charities and the big society: a doomed coalition?

Charities and the Big Society:a doomed coalition?lest_216 132..153

Debra Morris*Reader in Charity Law & Policy, University of Liverpool

While there is a central assumption that charities can be key implementers of Big Societyideals, this paper will consider whether there is compatibility between the political rheto-ric of the Big Society and its delivery through the charitable sector. It will be maintainedthat, while much obvious synergy exists, there are inherent difficulties, at both the practicaland theoretical level, for the large-scale involvement of charities and their volunteers inthe delivery of the Big Society. At the practical level, it will be seen that some amendmentsto the legal framework, so as to accommodate the greater use of charities and volunteerswithin the Big Society, may need to be brought into effect. However, at the foundationallevel, an examination of the core characteristics of charities and their substantive legalprinciples reveals some more fundamental impediments to their fulfilling Big Societyobjectives laid out for them by government.

INTRODUCTION

Since the coalition Government took office in May 2010, one of its major policyinitiatives has been the development of the so-called ‘Big Society’. Charities areconsidered to be axiomatic to the practical delivery of the Big Society. Together withsocial enterprises, and the wider voluntary sector, they are cited in every governmentpolicy document as underpinning many aspects of the Big Society agenda.1 Likewise,the head of legal services at the Charity Commission has stated:2 ‘Registered charitiesare at the heart of civil society in England and Wales – they represent its backbone. Somuch of the implementation of the Big Society is likely to involve charities.’ There istherefore a central assumption that charities, with their own regulatory framework anddefining features, can be key implementers of Big Society ideals. This paper willexamine this unquestioned premise of natural fitness for purpose.

It does not question the merits of the Big Society agenda, from a social policy pointof view.3 Rather, its starting point is that the Big Society, described in February 2011as Prime Minister David Cameron’s ‘absolute passion’,4 is here to stay, and thatcharities are expected to play a key role. It therefore focuses on whether there is

* Thanks to my colleague, Warren Barr, and the anonymous referees for their helpfulsuggestions. The usual responsibility for errors applies. Email: [email protected]. See eg Cabinet Office Building the Big Society (May 2010).2. A Holt ‘The big idea’ [2011] Solicitors Journal, Charity & Appeals Supplement,1 February 2011.3. For such a critique, see eg P Alcock ‘Building the Big Society: a new policy environmentfor the third sector in England’ [2010] Voluntary Sector Review 379.4. Prime Minister David Cameron delivered a speech on the Big Society on 14 February2011, available at http://www.number10.gov.uk/news/speeches-and-transcripts/2011/02/pms-speech-on-big-society-60563.

Legal Studies, Vol. 32 No. 1, March 2012, pp. 132–153DOI: 10.1111/j.1748-121X.2011.00216.x

© 2011 The Author. Legal Studies © 2011 The Society of Legal Scholars. Published by Blackwell Publishing, 9600Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA

compatibility between the political rhetoric of the Big Society and its delivery throughthe charitable sector. Looking at the legal restraints that limit the operation of chari-ties, it will be argued that what appears, at first blush, to be a near perfect synergy, maywell turn out to be a significant stumbling block for the development of the BigSociety. It will be maintained that, while much obvious synergy exists, there areinherent difficulties, at both the practical and theoretical level, for the large-scaleinvolvement of charities and their volunteers in the delivery of the Big Society. At thepractical level, it will be seen that some amendments to the legal framework, so as toaccommodate the greater use of charities and volunteers within the Big Society, mayneed to be brought into effect. However, at the foundational level, an examination ofthe core characteristics of charities and their substantive legal principles reveals somemore fundamental impediments to their fulfilling Big Society objectives laid out forthem by government.

(a) The Big Society and the key role of charities

The Big Society concept has eluded any kind of pithy definition, but the originalaims were laid down in a Cabinet Office document published within a week of theformation of the coalition.5 These aims are to: decentralise power by shifting it fromcentral government to local government and then to communities, neighbourhoodsand individuals; encourage people to take an active role in their communities; supportemployee-owned cooperatives, mutuals, charities, social enterprises and voluntaryorganisations so that they may have much greater involvement in the running of publicservices; and enhance transparency by publishing government data. More simply, in apolicy document aimed at charities, social enterprises and voluntary organisations,6

the three core components of the Big Society policy agenda were described as:empowering communities, opening up public services, and promoting social action.These are to be achieved by the implementation of a myriad of new schemes. Theseinclude: giving communities the right to bid to take over local facilities and servicesthreatened with closure; training a new generation of community organisers; andsupporting the creation of neighbourhood groups across the UK, especially in the mostdeprived areas. There will also be a range of measures to encourage volunteering,involvement in social action and charitable giving and philanthropy. In addition, fundsfrom dormant bank accounts will be used to establish a Big Society Bank, called BigSociety Capital, which will provide new finance for charities, social enterprises andvoluntary organisations.

Though presented as if wholly new, the idea that local communities via charitiesare best placed to find innovative solutions to local problems is not a novel one. In ashow of support, the underlying ethos and modus operandi of charities is clearly beingfavoured, as they are encouraged to take greater responsibility for running publicservices. None of the rhetoric is new to charities that have a long history of helpingpeople change the communities around them for the better; it was charities that

5. Cabinet Office, above n 1.6. Office for Civil Society, Cabinet Office Building a Stronger Civil Society. A Strategy forVoluntary and Community Groups, Charities and Social Enterprises (October 2010). See alsoOffice for Civil Society, Cabinet Office Supporting a Stronger Civil Society. An Office for CivilSociety Consultation on Improving Support for Frontline Civil Society Organisations (October2010).

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© 2011 The AuthorLegal Studies © 2011 The Society of Legal Scholars

established the first hospitals,7 schools8 and hospices,9 to name but a few examples.Many successful charities have always embraced the principles of the Big Society,before it acquired this label, and, in practice, many initiatives announced as part of theBig Society push were already being developed by the previous government. Also, asa result of the ‘contract culture’ and the introduction of a mixed economy of care, asignificant number of charities are already involved in public service delivery.10 In thisrespect, the Big Society may simply be a profile-raising exercise for such organisa-tions, with an exhortation to others to follow suit.11 In 2007/2008, the voluntary andcommunity sector delivered £9.1 billion worth of public service contracts, withcontracts making up over 70% of the sector’s income from statutory sources.12 Evenso, it is clear that the government aims to step up the role of charities in servicedelivery to new levels, and the question remains as to whether charities and the legalframework within which they operate are themselves fit to deliver at this level.

(b) The place of law within the Big Society

It might seem paradoxical to consider the need for legal devices to support the BigSociety, which is, after all, expected to be a movement of the people, in which theyfind local solutions to local problems without falling back on state support.13 Forexample, if the answer to the volunteering gap (if there is one) is simply to legislateso as to coerce people to volunteer or, perhaps, lose their welfare benefits, that is noanswer at all. Legislating for the Big Society would defeat its purpose. However, itwill be seen that there may currently be reasons why people are not more civicallyengaged and that there are steps that government could take to remove some of thepractical barriers. In this way, law may act as an enabler (or indeed, disabler) to theBig Society. Law can, and in some situations clearly does, facilitate the Big Societywhere charities are concerned. As an illustration, the new14 statutory definition ofcharitable purposes specifically includes the advancement of citizenship or commu-nity development,15 which is entirely consistent with the Big Society’s ambitions toencourage higher levels of civic activism. More generally, while public benefit has

7. See eg A Wilson ‘Conflict, consensus and charity: politics and the Provincial VoluntaryHospitals in the eighteenth century’ [1996] English Historical Review 599.8. See eg MG Jones The Charity School Movement: A Study of Eighteenth CenturyPuritanism in Action (Cambridge: Cambridge University Press, 1938).9. See eg D Clark ‘Originating a movement: Cicely Saunders and the development ofSt Christopher’s Hospice, 1957–1967’ [1998] Mortality 43.10. For an examination of the research evidence, argument and policy development onthe third sector and public service delivery over the last 5 to 10 years, see R Macmillan ‘Thethird sector delivering public services: an evidence review’ Third Sector Research CentreWorking Paper 20 (Birmingham: TSRC, 2010).11. Many existing initiatives are being ‘re-branded’ as examples of Big Society in action. Seeeg from an international perspective, A Riegert International Examples of Big Society Initiatives(London: Office for Civil Society, Cabinet Office, 2011).12. J Clark et al The UK Civil Society Almanac 2010 (London: NCVO, 2010).13. One of the central themes behind the initial Big Society policy document is that there isan over-reliance on government and that there should be greater self-reliance and self-sufficiency; Cabinet Office, above n 1.14. Until the Charities Act 2006, the definition of charitable purposes was found in case-law.15. Charities Act 2006, s 2(2)(e). See also, Charity Commission The Promotion of theVoluntary Sector for the Benefit of the Public RR13, September 2004; and Charity Commission

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always been an essential element in all charities, the statutory definition of charityincludes the need for a charitable purpose to be for the public benefit.16 It is this factorthat distinguishes charitable trusts from private trusts, and it is the public benefit thatis often said to justify the advantageous taxation treatment afforded to charities.17 TheCharity Commission’s interpretation of ‘public benefit’,18 which effectively requirescharities to consider the benefit to the community that their activities provide, maywell be considered to be consistent with the notion of the Big Society.

It is apparent, however, that there are outstanding legal concerns which may makeit difficult for charities to take advantage of the opportunities afforded to them to domore, and to have a greater say, as a result of the Big Society agenda. In relation togalvanising individual participation in the Big Society by supporting charities, it willbe seen that there is much that can be done, with some tweaking of the regulatoryframework. However, some of the legal characteristics inherent within charitablestatus are not susceptible to reform and may provide permanent barriers to charities’expansion within the Big Society. As a result, the assumed synergy between charityideals and those of the Big Society initiative may not hold up to scrutiny.

Before turning to some of those legal restraints, an initial highly practical barrierfor charities to overcome is that they need reliable funding if they are to be sustainablein the Big Society.

FUNDAMENTAL PROBLEM OF FUNDING

Some charities have a high level of dependence on state income. By 2008, around 36%of total income for charities in England and Wales, just under £13 billion, was comingfrom statutory sources.19 At a time when charities are expected to play a larger role inthe provision of public services, removing state funding may be the biggest practicalthreat to their enhanced role in the Big Society. The unprecedented public sector cuts20

will increase the demand for charities’ services, such as housing and debt advice. Yet,in a ‘double whammy’, at the very time when charities (whose public and privatefunding is down) and their unpaid volunteers (with less free time and money due to theeconomic downturn) are expected to step into the limelight and plug the gaps inservice provision, government’s contribution to charities may fall by as much as £5billion.21 Loans, short-term contracts and multi-agency funding arrangements make itdifficult to provide necessary services, which require the honouring of contracts ofemployment and leasing obligations, on a long-term basis. In addition, the transac-tional costs of the procurement process may well be prohibitive for many charities.22

Promoting the Efficiency and Effectiveness of Charities and the Effective Use of CharitableResources for the Benefit of the Public RR14, September 2004.16. Charities Act 2006, s 2(1)(b) and s 3.17. See eg dicta of Lord Cross in Dingle v Turner [1972] AC 601 (HL).18. Charity Commission Charities and Public Benefit. The Charity Commission’s GeneralGuidance on Public Benefit (2008).19. Clark et al, above n 12, p 43.20. HM Treasury Spending Review 2010 Cm 7942, October 2010.21. Suzi Leather, Chair of the Charity Commission, on BBC 1’s Politics Show, 24 October2010.22. See eg House of Commons Public Administration Select Committee Public Services andthe Third Sector: Rhetoric and Reality Eleventh Report of Session 2007–2008 vol 1, HC 112–I(London: TSO, July 2008) p 38. In some acknowledgement of this, £470 million over four



The Chair of the Charity Commission has warned that cutting funding to charities thatprovide key public services is shortsighted and threatens to ‘pull the rug out’ fromunder the Big Society.23 In a survey of voluntary sector and local government employ-ees carried out in October 2010 both identified the public spending cuts as the biggestbarrier to achieving the Big Society.24 These are hardly favourable conditions for theBig Society to take root and grow.

Understandably, therefore, much of the debate (and, in the main, criticism) hasbeen against this background, with the Big Society largely heralded as a smoke-screen for implementing massive public sector cuts and then expecting an army ofvolunteers to fill in the gaps as the state retreats. To make matters worse, it is likelythat the cuts will hit what is intended to be the very core of the Big Society, that is,small local charities.25 For impoverished local authorities, they may be easier targetsthan the larger national organisations, albeit that the latter are more likely to receivegovernment funding in the first place.26 Despite exhortation from the Prime Ministerfor local government not to do the ‘easy thing’,27 and the (counter-Big Society)threat from the Secretary of State for Communities and Local Government that hewill use legal means to prevent local authorities passing on ‘disproportionate’ cutsto charities,28 there is evidence to suggest that some local authorities have done justthat.29

The government wants to expand the use of payment by results across publicservices,30 and this may well exclude smaller charities that operate with low reservesand have no access to working capital to invest in up-front costs. Research undertakenby the National Council for Voluntary Organisations (NCVO) in 201031 found that36% of charities providing services did not hold any free reserves, and an earlierCharity Commission survey32 found that smaller charities had significantly lessreserves than larger ones. In addition, ‘results’ in many areas of service provision aredifficult to measure, or can only be evaluated after a substantial period of time, again,

years, including a £107 million transition fund that will provide short-term support to helpcharities, social enterprises and voluntary organisations make the transition to the delivery ofpublic sector services, is to be made available to help community groups build the Big Society;HM Treasury, above n 20, para 1.89.23. Leather, above n 21.24. Third Sector, 19 October 2010.25. See further, below, on the particular problems for small charities.26. A Charity Commission survey in 2006 found that almost 67% of charities with an annualincome above £10 million delivering public services obtain 80% or more of their income thatway. In contrast, 46% of charities that deliver a public service with an annual income below£10,000 obtain less than 20% of their income that way; Charity Commission Stand and Deliver– the Future for Charities Providing Public Services RS15, February 2007.27. Hansard HC Deb, vol 511, col 877, 15 September 2010.28. ‘Eric Pickles willing to block “unreasonable” cuts to voluntary sector’ Guardian 2 March2011. See Department for Communities and Local Government Best Value: New DraftStatutory Guidance. Consultation April 2011.29. See eg ‘Message to Big Society charities: expect “disproportionate” cuts’ Guardian 24January 2011.30. Cabinet Office Modernising Commissioning: Increasing the Role of Charities, SocialEnterprises, Mutuals and Cooperatives in Public Service Delivery (London: Cabinet Office,December 2010) p 9.31. ‘Cuts threaten survival of charities’ Financial Times 5 August 2010.32. Charity Commission Tell It Like It Is – The Extent of Charity Reserves and ReservesPolicies RS13, November 2006.



leading, in the interim, to transfer of risk and cash flow problems. Traditionally, theretail banks have been reluctant to lend to charities because of low returns, theinsecurity of contract-based work and the general risk profile of the sector. More mustbe done to encourage and support private capital investment in social projects. SocialImpact Bonds provide one new method to access capital. Through these, privateinvestment is used to pay for preventative action, which is delivered by serviceproviders such as charities with proven track records. This is intended to result inpublic sector savings, so that financial returns to investors are made by the publicsector on the basis of improved social outcomes (such as a reduction in offendingrates,33 or in the number of pregnant teenagers). If outcomes do not improve, theninvestors do not recover their investment. Another new way to access capital is BigSociety Capital (the Bank), funded by unclaimed assets in dormant bank accounts,together with sums provided by the UK’s four biggest banks, as part of the ‘ProjectMerlin agreement’ on lending, bonuses and transparency.34 While Big Society Capitalwill help to finance charities, social enterprises and voluntary organisations throughsocial investment intermediaries, it will be offering loans, not grants. The ProjectMerlin agreement emphasises that the £200 million provided by the high street bankswill be provided ‘on a commercial basis’.35 This may mean that the interest rates to becharged will be too high for many charities.

While charitable foundation support for other charitable organisations has along history, there has been a concern over the extent to which charity law supportsinvestment in social projects (as opposed to those purely aimed at financial return).In an enabling step, the Charity Commission is clarifying its current guidance inthis area,36 with the aim of setting out the ranges of ways in which charitiescan engage in social investments within the law, including: ethical investment;mission connected investment;37 programme related investment;38 and mixedpurpose investment.

The publication of the renewed partnership agreement between government and thevoluntary sector – the national Compact39 – with its weak enforcement mechanismsand the abolition of the Compact Commission (which had previously advocatedputting the Compact on a statutory footing) means that charities are given little to fallback on if funding is withdrawn or delayed in the new regime.

A connected problem relating to funding is that, while the increased role ofcharities in the Big Society will have an impact on the charities’ regulator, the CharityCommission, it too has had its budget slashed; its funding is to be reduced by one-thirdby 2014/2015. As a result, the Commission is undertaking a comprehensive review ofits strategy and operating principles and it anticipated that staff numbers will reduce

33. Eg the Social Impact Bond pilot, launched in September 2010, uses new funding frominvestors outside government to help reduce re-offending; investors will only receive returns ontheir investment from the Ministry of Justice if they reduce re-offending by a set amount. SeeCabinet Office, above n 30, p 10.34. Hansard HC Deb, vol 523, pt 115, col 292, 9 February 2011.35. HM Treasury Project Merlin – Banks’ Statement 9 February 2011 – Revised, para 4.7.36. See Charity Commission Investment of Charitable Funds: Basic Principles CC14,December 2004.37. These make the best financial return but also further the charity’s aims.38. These further the charity’s aims directly, potentially making some return.39. HM Government The Compact (London: Cabinet Office, 2010). See further text, below atn 101.



by around 140 to meet the funding reductions.40 This will surely be another challengeto the success of the Big Society, with its key reliance on the involvement of charities.

CHARITIES AND THE BIG SOCIETY

Even assuming adequate funding, the question remains whether charities and the BigSociety are the natural bedfellows that they are presumed to be. The extent to whichtheir aims and characteristics coexist or clash will now be considered.

(a) Exploring areas of perceived convergence

(i) volunteering

It has previously been established that part of the Big Society is geared to encouragingorganisations and individuals to take an active role in their local communities.However, volunteering has long been a core element of society and charities alreadyrely heavily on such support. In April–December 2010, 25% of people reported thatthey volunteered formally through a group or an organisation at least once a month,with higher figures for annual participation.41 This may suggest that there is a goodmatch between Big Society ideals and the larger role planned for charities. Questionsremain, however, as to whether it is possible to increase the numbers of thosevolunteering, when many individuals already participate.

While the most recent monthly volunteering rate remains unchanged from 2008–2009 and 2009–2010, it was higher between 2001 and 2007–2008 (when it wasbetween 27% and 29%).42 If this slight decline accelerates, this will cause furtherconcern for the Big Society. It is unclear how volunteers will find the extra time orhave the required expertise to play an even greater role in running essential publicservices. There are concerns at a practical and ideological level. Practically, at a timewhen there is less money to support volunteering infrastructure, individual volunteersor the charities that provide them are opening themselves up to real risks if they areintended to replace professional staff, especially where specialist public services arebeing delivered. Ideologically, while volunteer labour should provide additional assis-tance to a publicly funded essential service, there is a concern that it will be used asa replacement for the lack of properly funded staff. To cite one example, it has beensuggested that, rather than employing more midwives, volunteer doulas should helpmidwives to deal with the current rise in birth rates.43

Volunteering is not something that people can be forced to do by government; ithas to be built from the bottom up, whereby people willingly choose to support

40. Charity Commission Statement from the Charity Commission in Response to the SpendingReview PR71/10, 20 October 2010.41. Department for Communities and Local Government Citizenship Survey: April–December2010, England Statistical Release no 15, April 2011.42. Ibid.43. J Sandall Staffing in Maternity Units: Getting the Right People in the Right Place at theRight Time (London: The King’s Fund, 2011) p 32.



causes around them. However, the White Paper on universal credit welfare proposals44

suggests that the long-term unemployed will be required45 to ‘volunteer’ on four-weekcommunity placements, termed ‘mandatory work activity’ to help them find a routeback to work. It is suggested that this will not assist the Big Society, whose success,as the Prime Minister has acknowledged, will depend on the daily decisionsof millions of people to give their time and effort to causes around them.46 Whilepeople must decide to volunteer of their own free will, the legal environment sur-rounding volunteering may not be so conducive. Legal barriers remain, but in manysituations, these may be easily removed, and the time may now be ripe for theirremoval, thanks to the spotlight being placed upon them as a result of the Big Societyinitiative.47

Issues surrounding Criminal Records Bureau (CRB) checks and the Vetting andBarring Scheme have traditionally provided barriers to volunteering,48 with slowprocessing of checks, their lack of portability and confusion over who needs to beregistered with the Independent Safeguarding Authority (ISA). The SafeguardingVulnerable Groups Act 2006 had required adults who worked or volunteered withchildren to register with the ISA. Since 2002, there has been a massive rise in thechecking of volunteers, amounting to more than four million criminal records checksby 2008–2009.49 In February 2011, government published the findings of its Reviewinto the Vetting and Barring Scheme,50 which support the removal of some of thesebarriers, so as to scale the regime back to ‘common-sense levels’ and the details arenow contained in the Protection of Freedoms Bill. There is some concern, however,that, under the new pared-down scheme, volunteers may have to pay for their ownchecks.51 Even when CRB checks are issued free of charge for volunteers, which iscurrently the case,52 there is, of course, a cost attached to the processing of checks. In2010, it was estimated that the total cost of checking volunteers since 2002 amountedto £220.8 million.53 This is made up of the administration fee that volunteers or theirorganisations must pay, together with the enhanced fees paid for other CRB checksthat must subsume the costs for ‘free’ volunteer checks. The administration of such

44. Department for Work and Pensions Universal Credit: Welfare that Works Cm 7957,November 2010, p 29.45. Failure to complete the placement could lead to the withholding of Jobseeker’s Allowancefor at least three months.46. D Cameron, Transcript of a speech by the Prime Minister on the Big Society, 19 July 2010,available at http://www.number10.gov.uk/news/speeches-and-transcripts/2010/07/big-society-speech-53572.47. See eg the recommendations of the Red Tape Task Force, led by Lord Hodgson:Joint Cabinet Office and Department for Business, Innovation and Skills Civil Society Red TapeTask Force Unshackling Good Neighbours, Report of the Task Force Established to ConsiderHow to Cut Red Tape for Small Charities, Voluntary Organisations and Social Enterprises(May 2011).48. See eg HM Government Giving Green Paper (2010) p 19.49. J Appleton Volunteering Made Difficult: How the Child Protection Bureaucracy isObstructing Volunteers (Manifesto Club, June 2010).50. Department for Education, Department of Health, Home Office Vetting & Barring SchemeRemodelling Review – Report and Recommendations (February 2011).51. ‘Theresa May urged not to charge volunteers for Criminal Records Bureau checks’ ThirdSector, 12 October 2010.52. Police Act 1997 (Criminal Records) Regulations 2002, SI 2002/233, reg 4.53. Appleton, above n 49.



checks by voluntary organisations is very time-consuming, and for small charities, thecosts can be prohibitive.54

Currently, while those in receipt of most state benefits, including Jobseeker’sAllowance, may volunteer, there is evidence that sometimes they are actively discour-aged from doing so.55 Worse still, benefits are sometimes wrongly cut in thesecircumstances. The Big Society will require the welfare benefits system to be imple-mented in a way that is more sympathetic to genuine volunteering. For example, it hasbeen recommended that posters explaining the position of volunteers should beprominently displayed in all Job Centres.56 In addition, guidance on what jobseekerscan do without losing their benefits should be emphasised and repeated to Job Centrestaff at regular intervals.

A recent recommendation from the Office of Tax Simplification57 to remove thethreshold below which expenses and benefits are tax-free, would cause serious admin-istrative problems for charities with large numbers of volunteers. Currently, anyoneearning less than £8500 does not have to pay tax on these benefits. Removing the limitwould potentially mean that any benefit paid to volunteers would be taxable. Simpli-fication in one area leads to horrendous complexity in another, and the potential toimpact negatively upon the success of the Big Society.

Concerns have been raised in recent years over the employment status of volun-teers, and questions about the extent to which they can claim the benefit of variouspieces of employment protection legislation are becoming more prevalent, as theprotection for employees and workers has expanded. Despite a number of earlier caseswhere ‘volunteers’ have been held to be employees on the facts,58 in X v Mid SussexCitizens Advice Bureau59 the Court of Appeal recently held that a disabled unpaidvolunteer caseworker at a Citizens Advice Bureau was not protected against discrimi-nation under the Disability Discrimination Act 1995 (the claim would now be broughtunder the Equality Act 2010). However, the only question before the court in that casewas whether that particular voluntary worker was protected by the legislation in issue.As Elias LJ pointed out, ‘volunteers come in many shapes and sizes, and it cannot beassumed that all will have the same status in law.’60 This is not helpful, as it isimportant, from a risk management point of view, for organisations to distinguishbetween their employees and their voluntary workers. Charities must tread a fine line– if there is any sense of obligation on the part of workers, or any payment madebeyond direct reimbursement of legitimate expenses, then there is a risk (from chari-ties’ point of view) that volunteers may be perceived as employees.61 The present lack

54. NAVCA Joint Cabinet Office-BIS Task Force on Cutting Red Tape. The Priorities ofNAVCA Members (September 2010).55. Commission on the Future of Volunteering Report of the Commission on the Future ofVolunteering and Manifesto for Change (London: Commission on the Future of Volunteering/Volunteering England, 2008).56. Joint Cabinet Office and Department for Business, Innovation and Skills Civil SocietyRed Tape Task Force, above n 47.57. Office of Tax Simplification Review of Tax Reliefs – Final Report (March 2011) para 2.26.58. See eg D Morris ‘Volunteering – the long arm of the law’ [1999] International Journal ofNonprofit and Voluntary Sector Marketing 320.59. [2011] EWCA Civ 28. Permission to appeal to the Supreme Court was granted on1 August 2011.60. Ibid, para 3.61. Some Big Society initiatives call for rewards for volunteers. One local authority that isconsidering offering ‘Big Society reward points’ redeemable in supermarkets, high street shops



of clarity does not further Big Society objectives. Moreover, as volunteering becomesan even stronger aspect of local life, the question whether volunteers, who areincreasingly working alongside paid employees in the delivery of commissionedservices, should be protected by, for example, discrimination law, may well needfurther consideration. During the passage of the Equality Act 2010 through parlia-ment, an unsuccessful attempt was made to extend the protection against discrimina-tion to ‘unremunerated work that is comparable to employment’.62

It is hard to incentivise citizens to play a greater role in their local community,without formalisation and commodification – the very antithesis of the voluntarysector, which has always thrived on diversity and innovation. This is the ever-presentproblem for government of seeking to impose a grass roots Big Society movement.

(ii) charitable giving

The Big Society also envisages the promotion of a culture of philanthropy leading toincreased charitable giving, particularly from high net worth individuals who couldmake a greater contribution to supporting civil society within the new climate ofausterity. While the charitable sector will clearly benefit if greater levels of generosityare reached, previous efforts have not brought about a sea change in attitude for biggivers. Nevertheless, the regulatory measures currently being implemented and/orunder consideration will certainly go some way to increasing giving. Whether phi-lanthropy will provide the necessary replacement funds for charities to function in theBig Society remains to be seen.

After some decline in giving during the previous year, in 2009/2010, 56% of adultsin the UK donated to charitable causes in a typical month. The median donation was£12 per month and the estimated total amount given to charity in 2009/2010 by allsuch individuals was £10.6 billion.63 Nevertheless, there is not a strong culture ofwealthy donors giving big sums in the UK, with only 18% of high net worth UKindividuals saying that donating money to charity is one of their top three spendingpriorities, compared with 41% in the US and 30% in Ireland.64 Although promotingphilanthropy through the tax system is not a novel Big Society idea,65 there is currentrecognition that there are specific changes to the legal and regulatory environment thatgovernment can make which may boost giving. While the government cannot forcedonations, a supportive legal and fiscal environment, which encourages giving andmaximises the impact of each donation, is crucial. This is all the more important at atime when individual and corporate donors may have less to give.

and restaurants in return for good deeds may risk converting volunteers into employees;Royal Borough of Windsor and Maidenhead Big Society White Paper Version 3, February2011.62. House of Commons Public Bill Committee on the Equality Bill, 12th Sitting, col 440, 23June 2009. The extension was proposed by Lynne Featherstone, Liberal Democrat MP who isnow Minister for Equalities.63. NCVO/CAF UK Giving 2010. An Overview of Charitable Giving in the UK, 2009/10(London: NCVO/CAF, December 2010). In addition, donations from individual legacies wereestimated to provide at least a further £2 billion.64. Ledbury Research & Barclays Wealth Global Giving: The Culture of Philanthropy(London: Barclays Wealth, 2010).65. See eg HM Treasury Review of Charity Taxation (March 1999).



There are currently two areas under consideration. One is the simplification andpromotion of existing tax reliefs for donors. The other is the consideration of addi-tional tax reliefs, in particular, the introduction of tax relief for lifetime legacies.

(I) EXISTING TAX RELIEFS

By donating through Gift Aid, charities may reclaim the tax on the value of the giftbefore basic-rate tax is deducted, but not all eligible donors use the scheme. Itsoperation has been complex and has not always kept pace with new fundraisingmechanisms. For example, it is not easily available for giving by mobile phone.66

In 2009/2010, charities received over £1 billion from Her Majesty’s Revenue andCustoms (HMRC), as the tax claimed on donations made through the Gift Aidsystem,67 but the Charities Aid Foundation (CAF) estimates that around £750 millionis lost to the charitable sector in unclaimed Gift Aid each year.68 This particularlyaffects small volunteer-run charities that may receive large numbers of small dona-tions and may lack the administrative capacity to deal with Gift Aid claims.69

Responding to calls to boost the Big Society, it was announced in the 2011 Budgetthat, as well as the introduction of a new system of online filing for the claimingof Gift Aid relief, from April 2012, with certain caveats, charities will be able to claimGift Aid on up to £5000 of small donations without the need for the completion ofGift Aid declarations, so that spontaneous small cash donations to charity will be taxeffective.70

Payroll giving is a highly tax-effective form of giving (especially for higher-ratetaxpayers) which allows employees to make donations from their pre-tax income.However, despite a number of promotional campaigns since its inception in 1987, thetake up rate for payroll giving has never matched expectations. Current figures showthat only 3% of donors give through payroll, accounting for only 1% of total UKdonations.71 The major limitation is that tax effective payroll giving is only availableto employees where their employer has signed up with a payroll giving agency, andmany small employers perceive the scheme as burdensome.72 Under the Every Busi-ness Commits programme,73 launched by government in December 2010, businessesare urged to make available and actively promote payroll giving to all employees.

Not all recent changes have been beneficial. The recent extension of UK charitabletax reliefs to bodies equivalent to charities in Europe, necessitated by the decision inHein Persche v Finanzampt Lüdenscheid,74 has prompted HMRC, concerned about

66. See A Singh and S Middleton Digital Giving: Modernising Gift Aid; Taking Civil Societyinto the Digital Age (London: ResPublica 2010).67. HMRC Gift Aid and Covenants. Amounts Donated and Tax Repayments to Charities onDonations by Whether Donor Is an Individual or Company (June 2011).68. NCVO/CAF, above n 63.69. For a review of recent initiatives to reform Gift Aid see C Pharoah ‘Challenges for taxpolicy towards individual charitable giving: the experience of recent attempts to “reform” theUK Gift Aid scheme’ [2010] Voluntary Sector Review 259.70. HM Treasury Budget 2011 HC 836 (London: TSO, March 2011) para 1.139.71. NCVO/CAF, above n 63.72. See eg HM Government, above n 48, p 26.73. Prime Minister David Cameron’s speech to the Business in the Community LeadershipSummit in London, 2 December 2010.74. Case C-318/07 [2009] 2 CMLR 32.



potential fraud, to introduce a new definition of ‘charity’ for tax purposes.75 This nowrequires charities to satisfy a ‘management condition’ which means that all persons inthe charity having control and management responsibilities must be ‘fit and properpersons’.76 This could again be perceived as a burdensome requirement to fulfil,especially for some smaller charities. At best, it has certainly created some uncertaintyin the charitable sector. Similarly, the draconian ‘substantial donor’ rules,77 introducedin 2006 without consultation, also proved troublesome and have deterred large donorsfrom making charitable gifts. The anti-avoidance legislation was designed to restricta charity’s tax exemption where particular transactions resulted in all or part of adonation being effectively returned to the donor in cash or in kind. While theseprovisions were not intended to hamper legitimate activities of charities or donors,concern that the legislation was catching a variety of innocent transactions led to callsfor reform, so as not to discourage charitable giving or to create unnecessary admin-istrative burdens.78 After much discussion, these reforms have been implementedunder new provisions which govern ‘tainted charity donations’.79 There is no thresholdon the size of a donation that must be exceeded before the new legislation can applyand the focus is to deny tax relief where a main purpose of the donor is to receivedirectly or indirectly from the charity an advantage for the donor or a connectedperson. Another significant change in approach is that where a donation is deemedtainted under the new rules, tax relief is denied and the donor (as opposed to thecharity) is the primary target for recovery of any relief that, under these rules, shouldnot have been given.

(II) NEW TAX RELIEFS

Despite its rejection in the past,80 the campaign for Treasury and HMRC to consideronce more proposals to introduce tax benefits for lifetime legacies, sometimes referredto as a form of split interest trust,81 is growing.82 These would allow wealthy donors tomake tax-deductible irrevocable gifts to charity (for example, property or shares)during their lifetime while retaining the benefit of the income (for example, rent ordividends) from the promised gift either for themselves or someone else, for theirlifetime or the life of the other person. The donor would make deductions againstcapital gains tax at the time of the gift and its value would not count as part of theirestate for the purposes of inheritance tax. Such gifts could be used by charities asfinancial security, against which they would be able to plan and obtain finance. This

75. Finance Act 2010, s 30 and Sch 6.76. Ibid, Sch 6, para 4(1). See also para 5, which contains some relaxations on this strictcondition. The term ‘fit and proper’ is not further defined in the legislation.77. These provisions were contained in Income Tax Act 2007, ss 549–557 (for charitabletrusts) and Corporation Tax Act 2010, ss 502–510 (for charitable companies).78. HMRC Substantial Donors to Charity. A Review of Anti-Avoidance Legislation AroundLarge Donors to Charity (15 July 2008).79. See now Income Tax Act 2007, pt 13, ch 8; Corporation Tax Act 2010, pt 21B.80. Eg, for the proposals put forward by the Lifetime Legacies Coalition in 2005, see T Forster‘Lifetime legacies’ (2005) 8:2 Charity Law & Practice Review 25.81. These are similar to charitable remainder trusts that are available to donors in the USA.See J Kessler ‘Charitable remainder trusts: a proposal’ (2005) 8:2 Charity Law & PracticeReview 1.82. See eg P Palmer A Step Change in UK Philanthropy (Centre for Policy Studies, 2010).



is a popular mechanism for tax effective giving in the USA,83 but, in the UK, such giftswould face the problem that they are not exclusively charitable and that they allowprivate benefit to the donor. HMRC also has concerns about potential abuse andcomplexity in relation to valuing benefits and reform in this area is not currently on theagenda.

In an enabling provision, it was announced in the 2011 Budget that, from April2012, inheritance tax will be charged at lower rate of 36% if more than 10% of thevalue of an estate is donated in a will to charity.84 Currently, no inheritance tax is duein respect of bequests left to charity, but the remainder of the estate is taxed at the full40% rate. This reduction should therefore provide a significant incentive to encouragesubstantial charitable legacies.

Currently there is no tax relief for inter vivos gifts of works of art and antiques, andnew tax benefits to donors, to mirror those available for gifts of quoted securities andland85 would encourage ‘giving while living’. Added benefits here would include thesaving of significant cultural objects for public benefit, with arts and heritage charitiesbenefitting at a time of budget cuts.

(a) Exploring areas of perceived divergence

(i) independence

Even in the pre-Big Society era, public service delivery was already having a negativeimpact upon the independence and governance of charities.86 Independence from thestate or any other third party has been recognised by the Charity Commission as anessential characteristic of a charity87 and concerns in this area are compounded inthe Big Society. Charity trustees – the people who have the general management andcontrol of the administration of a charity88 – may decide to use their funds to deliverpublic services or facilities, but they are under fiduciary obligations to act solely in thebest interests of their charity and its beneficiaries,89 using charitable funds reasonablyand prudently.90 If public authorities seek to influence or direct the charity’s decisionmaking, its trustees must always exercise independent judgment and properly manageany conflicts of interest.

83. In the USA, charitable lead trusts are also tax effective. These work in the opposite wayto charitable remainder trusts, with the lead interest going to charity and the remainder interestusually reverting to the donor’s family members.84. HM Treasury, above n 70, para 1.139. The relief is designed so that the benefit of thetax saving is reflected in the bequests received by charities and not in payments to otherbeneficiaries.85. See Income Tax Act 2007, pt 8, ch 3; Corporation Tax Act 2010, pt 6, ch 3.86. Charity Commission, above n 26. See also D Morris and K Atkinson ‘Charities biting thehand that feeds: relationships with their funders’ in D Morris and J Warburton (eds) Charities,Governance and the Law: The Way Forward (London: Keyhaven, 2003).87. Charity Commission The Review of the Register of Charities RR1, 2001, pt 2. See also,Charity Commission The Hallmarks of an Effective Charity CC10, July 2008.88. Charities Act 1993, s 97. Depending on the individual charity’s governing documents,they may be called board members, directors, management committee members, charitytrustees, or governors.89. Bray v Ford [1896] AC 44.90. Charity Commission Charities and Public Service Delivery – An Introduction andOverview CC37, February 2007.



The law traditionally distinguishes between a charitable body that is establishedvoluntarily with a dominant charitable purpose and a government authority that hasan obligation to fulfil its statutory responsibilities, even where their purposes (forexample, care for the elderly) may appear identical. Nevertheless, the Charity Com-mission is clear that governmental authorities can set up charities with a view to takingon a government function, where there is a charitable purpose that coincides with thegovernmental function.91 Early case-law held that it is a good charitable purpose torelieve the community from general or local taxation provided that such purpose wasapplied for the benefit of a sufficient section of the community.92 What is crucial,however, is that a charity must be independent, so that it must exist solely for itscharitable purposes, not for the purpose of carrying out the policies or directionsof a public authority.93 This gives rise to concerns if the Big Society means that certaincharities are forced to carry out core activities of the state in areas such as theprovision of services for children, health, education, transport, leisure, and offendermanagement.

In terms of funding arrangements, in order to ensure a charity’s independence,the Charity Commission has stated that charity trustees may enter into a fundingagreement with a governmental authority on condition that: (i) the agreement does notrequire the charity simply to implement the policies, or carry out a statutory duty, ofthe authority; (ii) the agreement does not involve a surrender of the trustees’ discre-tions to the authority; and (iii) the terms of the agreement coincide with the way thatthe trustees want to exercise their discretions.94 Trustees should ensure that theirability to make decisions in the overall interests of the charity about how best to fulfilits charitable purposes are not unreasonably limited by any funding agreements thatare in place. The reality is often, however, very different; a survey by the CharityCommission, carried out in 2006, found that only 26% of charities that deliveredpublic services agreed that they were free to make decisions without pressure toconform to the wishes of funders.95

There is also a concern that a charity’s advocacy function may be adverselyimpacted by its delivery of public services.96 The renewed interest in civic engagementthat the Big Society will engender, with charities in the limelight, could give rise toincreased local support for the traditional campaigning activities of local charities.The public sector cuts have certainly given charities much to campaign about, at a timewhen they are expected to play a greater role in public life. While the fundamentals ofcharity law on campaigning and political activity have not changed, the CharityCommission’s most recent guidance97 is much more facilitative in relation to what

91. Charity Commission Decisions of the Charity Commissioners for England and Walesmade on 21 April 2004: Applications for Registration of (i) Trafford Community Leisure Trustand (ii) Wigan Leisure and Culture Trust. See also Charity Commission Wigan Leisure andCulture Trust. A Public Benefit Assessment Report by the Charity Commission, February 2011.92. Att-Gen v Bushby (1857) 24 Beav 299; Thellusson v Woodford (1799) 4 Ves 227; Night-ingale v Goulbourn (1848) 2 PH 594.93. Charity Commission Independence of Charities from the State RR7, February 2001.94. Ibid, para 20.95. Charity Commission, above n 26.96. See eg D Morris ‘Paying the piper: the “Contract Culture” as dependency culture forcharities?’ in A Dunn (ed) The Voluntary Sector, The State and The Law (Oxford: HartPublishing, 2000).97. Charity Commission Speaking out: Guidance on Campaigning and Political Activity byCharities CC9, March 2008.



charity trustees can do in this regard, emphasising that campaigning, advocacy andpolitical activity are all legitimate and valuable activities for charities to undertake.Charities should therefore feel free to campaign or to seek to influence public policyif that is in the best interests of their beneficiaries. Under the national Compactbetween government and the voluntary sector,98 the government undertakes to respectand uphold the independence of civil society organisations (including charities) todeliver their mission, including their right to campaign, regardless of any relationship,financial or otherwise, which may exist.99 Similarly, charities undertake to ensure thatindependence is upheld, focusing on the cause represented, regardless of any rela-tionship that they have with government.100 Furthermore, the Big Society emphasisestransparency and the right of citizens to scrutinise local decision making and this maywell be something that charities could encourage their members or beneficiaries toundertake. Nevertheless, charities may well feel inhibited from engaging in or initi-ating campaigns directed against the actions of their funders. For example, researchin Scotland found that voluntary sector workers were reluctant to put freedom ofinformation requests to public bodies for fear that making the request could damageworking relationships or put their organisation’s funding at risk.101 The juxtapositionof the weakening of the Compact (with a watered-down ‘renewed’ Compact102 and theabolition of the Compact Commission) and the development of the Big Society notionbegs the question of whether the latter can succeed when the former appears to befailing. Recent research evaluating the effectiveness of the Compact since its inceptionin 1998103 found that the Compact is ‘currently at low ebb and is in danger of beingignored to death’.104

Public perception of a charity’s independence is also important. A recent CharityCommission survey on trust and confidence found that the ability of charities to ‘makeindependent decisions, to further the cause they work for’ is closely associatedwith overall trust.105 Even the perception that charities may risk compromising theirindependence in order to meet the requirements of commissioning authorities, islikely to be damaging. Public perception and confidence is important for charities as,in practical terms, any diminution therein may impact negatively on the support forcharities from those who donate time or money. The Charity Commission thereforesuggests that it may be important for charities to demonstrate that they can exercisetheir independence by voicing their opinion.106

98. HM Government, above n 39.99. Ibid, para 1.1.100. Ibid, para 1.8.101. K Spence Volunteering Information? The Use of Freedom of Information Laws by theThird Sector in Scotland – Survey Findings (University of Strathclyde, 4 January 2010).102. The consultation on the renewed Compact lasted for only six weeks and was not, there-fore, compliant with the then existing Compact commitment to allow for 12-week consultationperiods.103. M Zimmeck, C Rochester and B Rushbrooke Research Report. Use It or Lose It: ASummative Evaluation of the Compact (Birmingham: Commission for the Compact, March2011).104. Ibid, p 10.105. Ipsos MORI Public Trust and Confidence in Charities, Research Study Conducted byIpsos MORI on behalf of the Charity Commission (20 July 2010) p 47.106. Charity Commission, above n 90, para H2.



Overall, the need for charity trustees to ensure that their charities’ independence ismaintained may well be an insurmountable hurdle for charities seeking to play anenhanced role in the Big Society.

(ii) charitable purposes

There are legal concerns that the direction of Big Society changes may well not onlybe at odds with the culture of many charities, but more fundamentally, it may becontrary to their defined purposes. It is a legal requirement that charities must alwaysoperate within the objects in their governing documents. These may refer to theprovision of benefit in a specific location or to a particular beneficiary group (forexample, based on religion or specific need). Charities may only bid to provideservices that are a way of furthering their particular purposes.

Mission drift for charities means that charities may face the legal consequences ofacting beyond their objects or outside their legal powers. If a charity enters into acontract to provide services which are outside the terms of its objects, there may beserious implications for both the charity and its trustees. First, the charity trustees willbe acting in breach of trust and could ultimately face personal liability as a conse-quence. In the case of an unincorporated charity, the contract entered into in breach oftrust will be enforceable by the other contracting party against the trustees in theirpersonal capacity. The trustees will also be personally liable if any breach of thecontract occurs. Any monies received by the trustees under the contract will be held bythem on trust for the charity on the usual basis that a trustee cannot benefit from hisor her trust.107 If the charity is incorporated, the contract will be void and unenforce-able except in favour of a third party who gave full consideration and who did notknow that the contract was outside the objects of the charity or who did not know atthe time of entering the contract that the company was a charity.108 Any moniesreceived by the charity or its directors will be held for the charitable objects of thecompany. The directors may also be liable in damages to the other contracting partyfor breach of warranty of authority in respect of the void contract.109

Secondly, in relation to the charity itself, if the unauthorised contract becomes amajor part of the charity’s activities, the charity may face the prospect of losing itscharitable status altogether, if it is no longer established for exclusively charitablepurposes. If the activity outside the charity’s objects remains a limited part of itsoverall activities, charitable status will not be affected, but the court may restrain theunauthorised activities by injunction at the request of the Attorney-General or, withthe consent of the Charity Commission, at the request of any person interested in thecharity.110

Finally, there are adverse tax consequences for a charity which enters into anunauthorised contract. The contracted activity will probably be regarded for taxpurposes as a trade. Any profit on the contract may be liable to income tax, as it maynot come within the exemption for profits from a charitable trade.111 In addition, ifany clearly identifiable income of the charity has been used to fund the contract,

107. Boardman v Phipps [1967] 2 AC 46.108. Companies Act 2006, s 42.109. Firbank’s Executors v Humphreys (1886) 18 QBD 54.110. Charities Act 1993, s 33.111. Income Tax Act 2007, s 524 or Corporation Tax Act 2010, s 478.



depending upon the particular contract, it may amount to non-charitable expenditure.If that is the case, the charity’s tax exemptions may be restricted.112

These legal restrictions may mean that charities are not therefore free to increasetheir part in the provision of public sector services and thereby to participate in the BigSociety at their will. Nevertheless, while it may seem strange that charities will seekto carry out activities beyond their objects, it is not uncommon. One reason for this isthat many charities fail to update their long-standing governing documents, wheretheir objects were first stated. For example, one common problem is that charities setup to work in a local area may well outgrow their objects as their work expands.113 Aparliamentary question tabled in December 2009 revealed that, during that year, theCharity Commission had investigated 33 charities that were found to be either actingoutside their objects or misapplying funds.114 It has already been noted115 that aCharity Commission survey found that only one-quarter of charities providing publicservices agreed that they were free to make their own decisions, compared to nearlythree-fifths of charities that did not deliver public services. As a result, the Commis-sion concluded: ‘charities that deliver public services are significantly less likely toagree that their charitable activities are determined by their mission rather than byfunding opportunities.’116

While legal restrictions might not provide a practical impediment to charities andtheir participation in the Big Society, they ought to do so, as it has been shown that theconsequences for charities of acting outside their objects are potentially very serious.

(iii) employment law obligations

Many organisations have cited the Transfer of Undertakings (Protection of Employ-ment) Regulations 2006 (TUPE)117 as a possible barrier to greater involvement in thedelivery of public services118 and this may well be another reason to question thecentral assumption that charities are to be key implementers of Big Society ideals.These regulations protect contracts of employment when a business or undertaking, orpart of one, is transferred from one owner to another. This protection prevents thetransferor’s employees from being dismissed for a reason related to the transfer, andprohibits any transfer-related changes to their contractual entitlements.

The application of TUPE has proved to be both complex and restrictive over theyears,119 but it is clear that the outsourcing of public sector services is a relevanttransfer to which the regulations apply.120 This means that, for a charity wanting todeliver public services that have previously been delivered by a local authority or anyother entity, existing employees must transfer to the charity. The charity will then findit difficult to change such matters as the transferred employees’ job titles, wages,

112. By virtue of Income Tax Act 2007, s 539 or Corporation Tax Act 2010, s 492.113. See ‘Staying objective’ Charity Times April–May 2007, p 42.114. Hansard HC Deb, vol 501, col 694W, 1 December 2009.115. See text above at n 95.116. Charity Commission, above n 26, p 4.117. SI 2006/246. See eg J McMullen ‘An analysis of the transfer of undertakings (Protectionof Employment) Regulations 2006’ (2006) 35 ILJ 113.118. Cabinet Office, above n 30.119. The initial TUPE provisions were first enacted in 1981.120. See now SI 2006/246, reg 3(1)(b) which includes within TUPE’s scope ‘service provisionchanges’.



hours worked, sick pay and holiday entitlements. One example showing the impact ofTUPE on a small local charity will suffice.121 When Darlington Borough Council cutits funding for homeless hostels, two charities, that had both previously providedservices, were left to compete for the one remaining contract. A local charity, the 700Club, was awarded the contract, worth £190,000, which meant that the shelter pro-vided by the unsuccessful charity, the Salvation Army, had to close. An EmploymentTribunal held that under TUPE, the contracts of the 18 Salvation Army employees,whose jobs were redundant, had transferred to the 700 Club, which was responsiblefor their redundancy pay, at a cost of around £250,000. So, winning the bid to continueproviding its current service proved very costly indeed for the 700 Club. In a no-winsituation, the 700 Club would have had to close down its operations if it had lost thebid. Clearly, the implications for other charities faced with funding cuts and the BigSociety agenda are immense.

Provisions about benefits for old age, invalidity or survivors in employees’ occu-pational pension schemes do not transfer under TUPE. However, the provisions of thePensions Act 2004122 apply and require that, if the previous employer provided apension scheme, then the new employer must provide some form of pension arrange-ment of a specified minimum standard for employees who were eligible for, ormembers of, the previous employer’s scheme. In an enabling measure to support theBig Society, the codes of practice on workforce matters in both public sector and localauthority service contracts have both been withdrawn.123 These ‘two-tier codes’ hadobliged employers who took on services from either central or local government tooffer new joiners terms and conditions that were overall, as a package, ‘no lessfavourable’ than those of the ex-public sector transferred employees. Also, newrecruits had to be offered a ‘good quality’ employer pension scheme, or a stakeholderscheme in which the employer matched employee contributions up to 6%. Now, it willbe possible to create a remuneration package for new joiners that is less favourablethan those of the public sector staff who transferred in. However, under the publicsector ‘Fair Deal’ guidance,124 which is not legally binding but generally observed bythose bidding for public sector contracts, the obligation to provide a ‘broadly com-parable’ pension scheme to transferring public sector employees remains. This is adeterrent to charities from bidding for public contracts because of the cost of provid-ing such pensions and, in March 2011, government launched a consultation on itsfuture.125 While charities and other private sector providers would welcome its abo-lition, this really only amounts to some tweaking at the edges; the fact remains that thefundamental principles of TUPE, enacted as a result of European obligations, are asignificant barrier for charities engaged in Big Society initiatives.

121. ‘Storm over Salvation Army employment tribunal victory’ Northern Echo 1 February2011.122. Pensions Act 2004, ss 257–258.123. Cabinet Office, Supplier Information Note: Withdrawal of Two-Tier Code (December2010); and Written Ministerial Statement by Secretary of State for Communities and LocalGovernment Eric Pickles on Open Public Services and the Withdrawal of the Two-Tier Code,23 March 2011.124. Fair Deal for staff pensions: procurement of bulk transfer agreements and related issues,HM Treasury Guidance Note, June 2004.125. HM Treasury Consultation on the Fair Deal Policy: Treatment of Pensions on Compul-sory Transfer of Staff from the Public Sector (March 2011).



(c) A big society for big charities?

While smaller local charities may welcome the opportunity to get more involved inpublic service delivery, barriers, such as lack of capacity or competition from largerand national charities and indeed the private sector, raise questions about their sus-tainability. Earlier research by the Charity Commission126 concluded that there arerisks of creating a restricted market where only those charities above a certain size andcapacity can successfully compete for future delivery of public services. The irony isthat small local charities, with local knowledge and flexibility to respond to the widediversity of local needs – that epitomise Big Society principles – are least likely to befit to fulfil Big Society objectives.

The Prime Minister has said that groups should, for example, be able to run postoffices, libraries and transport services and shape housing developments.127 The Local-ism Bill includes a range of measures designed to empower local community groups,including the right to buy community resources, such as community centres andlibraries, and the community right to challenge the way local services, such as chil-dren’s centres, social care or transport, are run. Charities and other voluntary sectorbodies, together with parish councils and local authority employees, will be able toexpress an interest in providing a public service. They will then be entitled to competewith all other bidders, which may include private sector companies, in a procurementexercise to be carried out by the local authority. Yet, small local charities may well beby-passed for the impersonal, but low-cost, national corporations, as far removed fromthe localism agenda as can be imagined. Many small local charities, that have notmanaged a contract before, will clearly need significant help to put them in theposition to win bids. Moreover, their ‘legal fitness’ to do so may be questioned whenit is borne in mind that the vast majority of charities in the UK are still unincorporatedbodies. In 2008, figures revealed that 86% of the over 190,000 registered charitieswere unincorporated.128 As either charitable trusts, or unincorporated associations,they do not have a separate legal entity distinct from their members or trustees.Therefore they cannot own property in their own right and they cannot make contractsin their own name, including contracts of employment. This means that the trustees ofan unincorporated charity may be personally liable if the ‘charity’ is sued or incursliability. For example, in Affleck v Newcastle Mind129 the Employment Appeals Tri-bunal held that the employees of an unincorporated charity were, in this particularcase, employed by the members of the executive committee for the time being (thetrustees of the charity). The Charity Commission advises that the trustees of anyunincorporated charity who are contemplating public service delivery should firstconsider establishing an incorporated structure.130

Even with incorporated status, practical capacity tools, such as appropriate legaladvice, or insurance, may be inaccessible to small charities, meaning that they do nothave the resources to take on the risks associated with entering into new areas of

126. Charity Commission, above n 90.127. Cameron, above n 46.128. Office of the Third Sector and Charity Commission The Charitable Incorporated Organi-sation (CIO). Consultation on the New Corporate Form for Charities (September 2008) AnnexH, Draft Impact Assessment.129. [1999] ICR 852 EAT.130. Charity Commission, above n 90, para K1.



public service delivery.131 For example, charities must be satisfied that they can fulfilany obligations that they agree to at the cost at which they bid for a contract andlawyers and other professionals can assist in making sure that they can afford todeliver on the terms agreed. Such advice, however, is costly to acquire. In an attemptto redress the balance somewhat, insurance firm Zurich, in collaboration with theNational Association for Voluntary and Community Action (NAVCA), has launchedan insurance scheme to give local charities and community groups of volunteers easyaccess to low cost comprehensive public liability cover for a wide range of activi-ties.132 Small charities are going to need to take advantage of more of these kinds ofinitiatives if the playing field is to be levelled. Government has recognised that itsrelations with charities remain imbalanced, or ‘top-down’, with the current commis-sioning process favouring large organisations. In an attempt to increase communityinvolvement in public sector delivery, it has sought to address some of these issues inthe ‘Modernising Commissioning’ Green Paper,133 highlighting various problem areaswhich can make it difficult for charities to make the most of opportunities to deliverpublic services. Nevertheless, concerns remain that small local bodies will still findthat they are locked out from engagement with the Big Society, meaning that it failsto provide benefits to those most in need.

To counter the difficulties that smaller charities might experience in competing forlarger public sector contracts, it is likely that some will consider working collectivelyto form consortia, coalitions, partnership agreements or even mergers with other localorganisations. An earlier Charity Commission survey on collaborative work found that26% of respondent charities considered that their ability to attract funding hadimproved as a result of working collaboratively with others.134 This trend is expectedto continue as commissioners of public services are likely to support greater collabo-ration among service providers. While the legal process of charities merging has beeneased as a result of the provisions in the Charities Act 2006,135 it may still be complex,particularly when the bodies that want to collaborate with each other have incompat-ible objects or values and may well not all be charities. Charities must pursueexclusively charitable purposes, with proof of public benefit. It is likely that moresmall and local bodies will be encouraged to merge as the Big Society takes hold, andthis raises concerns about ‘forced marriages’. Recent Charity Commission researchshowed that the key to successful collaboration for small charities was the quality ofpre-existing relationships with partner charities and the compatibility of organisa-tional aims, values and mission.136 This research also noted that joint bidding forcontracts was the type of collaborative activity most likely to run into difficulty. TheCommission warned that trustees must take steps to mitigate potential difficultiesthrough careful planning, and by ensuring they are fully aware of the risks andobligations.137 It was also noted that the charity must be at the right stage of devel-opment to manage successfully a joint bid and, if successful, to deliver the ensuing

131. See eg earlier research reported in D Morris ‘Charities and the contract culture: survivalof the largest?’ [2000] LS 409.132. ‘Zurich offers “cheaper” public liability insurance to small community groups’ ThirdSector, 28 July 2010.133. Cabinet Office, above n 30.134. Charity Commission Collaborative Working and Mergers RS4, April 2003.135. See Charities Act 2006, s 44.136. Charity Commission Strength in Numbers – Small Charities’ Experience of WorkingTogether RS24, 2010.137. Ibid, p 9.



venture. The process of merging for charities is often a time-consuming and costlyone, and at a time when government is pushing charities to merge, arguably, it shouldhelp to meet these costs. The NCVO Funding Commission has recommended thesetting up of a Restructuring Fund to do this.138

In summary, many small local charities will simply not be in a position either todeliver contracts of the size which are to be commissioned or to take over communityassets. A survey of local authorities that had already engaged in asset transfer showsthat the key to sustainable and successful asset transfer lies in the recipient third sectororganisation (which was usually a charity) having sufficient capacity and skills, a goodbusiness plan, and robust revenue streams.139 The problems are exacerbated by the factthat the geographical spread of capable charities is not evenly distributed; those areasmost in need are likely to have less capacity than those that are better off.140 The BigSociety may well not be accessible to the small charity.

Even if larger charities are successful in providing mass delivery of frontlineservices of the sort envisaged by the Big Society, a related concern is that this maylead to less effective service provision as charities lose their distinctiveness. Thehighly personalised and responsive service to a niche client group might become athing of the past, as general provision is what is funded and therefore provided.141

CONCLUSION

This paper has looked at some of the legal implications for charities’ involvement inthe delivery of the Big Society vision, set out for them by government. While charitiesare central to this vision, this paper challenges the assumption that charities shouldand can play a leading role in its delivery. In many respects, considering the problemsthat charities face, it is tempting to say that, counter-intuitively, those best placed totake advantage of the Big Society initiative may be those entrepreneurs in the privatesector that are willing and able to compete for contracts to provide services. They tendnot to have the same ideological concerns that may prevent charities participating142

and the legal obstacles outlined in this paper do not affect them.There are some similarities between the Big Society initiative and the Compact

arrangements that have been put in place since 1999 and which govern relations

138. Funding Commission Funding the Future. A 10-Year Framework for Civil Society(London: NCVO, 2010) p 58.139. SQW Consulting Asset Transfer Unit Evaluation. Baseline Report for the DevelopmentTrusts Association, revised version, October 2009, para 2.42.140. Clark et al, above n 12, p 28. See also, to similar effect, TSRC Evidence to the PublicAdministration Select Committee Enquiry on ‘Smaller Government, Big Society’ March 2011.141. A good example is with social housing, where charities may become providers of generalsocial housing rather than responding to niche needs such as housing vulnerable people. See egA Purkis Housing Associations in England and the Future of Voluntary Organisations (London:Baring Foundation, 2010) where he considers whether housing associations exist first andforemost to provide good services to paying customers (tenants), or first and foremost for awider social purpose or cause.142. One piece of research noted that ‘[t]here is a strong movement to refuse to be involved incommissioning – it’s mission drift, acting as an agent for the state’: Shared IntelligenceEvaluation of the National Programme for Third Sector Commissioning: Baseline Report(London: IDeA, 2008).



between the government and charities (and the wider voluntary sector). In his fore-word to the renewed Compact, Nick Hurd, Minister for Civil Society, said of theCompact that ‘it demonstrates that civil society organisations, along with citizens andcommunities are at the heart of the Big Society and that we in the coalition govern-ment are committed to working in partnership to deliver the Big Society vision.’143 Theweakening of the Compact and the simultaneous rise of the Big Society has alreadybeen noted144 and the linking of the two concepts by the Minister is a cause forconcern. It is hoped, however, that lessons can be learned from the Compact experi-ence so as to smooth the path somewhat for charities as they engage with the BigSociety.

One way of measuring the worth of the Big Society concept is whether it will helpor hinder charities in their ability to provide public benefit, which is, after all, theirraison d’être. At a highly practical level, charities are not able to compete and innovatewhen facing an acute funding crisis. Even if appropriate investment is made in thesector, the legal and regulatory framework within which charities operate impedestheir role in some of the key planks of the Big Society. It has been seen that, in relationto some elements, adjustments may be made to the regulatory frameworks so as tofacilitate charities’ enhanced role in the Big Society. In this respect, the tensionbetween the ideals of the Big Society, which are to allow people and organisations to‘just get on with it’ and the need for government-made measures to provide a frame-work for letting them do so, has been commented upon; the idea that the Big Societyagenda will only flourish by big government regulating it, is clearly contradictory.More fundamentally, however, certain legal constraints, which are inherent character-istics of charities, such as the need to maintain their independence and to act in linewith their objects, have been highlighted. These tend to suggest that there could be afundamental mismatch between the Big Society and charities’ involvement. In par-ticular, it has been suggested that, paradoxically, it is with small local charities that,arguably, should have the biggest role to play in the Big Society, where the divergenceis at its greatest. The assumed natural alliance of symbiotic aims is sadly lacking.

143. HM Government, above n 39.144. See text above at n 102.



charities and the big society: a doomed coalition?

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