businesses to encourage greater flexibility for employees to take time off for
charitable work. (Recommendation 29) (Paragraph 312)
61. We welcome the Minister’s review of full-time volunteering by young people.
This should be encouraged, by Government, by infrastructure bodies and
by employers, with the caveat that volunteering should be a springboard to,
not a substitute for, paid employment. Getting young people volunteering
early in life may also have longer-term benefits by encouraging a future
willingness to volunteer. (Paragraph 314)

Expectations and trust

62. We believe that charities continue to enjoy a very positive public reputation—
one of which other sectors would be envious—and are a highly valued part of
public life. (Paragraph 324)
63. That trust cannot be taken for granted, however, and charities should
continue to be mindful of the impact of recent negative publicity, as well as
of any indication that trust may be declining. The sector has learned hard
lessons and charities need to be conscientious and scrupulous in order to
retain that trust, maintaining their focus on transparency and accountability.
We believe that the recommendations in this report will help them to do so.
(Paragraph 325)

Mergers and closures

64. We believe that mergers can often be considered a measure of success and
maturity, and a reflection of a charity keeping a proper focus on its beneficiaries.
Staff, trustees and volunteers should reflect upon the possibilities for mergers
and consult with their beneficiaries where opportunities may exist. Mergers
should not be seen as a sign of failure. (Paragraph 342)
114 Stronger charities for a stronger society

65. We note that it would be easier to avoid overlapping work in the charity
sector by discouraging charities with similar purposes from being established
where existing charities in the same field are working well and delivering for
their beneficiaries. However, we would not want to discourage people from
establishing new charities, which could be the effect of such a system. We
also note that only the Charity Commission could realistically undertake
such a task, but that the Commission currently has neither the structure nor
the financial capacity to carry out this work. (Paragraph 343)
66. We welcome the Law Commission’s work to address some of the legal
and technical barriers to charities looking to merge. We recommend
that the Government brings forward the Bill at the earliest opportunity.
(Recommendation 30) (Paragraph 344)
67. We recommend that the Charity Commission, as part of its emphasis on
enabling regulation, considers what support and guidance it can offer to
charities seeking to merge, and provides signposts to help that may exist
elsewhere. The Commission should take a positive approach to assisting
charities that choose to merge and assist in removing any barriers that
may exist, notably with regard to liabilities such as pension arrangements.
(Recommendation 31) (Paragraph 345)
68. Time-limited structures are a good option for ensuring that small charities
such as memorial foundations are able to dissolve when they have delivered
on their charitable objectives. A merged or closed charity does not necessarily
mean a failed charity. (Paragraph 351)
69. We recommend that the Charity Commission include options for time-
limited structures in the model governing documents that they produce
for charities, as such clauses would prompt new charities to consider their
lifespan from their inception. (Recommendation 32) (Paragraph 352)

Charities and digital technology

70. The capacity of the charity sector to embrace digital technology varies
considerably, and while some are at the cutting edge of the use of technology,
others risk organisational stagnation and decay by not embracing it
successfully. This is a risk to the charity sector. (Paragraph 380)
71. Charities should actively consider including a digital trustee role on their
boards. We note the potential benefits to board diversity that would be likely
to result from adopting such an approach. (Paragraph 381)
72. We recommend that infrastructure bodies share knowledge and best practice
on innovation and digitisation across the sector and co-ordinate training
opportunities, at minimal cost, for charities with limited digital experience.
We recommend that the Big Lottery Fund provides support to enable this.
(Recommendation 33) (Paragraph 382)
73. The technology sector should work to ensure that charities can develop the
skills and capacity to fully engage with the digital realm. This may include
the more widespread promotion of training and development opportunities,
particularly to smaller charities with limited experience of digital engagement.
(Paragraph 383)
 Stronger charities for a stronger society 115

Alternative forms of charity finance

74. We welcome the Government’s efforts, through the Access Foundation, to
broaden the accessibility of social investment to small- and medium-sized
charities. (Paragraph 403)
75. The social investment market is unlikely to reach its potential unless further
resources are put into the investment readiness of smaller charities. We
welcome the endowment granted to the Access Foundation for this purpose.
The Government must continue to monitor this issue and provide additional
resources to support charities to ensure that they are not left behind as the
market expands. (Paragraph 410)
76. We welcome the measures being taken in the sector to seek to reduce the
transaction costs for social investment and to promote the market to a wider
range of investors who would be willing to accept lower rates of return.
Government and sector leaders should do more to address the reasons for
high transaction costs and work to bring them down. Investors should also
be encouraged to have more realistic expectations of the potential for returns
from social investment. (Paragraph 418)
77. Social Impact Bonds can be a useful tool for both charities and the public
sector in reducing the cost risk of particular interventions. However, they are
only relevant where they produce a saving that can be transferred to a private
investor, and that limits their potential contribution to the mix of alternative
finance options for charities. (Paragraph 425)
78. The expectations placed upon Social Impact Bonds have yet to materialise
and we believe the Government’s focus on them has been disproportionate
to their potential impact. While the Government should redouble its efforts
to make them work better, future public funding should be reoriented
towards financial products with application to a wider range of charities and
beneficiaries. (Paragraph 426)

Regulation and the role of government

Devolution
79. Regional devolution in England is a significant opportunity for charities
to develop stronger and closer relationships with decision-makers and
commissioners and to become more closely involved in the design and
delivery of services. (Paragraph 461)
80. While the Government has been willing to devolve powers and budgets in
certain areas, we believe it has been insufficiently committed to engagement
with charities and other external bodies to help devolution work in practice.
(Paragraph 462)
81. Central Government needs to understand better, and take account of, the
implications of devolution for charities and civil society. There needs to be a
proper dialogue between charities and new regional administrations at every
stage of the devolution process, and voluntary sector representatives should
be involved in leadership structures and decision-making where appropriate.
We recommend that the Office for Civil Society works closely with the
Department for Communities and Local Government and infrastructure
bodies to ensure that this happens. (Recommendation 34) (Paragraph 463)
116 Stronger charities for a stronger society

82. In addition, the Government must improve the way it consults with devolved
administrations and infrastructure organisations when developing legislation
on reserved matters which may impact charities in Scotland and Northern
Ireland. (Paragraph 464)

Compacts and engagement with the sector

83. Compacts are a valuable statement of principle about the relationships
between government, both local and national, and the voluntary sector.
We recommend that, where compacts do not currently exist, they are re-
established in consultation with the sector. (Recommendation 35) (Paragraph
474)
84. We also recommend that, where they have not done so recently, national
and local government should review their compacts in collaboration with the
voluntary sector to ensure that they continue to be fit for purpose, reflecting
the changing role of charities. They should restate their intent to apply the
principles of the compact and include a mechanism for review to ensure that
they are observed. (Recommendation 36) (Paragraph 475)
85. We note that charities rarely feel fully consulted about proposed new laws
and regulations, and that this increases the risk of unintended consequences.
This particularly applies to smaller charities, which do not have the resources
to devote to additional legal and regulatory compliance. (Paragraph 482)

The role of charity advocacy

86. We believe that Lord Hodgson of Astley Abbotts’ proposals for a review of
the rules set out in the Transparency of Lobbying, Non-Party Campaigning
and Trade Union Administration Act 2014 are eminently sensible and will
provide reassurance to charities that they will not face censure for carrying
out ordinary campaigning activity during election periods. We recommend
that the Government implement Lord Hodgson’s recommendations in full.
(Recommendation 37) (Paragraph 488)
87. We welcome the Government’s decision not to proceed with a restrictive
anti-advocacy clause in public sector grant agreements. (Paragraph 492)
88. Charities are the eyes, ears and conscience of any society; advocacy is a
central part of their work and a sign of a healthy democracy. Whilst charities
are quite properly regulated in their campaigning activities, particularly at
election times, any new regulation or guidance should clearly recognise that
advocacy is an important and legitimate part of their role and be set out in
clear and unambiguous language. (Paragraph 495)
89. Just as charities must be judicious in their activities, in order to remain
politically impartial, the Charity Commission must take care in its public
communications to ensure that it retains the confidence of the public and
the charity sector. (Paragraph 496)
90. Poor consultation and ill-thought-through policy proposals have caused
serious unease and disruption to the work of charities. We recommend that
the Government reviews its approach to engagement with the charity sector
before policy announcements are made, with a view to ensuring that charities
feel better informed about legal changes which may affect them and have a
greater opportunity to provide input on new policies. (Recommendation 38)
(Paragraph 497)
 Stronger charities for a stronger society 117

Impact on charities of the UK’s departure for the European Union

91. As part of its ongoing engagement with the charity sector in relation to the
UK’s withdrawal from the EU, the Office for Civil Society should undertake
an audit of the potential impact of Brexit on charities. This should include the
impact of loss of funding as well as on research collaboration. We recommend
that the OCS publish its assessment by the end of 2017. (Recommendation
39) (Paragraph 504)

Regulation of the charity sector

92. We commend the Charity Commission’s efforts to improve the effectiveness
of its regulatory functions, particularly in the context of reduced resources.
There is much still to do until it can be considered to be fully effective,
however. (Paragraph 510)
93. Charity staff and trustees who have concerns with regard to their charities
should be encouraged to report them to the Charity Commission where
appropriate. We recommend that the Commission makes clear that those
charities which are proactive in reporting issues to them will be supported to
help put things right. (Recommendation 40) (Paragraph 511)
94. In light of the Charity Commission’s reduced budget, and its necessary
focus on regulatory work, it should seek to be clearer to charities about what
support it can and cannot offer. It should also be more proactive in helping
charities to find the most appropriate sources of external support and advice.
(Paragraph 520)
95. We recognise the resource pressures and the wider economic climate that
have led the Charity Commission to consider charging charities an annual
fee to be on the register. Any charging model must ensure that the burden
does not fall upon small charities which will not be able to afford it. This
should be established not just at the outset of any charging regime, but by
continual monitoring and testing of the impact of charging, with changes
made to lift the burden on charities where necessary. (Paragraph 530)
96. A mandatory charge for registered charities would mark a fundamental
change in the sector’s relationship with its regulator. No longer merely an
independent overseer, it would become a body in which charities themselves
have a financial stake, and to which they are required to divert funds
which might otherwise be spent on their beneficiaries. Charities might, not
unreasonably, seek to be represented on the board of the Charity Commission
to ensure they have a say in how the money is spent. It might also prompt calls
for the regulator to become fully independent of government. (Paragraph
531)
97. It is not yet clear that the Charity Commission has taken full account of the
potential impact of charging for regulation. A charge would by definition
have an immediate financial impact on charities and their beneficiaries. It
may also have an impact on the confidence of the public, who may question
why their donations are being used to subsidise an arm of Government. Nor
is it clear that the Commission yet understands how charities’ expectations
of it as a regulator may change if they are required to pay for its upkeep.
If charging is mishandled, there are significant risks for the strength of
the charity sector, its relationship with the regulator, and overall public
confidence and trust in charities. (Paragraph 532)
118 Stronger charities for a stronger society

98. Because of these issues, we have grave concerns about the Commission
proceeding with any proposal to charge charities. We recommend that the
Charity Commission makes clear how a charge would benefit charities and
strengthen the sector overall. To achieve such clarity, the Commission must
be transparent from the outset as to how additional revenue from charities
would be spent, and what services would be delivered or enhanced in return.
The Commission must set out how it envisages its supporting and enabling
role developing or expanding if a charge for registration was introduced.
(Recommendation 41) (Paragraph 533)
99. We welcome the assurance given to the Charity Commission by the
Treasury that any funding from the sector would be in addition to, and not
a replacement for, funding from the Government. This is essential. The
purpose of any charge must be to enhance the ability of the Commission
to operate effectively, not to take money from charities to help Government
meet its fiscal targets. (Paragraph 534)
100. We recommend that the Treasury maintains adequate direct funding of
the Charity Commission, irrespective of any proposal to charge charities.
(Recommendation 42) (Paragraph 535)
 Stronger charities for a stronger society 119

Appendix 1: LIST OF MEMBERS AND DECLARATIONS OF

INTEREST

Members
Baroness Barker
Lord Bichard
Lord Chadlington
Lord Foulkes of Cumnock
Baroness Gale
Lord Harries of Pentregarth
Baroness Jenkin of Kennington
Lord Lupton
Baroness Pitkeathley (Chairman)
Lord Rooker
Baroness Scott of Needham Market
Baroness Stedman-Scott

Declarations of interest
Baroness Barker
Owner/Director, Consultancy—Third Sector Business
Co-Director, Barker and Woodard Consulting Limited
Ambassador and Patron of charities including: Albert Kennedy Trust, Spare
Tyre Theatre Company, VSO (Voluntary Service Overseas)
Ongoing non-pecuniary involvement with many UK-based charities
Lord Bichard
Chair, National Audit Office
Chair, Social Care Institute for Excellence
Chair, Shakespeare’s Globe
Trustee, River and Rowing Museum
Wife is Chief Executive, Citizens Advice
Lord Chadlington
Executive Committee, LAPADA Party for ARNI
Patron, Dean and Chadlington Music Festival
Patron, Ley Community Yarnton
Trustee, Atlantic Partnership
Trustee, The Chadlington Village Green
Trustee, The Ditchley Foundation
Trustee, Soberistas
Wife is Trustee of Spring Lunch, Board of Dean Trust, and Dean and
Chadlington Music Festival
Daughter is Trustee of Dean Trust
Lord Foulkes of Cumnock
Chair, Age Scotland
Baroness Gale
President, National Association of Old Age Pensioners in Wales
President, Treherbert and District Branch, Royal British Legion
Honorary Vice-President, James Whale Fund for kidney cancer
Patron, Kidney Wales Foundation
Patron, Bees for Development
Member, Parkinsons UK
120 Stronger charities for a stronger society

Co-Chair, All-Party Parliamentary Group on Parkinsons

Lord Harries of Pentregarth
Chair, Commission on Civil Society and Democratic Engagement
Trustee, Woolf Institute, Cambridge
Baroness Jenkin of Kennington
Chancellor, Writtle University College
Patron, Restless Development
Trustee, Cool Earth
Trustee, Feeding Britain
Trustee, UNICEF UK
Trustee, WRAP (The Waste Resources Action Programme)
Husband, Mr Bernard Jenkin MP, Chairman of Public Administration
and Constitutional Affairs Select Committee, House of Commons
Lord Lupton
Trustee, British Museum
Chairman and Trustee, The Lovington Foundation
Member of Advisory Board of Grange Park Opera
As the result of a loan made by the Member in 2014, the Member is owed a
debt by Kids Company.
Baroness Pitkeathley (Chairman)
President, All-Party Parliamentary Channel Islands Group
Co-Chair, All-Party Parliamentary Group on Carers
Co-Chair, All-Party Parliamentary Group on Charities and Volunteering
Chair and Trustee, Big Society Trust
Vice-President, Carers UK
Trustee, Cumberland Lodge
Patron, Herefordshire Carers Support
Ambassador, National Voices (2010–2016)
Member, Advisory Council, National Council of Voluntary Organisations
Non-Executive Director, Third Sector PR
Husband is the chair of Action with Communities in Rural England
(ACRE) and was the chief executive of the Association of Charitable
Foundations (until December 2016)
Lord Rooker
Chair and Trustee, British Motor Sports Training Trust
Member of the following charities:
RNLI, RSPB, WWT, Friends of Kew, Friends of Lake District, English
Heritage
Governor and Trustee, James Bindley School, Birmingham (until July
2016)
Wife is the CEO (unpaid) of Ludlow and District Community Association
(Registered charity) which operates Ludlow Assembly rooms Arts and
Community Centre
Baroness Scott of Needham Market
Patron, Ace Anglia
Member, Advisory Council, National Council for Voluntary Organisations
Trustee, Industry and Parliament Trust
Baroness Stedman-Scott
Ex-CEO, Tomorrow’s People—remains connected to the company on a
consultancy basis
Chair, East Anglia Youth Pledge
 Stronger charities for a stronger society 121

Governor, Bexhill Academy

Patron, Rye Studio School (until March 2017)
Patron, Gloucester House, The Salvation Army (until March 2017)
Trustee, New Philanthropy Capital (until March 2017)
Trustee, The Stefanou Foundation

A full list of Members’ interests can be found in the Register of Lords Interests:
http://www.parliament.uk /mps-lords-and-offices/standards-and-interests/
register-of-lords-interests/
Rosie Chapman (Specialist Adviser)
Consultancies
Director and 100% shareholder of Rosie Chapman Ltd (Registered number:
09397619)
Unpaid roles
Trustee, London Marathon Charitable Trust
Trustee, Charity Finance Group
Member of Wikimedia UK Governance Committee
Independent Chair, Voluntary and Community Sector Governance Code
Steering Group
Member, Advisory Council, National Council of Voluntary Organisations
Other matters
Former employee of the Charity Commission for England and Wales (May
2001 to May 2011)
122 Stronger charities for a stronger society

Appendix 2: LIST OF WITNESSES

Evidence is published online at www.parliament.uk/charities-adhoc and available

for inspection at the Parliamentary Archives (020 7219 3074).
Evidence received by the Committee is listed below in chronological order of oral
evidence session and in alphabetical order. Those witnesses marked with ** gave
both oral evidence and written evidence. Those marked with * gave oral evidence
and did not submit any written evidence. All other witnesses submitted written
evidence only.

Oral evidence in chronological order

** Charity Commission for England and Wales QQ 1–14
* Association of Chief Executives of Voluntary QQ 15–29
Organisations
** National Council for Voluntary Organisations
** Small Charities Coalition
** Charity Finance Group QQ 30–40
** Association of Charitable Foundations
* Royal Society of Arts (RSA) QQ 41–50
* The Baring Foundation
** Lloyds Bank Foundation for England and Wales QQ 51–59
* Power to Change
** New Philanthropy Capital
* Penny Appeal QQ 60–70
* Church Urban Fund
* Investing for Good QQ 71–80
** Social Enterprise UK
* City Healthcare Partnership
** Social Investment Business QQ 81–88
* Social Finance Ltd
** Esmée Fairbairn Foundation
** Lord Hodgson of Astley Abbotts CBE QQ 89–96
** Professor John Mohan
** Clore Social Leadership QQ 97–104
* Y Bont
* Brook
* Charity Commission for Northern Ireland QQ 105–114
** Office of the Scottish Charity Regulator
* Northern Ireland Council for Voluntary Action QQ 115–123
 Stronger charities for a stronger society 123

** Scottish Council for Voluntary Organisations

** Dr Beth Breeze, Centre for Philanthropy, University of QQ 124–132
Kent
* Garfield Weston Foundation
* The Linbury Trust
* Tinder Foundation QQ 133–139
** Charity Checkout
* Welsh Local Government Association QQ 140–149
* Local Government Association
* Essex County Council QQ 150–159
* Newcastle City Council
* Twitter QQ 160–166
* Google
** Big Lottery Fund QQ 167–178
* Allia QQ 179–187
** Big Society Capital
** Royal Mencap Society QQ 188–198
** Citizens Advice
* Nacro
** Charity Commission for England and Wales QQ 199–208
** Office for Civil Society, Department for Culture, QQ 209–218
Media and Sport
Alphabetical list of all witnesses
The Abbeyfield Society CHA0062
Access: The Foundation for Social Investment CHA0095
Action Against Hunger CHA0078
Action in Rural Sussex CHA0001
Action with Communities in Rural England CHA0085
Age UK Runnymede & Spelthorne CHA0028
* Allia (QQ 179–187)
The Almshouse Association CHA0056
Alzheimer’s Research UK CHA0074
Association of Chairs CHA0156
** Association of Charitable Foundations (QQ 30–40) CHA0082
CHA0178
* Association of Chief Executives of Voluntary
Organisations (QQ 15–29)
124 Stronger charities for a stronger society

Association of Medical Research Charities CHA0151

Association of Volunteer Managers CHA0065
* The Baring Foundation (QQ 41–50)
Barnardo’s CHA0172
Barrow Cadbury Trust CHA0088
Battersea Dogs & Cats Home CHA0143
Belgrade Theatre CHA0024
** Big Lottery Fund (QQ 167–178) CHA0147
** Big Society Capital (QQ 179–187) CHA0087
Bolton Community and Voluntary Services (CVS) CHA0064
Bond CHA0129
Dr Peter Bradley CHA0052
Ekaterina Braginskaia CHA0116
The Brain Tumour Charity CHA0145
** Dr Beth Breeze, Centre for Philanthropy, University of CHA0072
Kent (QQ 124–132) CHA0112
Britain Yearly Meeting of the Religious Society of CHA0047
Friends (Quakers)
British Heart Foundation CHA0152
British Red Cross CHA0162
* Brook (QQ 97–104)
Mr Tim Burley CHA0025
Business in the Community CHA0155
Caistor Arts and Heritage Centre CHA0033
Lucy Caldicott CHA0170
Calouste Gulbenkian Foundation CHA0163
Camelot UK Lotteries Ltd CHA0115
Cancer Research UK CHA0035
Charities Aid Foundation CHA0089
** Charity Checkout (QQ 133–139) CHA0051
** Charity Commission for England and Wales (QQ CHA0010
1–14) (QQ 199–208) CHA0114
CHA0189
CHA0190
CHA0192
* Charity Commission for Northern Ireland (QQ 105–
114)
Charity Evaluation Working Group CHA0067
 Stronger charities for a stronger society 125

** Charity Finance Group (QQ 30–40) CHA0092

Charity Futures CHA0183
Charity Law and Policy Unit, School of Law and CHA0104
Social Justice, University of Liverpool
Charity Leaders CHA0139
Charity Tax Group CHA0122
The Chartered Institute of Public Finance and CHA0079
Accountancy (CIPFA)
Children England CHA0173
Chilterns MS Therapy Centre Ltd CHA0066
Church Army CHA0003
Church Mission Society CHA0014
* Church Urban Fund (QQ 60–70)
Churches’ Legislation Advisory Service CHA0098
** Citizens Advice (QQ 188–198) CHA0177
Citizens Advice Newcastle CHA0108
* City Healthcare Partnership (QQ 71–80)
Civil Exchange CHA0141
Mr Ian Clark CHA0161
Dr David Clifford CHA0158
Clinks CHA0084
** Clore Social Leadership (QQ 97–104) CHA0132
Comic Relief CHA0126
Common Vision CHA0136
Community Links Bromley CHA0100
Community Sector Coalition CHA0171
Community Southwark CHA0075
Carolyn Cordery CHA0159
The Cranfield Trust CHA0103
Mr John Dale CHA0005
Devon Air Ambulance Trust CHA0083
Directory of Social Change CHA0128
Do-it.org CHA0046
Mr Colin England CHA0036
** Esmée Fairbairn Foundation (QQ 81–88) CHA0044
* Essex County Council (QQ 150–159)
Ethical Property Foundation CHA0042
126 Stronger charities for a stronger society

FaithAction CHA0015
Family Action CHA0135
Finchingfield Guildhall Charitable Incorporated CHA0063
Organisation
Foundation for Social Improvement CHA0057
The Foyer Foundation CHA0180
* Garfield Weston Foundation (QQ 124–132)
Giving Evidence CHA0027
Gloucestershire Rural Community Council CHA0069
Elizabeth Green CHA0052
Good2Give CHA0182
* Google (QQ 160–166)
Guide Dogs CHA0109
Hallé Concerts Society CHA0045
Mr Wally Harbert CHA0019
Mr Elliot Harris CHA0185
Health Poverty Action CHA0037
** Lord Hodgson of Astley Abbotts CBE (QQ 89–96) CHA0026
Dr Eddy Hogg CHA0134
Homeless Link CHA0012
Home-Start Slough CHA0068
Hospice UK CHA0130
ICSA: The Governance Institute CHA0093
Impetus–The Private Equity Foundation CHA0131
Institute for Voluntary Action Research CHA0091
The Institute of Chartered Accountants in England CHA0168
and Wales
Institute of Fundraising CHA0119
Institute of Risk Management CHA0039
* Investing for Good (QQ 71–80)
Mr Len Jones CHA0004
* The Linbury Trust (QQ 124–132)
Dr Rose Lindsey CHA0158
** Lloyds Bank Foundation for England and Wales (QQ CHA0031
51–59)
* Local Government Association (QQ 140–149)
Localgiving CHA0016
 Stronger charities for a stronger society 127

Locality CHA0133
London Funders CHA0090
Lord Low of Dalston CHA0142
The Lotteries Council CHA0166
Mr Nick Mason CHA0175
Mr Diarmuid McDonnell CHA0023
Steve McKay CHA0179
MHA CHA0124
Lesley Michaelis CHA0061
Missing People CHA0094
** Professor John Mohan (QQ 89–96) CHA0158
CHA0179
CHA0188
MyBnk CHA0186
* Nacro (QQ 188–198)
National Association for Voluntary and Community CHA0076
Action
** National Council for Voluntary Organisations (QQ CHA0148
15–29)
National Union of Students CHA0111
National Village and Community Halls Network CHA0086
New Heights—Warren Farm Community Project CHA0009
** New Philanthropy Capital (QQ 51–59) CHA0055
* Newcastle City Council (QQ 150–159)
* Northern Ireland Council for Voluntary Action (QQ
115–123)
Dr Therese O’Toole CHA0116
** Office for Civil Society, Department for Culture, CHA0160
Media and Sport (QQ 209–218) CHA0165
CHA0191
** Office of the Scottish Charity Regulator (QQ 105–114) CHA0043
Oxfam GB CHA0113
Dr Glenn Parry CHA0052
Paul Hamlyn Foundation CHA0059
* Penny Appeal (QQ 60–70)
People and Work Talwrn CHA0034
People’s Postcode Lottery CHA0099
Pilotlight CHA0073
128 Stronger charities for a stronger society

Mr Simon Prior-Palmer CHA0187

Plan International UK CHA0102
* Power to Change (QQ 51–59)
Public Concern at Work CHA0157
Public Relations and Communications Association CHA0030
Mr Andrew Purkis CHA0146
Reach Volunteering CHA0058
Rethink Mental Illness CHA0176
Dr Felix Ritchie CHA0052
The Robertson Trust CHA0077
Rogare: The Fundraising think tank CHA0071
** Royal Mencap Society (QQ 188–198) CHA0154
Royal National Lifeboat Institution (RNLI) CHA0153
* Royal Society of Arts (RSA) (QQ 41–50)
RSM UK CHA0120
RSPCA CHA0070
Rural Community Council of Essex CHA0096
Dr Alasdair Rutherford CHA0023
The Salvation Army CHA0107
Save the Children CHA0149
** Scottish Council for Voluntary Organisations (QQ CHA0181
115–123)
Sense, The National Deafblind Rubella Association CHA0040
Shared Lives Plus CHA0008
Sheila McKechnie Foundation CHA0184
Skillshare North East Ltd CHA0106
** Small Charities Coalition (QQ 15–29) CHA0140
** Social Enterprise UK (QQ 71–80) CHA0117
* Social Finance Ltd (QQ 81–88)
** Social Investment Business (QQ 81–88) CHA0137
Mrs Tara Somers CHA0002
Springboard for Children CHA0121
Springboard Project CHA0011
St Ann’s Hospice CHA0167
St Petrock’s (Exeter) Ltd CHA0013
Stella Smith CHA0060
Mr Paul Stallard CHA0049
 Stronger charities for a stronger society 129

SurvivorsUK CHA0169
The Swinfen Charitable Trust CHA0007
Mr Patrick Taylor CHA0020
Third Sector Research Centre CHA0112
The Tim Parry Johnathan Ball Foundation for Peace CHA0038
* Tinder Foundation (QQ 133–139)
Together for Short Lives CHA0144
Tree of Hope CHA0041
True and Fair Foundation CHA0138
* Twitter (QQ 160–166)
The UK Sustainable Investment and Finance CHA0125
Association
Unite the Union CHA0105
United Kingdom Accreditation Service CHA0032
vInspired CHA0118
Visionary CHA0174
Voluntary Organisations Disability Group CHA0050
VONNE (Voluntary Organisations’ Network North CHA0123
East)
Wales Council for Voluntary Action CHA0097
Wellcome Trust CHA0164
* Welsh Local Government Association (QQ 140–149)
WhatWorksInclusion CHA0081
Wincanton Community Venture CHA0022
Mr Brian Winder CHA0017
The Woodland Trust CHA0150
World Horse Welfare CHA0127
World Vision UK CHA0048
* Y Bont (QQ 97–104)
Young Barnet Foundation CHA0101
130 Stronger charities for a stronger society

Appendix 3: CALL FOR EVIDENCE

The Select Committee on Charities was set up on 25 May 2016 to consider issues
related to sustaining the charity sector and the challenges of charity governance.
The Committee, chaired by Baroness Pitkeathley, has to report by 31 March 2017.
The following is a public call for written evidence to be summited to the Committee.
The deadline is 5 September 2016.
The Committee invites interested individuals and organisations to submit evidence
to this inquiry. The submissions we receive will guide the Committee’s deliberations
in oral evidence sessions later this year, and also inform the Committee’s final
conclusions and recommendations. Public hearings began in early July and will
continue until early December.
The Committee’s report will receive a response from the Government, and will be
debated in the House of Lords.

The focus of the inquiry

The charitable sector in the United Kingdom has a long and proud history of
contributing to British society. Recent years have seen an unprecedented period of
change to the environment in which the sector is operating. Furthermore, within
the sector there have been a number of high profile events in recent months which
have called into question practice in the voluntary and charitable sector. We are
looking to make sure that the attention on recent issues does not undermine the
good work done by many charitable organisations.
We are looking to understand the pressures faced across the sector by charities. We
will make recommendations to the UK Government, and to others, which we hope
help ease these pressures, and to make sure that the charitable sector in England
and Wales is sustainable for many years to come. We consider sustainability to be
charities having the appropriate resources available to them to meet their charitable
purposes. As the regulation of charities is a devolved matter in Northern Ireland
and Scotland, we will be focusing our inquiry on the experiences of charities in
England and Wales. We do however want to learn about the experience of charities
in Northern Ireland and Scotland, as well as in other countries.
This inquiry is intended to be an opportunity to engage positively with charities
and the voluntary sector. We are looking for examples of best practice, innovation
and ideas to bring the sector together to make sure that it can thrive.
We recognise the diversity of charities in England and Wales, and we want to learn
about the experiences of them all. The questions that follow are wide ranging, and
it is not necessary to answer every one.

Questions
The purpose of charities
1. What is the role and purpose of charities in civic society in England and
Wales?

• How has this changed?

• What makes them distinct from other organisations doing similar work?

• What role can charities play in community cohesion and civic action?
 Stronger charities for a stronger society 131

• How does the sector benefit from volunteering?

• How has the status of volunteers changed?

• What challenges do charities face in trying to fulfil their role in civic

society?

• How can these challenges be overcome?

Pressures and opportunities

2. What are the main pressures faced by charities currently, and what impact
have these had?

• What opportunities do charities have in the current environment?

• Are there specific pressures affecting particular types of charity (for

example, service delivery charities; charities reliant on fundraising
income; charities with a rural focus; smaller or larger charities; or
charities promoting a particular cause) that you can highlight?

Innovation
3. How do charities seek to innovate, particularly in the digital arena?

• What more could be done to promote innovation, and by whom?

• What barriers are there to being innovative?

Governance and leadership

4. What skills are required to lead and manage a charity?

• How can these skills be gained?

• What support exists to develop these skills within the charitable sector?
5. What role should trustees play in the performance and effectiveness of a
charity?

• How can trustees be best equipped, enabled and supported to fulfil

their responsibilities?

• What, if any, changes might this mean for current arrangements?

Accountability
6. How can charities ensure that they are properly accountable to their
beneficiaries, their donors, and the general public?

• What, if any, changes might this mean for current arrangements?

• How should charities assess their long term viability and/or

sustainability?

Resource management
7. What are the current challenges to financial sustainability, as well as efficient
resource and risk management for the sector?

• How can these challenges be overcome?

132 Stronger charities for a stronger society

• How can best practice and information be shared across the sector?

• What lessons can be learnt from past mergers or dissolutions of

charities?

• How can charities effectively deliver services and be assured that their
work achieves successful outcomes?

• What are the benefits and challenges of funding for charities being
derived from commercial contracts?

Social investment
8. What is the potential of social investment and social impact bonds?

• What are barriers to fulfilling their potential?

The role of the Government

9. What should the role of Government be with the sector?

• What should be the role of local Government?

• What should be the role of the Charity Commission?

• Have these relationships changed? If so, how?

• How should Government (national or local) focus its resource to deliver

its civil society agenda?

• What is the likely impact of greater local devolution on the charitable

sector, or particular types of charity?

• What are the opportunities and challenges associated with local

devolution?

Lessons from other sectors and countries

10. What can the charitable sector in England and Wales learn from other
sectors and/or approaches taken in other countries, including from Northern
Ireland and Scotland?
 Stronger charities for a stronger society 133

Appendix 4: NOTE OF COMMITTEE VISIT TO BODY & SOUL

As part of its inquiry, the Committee met with staff and a trustee of Body &
Soul on 27 October 2016, a charity that supports people who have experienced
childhood adversity, focusing on families affected by HIV, as well as children who
have been adopted and young people who have attempted suicide.
The Committee heard from:
Emma Colyer (Director), Jed Marsh (Assistant Director) and other staff of Body
& Soul.
The following Members took part in the visit:
Lord Bichard, Lord Foulkes of Cumnock and Baroness Pitkeathley.
They were accompanied by the following House of Lords staff: Matt Korris
(Clerk) and Simon Keal (Policy Analyst).

Introduction
The Committee was given an introduction to Body & Soul, including its history
and founding objectives. It was noted that at the time the charity was established
there was little support available to younger people affected by HIV. It had since
broadened its scope to focus on people encountering a range of long-term health
issues, of which HIV may be a part, and associated childhood trauma. The staff
noted that 20 years of developing treatments and shifting social pressures had led
to changing needs for their services users, who they referred to as members.
The charity was based in London but supported people across the UK through
a centres of excellence model. It had an annual turnover of approximately £1.2m
and employed 18 staff plus five full-time equivalents.
The Committee was told that Body & Soul acknowledged that needs differed
between individuals, and it therefore sought to provide comprehensive support
for people’s physical health, mental health and life needs (such as facilitation and
advocacy services). The staff said that fragmented support was problematic and
not good for helping people with trauma. They received referrals from health and
mental health professionals, and from other charities, but also got a lot of self-
referrals.

Funding
The Committee was told that it was difficult to secure long-term sustainable
funding, that could support innovation and strategic thinking, as most grants only
lasted for one to two years. The staff noted that their funding was affected by the
fact that people with or affected by HIV remained a stigmatised community.
There was a discussion about the relationship between charities and local
government. The Committee was told that funding from local authorities had
diminished and was now harder to access. Body & Soul noted that their model,
based on ‘open access’ for beneficiaries no matter where they lived, had caused
problems for some local authorities who were not keen to support a service model
that was accessible across borough boundaries.
134 Stronger charities for a stronger society

The staff observed that it was challenging for smaller organisations to go through
procurement processes, and that commissioners did not always have an accurate
view of who could provide services.
The Committee was told that innovation could be limited if few small organisations
were engaged in service delivery contracts. Staff suggested that local authorities’
ideas of innovation often amounted to little more than making efficiencies, with
little space to be creative.
The Committee also heard that there were increasingly prescriptive requirements
to demonstrate impact for funders and that this could be a bureaucratic burden.
Staff said that one local authority sent them a 12-tab spreadsheet to complete.
There were also increasing expectations of delivering to short timescales, when
in many cases it was difficult to turn around people’s underlying and complex
problems within the specified timeframe.
The Committee was told that the engagement that Body & Soul was able to have
with statutory agencies varied; some were very supportive, while others seemed
overstretched and unwilling to engage. Staff said that they would like to see
public funders take a more comprehensive and holistic approach to the issues that
marginalised communities faced, less based on silos and more focused on their
interconnected needs.
Body & Soul’s Director noted that increasing financial challenges might push
charities to seek funding that risked moving them away from their core purposes,
and they were conscious to avoid that path themselves.
The Committee was told that Body & Soul also undertook some commercial
activity, including venue hire and training, to generate independent income. The
Committee asked about this work and whether the charity had set up a social
enterprise structure for it. Staff said that they had received conflicting legal advice
about the need to formally set up a social enterprise structure for some of its
funding streams and as yet had not chosen to do so.

Health and wellbeing

The Committee was introduced to staff from the charity’s health and wellbeing
service, who discussed their work with the charity’s members. This included a
wide range of physical and mental health therapies and other forms of support
such as legal advice and employment coaching.
The staff said that many people arrived with multiple difficulties which may not be
sufficiently addressed by statutory services or which might fall between the gaps
in provision. In some cases the charity received people who might otherwise be in
the criminal justice system. They said that Body & Soul represented a necessary
adjunct to statutory services by offering a holistic approach to individuals, flexible
to meet their needs. The staff suggested that local authorities should make more
funding available to help charities performing such roles, given their experience
of increased numbers of people presenting with far greater degrees of crisis than
in the past.
Body & Soul staff said that they were better at helping ‘hard to reach’ people because
of their approach, and that as a result they were seen as a trusted organisation by
the community.
 Stronger charities for a stronger society 135

Volunteering
The Committee was told that the charity had around 250 volunteers including for
ongoing and one-off projects, with a core of about 80 regular volunteers. The staff
said that they advertised for volunteers through community centres, local colleges,
volunteer fairs and free online advertising, as there was no budget for volunteer
recruitment. They always sought references and Disclosure and Barring Service
(DBS) checks for potential volunteers. As well as volunteers recruited externally,
some of the charity’s members also volunteered to ‘give back’ to the organisation
that had helped them.
The Committee heard that Body & Soul also relied on expert volunteers to support
the services they provided, such as health and mental health practitioners, lawyers,
employment advisors and others.
Body & Soul staff noted that for a charity to operate with more than a handful of
volunteers it needed to have a volunteer manager to co-ordinate the work, but that
it was very difficult to find funding to support such posts.

Governance
The Committee heard about the governance of Body & Soul. The Director said
that all trustees were given an induction when they joined and that this was
individually tailored depending on their background. They had also conducted
a skills audit of the trustee board. She noted that the trustees were mindful of
their responsibilities as a result of the collapse of Kids Company. She said that
the board had a focus on impact and outcomes for the charity’s members and that
having some members on the board helped to ensure that this would continue.

Innovation
The Committee heard from the charity’s innovation team, who explained how
they used new technologies to help their members. This included a project called
‘Beyond Boundaries’, which provided remote support to their members via a
range of contact methods. Staff said that they hoped to scale up the investment in
innovation while retaining quality and consistency, but that there were resource
pressures in doing so. They had had an external evaluation of the work which had
shown a positive impact.

Perceptions of charities
The staff observed that the public felt less trusting of charities in general as a result
of recent scandals. They expressed concern that smaller charities, who had not
been a part of the scandals, might still be affected by the problems and suggested
that small charities did not have the profile to help them overcome wider public
mistrust.
The staff also noted that the charity sector did not always see itself as ‘professional’
and that this was a problem for its relationships with other organisations. They
stressed that they were professional and should be treated as equal partners.
136 Stronger charities for a stronger society

Appendix 5: NOTE OF COMMITTEE VISIT TO THE CHARITY

COMMISSION

As part of its inquiry, the Committee visited the London offices of the Charity
Commission for England and Wales on 1 November 2016.
The Committee heard from:
Sarah Atkinson (Director of Policy and Communications), Nigel Davies (Head
of Accountancy Services), Kenneth Dibble (Director of Legal Services), David
Holdsworth (Chief Operating Officer & Registrar of Charities), Carl Mehta (Head
of Investigations and Enforcement), Michelle Russell (Director of Investigations,
Monitoring and Enforcement), William Shawcross (Chairman) and Paula Sussex
(Chief Executive).
The following Members took part in the visit:
Lord Bichard, Lord Chadlington, Lord Foulkes of Cumnock, Baroness Gale,
Baroness Jenkin of Kennington, Baroness Pitkeathley, Lord Rooker, Baroness
Scott of Needham Market and Baroness Stedman-Scott.
They were accompanied by the following House of Lords staff: Matt Korris (Clerk),
Simon Keal (Policy Analyst) and Gabrielle Longdin (Committee Assistant). Also
attending was Rosie Chapman (Specialist Adviser).

Introduction
The Chairman of the Charity Commission, William Shawcross and the Chief
Executive, Paula Sussex, welcomed Members of the Committee and introduced
some of the subjects for discussion: operations and enablement, compliance, risk
and proactive regulation. Mr Shawcross said that the Commission had sought to
become more proactive and that it saw its role as protecting charities’ beneficiaries
and assets where they may be at risk.

Operations
The Committee was told that the Commission saw its priority as being seen to
be an effective regulator. The Commission said that there had been an increase
in the number of applications to register a charity, from 5,949 in 2012/13 to
7,192 in 2014/15. They said that their application process had improved with the
introduction of a new, user-centred, online registration system, which had reduced
the processing time for registration, and that, while there had been a backlog of
applications previously, this had been cleared.
The Commission said that applications were now separated into low, medium and
high risk, to allow for better assessments to be made. They said that the system was
designed to ask specific questions for different types of charities doing different
activities, which helped to proportionately test the applications. The Committee
asked if this would allow the Commission to identify during the application
process whether an existing charity was doing similar work or operating in the
local area. The Commission said that while this was not currently possible, it was
a long-term goal.
There was a discussion about how the Commission measured the impact of its
work. The Committee heard that the Commission used surveys and website hits
 Stronger charities for a stronger society 137

to measure impact, as well as other measurements such as the number of whistle-

blowers and reports of serious incidents that they received.
The Committee raised the issue of diversity and noted with concern the lack
of diversity within the Charity Commission, with no black or minority ethnic
directors on the Board.

Compliance
The Committee heard about the Commission’s compliance work. The Commission
said that poor governance was the root cause of many issues in charities and they
had identified that financial distress and fundraising were major issues in 2016.
They said they undertook proactive analysis of charities where finances suggested
there was a risk of financial distress and that they were moving to a more risk-led
approach to casework, based on improved use of data. The Commission said that
1,804 cases were opened in 2016 to assess concerns about charities, and that 2,117
serious incidents had been reported to the Commission by charities in the same
year. There were 1,248 incidents in which the Commission used its legal powers.
Whenever the Commission used its intervention power, detailed justifications were
required and senior officers would need to approve the decision. The Commission
said they welcomed early approaches from charities on compliance issues.
There was a discussion about data sharing. The Commission said they worked
closely with prosecuting authorities and collaborated with other organisations and
agencies to facilitate data sharing.

Trustees and enablement

There was discussion about guidance available for charities and trustees. The
Commission presented research undertaken by nfpSynergy that showed that when
trustees sought advice on improving governance, 62% said that they would go to
the Charity Commission. The same research found that 91% of respondents were
aware of Charity Commission guidance on law and best practice, and 84% found
the guidance “quite valuable” or “very valuable”.
The Commission said that they were working on a new advice portal to improve
the guidance available to charities and that they were reviewing their enablement
work and their processes, advice and guidance. The Committee was told that the
Commission did not have the resources to provide one-to-one advice.
The Committee heard that the Commission did not assess the skills or experience
of potential trustees, but did check whether they were legally able to serve as a
trustee. There was a discussion about whether there could be qualifications for
trustees of large charities.

Funding
The Commission explained that funding cuts had resulted in a reduction in staff
levels, but said that their work to improve their processes would allow them to
be an effective regulator nonetheless. The Commission noted that charities were
not charged to register with them, but that they were exploring the possibility
of introducing a charge. They suggested that if they had additional resources
to provide advice it could reduce the dependence of charities on paid sources of
advice elsewhere.
138 Stronger charities for a stronger society

Legal framework
The Committee was told that the legal framework in which charities operated was
complex, with different legal requirements for different types of charities, and this
could cause trustees to feel constrained in how they could respond to challenging
circumstances. The Commission said that the effectiveness of charities was
impeded by an inability to adopt modern governance provisions and a lack of
power to reform and merge. They said that they were working with the Law
Commission to help modernise charity law to alleviate some of these constraints.
 Stronger charities for a stronger society 139

Appendix 6: NOTE OF COMMITTEE VISIT TO MANCHESTER

As part of its inquiry, the Committee visited Manchester on 16 November 2016

to meet with representatives from the Greater Manchester Combined Authority
(GMCA) and the Greater Manchester Centre for Voluntary Organisation
(GMCVO), and to hold a roundtable with small charities.
The following Members took part in the visit:
Baroness Gale, Baroness Pitkeathley and Lord Rooker.
They were accompanied by the following House of Lords staff: Matt Korris
(Clerk) and Simon Keal (Policy Analyst).

Greater Manchester Combined Authority

The Committee met with:

• Cllr Jane Black, GMCA deputy portfolio holder for Fairness, Equalities and
Cohesion
• Rachel Dyson, Troubled Families Project Manager, Association for Greater
Manchester Authorities
• Wendy Meredith, Director of Population Health, Greater Manchester Health
and Social Care Partnership
• Cllr Peter Smith (Lord Smith of Leigh), GMCA Portfolio lead for Health
and Social Care
• Cllr Angeliki Stogia, GMCA deputy portfolio holder for Fairness, Equal and
Cohesion
• Cllr Jean Stretton, GMCA Portfolio lead for Fairness, Equal and Cohesion
• Carolyn Wilkins, GMCA Chief Executive Lead for Fairness, Equal and
Cohesion
• Gareth Williams, Graduate trainee, GMCA
Introduction
The GMCA noted the very diverse nature of the voluntary and community sector,
increased further with the growth of Community Interest Companies (CICs) and
social enterprises, and how different their needs were.
The GMCA noted the tensions in local government relations with the charity
sector around funding cuts. They said that there were growing expectations on the
charity sector at the same time as declining resources, and that local authorities
were not able to support the sector as much as they had done in the past.

Relationship with and support for charities

The GMCA representatives said that sustainability was a key issue for the charity
sector. They noted the pressure the sector was under and the fact that Citizens
Advice Bureaux had been forced to merge across local authority areas.
The Committee was told that there was a changing relationship between the citizen,
state and society. While the traditional relationship between charities and local
authorities had been a paternalistic one, there was now more of a partnership role
and local authorities looked to the voluntary and community sector for creativity
140 Stronger charities for a stronger society

and innovation. The GMCA representatives said that they had a partnership
group to ensure that the voice of the third sector was heard. They also said that a
memorandum of understanding was being drawn up for how GMCA would work
with the voluntary sector, on a similar model to a compact.
The GMCA noted that small- and medium-sized charities were nimble, quick to
adapt and had an ability to reach communities and engage and motivate people
that was really important. The GMCA representatives said that there were lessons
for councils in the way that the charity sector worked with people.
The Committee heard about a leadership development programme organised by
the GMCA that supported representatives from the charity sector. The GMCA
noted that leadership development was usually delivered through and within
particular sectors and professions. Their programme sought to deliver it through
‘place’, to join up people working in different sectors in the Greater Manchester
area. The programme was funded through the Greater Manchester reform budget
and other sources and made all its programme materials open source on the
internet. The Committee asked whether charity trustees could apply to be on the
programme, and was told that they did not rule out such participation.
The GMCA spoke about their support for volunteers and said that they were
looking to encourage the private sector to develop links with the voluntary
sector, and share their skills and experience. The Committee heard that some
local authorities in the Greater Manchester region, such as Oldham Council, had
supported volunteering by allowing employees to take up to three days a year off
work to volunteer.

Funding and commissioning

The GMCA said that as public funding had moved from grants to commissioning,
it was important to maintain respect for the distinctiveness and voluntary essence
of voluntary organisations. They said that this could be achieved through good,
transparent commissioning and purchasing and by encouraging charities to come
together to win a contract. The Committee was told that Wigan Council was
investing more money in their voluntary sector through commissioning processes.
The representatives from the GMCA noted that commissioning could involve
jumping through a lot of hoops and that small charities needed support to
ensure that they could participate. They suggested that charities might need
help with pitching skills and with demonstrating outcomes and impact. The
Committee heard about the Society Works scheme in Oldham that worked to
support collaboration between charities with, amongst other things, funding,
commissioning and procurement opportunities.
The GMCA said that it was important to recognise social value in commissioning
and that, while they had a social value policy, they felt that they could still do more.
They noted that they had a lot of flexibility in their decision-making through the
use of social value considerations in commissioning if they chose to use it.
The GMCA noted that commissioning did not always work for small organisations
and that the contract climate mitigated against infrastructure development for the
sector. They said that there was still a very important role for grant funding and
they had established a £5m community investment fund that they hoped would
pay for itself over time.
 Stronger charities for a stronger society 141

The Committee heard that some councils, such as Oldham Council, had been
able to free up dormant funds to allocate to charitable projects in their areas.
Community asset transfers had also taken place in the Greater Manchester area,
which had been tricky to navigate but were seen to be worthwhile.

Devolution
The GMCA emphasised that devolution in Manchester was not just about central
and local government but also about the community and the voluntary sector.
They noted that it was a significant challenge to make it work, with a lot of
territoriality among voluntary sector organisations and individual district councils
still responsible for their own budgets and arrangements.
The Committee heard that the local authorities in Greater Manchester were
looking to go beyond compact arrangements, and were undertaking more focused
work to assist hard to reach groups.

Charity registrations and legal structures

The GMCA said that they had noted increasing difficulty for organisations seeking
charitable status and delays in registrations. They noted that it was hard to stop
new charities forming that duplicated the work of existing ones, but that it was for
charities, not the GMCA, to identify need in the area. The GMCA said they might
be able to help existing charities fade away gracefully in some circumstances.
The GMCA explained that on their formation they had inherited a charity—the
Greater Manchester Disaster Fund—but had found that the legal rules regarding
its structure were very restrictive which had made it difficult to spend the money.

Greater Manchester Centre for Voluntary Organisation

The Committee met with:

• Atiha Chaudry, Trustee

• Kathryn Cheetham, Trustee
• Richard Dyson, Vice Chair
• John Hannen, Programme Manager
• Patsy Hodson, Chair
• Ian Taylor, Director of Development
• Alex Whinnom, Chief Executive
Introduction
The Committee heard that there were around 15,000 charities and voluntary sector
organisations in Greater Manchester. The GMCVO said that the sector worked
differently in Greater Manchester to other parts of the country, and that there
were stronger and more equal relationships with local government and universities
in the area, although there continued to be major problems with funding.
The GMCVO said that the voluntary ecosystem across the Greater Manchester
region had been affected in different ways by funding reductions in recent years.
The areas with a long history and tradition of charitable operation, such as
Manchester and Salford, had proved more resilient, while those without such deep
roots had not fared as well. The GMCVO noted that small, local charities that had
142 Stronger charities for a stronger society

been the “well-kept secrets” of the charity sector were now a bit less secret, as a
result of a growing trend towards having an online presence.

Service delivery and commissioning

The Committee was told that voluntary organisations were often not aware of the
dangers of getting involved in public service delivery, where funding was more
readily available. The GMCVO said that charities risked losing their strategic
expertise and roots in the community by being diverted into public service
provision. They said that in cases where charities had been over-exposed to service
delivery, and the funding had subsequently been withdrawn, the community
connection was often lost and was difficult to rebuild. The GMCVO said that
charities should ask themselves the question as to whether they are funding-led or
needs-led.
The GMCVO questioned the extent to which commissioners understood
community need. They noted that voluntary organisations in Greater Manchester
serving black, Asian and minority ethnic (BAME) communities received limited
funds, despite the region having a significant BAME population as well as a large
proportion of refugees and asylum seekers.
The Committee asked about the extent to which funders required charities to
demonstrate their outcomes and impact. The GMCVO said that enthusiastic
funders would be happy with whatever they received in terms of demonstrating
impact, while sceptical funders would look critically at what they were sent, no
matter how detailed it was.
The GMCVO noted that high interest rates deterred charities from engaging with
social investment, and that in some cases charitable organisations had taken on
unsustainable levels of debt.

Local government and devolution

The GMCVO noted that, despite having a better relationship with local authorities
than elsewhere in the country, the culture of local government was not well
adapted to engaging with and partnering the voluntary sector. They said that
commissioners rarely consulted properly with communities and tendered for large
contracts that did not take sufficient account of the different needs of different
areas and were therefore unsuitable for voluntary sector involvement. They noted
that the amalgamation of local authorities to form the GMCA had meant that
some of the power had been drawn up and away from the more local level of
individual authorities and that this could risk weakening relationships between
local authorities and the voluntary sector. The GMCVO welcomed the leadership
programme run by the GMCA and were keen to see an increase in the number of
places offered to voluntary sector representatives.
The Committee heard that devolution in Greater Manchester was still at an early
stage. The GMCVO said that they were hopeful that it might bring more funding
into the area, and give the region a chance to pursue distinctive policies. They said
that the voluntary sector was keen to contribute to a place-based approach.
The Committee asked the GMCVO representatives what they would recommend
to help sustain the charity sector on a national level. GMCVO Chief Executive
Alex Whinnom responded in writing after the meeting:
 Stronger charities for a stronger society 143

“We’ve had a discussion and agree what we want most is for government
and politicians to encourage all government departments, local
authorities and other public bodies to promote and support small grants
and grant programmes for small charities.
“This is a huge issue because so often a grant is the most efficient and
effective way to commission an outcome, or to invest in the long term
work of a small organisation. Investing in small organisations is in turn
often the best and best value way to achieve the outcome and can bring
immense added value as well. Yet there is a seemingly unstoppable
fashion for intricate tendering and contracting exercises, at larger and
larger scales with little consideration given to other commissioning
options. This trend is leading to more resources being concentrated in
the hands of fewer whilst small charities are still bearing the brunt of
increasing need in communities.
“If we had a second bite at the cherry it would be for government and
politicians to encourage the public to donate more to the small charities
on your doorstep … a shift of only a few percent in public giving in
favour of small charities would have an enormous positive impact. It isn’t
enough to promote online schemes like Just Giving and so on—smaller
organisations can struggle to use them. We need awareness raising that
small charities are good deserving causes which can easily be found
through local infrastructure organisations and can make a little money
go a very long way.”

Roundtable discussion in Manchester

The Committee met with:

• JulieAsumu (Chrysalis Family Centre), Andrew Beeput (Bond Board),

Vivien Carter (Rochdale Connections Trust), Ed Cox (Levenshulme Inspire),
Lynn Kelly (Partners of Prisoners), Amelia Lee (The Proud Trust), Lisa
Mok (Wai Yin Society), Sinead O’Connor (Manchester Mind), Mohammed
Sarwar (Multicultural Arts and Media Centre), Andrew Smyth (Oasis Hub),
Christie Spurling (N-Gage), and Nick Taylor (Tim Barry Jonathan Ball
Foundation for Peace).
The discussion took place in a roundtable format, with charity representatives
divided into small groups to discuss key issues. Three topics were discussed among
the groups: innovation, the advice and support available to charities, and funding
challenges.

Innovation
Participants said that charities see innovation as part of their core values, but that
there needed to be a stronger national infrastructure to help them innovate.
The Committee heard that charities felt under pressure to demonstrate innovation
to potential funders in order to secure funding, and to show that they were different
from statutory services, rather than in response to the needs of their beneficiaries.
The participants suggested that innovation was usually interpreted by funders as
managing with fewer resources, rather than improving services. They also said
that there were risks associated with innovating to provide services free at the
point of delivery, as replacing paid services could result in a loss of funding.
144 Stronger charities for a stronger society

Participants said that innovation should involve service users and that it should be
treated as a journey, with services developed over time in partnership with users.
The Committee also heard that BAME charities in Manchester were particularly
focused on innovation. An example was given of one charity’s work on dementia
needs in south-Asian communities, undertaken in partnership with the Alzheimer’s
Society.

Advice and support

The Committee was told that much of the advice and support available was
government-funded through large providers, and that this was not necessarily
helpful, as national advice and support schemes did not always work for small
charities. The participants suggested that it would be better if such schemes were
delivered through GMCVO and their equivalents elsewhere. They said that not
all small charities had the capacity to engage with national-level services and
that neighbourhood-based training, which was of greater value, was often under-
resourced.
The Committee heard that charities were keen to develop expertise, but limited
resources meant that it was hard for them to access training. Some participants said
that banks had assisted local charities with funding for structured management
training.
The participants said that they were unlikely to go to the Charity Commission
for advice. They said that the Commission had some good policy documents and
other supporting material on its website, but that support from its helpline was
limited.

Funding
The Committee was told that there had been disproportionate public sector cuts
to cities like Greater Manchester, and Payment by Results contracts were having
a big impact on some third sector organisations. The participants suggested that
the sector would have been hit even harder, were it not for the contribution of
the Big Lottery Fund, which offered longer-term funding and supported training
and development for charities. They noted that one-year funding was the norm
elsewhere, often with very short notice as to whether funding would be renewed
or not, which made it hard for charities to plan and give staff certainty about their
employment.
The Committee heard that there were unrealistic expectations from funders
about the work that charities could do for free and that commissioners were often
unwilling to cover charities’ core costs. Participants also said that there was a
tendency among commissioners to use the highly-detailed EU tendering and
procurement rules even for small amounts of money, which was a significant
burden for charities.
Participants said that charities were used as “bid candy” by larger contractors that
sought charities’ knowledge of issues, and incorporated them into their bids to help
win contracts, but then did not use the charities to actually deliver the services
that they won. Alternatively, small charities would be offered subcontracted work
on unsustainable terms and would therefore be unable to participate.
 Stronger charities for a stronger society 145

A number of participants said they had sought and secured funding from EU
sources as UK public funding had decreased. They said that the likely removal of
EU funding as a result of Brexit meant that a safety net was disappearing.
The Committee was told that it would be good to have more funders for unpopular
causes. Participants said that there were significant areas of unmet need and
wider social problems that the charity sector could seek to address if funding was
available.
Participants said that social investment was not an option for many charities, as it
often required unrealistically high rates of return.
146 Stronger charities for a stronger society

Appendix 7: NOTE OF ROUNDTABLE DISCUSSION IN

WESTMINSTER

As part of its inquiry, the Committee held a roundtable event on 23 November

2016 in the Palace of Westminster with representatives of a range of small charities.
The following Members took part in the roundtable:
Baroness Barker, Lord Bichard, Lord Foulkes of Cumnock, Lord Harries of
Pentregarth, Lord Lupton, Baroness Pitkeathley, Lord Rooker and Baroness Scott
of Needham Market.
They were accompanied by the following House of Lords staff: Matt Korris (Clerk),
Simon Keal (Policy Analyst), and Gabrielle Longdin (Committee Assistant). Also
attending were Rosie Chapman (Specialist Adviser) and Natasha Hallet and Tara
Jane Kerpens Lee from the Houses of Parliament Outreach and Engagement team.
The Committee met with:

• Filsan Ali (Midaye Somali Development Network), Keith Appleyard

(Fiveways Playcentre), Nathalie Bristow (Koestler Trust) Rob Burton
(Disablement Association Hillingdon), Erica Davies (Ragged School
Museum), Barbara Drozdowicz (East European Resource Centre), Katy
Emck (Fine Cell Work), Declan Flynn (Bench Outreach), Paul Garayo
(Stitches in Time), Ruth LeSirge (Association of Chairs), Lesley Michaelis
(Home-Start Slough), Stacy Smith (Her Centre), Denise Parnell (Feltham
Community Chaplaincy Trust), Steven Platts (Glass Door), Alison Radevsky
(Wiltshire Community Foundation), Liz Ranger (Home-Start Lambeth),
David Ray (The Racehorse Sanctuary), Nic Smith (Cassandra Learning
Centre), Flora Taylor (Family Friends), Robert Wilkinson (Hope 4 Havering).
A representative of the Small Charities Coalition was also present (Kathryn
Dingle).
Introduction
The Chairman introduced the roundtable event, explaining to participants the
purpose of the inquiry and the format for the session.
The participants were split into three random groups and were joined by two or
three Members of the Committee. Each group was asked to discuss questions
covering three themes and then to feed back to the rest of the participants. The
three key themes for discussion were funding and accountability, support and
training, and governance and trustees. The following reflects the points made by
participants in the discussions.

Funding and accountability

There was discussion among participants about the wide variety of funding
sources that charities rely upon. The Committee heard from small charities whose
funding sources included personal donations, endowments, short-term grants, and
commissioned work. One participant had set up a Community Interest Company
(CIC) with other charities, with support from the Clinical Commissioning Group
(CCG). It was noted that fundraising could sometimes be a risky activity in the
context of limited resources because it was not always clear which activities would
pay off.
 Stronger charities for a stronger society 147

The Committee was told that commissioning was at times too restrictive and
often based on rolling annual funding, which made it hard for charities to plan
ahead and be sustainable. Decisions on commissioning were also often awarded
to the lowest bidder, with no assessment of quality. Commissioning decisions
often meant that local experience and input was lost when local organisations
were outbid by larger external organisations. Where this happened, local ‘organic’
networks may disappear in the lifetime of the contract. Commissioning had
become ‘commoditised’ and the level of reporting required could be excessive.
Payment by Results contracts were about securing ‘quick wins’ rather than the
interests of individuals.
A participant highlighted that, in many cases, individual donations amounted to
a small percentage of a charity’s funding and suggested that tax changes could
encourage further donations.
The Committee heard about changes in funders’ requirements, with the need to
measure the impact of charities’ work being more prominent. This was largely
seen as a good thing, however the Committee was told that it was often difficult
for charities to demonstrate impact and outcomes for a number of reasons. In
particular, it could be challenging for some charities to demonstrate impact and
outcomes in the short term, when success might need to be measured over a longer
period of time, for example five or ten years.
The Committee was told that charities with limited resources were disadvantaged
when it came to funding, particularly when applying for commissioned work. Small
charities with less unrestricted funding found it harder to apply and there was risk
involved in investing time, effort and money into applications. Small charities also
found it difficult to compete on costs with larger charities when bidding. The
Committee heard that more recognition was needed for core costs funding. Small
charities needed a secure base of funding and money translated into security.
Participants agreed that there was sometimes reliance on in-kind support. With
the increasing involvement of charities in service delivery and income generation,
a different set of skills were required.
Innovation was another key topic discussed. The Committee heard that small
charities were often forced to innovate due to cost pressures and one participant
suggested that an innovation fund was needed to support this. The Committee
was told that funders would ask for innovation and, as a result, charities were
incorporating this into their bids to increase their chances of success, even though
innovation was not always necessary. It was emphasised that smaller charities had
the capacity to innovate and were often at the forefront of innovation, and that it
should not be seen as a separate activity from the core functions of a charity.

Support and training

The Committee heard that support from the Charity Commission was limited
and that they were considered a regulator, not an enabler. Whilst it was recognised
that some of the guidance provided by the Charity Commission was helpful, in
relation to compliance issues and information for trustees, the website was difficult
to navigate, they often took a ‘one size fits all’ approach, and there was nervousness
about contacting the Commission for support in case this impacted negatively on
the charity. It was commented that Charity Commission advice was often more
helpful for trustees than for staff.
Participants explained that limited resources amongst small charities meant that it
was difficult to set aside money for training, which was both time-consuming and
148 Stronger charities for a stronger society

costly. The Committee was told that small charities struggled to receive specialist,
professional, expert advice because of their limited budget, yet small charities were
often being unfairly held to the same standards as large charities and businesses.
A participant also explained that relying on support from Councils for Voluntary
Service (CVSs) and membership organisations such as the National Council for
Voluntary Organisations (NCVO) was challenging, because they themselves were
dealing with similar issues that the small charities seeking advice were struggling
with. It was argued that while the likes of NCVO and Association of Chief
Executives of Voluntary Organisations (ACEVO) were useful, there could be a
more systematic support structure, particularly given the reliance of government
on charities to provide services. A ‘trade organisation’ was needed rather than an
umbrella group.
It was noted that while London had a relatively good support network, this was
not the case elsewhere in the country. CVS support was also patchy. There was
agreement that specific advice was extremely costly, for example support for
human resources-related issues.
The Committee heard that even when resources were available for training, there
were very few options to choose from, with many training schemes no longer
being provided. Participants highlighted that the London network of Home-Starts
had been useful, but Home-Start UK no longer provided the training offered
previously and CVS support was limited to start-ups only.
The Committee was told that finance, legal, marketing and digital were all
important areas where support and training were needed and that financial
support for boards and chairs was equally absent. High quality finance and IT
support was necessary but not always available at short notice. A number of pro
bono organisations were acknowledged as providing support, including Pilotlight
and Lloyds Bank Foundation. Lloyds in particular was generous with mentoring
opportunities such as matching with bank managers. A participant suggested that
an umbrella body for training and support should be set up to tackle the issue.

Governance and trustees

The Committee heard that trustees often remained in post for long periods of time,
which could lead to complacency and a lack of new ideas. There was agreement
amongst some participants that having a limit on the time trustees could serve
would be beneficial. One participant suggested that there should be fixed terms
of two or three years and that trustees should serve for a maximum of two terms,
unless under exceptional circumstances where re-appointment was acceptable.
One participant explained the innovative approach they had taken to their board
of trustees, with the role of Chairman on rotation.
The Committee heard that it was sometimes difficult to find suitable trustees
and that interest in becoming a trustee was often lacking. The average age of
trustees was relatively high. Many participants agreed that the DBS checks were
time-consuming and demanding, with over 20 pages to complete, which put
people off considering the role. There was also agreement that it was difficult to
encourage younger people to consider taking on a trustee role, not least because
they lacked the time to do so. Interest could be improved by demonstrating the
value and benefit of taking on such a role, in terms of future career prospects. One
participant felt that the risk of having younger trustees was that they did not tend
to have built up the skills, experience and contacts needed for the role.
 Stronger charities for a stronger society 149

The Committee heard that training and development of trustees needed to be

improved. In many cases, trustees did not get an induction and there was reluctance
to invest in trustee and chair development because it was not considered ‘frontline’
spending for the charity. In some cases, trustees were unaware of what their
responsibilities were, and were more interested in their cause than in governance,
which imposed limits on what they were willing to do. A participant noted that
smaller charities were dependent on their trustees being very involved, but that
often when a charity developed and grew, longstanding trustees struggled to adapt
to the changes. The Committee heard that skills audits might be beneficial to
identify areas for improvement.
150 Stronger charities for a stronger society

Appendix 8: NOTE OF ROUNDTABLE DISCUSSION IN CARDIFF

As part of its inquiry, the Committee held a roundtable event on 30 November

2016 in Cardiff with representatives of a range of small charities.
The following Members took part in the visit:
Baroness Gale, Lord Harries of Pentregarth, Baroness Pitkeathley and Lord
Rooker.
They were accompanied by the following House of Lords staff: Matt Korris
(Clerk) and Simon Keal (Policy Analyst)
The Committee met with:

• Sam Austin (Llamau), Joel Beswick (Cathays Community Centre), Martin

Blakebrough (Kaleidoscope Project), Kelvin Davies (People in Pain), Sian
Donovan (Cardiff Pedal Power), Ria Eccleshare (People in Pain), Gerry Hill
(Hire a Hero), Ashley Lister (Grangetown Community Action), Rebecca
Pearce (Headway Cardiff), Reynette Roberts (Oasis Cardiff), Sarah Thomas
(Children in Wales), and Sybil Williams MBE (Cardiff Pedal Power).
Introduction
The Chairman introduced the roundtable event, explaining to participants the
purpose of the inquiry and the format for the session.
The participants were asked to discuss questions covering three themes: funding
and accountability, volunteers and support, and governance and trustees.

Funding
There was discussion among the participants about the funding challenges many
of them experienced. The Committee was told that the increasing role of charities
in service delivery meant that they often found themselves in competition with
each other, particularly when bidding for grants or contracts. Participants observed
that the demand for the work of charities was going up, while money was going
down—for example, some charity contracts did not cover the National Living
Wage, core costs or pension costs.
Participants noted that short contracts for service delivery work made longer-term
planning difficult for charities and that tendering for larger contracts limited the
opportunity of charities to bid. They also said that public sector contracts were
often accompanied by fixed delivery targets—in some cases with a duration of as
little as 12 weeks—which were unrealistic for measuring meaningful outcomes
when helping people in difficult circumstances.
The Committee heard that the requirements of commissioned work meant that
charities were required to act in a more business-like manner. Participants said
that some commissioners put pressure on charities to ‘toe the line’ in relation to
advocacy and to avoid making controversial statements.
Attendees also discussed other sources of funding, such as corporate fundraising
and the European Social Fund (ESF), and expressed concerns about the future of
ESF funding after the UK left the European Union.
The Committee was told that the Welsh government had a compact with charities
and that the relationship between government and charities was stronger in Wales
 Stronger charities for a stronger society 151

than elsewhere as it was easier to get access to decision-makers. Participants said

that the quality of consultation varied across local authorities, with some better at
listening than others.

Volunteering, training and support

The Committee heard that volunteering was not cost-free, as volunteers had to
be organised and co-ordinated. Participants said that in some cases, owing to
funding restrictions, volunteers were being deployed where previously they would
have used paid staff and in situations where beneficiaries would benefit from
professional support. They noted that getting involved helped people gain work
experience, but that charities needed to be careful about receiving ‘unwilling’
volunteers being sent to them by job centres.
Participants said that the Charity Commission was perceived to be overstretched
and struggling to oversee, let alone support, charities. Some took the view that
Wales would benefit from a separate Charity Commission as devolved services
were seen to be more effective.
The Committee heard that participants had received support and training
opportunities, as well as finance, from the Big Lottery Fund, Lloyds Bank
Foundation and Cardiff Third Sector Council.

Trusteeship
The Committee heard that charities found it difficult to recruit a diverse group of
trustees. Participants said that there was scope for charities to be more proactive
in recruiting trustees from a variety of backgrounds and with different skills.
Concerns were expressed about the independence of charity boards in cases where
the chief executive officer had effectively recruited most or all the trustees.
Participants said that there could be a complex relationship between trustees and
staff members, especially in small charities. In some cases, staff could end up
managing the board, raising questions of independence. It was suggested that
negative coverage had ‘frightened’ some trustees, and that they had become risk
averse, although others said that trustees could also intervene too frequently in
day-to-day management.
Attendees suggested that one way to recruit new trustees might be to set a time
limit for their service at the outset, so they knew they would not be expected to
make an ongoing commitment. This would also reduce the likelihood of multiple
trustees leaving simultaneously. Some participants suggested that paying some
trustees might reduce charities’ dependence on retired people to fill the roles.

Group discussion
Following the discussion on the above themes, the Chairman invited attendees
to divide into two groups to discuss their ideas for key recommendations that the
Committee might make in relation to its inquiry.
The groups noted that:

• contracts were often unsuitable for small charities, because they required
hours of work and resources they did not have, and often required the charity
to provide services across Wales rather than in specific localities;
• the ‘tailoring’ of services, with specified and detailed delivery requirements,
narrowed opportunities for charities to become involved in service delivery,
152 Stronger charities for a stronger society

and that charities were often required to ‘massage the aims of their
organisation’ in order to win bids for contracts.
The participants recommended that:

• rolling one-year funding arrangements should be abolished;

• there should be greater recognition of and provision for covering ‘backroom’
costs, such as services and overheads in funding agreements;
• local government should focus on maintaining existing services rather than
providing new ones.
 Stronger charities for a stronger society 153

Appendix 9: ACRONYMS

ACEVO Association of Chief Executives of Voluntary Organisations

BAME Black, Asian, and minority ethnic
CCNI Charity Commission for Northern Ireland
CIF Community Initiatives Fund
CIO Charitable Incorporated Organisation
CVSs Council for Voluntary Service / Council for the Voluntary
Sector / Centre for the Voluntary Sector / Community
Voluntary Services
DCLG Department for Communities and Local Government
DCMS Department for Culture, Media and Sport
DWP Department for Work and Pensions
ESF European Social Fund
ESIF European Structural and Investment Funds
FRSB Fundraising Standards Board
GMCA Greater Manchester Combined Authority
GMCVO Greater Manchester Centre for Voluntary Organisation
HMRC Her Majesty’s Revenue & Customs
IoF Institute of Fundraising
IVAR Institute for Voluntary Action Research
MHA Methodist charity and housing association
NAO National Audit Office
NAVCA National Association for Voluntary and Community Action
NCVO National Council for Voluntary Organisations
NICVA Northern Ireland Council for Voluntary Action
NLW National Living Wage
NSPCC National Society for the Prevention of Cruelty to Children
OCS Office for Civil Society
OSCR Office of the Scottish Charity Regulator
PACAC House of Commons Public Administration and Constitutional
Affairs Select Committee
PbR Payment by Results
PFRA Public Fundraising Association
RSA Royal Society of Arts
RSCPA Royal Society for the Prevention of Cruelty to Animals
SCVO Scottish Council for Voluntary Organisations
SIBs Social Impact Bonds
154 Stronger charities for a stronger society

SORP Statements of Recommended Practice

VAT Value Added Tax
VONNE Voluntary Organisations’ Network North East
WCVA Wales Council for Voluntary Action