Public Benefit: Are You Ready?

With the advent of the Charities Act 2006 there’s a lot for charities (and their advisers) to get their heads around at the moment. Unless you’ve had your head in the sand for the last couple of years you can’t help but be aware of one on the most controversial issues surrounding the new Act: the fact that it will change the rules on public benefit for charities in a number of ways.

First, it introduces a requirement that, in order to be charitable, an organisation’s purpose(s) must be for the public benefit. Secondly, those charities previously presumed to exist for the public benefit will, under the terms of the new Act, lose their privileged position.

Despite significant pressure during the Act’s passage through Parliament, it does not contain a test for or definition of public benefit. Rather, the Act specifies that the term, “public benefit” is to continue to be interpreted as understood for the purposes of existing case law. The Act also imposes a new obligation on the Charity Commission to issue guidance on the issue of public benefit and a new obligation on charity trustees to have regard to such guidance when exercising their powers and duties.

The consultation period on draft guidance produced by the Commission ended in June. It sets out five principles to which the Commission intends to work in addressing the issue of public benefit for both new and existing charities as follows:-

• the purpose being carried out by a charity must be capable of producing an identifiable benefit. In practise, the benefit (be it direct or indirect, tangible or intangible) will vary according to the purpose in question;

• the benefit will be assessed in the light of modern conditions. In other words, the Commission’s view on whether or not a purpose is for the “public benefit” will be influenced to some extent by public opinion and could, as a result, change over time;

• the benefit must be to the public in general or to a sufficient section of the public. Any attempt to narrow the benefit from the public at large to a section of the public must be justifiable. Again, the Commission’s interpretation of this principle is likely to depend on the purpose in question;

• any private benefit must be only incidental. In other words, it must arise as a necessary but incidental consequence of a decision of the trustees directed at furthering the charitable purpose(s) of the charity AND the amount of private benefit must be reasonable; and

• those who are less well off must not be entirely excluded. An organisation which wholly excludes those who are less well off from any benefits, direct or indirect, would not be set up and operate for the benefit of the public and coud not, therefore, be charitable.

Much of the talk about the subject of public benefit has focussed on the last of these principles and the impact which it will have on fee-charging charities. Whilst public benefit is undoubtedly a hot topic to be addressed by charities such as independent schools and private hospitals there is a danger that those charities which do not charge fees for their services will forget that they too will be required to prove the public benefit which they provide. In the case of charities that have objects concerned with advancing education or religion or with relieving poverty then this requirement is something they haven’t had to address before.

The final guidance is expected for Autumn 2007, when the Commission will also launch its series of consultations looking at the issue of public benefit for particular sections of the charity world – those who have not previously had to consider public benefit (because of the presumption in their favour) and fee-charging charities. The relevant sections of the new Act will come into force in Spring 2008 by which time all charities would do well to have addressed the issue and be on the way to implementing a well thought out public benefit policy.

Can we help?
In the light of all this change the charities team at Foot Anstey is offering a public benefit audit to help charity trustees address the issue head-on and ensure that their house is in order before the relevant provisions come into force. This service can be tailored to suit your charity’s particular needs and size so if you would be interested in finding out more then please do contact either James Evans (01392 685243) or Anna Roderick (01392 685367).

Published 28/08/2007. The author of this article is James Evans