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Draft Charities and Trustee Investment (Scotland) Bill Consultation
CONSULTATION REPORT

PART 2: SUMMARY OF ACTIONS AND CHANGES FOLLOWING THE CONSULTATION

107. The consultation process on the draft Bill involved the written consultation, focus groups run by Todd Associates in association with Van Döet Consulting and a series of 6 public seminars for charity sector representatives. The report on the Focus Groups is available on the Scottish Executive website at http://www.scotland.gov.uk/library5/social/dcbfg-00.asp and the report by SCVO on the seminars is available at http://www.scotland.gov.uk/about/UNASS/UNASS/00015300/page70039779.pdf
109. Partly as a direct consequence of the consultation process and partly as policy thinking on the Bill's provisions has developed, the Scottish Executive has made a number of changes to the Bill. This section of the report discusses these changes. The Executive believes that the Bill has been improved by the consultation process and are grateful to all those that took the opportunity to respond. References to section numbers in this part of the report refer to the Bill as introduced to the Scottish Parliament on 15 November 2004.

110. 1. The Charity Test (Sections 7 & 8)

111. A number of those who responded were concerned that the meaning of the final charitable purpose; "any other purpose intended to provide community benefit" was unclear. It was also suggested that the wording did not allow the flexibility of the current case law which extends charitable status to purposes which are analogous to the current charity heads. The draft Home Office Bill has been drafted to retain this flexibility and the Bill has been amended to reflect this.
113. Many of those who responded highlighted that independence from external control was key to public trust in the sector. The McFadden Commission also included independence as a key feature of Scottish charities. Others agreed with the Executive that it is the actions of charity stewards and their freedom to act independently which is important rather than the way they are appointed. However, given the weight of opinion, an extra test stating that a body fails the charity test if its constitution expressly allows third party control has been added to reinforce the importance of charity independence.

114. Public Benefit (Section 8)

115. The majority of those who commented on the inclusion of public benefit criteria in the Bill were in favour of doing so but also emphasised the importance of retaining flexibility. The focus groups unanimously supported the test and the inclusion of some criteria but were divided as to how prescriptive they should be. The Joint Committee scrutinising the Home Office Charities Bill also recommended that non-exclusive criteria for determining public benefit were included in that Bill. As a result, broad criteria for interpreting public benefit have been incorporated into the Bill. They are; that in determining whether a body provides public benefit consideration should be given to how any benefit gained by members of the body and any disbenefit to the public compares with the benefit to the public and where the benefit is, or is likely to be provided to a section of the public only, whether any condition on obtaining the benefit is unduly restrictive. These principles cover the 5 criteria set out in the consultation document and provide a statutory framework for OSCR and Courts to interpret public benefit while allowing the flexibility necessary for the sector to evolve over time. OSCR will still be under a duty to publish guidance on how it determines whether a body meets the charity test.

116. 2. Establishing a statutory charities regulator in Scotland.

     OSCR (Section 1 & Schedule 1)

117. Several of the responses suggested that the Bill should place OSCR and charities under a duty to perform their functions in a manner that encourages equal opportunities. As a public body OSCR has certain duties under equal opportunities legislation but it is accepted practice to emphasise this in new legislation. The Bill has therefore been amended to reflect this. The duty has not been extended to charities as this would be outwith competence.
119. While it was implicit in the Bill that OSCR would determine charitable status by entering a body into the Register, a number of respondents thought that this should be explicitly stated. It was also suggested that a specific reference was made to monitoring compliance by charities. OSCR's general functions have been amended to include both these suggestions.
121. The majority of respondents felt that disqualifying charity stewards from serving on OSCR's board unnecessarily denied OSCR access to a wealth of experience and expertise. The Executive agrees and Schedule 1 to the Bill has been amended to remove this exclusion. OSCR will be included in the Ethical Standards in Public Life etc. (Scotland) Act 2002 requiring it to prepare a Code of Practice for approval by Ministers including procedures for dealing with conflicts of interest.

122. The Scottish Charities Register. (Section 3)

123. A number of respondents to the written consultation and at the events raised concerns about the type of information that would be publicly available on the Register and the possible security issues this would pose for charities working in sensitive areas. A provision has been added to the Bill that allows OSCR to exclude the address of a charity from the Register, on application from the charity, if it believes inclusion is likely to jeopardise security. Charities may choose to use the address of their solicitor or a PO Box address as a contact address if the security of their staff and stewards is an issue.

124. Entitlement to be given information by charities. (Sections 23)

125. Concerns were raised that the provisions placed a duty on charities to supply certain documents to the public but prevented them from charging for doing so. A number of respondents highlighted that they were currently allowed to charge a reasonable fee for the provision of information to the public and felt that if they were to be prevented from doing so it should be for OSCR to provide copies of charity accounts, annual reports and constitutions instead. The Executive accepts that the current position should continue and Bill has been amended to allow charities to charge for providing information so long as the fee does not exceed the cost they incurred or a maximum fee that Ministers may set.

126. Dual Registration (Sections 13 &14)

127. The consultation process highlighted the problems which might be caused for charities with only marginal interest in Scotland by requiring all charities operating in Scotland to register with OSCR. There were concerns that this might lead to a disproportionate administrative burden and there was uncertainty over who would have to register. It was felt that if co-operation between the regulators is successful, dual registration would be of little benefit and might over burden OSCR if large numbers of charities in England and Wales decided to register. A general view that the legislation should not be overly bureaucratic was expressed in the focus groups. These concerns have been taken on board and provision has been added to the Bill to allow charities outwith the jurisdiction of the Scottish Courts, i.e. those who do not occupy land or premises in Scotland or carry out activities in any office or shop in Scotland, to refer to themselves as charities in Scotland despite not being listed in the Scottish Charities Register, providing they are entitled to do so. This means that many UK wide charities merely writing to Scottish members will not have to register but will be expected to accurately identify themselves as a charity registered in England and Wales rather than merely as a charity.

128. Registered Social Landlords (Section 38)

129. Communities Scotland and the Council of Mortgage Lenders argued that charitable Registered Social Landlords (RSLs) should be exempted from regulation by OSCR. The view of the Scottish Federation of Housing Associations was that Communities Scotland should be the lead regulator for charitable RSLs.
131. Communities Scotland argued that the regulatory powers set out in the Housing (Scotland) Act 2001, delegated to the Agency by Scottish Ministers, overlap with the proposed powers of OSCR in several key areas. They particularly highlighted registration and de-registration; purposes; consent to changes to constitutions of RSLs; investigating complaints; obtaining information; accounts; statutory powers of intervention including- making inquiries, appointments to the governing body & the transfer of assets. They agreed that the regulation of the charitable sector was important but felt that charitable RSLs are already subject to a stringent regulatory framework through housing legislation. Ministers were persuaded that requiring charitable RSLs to be regulated by OSCR as well as Communities Scotland would add significantly to the regulatory burden without adding value. The Bill has therefore been amended to allow Scottish Ministers to exercise OSCR's regulatory powers in relation to charitable RSLs. These organisations will register with OSCR but the day to day regulatory functions will be carried out by Communities Scotland. The housing regulator is committed to working closely with OSCR and will ensure that it deals with charitable issues when regulating charitable RSLs.

132. 3. How charities should be governed.

     Charity Stewards (Section 65)

133. The Bill proposed a new term to refer to those in control of charities. However the majority of respondents disliked the term Charity Steward feeling it did not accurately reflect the role and responsibilities, a view that was echoed in the focus groups. As a result the Bill has been amended to refer to Charity Trustees. While this does have some potential for confusion with trustees in trust law, it has the advantage of being in common usage in Scotland already and being compatible with the terminology used in England and Wales.

134. Duties (Section 65)

135. A number of respondents were concerned by the inclusion of an additional duty for those acting as a charity steward in the course of a business or profession to use any special knowledge and expertise. Many felt that it was unnecessary and might deter people from acting as charity stewards. This was a misunderstanding but the provision has been removed to improve clarity.

136. Remuneration (Sections 66 & 69)

137. Many respondents considered that charity stewards should be prevented from receiving payment for performing their normal duties but that they should be able to be paid for other services. It was felt that the Bill should address this issue and provisions have been added to the Bill to allow payment of charity stewards only where expressly permitted by their constitution. Payment is also only allowed for normal or other duties where it is considered reasonable and in the charity's interests, is subject to a transparent written agreement and where only a minority of stewards are paid. These provisions are similar to those in the draft Home Office Bill.

138. Disqualification (Sections 68 & 69)

139. It was suggested in a number of responses that OSCR hold a list of those who are disqualified from acting as a charity steward. Others suggested that as part of the application process to be put on the Scottish Charities Register OSCR should carry out checks on the trustees listed. The Executive felt that it would be impractical for OSCR to know about all those who are disqualified and that charities would be likely to ask potential stewards to declare anything that might disqualify them from acting. Some respondents also suggested that Disclosure Scotland checks be made compulsory for charity stewards. The Executive would expect that if a steward is likely to be working with children or vulnerable people the charity would carry out these checks as a matter of course.

140. 4. Powers to deal with wrongdoing in charities.

141. A number of respondents voiced concerns over the introduction of criminal sanctions by the Bill, particularly in relation to breaches of steward duties. They felt that criminalising charity stewards for what might be a mistake was harsh and would be a disincentive to becoming a charity steward. It was argued that OSCR should seek to help charity stewards address problems, that if they were incompetent they should be removed and current means of dealing with fraud were sufficient. The Executive believes, however, that criminal sanctions are an effective deterrent and OSCR will act in a proportionate manner when deciding to report any breaches. In addition the Procurator Fiscal will, as Master of the Instance, consider whether it is in the public interest before prosecuting any cases.
143. Many people felt that to maintain public confidence in charities OSCR should publish reports on the outcome of all inquiries whether or not any wrongdoing is found. To do this after all inquiries would be extremely burdensome on OSCR but Section 33 of the Bill has been amended to provide that OSCR must produce a report if requested to do so by the person about whom the inquiries were made.

144. 5. Regulating charity fundraising.

145. As a result of the responses to the consultation and to provide further clarity to the public, the Executive intends to extend the requirement to make a statement to potential donors regarding the fundraiser's remuneration or the amount of funds going to benevolent causes to include employees of benevolent bodies and possibly to volunteers (Section 80).
147. A number of responses suggested that while the Bill was right not to include the collection of goods in the provisions on public benevolent collections they should be subject to notification procedures. The Executive believes that without power to regulate and enforce such a scheme it would be of little practical value. There is no reported significant problem with malpractice in this area at the moment but it was felt that some provision may be required if improper practice develops. As a result, reserve powers (section 90) have been added that allow Ministers to regulate goods collections including requiring prior notification to local authorities of all collections of goods.
149. The Executive has also added a power allowing Ministers to remove the requirement for local authorities to undertake background checks for certain types of public benevolent collection application (section 85). This is intended to reduce the administrative burden on Local Authorities by allowing Ministers to remove the need for background checks on bodies registered with OSCR who apply for consent to make a public benevolent collection.
151. The focus groups highlighted public annoyance with street collections or "chuggers" with about 30% suggesting that they should be banned. This view was not expressed in the written consultation with the majority welcoming the proposals to extend the regulations to include promises of money by direct debit or standing order. The Executive believes that these proposals along with the statement by professional fundraisers on how much of the donation will go to the charity will provide adequate safeguards for the public while allowing charities to continue to use this valuable fundraising tool.

152. 6. Improving the operating environment for charities

     SCIOs (Sections 49 -63)

153. The majority of the responses welcomed the creation of Scottish Charitable Incorporated Organisations (SCIOs). There were mixed views on whether there should be limited or no liability for members. The Executive has considered the arguments for and against both and while some felt that removing liability from members could result in charity stewards acting rashly, we believe that limited liability is unlikely to have a significant impact on the behaviour of stewards, especially as the normal level of liability is set at a nominal 1. It was also felt that even with limited liability service providers are likely to ask for additional guarantees. As a result the Bill has been amended to provide that members of SCIOs will have no liability.
155. A number of those commenting on SCIOs emphasised the importance that the process for becoming an SCIO was as clear and straightforward as possible. The provisions of the Bill have therefore been expanded to clarify applications to create an SCIO, conversion to SCIO status and amalgamations of SCIOs. Further detail will be set out in regulations to provide flexibility and allow additional provision as practical experience increases.

156. Re-organisation (Sections 40 -44)

157. Many of the responses welcomed the proposals for simplifying charity reorganisation procedures. However some felt that the provisions were too complicated and they have been amended to provide that charities not having the power to amend their own constitutions will have to apply to OSCR for approval. This is a significantly simpler system than the original proposal that charities apply either to OSCR, the Sheriff Court or the Court of Session depending on their size. OSCR's decisions will be able to be appealed to the Scottish Charities Appeal Panel and ultimately to the Court of Session. As a result of these changes non-charitable public trusts are no longer covered by the Bill.

158. 7. Transitional arrangements.

159. The consultation document set out the Executive's proposals for transitional arrangements for existing charities to be automatically transferred onto the Scottish Charities Register. A number of respondents raised concerns that there was no provision for this in the Bill. While the majority of the detail of the transitional arrangements will be laid out in regulations a provision has been added to the Bill stating this and expressly providing that OSCR must transfer those currently entitled to describe themselves as a Scottish charity onto the Register. It is still intended that OSCR will carry out a systematic review of the Register to ensure that all charities meet the new definitions.

160. 8. Next Steps

161. The Charity and Trustee Investment (Scotland) Bill was introduced to the Parliament on 15 November 2004 and the Parliamentary process is likely to continue well into 2005. The Executive will continue to work with the sector as well as the Parliamentary committees scrutinising the Bill throughout this process.
163. Much of the mechanics of the Bill will be put into effect through secondary legislation and regulations. The Executive intends to develop these in consultation with the sector during the coming year. Work will need to be done to ensure that we put in place a regulatory framework which is robust, workable and flexible enough to deal with the diversity of the sector without placing undue burdens on charities.

The Scottish Executive
December 2004

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