Programme for Government proposal: Charity Regulation for a modern voluntary sector

Our proposals for the Programme for Government 2023/2024 cover three areas:  

1. Delivering Fair Funding by 2026 
2. Transparent voluntary sector funding
3. Charity regulation for a modern voluntary sector.

This paper focuses on the need for an independent review of charity regulation in Scotland to improve the regulatory framework for charities and support a more sustainable voluntary sector operating environment.

About Scotland’s voluntary sector

Scotland’s voluntary sector plays a central role in achieving the three policy priorities discussed by the First Minister’s in the Policy Prospectus, New leadership - A fresh start. 

Tackling poverty and protecting people from harm 

Voluntary organisations provide practical and emotional lifelines for people and communities when times are tough (e.g. foodbanks), and support them on their journey out of poverty (e.g. access to benefits).  Our sector supports people into work and helps them to stay there; campaigns against the root causes of poverty; and encourages individuals and communities to improve their lives.

A Fair, Green and Growing Economy 

With a turnover of £8.6billion, Scotland's voluntary sector is a major economic actor. Our sector plays a central role in local economies, including employing over 135,000 across Scotland - 5% of the Scotland’s workforce.  The sector plays a key role in keeping people economically active by providing employability support, mental health support, and wider support for people, families, and communities such as childcare. Voluntary organisations also bring added value to the economy by working with Scotland’s 1.2 million committed volunteers and by bringing fundraised income into vital areas, from service provision to environmental and medical research.  

Prioritising our public services

Without the voluntary sector, our public services would be significantly diminished. Through direct provision of public services in areas like social care and youthwork, or working with communities to keep people active, engaged, and healthy in a way that prevents them from needing to access statutory services, Scotland’s voluntary organisations are a vital part of our public service infrastructure.  Our sector also adds value to Scotland’s local and national systems by bringing access to fundraised income and volunteer time that is not be available to other actors.  

By committing to the actions described in this paper, the upcoming Programme for Government can support Scotland’s voluntary sector to continue to make a significant contribution to achieving the aims set out in the Scottish Government’s policy prospectus, including commitments to progress Fairer Funding, implement multi-year funding deals, embed Fair Work principles, reduce child poverty, build a wellbeing economy, improve transparency, and deliver efficient and effective public services. The Scottish voluntary sector is an employer, a partner, and a vital social and economic actor central to the Scottish Government’s ambitions to become a fairer and more equal society.  

Summary of proposals    

Our proposals for the Programme for Government 2023/2024 cover three areas:  

1. Delivering Fair Funding by 2026 
2. Transparent voluntary sector funding 
3. Charity regulation for a modern voluntary sector.

This paper focuses on the need for an independent review of charity regulation in Scotland to improve the regulatory framework for charities and support a more sustainable voluntary sector operating environment.

Summary

The recent Charities (Regulation and Administration) (Scotland) Bill was welcomed by SCVO and voluntary organisations across Scotland as an important step to improving transparency and accountability in our sector. The proposals included in the Bill, however, were designed to improve very specific aspects of regulation that were relevant to the regulator itself. While these proposals were generally supported, they were technical changes, rather than updating what it means to be a modern charity.

Charities and the environment they operate in have changed significantly over the last two decades. Charities have adapted to social and demographic changes, funding and policy trends, the opportunities and challenges of new technology and increased connectivity, and increasingly engaging procurement processes and contracts. More recently charities have been offered essential support to people and communities during the Covid 19 pandemic and the cost-of-living crisis. These changes and the external pressures affecting the voluntary sector require far more than a few improvements to a handful of regulatory processes. Legislation and other forms of regulatory interventions should support charities to thrive amongst the magnitude of oncoming change. The voluntary sector is not only regulated by the almost two decades old Charities and Trustee Investment (Scotland) Act 2005 – a variety of different regulators, duties, and obligations also apply. A holistic approach to regulation therefore needs to be taken to avoid gaps and overlaps in accountability. Across the voluntary sector there is support for an independent review of the regulatory landscape in which Scotland’s charities operate.

SCVO is encouraged by the support for a review that has been expressed across the Scottish Parliament, most recently during the legislative process for the Charities (Regulation and Administration) (Scotland) Bill, and in the commitment from the Cabinet Secretary for Social Justice, who stated during the Stage 1 debate of the Bill, that:

“It was clear during the consultations and discussions with stakeholders that they support the principle behind the bill but are keen for more. That is exactly why, as I said in my initial remarks, we are committed to a wider review of charity regulation following the passing of this bill. That wider review can explore how regulation can help with and improve the situation for all charities but especially the smaller charities, which have been mentioned by a number of contributors and which make up the majority of the Scottish charity sector.”

Given this clear commitment by the Scottish Government to a wider review, and the cross-party support for this within the Parliament, its inclusion within the Programme for Government 2023/24 is expected and should:

Introduction

For many years, SCVO has been at the forefront of calls for an independent review and wider reform of charity regulation in Scotland to enhance public understanding and retain public trust in charities. We are encouraged that within the Policy Memorandum of the Charities (Regulation and Administration) (Scotland) Bill, the Scottish Government has formally committed to carrying out a wider review once the Bill passes into legislation. 

The problem

The Scottish Government first launched its consultation on changes to charity regulation in Scotland in 2019. The proposals, which subsequently became the Charities (Regulation and Administration) (Scotland) Bill, were designed to improve important but very specific aspects of regulation relevant to the Office of the Scottish Charity Regulator (OSCR) itself. While these proposals were generally supported, they were not driven by the role of a modern charity. Almost two decades since the introduction of the Charities and Trustee Investment (Scotland) Act 2005, wider reform is needed.  

Charities and the environment they operate in have changed significantly over the last two decades. These changes paired with the more recent external pressures affecting the voluntary sector require significant improvements to the regulatory landscape. Legislation and other forms of non-legislative regulatory interventions can and should support charities to thrive. The voluntary sector is regulated through the Charities and Trustee Investment (Scotland) Act 2005, and a variety of different regulators, duties, and obligations. Two decades on from the inception of the 2005 Act, a holistic approach to regulating the voluntary sector in a way that supports the role of modern charities is now needed. 

SCVO engages across all the frameworks that regulate charities in Scotland. Most recently SCVO has been heavily involved in engagement with the Charities Bill and proposals to update freedom of information legislation. These regulations will have a direct impact on the voluntary sector. SCVO has also supported the Scottish Parliament’s Participation and Community Committee to recruit participants to engage with the Trusts and Succession (Scotland) Bill. This fragmented approach to the regulatory landscape is likely to result in both gaps and overlaps in accountability. Regulatory regimes should take a joined-up approach to avoid layers of regulation and instead consider the bigger picture. 

Across the voluntary sector, there is support for an independent review of the regulatory landscape that underpins the environment Scotland’s charities operate within. This review should be thorough to ensure modern charity regulation in Scotland. 

The solution 

Following the commitment in the Policy Memorandum of the Charities (Regulation and Administration) (Scotland) Bill, the voluntary sector, regulators, and the Scottish Government need to work together to review and improve policy and legislative and regulatory frameworks for charities in Scotland. By working together we can ensure that regulatory objectives are met in an efficient and effective way and that regulations are responsive to what it means to be a charity in 2023 and beyond. 

In the 2023/2024 Programme for Government the Scottish Government should:

Engaging charities in every step of this review is central to its success, including designing its processes, shaping its scope, finalising its conclusions, and implementing its subsequent recommendations. 

Views on what the review should include varies, as was evident during the legislative process for the Charities (Administration and Regulation) (Scotland) Bill. As shared in the Social Justice and Social Security Committee’s Stage 1 report, during this process some stakeholders expected a review to: 

•  Be independent and carried out in consultation with a wide range of people and organisations across the voluntary sector. 
• Engage with organisations in a range of ways to increase participation, particularly with smaller charities.  
• Address a lack of diversity in trustees in the sector. 
• Streamline the regulatory process recognising that currently the sector is not solely regulated by the 2005 Act. A variety of different regulators, duties and obligations are in effect and therefore a holistic approach to regulation is needed. 
• Review the charity test, including a review of the definition of public benefit.
• Reform the process for becoming a Scottish Charitable Incorporated Organisation (SCIO) with a focus on assisting and encouraging smaller, unincorporated organisations to convert to this legal form. 
• Clarify provisions relating to the winding up and dissolution of charities. 
• Result in amendments to address technical obstacles to reorganisation, and reforms relating to the treatment of royal charter/warrant and enactment charities. 
• Clarify the statutory requirements relating to notifiable events. 
• Ensure more scrutiny of charitable status as it applies to public sector actors, particularly ALEOs (arms-length external organisations) including scrutinising asset ownership of charities registered in England and Wales, or other places outwith Scotland, who are significant land and/or building owners in Scotland, in a wider review. 
• Be mindful of the Charities Act 2022 in place in England and Wales. 

 The evidence provided as part of the engagement with the Charities (Administration and Regulation) (Scotland) is useful as it offers an insight into the expectations of the sector and can be used as a starting point for further discussions for a more thorough review. These discussions should begin as soon as the Charities Bill passes into legislation.  

Achieving the National Outcomes and Strategic Priorities 

A wider review that improves and modernises charity regulation will create a more efficient landscape for charities to operate in, resulting in charities providing more effective support for the people and communities they work with. 

Voluntary organisations are intrinsically linked to the Scottish Government’s National Outcomes and priorities. The Scottish voluntary sector:  

•          Includes over 46,500+ voluntary organisations.  

•          Extends across a range of priority areas.

•          Contributes to all the 11 National Outcomes.

•          Provides essential support and services to people and communities across the country.  

A sustainable voluntary sector is essential to the Scottish Government’s aspirations to achieve the National Outcomes. Creating a sustainable funding environment for the sector will help to ensure that voluntary organisations are able to fully contribute to the National Outcomes.     

Measuring impact   

As discussed, the current regulatory landscape is fragmented. The success of the review will be measured by both the extent to which it engages with voluntary organisations from across the voluntary sector, how the review and subsequent changes are communicated, and whether the review results in a more streamlined approach to regulation. 

Cost  

While a review will have a cost, it has already been committed to within the Policy Memorandum of the Charities (Regulation and Administration) (Scotland) Bill. To adequately communicate and engage with charities across Scotland on a full package of new regulatory measures the review must be adequately resourced with realistic costings. The spend on the review should also be additional and should not impact on the funding currently available to voluntary organisations.  

This additional spend is a good investment as cost effective outcomes are delivered by many voluntary organisations. Investing in the voluntary sector benefits people and communities, our workforce and volunteers, and Scotland’s economy and society.  A holistic approach to regulating the voluntary sector will support organisations to focus on their charitable aims, dedicating time and resources to delivering quality outcomes for people and communities across Scotland.