Leading Scottish charity law expert wants legislative tension loosened

Leading Scottish charity law expert wants legislative tension loosened

Third Force News
06.05.11

 

Challenging times call for radical action – and Scotland’s third-sector organisations are increasingly engaged in processes that will see dramatic changes in the way our charities and voluntary organisations go about their business.

 

A tightening of funds allied to the ever-increasing “contract culture” within local authorities and other governmental organisations has encouraged a rash of consolidation.

 

And it is widely accepted that financial need will ensure that Scottish charities will have to find new, innovative and commercial ways to operate in future as a combination of tighter criteria and tough competition bites.

 

In other words, the tide is seeing bigger, more professional and business-like charities emerging which can operate more commercially and which offer greater self-reliance for funding.

 

But at a time when UK Government policy is to cut reliance on public services and encourage the third sector to play a more prominent role – as espoused by “The Big Society” – this drive for commerciality and greater self-reliance often is a major stumbling block that Governments could do much to help overcome.

 

One of Scotland’s leading charity law experts, Alastair Keatinge, a Partner and Head of Charities at Lindsays, is concerned that the language used in much of the legislation and regulation governing charities and their operations is couched in outdated and restrictive terms.

 

Alastair said: “There is a real tension at play. On the one hand, charities and voluntary organisations are becoming increasingly driven by financial circumstance and the lead given by potential funders to become increasingly commercial and self-reliant. This is particularly true as our public sector funding comes under ever-greater pressure.

 

“At the same time, Government at UK level clearly wants to see the third-sector pick up a lot of the work that it believes should be done within society, rather than entirely financed through the taxpayer.

 

“However, what is not really being tackled is that much of the legislative and regulatory language used to govern charities and voluntary organisations – including the constitutions of many charities – actively mitigates against making profit. While profit distribution should continue to be restricted – in other words, charities should not make profits for shareholder dividends – the restrictions on charities making surplus or profit that can be reinvested in their activities need to be removed.

 

“For example, the payment of grants by Scottish Government under the Social Work (Scotland) Act 1968 can only be made to organisations which operate other than for profit. This is restrictive, and stifles surplus focused organisations running on commercial lines.

 

“In my opinion, if we want to have a healthy and vibrant third-sector in the years ahead, working as an integral part of a caring society, then we need to address this issue honestly.

 

“There is also a great deal of competition within the sector, both in terms of attracting funding and in seeking profile for the work done. In particular, it is now clear that there is an increasing ‘contract culture’ in local authorities seeking to place work which favours larger charities who are better equipped to deliver consistent quality of service. For example, a local authority seeking to outsource some work with children is more likely to be attracted to dealing with Barnardos than with a small local charity which can demonstrate far less experience in the field.

 

“In my view we are likely to see charities take an increasingly commercial approach to this. I believe we will see charities enter into joint ventures, forge partnerships and set up other models which have their roots in the commercial world in order to continue to deliver.”

 

“On top of the tougher legal barriers charities now face, this activity means charities need to start thinking now about the future, and they need to consult with people who understand both their sector and the commercial world.”

 

Despite the tension between profit-making and regulation, Alastair stressed that there are genuine routes which many charities are exploring which can offer solutions.

 

For example, mergers between charities to create cost-savings and provide greater strength in depth in terms of reach and expertise, or joint ventures between charities and commercial partners.

 

Some recent merger examples include Help the Aged and Age Concern; The Princes Trust and Fairbridge; and the Scottish Crop Research Institute and the Macaulay Institute to form the James Hutton Institute, which Lindsays advised on.

 

Alastair Keatinge is experienced at working with charities, numbering Citizens Advice Scotland and Inspiring Scotland amongst the clients he advises. He is also an experienced corporate lawyer.

 

He added: “Charities have learnt a great deal about good governance from the corporate sector. Now the more astute charities are taking models from the commercial world and creating corporate vehicles such as subsidiary companies and joint ventures to make the most of opportunities to increase their charitable income”.

 

If you would like to discuss any of the issues raised in this article please get in touch with Alastair Keatinge.