MPs condemn charities watchdog as ‘not fit for purpose’
Charity Commission failed to act robustly to deal with abuse, public accounts committee finds.
The charities watchdog has been condemned as feeble and not fit for purpose following an investigation by MPs into its performance.
The public accounts committee (PAC) found the Charity Commission had failed to act robustly to deal with clear cases of abuse and the cross-party group of MPs said they had "little confidence" in its ability to address its shortcomings.
They also raised concerns about tax relief for charitable donations being used as avoidance and evasion schemes, with an estimated £170m lost to the exchequer in 2012-13.
The PAC chair, Labour MP Margaret Hodge, said: "We are dismayed by the fact that the Charity Commission is still performing poorly and failing to regulate the charity sector effectively. It is obvious that it has no coherent strategy and has been simply buffeted by external events.
"It is clear that the Charity Commission is not fit for purpose.
"The commission too willingly accepts what charities tell it when it is investigating alleged abuses. It too often fails to verify or challenge the claims made. Some of the most serious cases of abuse have not been properly investigated.
"It has been too slow in removing or suspending trustees and in pursuing investigations promptly – as demonstrated in its feeble investigation into the Cup Trust."
The PAC last year concluded that the Cup Trust had been set up as a tax avoidance scheme and did not meet public expectations of a charity.
The committee said the Charity Commission’s leadership had "consistently failed to tackle poor performance and ongoing weaknesses" and its new chief executive would had to make "radical changes".
The MPs added: "We have little confidence in the commission’s ability to put right its problems and failings."
The committee also criticised HM Revenue and Customs over the abuse of Gift Aid tax relief and the failure to collect proper information about corporate donations.
"This type of abuse can give those reliefs and the charity sector a bad name if HMRC is not seen to be doing more to address the problem," the MPs said.
Hodge said: "We know this abuse has lost tax revenue – an estimated £170m in 2012-13. At the same time, the cost to the taxpayer of Gift Aid has increased, to £2bn in 2012-13, only half of which is going to charities themselves.
"It is also deeply concerning that HMRC does not know if Gift Aid reliefs have encouraged more people to give more to charity, because it does not have the data.
"In particular, HMRC does not have enough information about the effect of reforming Corporate Gift Aid in 2000. It was designed to give an incentive to corporate donors to donate more to charity by providing tax benefits for the donors rather than for the charities.
"But HMRC does not know if this is happening or if, in practice, charities are receiving less income because companies have not increased the amount they are donating in response to this incentive.
"We were also surprised that the sharing of information both within HMRC and externally with such bodies as the Charity Commission has been poor.
"HMRC should also go further in providing information to this committee as part of its work to preserve public confidence in the tax system."
Sir Stuart Etherington, chief executive of the National Council for Voluntary Organisations, said: "The approach the Charity Commission took to regulation in recent years risked harming the reputation of charitable status.
"The commission has to be an effective regulator in order to maintain the public’s trust in charities. Although cases of abuse are rare, in the past the commission has been too slow to act when they do arise.
"We are pleased it is now making moves in the right direction. It has started taking firmer action and is seeking to enhance its legal powers. The Charity Commission still has significant work to do in order to restore its reputation but we could not do without its specialist role. I welcome the public accounts committee’s plan to review the Commission again in a year and I hope it will be able to demonstrate that it is continuing to improve."
He added: "Gift Aid and tax reliefs are a vital part of the charity sector’s funding. We need to have a system in place which both maximises the value of donations and commands public confidence."
A HMRC spokesman said: "Charities benefit from over a £1bn of Gift Aid every year, but abuse of charitable tax reliefs is unacceptable. The government has invested £1bn in HMRC to clamp down on avoidance, evasion and fraud, and since 2010 the number of people working to prevent the abuse of charitable reliefs has doubled.
"HMRC prevented £65m of tax being lost to avoidance in 2013, a four-fold increase from £16m in 2010. For every £1 spent on checking Gift Aid claims and charities’ tax affairs for compliance we save £44 in tax.
"We take the threat of fraud and misuse of charitable tax reliefs extremely seriously and that is why we are sharing more intelligence than ever before with the Charity Commission when there is any suspicion of abuse."
A Cabinet Office spokesperson said: "We expect the commission to focus on its core responsibility of regulating the sector. William Shawcross and his new board have started this work and are making good progress but we all know there is much more to do.
"The commission should exercise its authority more often. In line with recent NAO (National Audit Office) recommendations, the Cabinet Office is running a consultation to address any gaps in its existing legal powers."
The Charity Commission said it was already implementing many of the recommendations made by the PAC.
Charity Commission chairman William Shawcross said: "I completely reject the suggestion that the commission lacks a coherent strategy.
"We have already begun to implement the recommendations of the National Audit Office.
"We are making rapid, visible progress. The figures on new statutory inquiries and the increased use of our powers demonstrate that our new board and senior management team are implementing significant change.
"I am confident that we are taking the Commission in the right direction.
"We recognise that we must strengthen our approach to identifying and tackling the most serious abuses of charity – and we have asked for new powers to enable us to do this.
"We also have to ensure that the few cases of serious mismanagement and abuse do not undermine public trust and confidence in charities more widely. It is a shame the committee hasn’t recognised this progress."