The Charity Commission is the regulator for charities in England and Wales. It is funded by the Treasury but independent of government.
Its purpose is:
”To ensure charity can thrive and inspire trust so that people can improve lives and strengthen society.”
It is both the registrar of charities and regulator of charities. Which means it keeps a list of all the charities and investigates the bad ones. It deals with complaints, helps trustees be good trustees and occasionally shares its opinion about “charity”.
It does all this — keeps a list of around 170,000 charities and regulates £81.2bn of charity income — on a budget of £29.3m.
So for every £1,000 of charity income in England and Wales, 36p is spent on regulation by the Charity Commission.
As the tenure of the current Chair comes to an end, others have written thoughtful articles about the skills the incoming Chair should have. However, the problem goes deeper than the person at the top and has for some time.
It may be time to abolish the Charity Commision.
Lessons from the Global Financial Crisis
After the financial crisis of 2008, the main regulator of financial services in the UK — the Financial Services Authority — was abolished.
On consumer issues like the PPI scandal and systemic issues like the collapse of Northern Rock, the FSA was found wanting.
Issues like the PPI scandal were ultimately tackled despite the regulator, not because of it. In the system that existed at the time, the FSA acted as if the actual issues facing the banking industry and its customers were beyond its remit.
The world had changed, new problems had emerged and the regulator had failed to respond. In the eyes of many in financial services, it had to go.
In his Mansion House speech of 2010 the Chancellor said that the FSA had become a “narrow regulator, almost entirely focussed on rules based regulation”.
The FSA was abolished and its functions split between the Bank of England and a new agency. The exam question for the future regulatory regime was “how do we ensure less box-ticking and more exercise of judgement?”
Less box-ticking, more judgement
Many of the criticisms the FSA received at the time are familiar to anyone looking at the Charity Commission today.
The FSA was seen as overly reactive with too narrow a view of its remit. It lost the confidence of the sector it regulated whilst failing to get the basics right.
All of these criticisms — which are about more than leadership, but about culture, role and structure— could reasonably be made of the Charity Commission.
Look at the performance of the Charity Commission through the pandemic and there is evidence of its narrow perspective, a failure of leadership and an inability to grip the real issues.
In March 2020, the Charity Commission’s first intervention during lockdown illustrates the problem.
At a time when charities were taking amazing steps to keep services running, funders were proactively relaxing funding requirements, and people needed the support of the charity sector more than ever, the best the Charity Commission could do was to update its guidance on critical incident reporting.
The guidance was bad. It was poorly communicated, bureaucratic in tone and bore little relation to the realities charities were facing.
Even the Commission itself acknowledged it was bad, writing“unfortunately, our initial response was not as helpful as we would have liked.”
It was almost the definition of the “rules-based, tick box approach to regulation” that the FSA was criticised for, and just one example. (The original tweets have been deleted, but this article captures the tone and spirit of the intervention.)
The Select Committee was right
Weak leadership is a recurring theme for the Commission and has been the focus of much public comment.
During her tenure, Baroness Stowell, the current Chair of the Charity Commission, has shared opinions about the charity sector that betray a basic lack of understanding of the complex, diverse sector she is charged with regulating.
Rather than taking every speech or article line-by-line, it’s worth going back to the letter written in February 2018 by the DCMS select committee to the Secretary of State. They wrote that they could not endorse her appointment to become Chair of the Charity Commission.
This was not a party political letter — it was a cross-party consensus that was unusually blunt in its tone.
In opposing her appointment, the select committee wrote they could not support her appointment, citing her “negligible charity sector experience”, “a complete lack of experience of working for a regulatory body” and that she “was unable to withstand scrutiny”.
In retrospect, it is hard to read that letter and the subsequent articles that have come out of the Charity Commission and disagree with the Select Committee. They were right. It was the wrong appointment.
Missing the interesting stuff
Beyond getting the basics wrong and suffering poor leadership, the Commission is failing to grip the actually interesting and important questions facing the sector.
This is a sector that covers village halls and universities, global development organisations and volunteer sports clubs, cutting-edge medical research organisations and food banks. Its diversity is its strength. No-one doubts regulating such a diverse sector is a complex challenge.
In a recent report, the Beacon Collective made recommendations about how to make the UK a much stronger environment for philanthropy.
Other reports, like Civil Society Futures and 45-degree Change have set out some of the real challenges facing the sector.
What, meaningfully, has the Charity Commission had to say about any of this?
On these questions and other important issues like impact investment, charitable participation in startups and the role of social enterprise the Charity Commission has almost nothing constructive to say.
Even their own listening exercise last year on the narrow issue of responsible investment noted that “Other respondents felt that the Commission itself has added to the confusion”.
A notable feature of the recent Kids Company judgement (read this excellent summary) was that it was not even brought by Charity Commission, but the Official Receiver. (It’s not clear why this is, or whether there are other ongoing investigations).
Questions of funding, inclusion and diversity, legitimacy and even the role of charity in society seem so far from the Charity Commission’s agenda it feels strange to include them.
As charities try to tackle real problems, the regulator appears to mix grandstanding general statements with bureaucratic nitpicking.
The Commission might respond that they don’t have enough money to do much more than the core issues of keeping the register and chasing the worst wrongdoers. They might suggest that only having 36p per £1000 of charity income doesn’t go far enough. Others might point to the fragmented and lightweight regulation of the charity sector in other countries.
But it is the sort of behaviour that got the FSA abolished.
So what do we do?
There is a strong case to abolish the Charity Commission and start again.
Whilst the case for abolition — or at least serious structural, cultural and organisational reform — is clear to many, the real baseline is that none of this is ever critical enough to warrant any actual changes.
Whilst the Commission is independent, in the end it is part of the civil service. It exists within a regulatory framework designed by government. Huge sector reform doesn’t appear to be on anyone’s agenda right now.
The trigger for financial services reform was the Global Financial Crisis.
No-one would wish for a crisis at scale, but without one there does not seem to be the energy or enthusiasm for serious change.
Yet when regulators are structurally weak, crises often follow.
Without a crisis, the sector in all its diversity will likely remain lumbered with a slightly useless regulator that limits the ability of committed people and organisations to serve their missions.
To follow the analogy of financial services regulation, the simplest structural solution for a government in the face of a crisis would be to abolish the Commission, give some of the tax-related regulatory powers to HMRC and then have a more focussed regulator on real issues, or even a dedicated thematic or sub-sectoral regulator.
Would this be better? It’s not clear giving HMRC more oversight of the sector would be the first thing you would do if you wanted an explosion of social innovation, more money to good causes and a healthier, more inclusive sector. Also, a new “focussed” regulator would probably be lots smaller, when it is fairly clear any effective regulator probably needs to be lots bigger.
But it does appear to be the simplest option and could be attractive to policymakers for that reason alone, were reform on the table.
A good regulator serves the public, not the sector. This is one point the Charity Commission consistently gets right.
But what does the sector want? For all the private complaints about the Charity Commission, it is not clear what people want in its place.
It is incumbent on the sector to come up with some better ideas, better funding models and proposals for a better regulatory environment that can “ensure charity can thrive and inspire trust so that people can improve lives and strengthen society”.
Whilst the charity sector has not had a successful time lobbying this government recently, there’s a clear case for coming up with some alternatives to the status quo before a crisis forces the conversation.
In September 2013, a previous Chair of the Charity Commission said: “it’s quite simple: the Commission must fulfil its primary role as policeman of the charity sector”.
And there’s a classic Simpsons episode where Lisa Simpson asks “if you’re the police, who will police the police?” and Homer says “I dunno, the Coastguard?”
And at this stage, it feels like we don’t have better answers than that.
But even the Coastguard might be better than what we’ve got.