Public Benefit
ISC View
In the context of Independent Schools, Indirect Public Benefit is the benefit to the public of saving costs which would otherwise be borne by the public purse. The savings in costs release funds to be used for other purposes, and that is the indirect public benefit. Indirect public benefit is something that can be taken into account in determining whether a trust or body is for the public benefit, but it is only one factor, and is never conclusive.
It is settled law that indirect public benefit is not enough on its own to secure charitable status. The relevant extract from our written evidence to the Joint Scrutiny Committee two years ago is as follows:
“An institution which restricted its benefits solely to a narrow class (either by status or by wealth), and without allowing the chance of participation beyond that class, would not be charitable, regardless of the saving to the taxpayer.”
[Extract from a letter from the Independent Schools Council to Andrew Kennon, Clerk to the Joint Scrutiny Committee, dated 15th June 2004.]
That has been our consistent view throughout, and is repeated in our briefings to the House of Lords and to the House of Commons. It is settled law that the benefits of a charity have to be available to a sufficient section of the general public: if that is not the case, no amount of indirect public benefit, however great, will be enough to secure charitable status. No school, properly advised, would claim that indirect public benefit was enough on its own. Any school unwise enough to do this would have the Independent Schools Council written evidence cited against it, and that evidence would be taken seriously by the court. It is, in our view, inconceivable that a court in the 21st century would accept the proposition that merely saving money to the taxpayer was enough to secure charitable status for a school.
Jonathan Shephard
General Secretary
Independent Schools Council
26th June 2006
Charity Law Association View
Introduction
The Charity Law Association ("CLA") has over 900 members, mainly lawyers, but also accountants and charity professionals. It is concerned with all aspects of the law relating to charities and has established a working party to consider the issues of charity law reform and in particular the Charities Bill. The members of this working party, as with all members carrying out work for the CLA, give their time free of charge.
CLA's Concern
The CLA supports the view of the law set out by the ISC above but, as we have said, our concern is with charity law, and to ensure that it is both workable and clear for the benefit of all charities.
Our concern is that a change in the law relating to the definition of public benefit is so fundamental that it should not be done haphazardly at the eleventh hour. If the Government wishes to review the definition of public benefit it should refer the matter to the Law Commission so that it can be properly considered and debated by all concerned. It would also be necessary, in the CLA's view, to carry out a full regulatory impact assessment in relation to any such changes.
The outgoing Chairman of the Charity Commission, Geraldine Peacock, told the annual conference of the Charity Finance Directors’ Group earlier this month that, “There is a growing understanding that charities need to be profitable” and that, “charitable doesn’t necessarily mean free”. Charities which care for people or for the environment or which provide research or educational services need to pay professional people properly to carry out that work; they cannot expect all or even a substantial part of that expenditure to come from philanthropists, still less from central & local government. Charities will increasingly have to charge fees for their work and inevitably some commentators will regard those fees as “high”.
If the government wants a vibrant, healthy and diverse charity sector, able to react quickly to the changing needs of humanity and the world, it should be wary of imposing in primary legislation any arbitrary view as to what are “high fees” and what in that connection constitutes public benefit. The question is much better left to the Charity Commission (and if necessary to the Charity Tribunal and the Courts) to decide, as society changes, whether a particular charity is pursuing the benefit of the public (ie a sufficient section of it) and, if it is not what the charity must do to put that right.
Reason for the CLA's concern
The reason why the CLA have this concern is that the definition of public benefit is complex and derives from case law decided over 400 years. There are many different strands and rules which go to make up the definition, some of which differ between the differing heads of charity. Anything on the face of the Bill would clearly change the law, but it would be unclear to what extent and precisely how the law had been changed. Given the complexity of the law in this area, a full definition on the face of the Bill would be impossible. It takes at least a chapter in the average text book.
If, hypothetically, a provision were included on the face of the Bill that any high fee charging charity must show significant direct benefit to the public in order to establish that it exists for the public benefit, this would raise a number of questions. For example:
Would this overturn the rule that says that, for the purposes of assessing the public benefit of charities for the relief of poverty, a very small class can constitute "the public".
Would it overturn the rule which states that it is in the interests of the public for people to be religious (or to foster or pursue a spiritual element in their lives) and that any religion is better than none.
How does it affect the line of cases defining how large a section of the community the potential beneficiaries of a charity have to be to constitute "the public".
How high does a fee have to be to constitute "high" for this purpose. Presumably fees which are sufficiently high to exclude potential beneficiaries would qualify as "high".
However, the ISC's post code analysis shows that many families with modest incomes nonetheless send their children to independent schools, which must cost a significant percentage of their annual income. They have not been excluded from benefiting from the charity, though the fee must surely be regarded in this context as high.
One might set against this the reported fall-off in applications to universities resulting from the introduction of what must be regarded as a relatively modest fee. There clearly are students who are excluded from benefit because of these fees.
Which of these two types of fees, therefore, would qualify as "high".
Unintended victims
Leaving aside difficulties of extent and interpretation, such as those mentioned above, a test such as that hypothesised earlier would undoubtedly catch many more charities than those targeted by such a test.
For example:
Medical research charities frequently charge those who wish to see the results of their research. Such results are often at so early a stage that it would be impossible to show what the significant and direct benefit to the public is at that stage. Subsequently such research may prove to have been of vital importance, but it might equally prove to have been totally worthless, indeed, as we have recently seen, even injurious to the health of fit young people.
There are religions who make a charge for membership and religions who ask their members to donate a fixed proportion of their income – and how easy is it to show significant direct benefit to the public from religious services.
Universities make a charge, but the significant direct public benefit of courses in such subjects as Egyptology or Aramaic may be difficult to establish.
Animal welfare charities charge for their services, but (given that "the public" means human beings) it is difficult to show significant and direct public benefit from their activities, apart possibly in situations where animals are put to work directly for the benefit of the public or are bred and nurtured for food.
Charities offering philanthropy capital, for example, CAF's Charity Bank, always charge interest. Whilst the benefit they afford may well be significant, it is difficult to see how it is of direct benefit to the public.
Clearly this list could run for pages, but hopefully this sample is sufficient to make the point that any interference with the current delicate balance of the definition of public benefit could have far reaching and unforeseen consequences.
Charity Law Association
26 June 2006
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