Margaret Hodge MP has proposed that under a future Labour Government, charities could be regulated by the Taxman, not the charity commission as they are at present – she is showing how once again our MPs don’t understand the charitable sector, nor the impact of the reforms that the previous Labour Government enacted. This is very frustrating for those of us who have spent a large part of our working lives in the sector and are tired of the many failed attempts by Politicians to meddle in a part of society they clearly don’t understand, particularly when they have shown no capacity for resolving the problems on their own doorstep such as their own pay and expenses including second homes or their relationship with their civil servants. According to the article the reason that Mrs Hodge has proposed this change because of an estimate that 10% of the gift aid claims could have been made in error or as a result of tax abuse. This came as part of a National Audit Office report which included amongst its main criticisms, the way in which the regulator failed to prevent the Cup Trust from registering as a charity, when it was clear that it was simply a tax avoidance scheme. The view that Cup Trust was not a legitimate charity is something that is widely shared by the charitable sector, and one of the frustrations that charities have is that the Commission is too aloof and distant from the sector it regulates. If the Charitable Commission was more accessible, then abuses such as Cup would be dealt with more quickly, because the sector is acutely proud of the benefits of being a charity and the need to guard this privilege jealously. The problem is not that we need the sector to be regulated by HMRC which has no real understanding of the charitable sector, but that we need more resources for our regulator and the basis of a stronger relationship with them.

The last Government created some new charitable instruments which in time will enable charities that at present are jointly regulated by the Charity Commission and Companies House (Part of the Government BIS Department), to focus solely on their relationship with the Commission. There are many reasons to be critical of the Commission, but if BIS is a proxy for mainstream Government Departments, it is clear that the knowledge and experience of the Commission is far too important to place into a huge Department such as HMRC. In any case the track record of HMRC to resolve tax avoidance by commercial companies similar to Cup is nothing to write home about.

One of the critical issues that the Government seems to misunderstand is the scale of the charitable sector. It includes 163,000 registered charities, along with many other organisations that are not registered charities, many because they are exempt from formal regulation. Of the 163,000 organisations, 70,000 have a turnover of less than £10,000 most of which will have made very few tax aid claims, whereas less than 2,000 have a turnover of £5M or more. The risk is that ignorant MPs such as Margaret Hodge will set a regulatory regime suited for the abuses of one or two within the largest 1%, whilst completely ignoring the needs and demands of the smallest 43%. As Sam Younger, current Chief Executive of the Charity Commission explained on the radio this morning, one of the problems the Commission faces is that its budget has been cut disproportionately compared to the changes made to other Government departments.

We need an adequately resourced Charity Commission that is more open to the sector it regulates, listening and learning first hand from its decision making. One of its problems is that the appointment of the Board is made in isolation from the sector itself. If the Government listened to the sector when making appointments, as keenly as it does to other sectors when appointing comparable regulators, the Commission would be even more effective than it is. I have written previously about this here.