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Draft Charities and Trustee Investment (Scotland) Bill

2. A vision of a flourishing charities sector

Valuing the sector

Scotland's 20,000 charities play a vital role in daily life in Scotland. Without charities' knowledge, skill and expertise, Scotland would be much the poorer. The Scottish Executive is committed to supporting and valuing charities and the wider voluntary sector, while respecting the independence of these organisations.

Scotland deserves a properly regulated and supported charity sector. We established the Scottish Charity Law Review Commission (the McFadden Commission) in 2000 to consider reforms to charity regulation, and we are very grateful to the Commissioners for their important report. We responded to the commission's recommendations in December 2002, agreeing to take them forward, although legislative time was not available at that point.

We now have an opportunity to legislate for 21st century charities, and have moved with all possible speed to prepare a draft Bill for consultation. The changes in charity regulation that we are putting in place here are designed to support and encourage charitable activity in Scotland, while reassuring the public that their money is being well used and that support is being properly provided.

The reform of charity law proposed in this consultation paper and draft Bill forms a core part of a wide-ranging programme of activity to support the sustainable growth of charities and the wider voluntary sector in Scotland.

The Office of the Scottish Charities Regulator (OSCR) has been established to monitor and supervise charities in the run-up to the legal reforms set out in this paper. OSCR is already working to a challenging remit of developing an effective regulatory system for charities, and managing a smooth transition towards the new legal framework to be set out by this Bill, having been closely involved in the development of the draft. An initial index of Scottish charities is now freely available on its website (www.oscr.org.uk). It is working closely with other regulators to ensure that the systems and procedures it sets in place follow best practice in regulation and minimise the burden on charities. It is developing a pilot monitoring framework to explore how to establish a proportionate and transparent reporting regime, which will pave the way for the requirements of this draft Bill. Importantly, it has already established a range of consultative structures to ensure that stakeholders and experts are able to contribute to the development of policies and processes now and in the future.

The Compact between the Scottish Executive and the voluntary sector has been revised and strengthened, and was relaunched in February 2004. At the same time, the recommendations of the Scottish Executive's Review of Policies to Promote the Social Economy are being taken forward and our proposals for further investment in the social economy will be published shortly.

The Strategic Review of Voluntary Sector Funding has brought the Scottish Executive, local government and the voluntary sector together in a jointly-owned process to improve the sustainability and effectiveness of voluntary organisations and the funding they receive. An action plan will be published to take forward this work later this year.

A Volunteering Strategy for Scotland was published in May 2004. The recommendations attached to this strategy, which include the development of the new Project Scotland youth volunteering programme, will be taken forward throughout this year and beyond.

Taken together, this wide range of inter-related activities, engaging a large number of stakeholders, creates a rolling agenda for change which will significantly improve the landscape for charities and voluntary organisations in Scotland.

Consulting stakeholders

Our aim in reforming charity law is to provide a robust, effective and proportionate regulatory system for Scottish charities, which will secure the widespread support and confidence of both the public and the charities sector. To ensure that the draft Bill is properly grounded in an understanding of the sector, we developed a three-stage consultation strategy, which was published in December 2003.

A reference group was established with a remit to assist the Scottish Executive to develop effective, coherent and proportionate proposals in the draft Bill. More technical or specialist details have also been considered in discussion with identified experts. These discussions have run in parallel to, and fed into, meetings of the reference group. The Bill team has now held more than 40 consultation meetings on particular aspects of the Bill.

We are committed to keeping the sector informed of our progress as well as making sure we have avenues to listen to concerns. We have created a website which provides access to a range of background information as well as to consultation documents, and we are working with sector publications and specialist media to ensure that stakeholders are aware of our plans and their likely impact.

More background on the drafting process and current consultation activities and events can be found at www.scotland.gov.uk/viu.

A vision for charity regulation

The draft Bill is motivated by the Executive's belief that there is a clear public interest in the effective regulation of charities in Scotland. For regulation to be effective, it must promote five key principles.¹ It must be:

• independent
• proportionate
• accountable
• transparent
• consistent.

¹ Independent Regulators, Better Regulation Task Force Report, October 2003 (www.brtf.gov.uk)

The attached Bill is a wide-ranging piece of legislation, bringing Scots charity law requirements together in one place for the first time. It repeals existing charity law and creates one single, modern framework for charity regulation in Scotland based on the five principles above. The new Bill sets out a Scottish definition of charity, with a public benefit requirement. It provides for OSCR to become an independent statutory regulator with an enhanced range of powers, including granting charitable status and maintaining a statutory register of all charities operating in Scotland. We will seek to ensure that the five key principles of good regulation are enshrined in OSCR's operations.

The Bill modernises regulation of fundraising to ensure that public collections are more effectively monitored and that professional fundraising companies inform the public how much of a donation will go to charity.

The Bill also takes forward a number of measures which have been called for by charities for some time, including the creation of the new Charitable Incorporated Organisation, making charity re-organisation easier, and widening trustees' investment powers.

This draft Bill creates a specific Scottish regime of charity regulation which recognises the needs of the Scottish charity sector, and the public interest in effective regulation. However, where it makes good sense for our measures to fit with the approach being taken in England and Wales, we have sought to ensure our proposals complement theirs.

In some areas of the law reform, it is particularly helpful that the Home Office are looking at similar issues in a similar way. For example, since the definition of charity in law has implications for an organisation's tax status, it is clearly important that our definitions are similar north and south of the border. (For more about this issue, look at p. 9).

For more details of Home Office plans and a copy of their draft charities Bill, published in May, visit their website at www.homeoffice.gov.uk/comrace/active/charitylaw/index.html.

Some of the issues included in our Bill are highly technical. Some cover broad issues of principle, about how we want charities to behave in modern Scotland. For example, there is a debate about whether some types of organisations should continue to have charitable status. We have also listened to debates about whether charities should have to prove that they are independent of government. We welcome these debates, which raise a number of interesting questions for charities' place in Scottish society.

The approach we have taken in drafting our Bill is to set out key principles for the regulation of charities, which can be interpreted flexibly and proportionately by the regulator over time. 'Proportionality' as a principle of regulation does not mean that some charities will be dealt with more harshly than others, or that some will be able to evade the law we set out here. It does mean that different types or sizes of charity will be expected to provide proof of compliance in different ways suited to their circumstances, and will be given appropriate support from the regulator to do so. We will give the regulator, and the charities sector, more details of the system we envisage, by setting out the building blocks of proportionality in a range of secondary legislation. We will set thresholds in secondary legislation, to ensure that charities with lower incomes are subject to less stringent information requirements than, say, multi-million pound charities. We will consult on much of this nearer the time when the Bill will become law.

Meanwhile, responding to this consultation gives you the opportunity to help shape our vision for the Scottish charity sector.

We will take all views into account as we hone the draft Bill over the coming months. However, as we prepare to introduce the Bill to the Scottish Parliament, we are committed to make decisions based on the principles set out above, to ensure that the regulatory structure we create is effective and fit for purpose.

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