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Charity Commission’s powers to be strengthened under new Charities (Protection and Social Investment) Bill

27 July 2015

On 27 March 2015, the Queen announced the key pieces of legislation that the Government will be looking to implement over the next 12 months.  The list included the Charities (Protection and Social Investment) Bill which was published by the Cabinet Office on 22 October 2014.  The aim of the Bill is to protect charities in England and Wales by giving the Charity Commission (“the Commission”) both new and strengthened powers to tackle abuse of charities more effectively and efficiently in order to maintain the “high public trust in charities”.  The Bill will also enable charities to more easily undertake social investment (by investing their funds in a way that furthers their charitable purpose as well as providing a financial return).  The twelve operative clauses in the new Bill amend or extend the existing provisions contained in the Charities Act 2011 and the Trustee Act 2000.  We have commented on certain elements of the Bill in more detail below.

Key Elements of the Bill

1. Power to issue a statutory warning to a charity or charity trustee

The Bill provides the Commission with a new power to issue an official warning to a charity or charity trustee.  The Government felt that the Commission should be able to issue a statutory warning to charities or trustees for a breach of trust or duty, as well as for failure to comply with either a requirement of the Charities Act 2011 or an order or direction of the Commission.  This should provide the Commission with an additional tool which would sit in between issuing guidance and the opening of an inquiry. 

A recipient of a statutory warning will be given an explanation of the reasons for the warning and an opportunity to make representations.  Under the new Bill a failure to respond adequately to a statutory warning will be considered an act of misconduct or mismanagement which could result in the Commission using its other compliance powers, including disqualifying a trustee.  This is distinct from a failure to follow specified good practice, which would not in itself be considered evidence of misconduct or mismanagement; but the onus will be on charity trustees to demonstrate how they have complied with their legal duties.  Any action the Commission takes on the basis of a failure to follow an order or direction (such as opening a statutory enquiry) will be open to appeal to the First Tier Tribunal.

2. Disqualification of trustees

The Bill also adds new categories of offences which give rise to automatic disqualification of a trustee.  A shortcoming in the current legal framework is that a charity trustee can resign and become a trustee or a senior member of another charity without the Commission having the power to stop him or her from doing so.  The cross-party Committee, who were appointed to scrutinise the Bill, had concerns that the removal of an officer, agent or employee by the Commission should not automatically result in the disqualification from trusteeship.   However, the Government’s view remains that if the matter is so serious that the Commission has to use its powers to remove a person then that person is clearly unsuitable to be a charity trustee.  Therefore, the Government is insisting on maintaining the breadth of the Commission’s proposed new discretionary power to disqualify “unfit” persons.

This is a power which has long been sought by the Commission and should give it more teeth as a Regulator; but it has for obvious reasons attracted attention from those concerned that it could be misused and who called for reassurance that appropriate safeguards be put in place to protect against the potential for abuse of this power.  The Commission has sought to provide reassurance by publishing a paper on 29 May 2015, outlining its “initial thinking” about how the power would be used and emphasising the safeguards put in place.  The Commission says that it has published this guidance now so that it can respond to questions that may arise during the passage of the Bill.  The Commission has said that, if the Bill becomes law, it will revise the guidance further and hold a public consultation on its approach before it is finalised.    

3. Social investment

The Bill will also give charities a new specific and simple power to make social investments (pursuing both a financial and social return), along with clear duties when doing so.  The social investment provisions were recommended by the Law Commission, to make it easier for charities to undertake social investment.  The Law Commission’s view was that the current legal framework relating to social investment is inadequate and unhelpful, having derived largely from the law concerning investment duties of trustees of private trusts and pension funds.  Furthermore, the Charity Commission Guidance CC14 (Charities and investment matters: a guide for trustees), although helpful in filling the gaps between the case law that currently exists, has no statutory footing.  This has meant that larger charities, which should have the resources to make social investments, feel inhibited from doing so as recent cases have emphasised the risks of making social investments.  The proposed new powers of investment will apply unless they are excluded or amended by a charity’s governing document.  The statutory duties which underpin the new power (which for charitable trusts will replace the Trustee Act 2000 investment duties) are as follows:

  • being satisfied that a social investment is in the charity’s best interests, having regard to the expected mission benefit and financial return;
  • to periodically review social investments and consider varying them; and
  • to consider taking advice when making or reviewing an investment.

Legislative Timeline

A joint cross-party committee of the House of Lords and the House of Commons was appointed to carry out pre-legislative scrutiny of the draft Bill.  The Committee supported most of the proposals put forward by the Government, however it made some detailed recommendations and commented on a number of wider issues affecting charities.  The Committee published its report on 25 February 2015, with the Government’s response to the joint Committee’s comments published on 26 March 2015.  The Government took note of the majority of the Committees recommendations, however has insisted on maintaining the breadth of the Commission’s proposed new discretionary power to disqualify an “unfit” person from being a charity trustee. 

The current version of the Bill has been amended to reflect the Government’s response to the Joint Committee’s report and is currently making its passage through the House of Lords. The decision as to the next steps for the draft Bill is in the hands of the re-elected Conservative Government.  The Government’s proposals are therefore likely to be implemented, with the Bill due to be published in full during its first reading, for which a date has as yet not been set.


The Bill has been welcomed by the Commission, particularly the power to disqualify individuals from acting under certain circumstances, since the Commission will be able to “protect charities from being run by individuals who are clearly not fit to do so”.  It has now been 18 months since the National Audit Office’s report on the regulatory effectiveness of the Commission was published.  Whilst the report was critical of the Commission’s failure to do enough to identify and tackle abuse of the charitable status, which “undermines its ability to meet its statutory objective to increase public trust and confidence in charities” the NAO also found there were deficiencies in the Commission’s powers and recommended that the Government should seek to close legislative loopholes to address these deficiencies.  The Commission clearly hopes that the Bill in its current form will enable it to do so and will strengthen its focus and impact on tackling abuse within the sector.  However, there remains some way to go before the new legislation is enacted.