Regulating charities in line with changing needs in society

Charity Commission Chief Executive, Helen Stephenson CBE, delivers welcome plenary at Nonprofit Academic Centers Council Biennial Conference 2019.

Photograph: Charity Commission Chief Executive, Helen Stephenson CBE.

Good morning,

I am delighted to be here with you this morning, and for the opportunity to open this event on behalf of the Charity Commission for England and Wales.

Welcome, first of all to the UK, and to London.

It’s wonderful to have you all here. I’m promised that the Chair has earmarked a good 20 minutes or so for questions and comments, and I hope that many of you will share your thoughts or reflections also. I am keen to hear about the international perspective on some of the issues and themes that occupy us here in the UK at the moment, and to learn perhaps from ideas and solutions being tested elsewhere.

I’d like to use my time with you this morning to share my thoughts on why effective charity regulation matters, and matters increasingly, not just for the charities we regulate, but more importantly for the public we serve.

And in that context I think this conference, and your visit to the UK, are well timed.

We are living through a period of particular challenge for charity and civil society – and it is a time I believe that will be of academic interest to you and your successors in the years ahead. The term ‘turning point’ is perhaps over used, but nonetheless I think that’s what we’re seeing.

We have two largely unrelated developments, occurring, and indeed accelerating, at the same time. Together, they are beginning to have a profound impact on the work of charities in this country.

First, we are seeing public expectations of charity increase – and be measured and verbalised in a way that was not the case in the past. There was a time, in the relatively recent past, when charities were organisations people in the UK associated more or less automatically with trustworthiness – and worthiness generally – without perhaps much interrogation or questioning.

Our research into public attitudes to charity shows that, as recently as 2005, charities had a basic degree of trust ‘in the bank’. At the time, our research analysis noted that:

“The main factor driving trust is an ‘inherent belief’ that charities will spend wisely and effectively, i.e. that they will employ ethical and efficient practices and enable maximum funds to reach the end cause, thereby making a positive difference. This belief is grounded in faith rather than any rationally based expectation.”

That statement feels very dated in our present circumstances.

Certainly more recent research indicates that ‘inherent belief’ in the trustworthiness of charities is now rare. Charities are subject to far greater public scepticism, and consequent scrutiny. The latest extensive independent research we commissioned into public trust and confidence, published last year, showed that there is now no premium in being a charity – charities are no more trusted than the average person on the street.

Public expectations of charity meanwhile remain high. The public still believe, fundamentally, that charity should mean something special, be a reflection of our better nature, of high standards of behaviour, decency, and humanity. Research we commissioned last year demonstrated that these basic expectations of charity are shared by people who otherwise have very diverse preferences and interests in charity. So our research showed that, depending on various factors, such as age, place, levels of education and financial security, people may prefer local charities vs those working internationally. Or they may prefer voluntary-led charities or alternatively, they may prefer charities that are professionally managed.

But regardless of these differences, there is surprising unanimity within the UK population that the concept of charity is as much about behaviours, attitudes and values as it is about the work being undertaken.

And the behaviours and attitudes include - being transparent, stewarding money carefully, making a difference, and crucially – being true to their values in everything they do.

What’s changed is that the public no longer automatically assume that charities as organisations meet those expectations of behaviour and attitude.

How and why this has occurred is a matter of continued debate, and perhaps a worthy subject for further research. No doubt it results in part from the wider trend of declining automatic trust in public institutions generally. But I also think attitudes have shifted as a result of things that people have seen go wrong in charities specifically in recent years. Poor fundraising practices, the failure of charities as a result of poor governance and financial management, and latterly scandals around the exploitation of people in receipt of international aid and concerns about the treatment of staff in charities by their bosses and colleagues.

But whatever the root of shifts in public attitude, charities, and we as their regulator, need to look the problem in the eye, and address it, and that I will come on to.

The second development that we see unfolding relates to charities’ wider role in British society. In short – that role is growing and becoming more complex.

To put what I am about to say in context: there are 168,000 charities on our register, and there are many thousands more that are unregistered due to their tiny size, and others that are exempt charities which means they are regulated by another body. The combined income of registered charities exceeds £79bn and around 700,000 people are involved directly in their management as trustees – most of whom of course are volunteers.

It is widely thought that charities are involved in growing numbers in the provision of public services – in the fields of health, and mental health, the emergency services, social care, education, services for children etc.

We at the Commission want to better understand charities’ role here, and so have begun asking charities to state in their annual return whether they receive contract funding from central or local government.

We’ll be following this closely.

But in any case it’s clear that charities are involved in meeting citizens’ basic needs, and – to turn the coin around – are involved directly in delivering services on which government policies rely.

A tangible example that points to the crucial role of charity came in the aftermath of a terrible tragedy that took place here in London in 2017, namely the fire at Grenfell Tower. Grenfell Tower, for those who may not know, was a 24-storey block of flats in the west of the city. In June 2017, a fire erupted in the tower, and very quickly spread. The fire led to the deaths of 72, and made over 200 people homeless.

Charities played a crucial role in the immediate response to the disaster, not least because many local charities had a legitimacy and standing in the community that local authorities and national institutions lacked. Charities’ role also rested on an overwhelming generosity shown by the public at large, who donated many millions of pounds and vast quantities of goods in kind, and also many hours of their time helping as volunteers. At times corralled by us as regulator, charities worked together to ensure the immediate needs of people were being addressed, but also that funds were set aside and carefully allocated to help meet longer term needs and requirements, including psychosocial support.

Charities here were not providing a little bit of extra on top of a quick and effective government response. They were crucial in meeting the needs of those affected in the hours, days and weeks following that terrible tragedy.

This role of charity, in bridging the gap between a community that felt at times sidelined and ignored on the one hand, and the institutions of the state on the other is currently the subject of academic research here in the UK.

Certainly it demonstrates that in our society and democracy, charity is more than the icing on the cake, it is also part of the very mixture that makes for a functioning, healthy society.

I like to put it like this: charity in this country saves lives – for example a study in 2015 suggested 60% of all cancer research is carried out by charities. Charity shapes and improves lives – around 94,500 charities work for example with children and young people. And charity makes all of our lives worth living, through its involvement in the arts, heritage, sport, the protection of our natural environment. Many of our best-loved national institutions are registered or exempt charities – the Royal Botanical Gardens at Kew for example, many of our national galleries and museums, and so on. I hope incidentally that you have the opportunity to visit some of these institutions while you’re in the UK. But increasingly services of the state - schools, housing, etc - is being delivered through charity.

So these two developments – changing public attitudes and expectations of charity, and the growing role of the sector in our national life and the lives of citizens are together making for a profound challenge for this diverse sector, which we as its regulator must help meet.

It’s a challenge, fundamentally, of legitimacy.

It is important now, and will in my view become increasingly crucial, that charities can demonstrate two things:

  • First, that they are effectively regulated: that the basic structures of accountability, transparency governance etc are well understood, complied with, and regulated against.

  • Second, that charities understand and respond to public expectations as to what makes charities special and distinct from other groups and institutions in our society.

Both of these require an active, agile, responsive, and enabling regulator that understands the sector it oversees, while remaining focused squarely on the public that it serves.

I think it’s worth a very brief historical excursion here: regulation of charity in this country is not new, though of course the focus and modes of its functioning have changed profoundly over the decades and centuries.

Legislation regulating the management and work of charities dates back to the reign of our first Queen Elizabeth and an act of Parliament passed in the very early years of the 17th century.

The 19th century saw the first ‘Charity Commissioners’ riding on horseback across the country to examine and investigate the management and expenditure of charitable trusts. Their work is – not entirely flatteringly – described in the novel The Warden by Anthony Trollope.

One of the reasons charity regulation is so deep rooted historically is that charities and civil society generally have tended to play a more important role in the provision of relief and the development of national infrastructures than in many other European societies, where the role of the central state developed sooner.

We at today’s Commission are proud of our status as the oldest charity regulator, not just in Europe, but also in the world. This history informs us, but it does not tie us down. We take seriously our duty to change and improve as the needs of the public we serve change.

There are two ongoing developments I’d like to highlight in this context.

The first relates to our legal powers, the tools that allow us to investigate and take action against charities or individuals involved in charities. Until quite recently, our regulatory ‘toolkit’ was focused almost exclusively on the protection and safeguarding of charitable resources and assets.

So our powers allowed us, for example, to gain access to and where necessary freeze bank accounts. They allowed us to require the provision of documents relating to a charity’s management. They allowed us to remove serving trustees where certain strict criteria were met.

But what the powers did not allow us to do adequately was to hold individuals to account for their conduct or fitness beyond the broad area of finance.

So, for example, until our powers were extended in a 2016 act of parliament, it was possible to be on the sex offenders register, potentially having committed serious crimes, and to serve as a trustee. It was possible for people with convictions for terrorist offences to serves as a trustee.

And we were unable to prevent an individual from serving as a trustee unless they had been removed by us while they were serving. So individuals often simply resigned before we could remove them, and moved on to other charities.

We made a strong case for the extension of our powers so that they now address fitness and conduct of people involved in charity, with a view to the protection not just of a charity’s assets, but also of other people involved in or who benefit from that charity, and of public trust in charity generally.

Our powers have also become more proportionate as a result of this legislative change. We are now, for example, able to issue Official Warnings to charities or individuals currently involved in charities. So for example, we recently issued Oxfam with an Official Warning in relation to past failings around safeguarding.

I think our record since 2016 demonstrates that we use these new powers proportionately and responsibly. And there are important checks in place to ensure that those who are fit to serve, but may be disqualified, can apply for dispensations.

But we do not hesitate from using our powers were we consider the criteria are met, and doing so is in the wider public interest.

So the legal framework guiding our work has changed with the times, and continues to evolve – currently the act in question is under review. But a more profound change in the way we regulate is underway at the moment.

Last year, we undertook a strategic review to guide our work in the years ahead.

That review resulted in a clear realisation: if we are to help charities meet public expectations, we need to be resolutely focused on the public interest.

And that in turn means we have to think, work and act beyond the simple fulfilment of our legal duties and responsibilities.

Regulation cannot be, is not, an end in itself.

It must have purpose.

And the purpose we have set ourselves is ambitious: namely to ensure charity can thrive and inspire trust so that people can improve lives and strengthen society.

In other words – we must be focused on the good that charity creates in society, and encourage that good. This does not change our functions fundamentally: we continue to act as registrar of charities, assessing organisations against the legal test of charity status. We continue to investigate breaches of charity law, we continue to give guidance to trustees on meeting their legal duties and responsibilities.

But a) the way in which we carry out those duties will be driven by our purpose.

And b) we will not be limited by our formal legal functions in the work we do and the way we do it.

Our purpose, and a strategy to support it, were launched in October, and since 1 April of this year, we have been working to it, guided by an extensive and detailed business plan.

We may not, from the outside, yet look like a dramatically transformed regulator. But I am confident that, were you to come to visit the UK again in 2023, you would find a changed regulator, and, I hope, a sector that is changing as a result, and in line with public expectations and interest.

But we are already making significant changes, and some of these are in the public domain.

For example, we recently published a report on the Garden Bridge Project. This was an idea, driven by certain individuals in the public realm, to build a new pedestrian bridge across the Thames, which was to include large areas of planting.

Those proposing the bridge set up a charitable trust to deliver it. But the project was a failure – many millions of pounds of public and philanthropic funds were expended, but no new bridge has been built.

We have subjected the charity to significant scrutiny – and repeatedly so. Our summary conclusions were and have remained that the trustees fulfilled their legal duties and that there was no mismanagement.

In the past, we would have left it at that.

But driven as we are now by our new purpose and the public interest, we recognised that the fact that £50 million of public funds were spent by a charity and with no resulting public benefit or impact represented a failure for charity – not of charity I stress, but for charity.

And sowe took the decision to publish a report setting out the lessons: for us, for other charities, for public policy makers.

And one of those lessons is that we have advised that policy makers think very carefully before setting up a charity to deliver on a singular public policy. We concluded that it was “unlikely that the public would expect risks that are inherent in a major public infrastructure project to be outsourced to charity.”

This was an early example of our using our voice, on behalf of the public, to emphasise the value, importance, and distinctiveness of charity.

I stress – we continue to be guided by the legal framework alone in our direct regulatory interventions with individual charities.

But we will think beyond the formal legal framework and to our purpose in our wider work.

So in summary, I have set out how the Commission is changing in line with changing needs in society.

I’ve talked about improving and strengthening our regulatory toolkit, and more fundamentally about purpose-led regulation.

And I’ve explained that these changes are ultimately designed to help ensure charities retain – or some might argue regain – legitimacy.

What I’ve not done yet is explain why I think this matters profoundly.

Like many other western societies and democracies, but perhaps to a more severe extent, the UK is currently marked by increasing social and political division, and by disruption and uncertainty.

There is less that binds us as a society than there was in previous generations.

Social media and wider demographic developments mean that we increasingly live in silos, in universes of world view and identity – pro Brexit /anti Brexit being just one of many lines that now divide us as a society.

This is, I believe, a dangerous development for a democracy, the strength of which always rests in part on a shared set of values and ideals.

Julia Unwin, a respected senior charity leader, recently led an inquiry into the future of civil society. She found that charities and civil society must change if they are to meet the challenges our society faces.

And she calls on charities, among other things to be more accountable, and to stay true to their values.

I echo and welcome that challenge. Because I am convinced that charities have the potential to be an important wellspring of cohesion and confidence.

Not because they do ‘safe’, easy work, which creates a cosy consensus.

Far from it – charities by the nature of their work will divide opinion.

Charities are and must continue to be courageous advocates of their diverse and sometimes competing causes.

The potential here for charities lies not in what they do or whom they help, but how they do it.

To put it starkly: charities have the potential to model the leadership that the public expect but are not seeing in politics or business or other areas of national life.

I truly believe that the public – people from all walks of life – are longing for strong, open, moral leadership.

Charities have the potential to be a source of trust, reassurance, pride and belonging.

To lead the change we need to see across society.

The Commission as regulator has a role, an important role, in helping charities recognise this, and rise to the challenge.

Thank you.

Published 16 July 2019