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27th February 2011

An Academic Issue: the Outcome of the Public Benefit Case

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In 260 closely reasoned paragraphs, The Upper Tribunal has published its decision in the public benefit case. We do not have clarity on all aspects of public benefit but we have had some critical issues established or restated.

As most in the sector will know, all charities have a requirement under the Charities Act 2006 to deliver and demonstrate public benefit in their purposes and activities. 

The Charity Commission has an objective under the Act to promote awareness and understanding of public benefit. The guidance it published in fulfilling this objective had been challenged, ultimately leading to this Tribunal case. This decision is of obvious interest to independent schools, since it was these charities which were named and represented in the case. 

However, there are also important principles for other fee charging charities and indeed for all charities. Here are the main decided principles. 

1. Charitable status. A charity’s nature and status as a charity is derived from its objects or aims and those are usually to be found in its governing document or constitution. Often the activities of a charity have been scrutinised, not least by the Charity Commission, as part of the process of assessing whether an organisation is a charity. This may be relevant if a charity has no stated purposes (which can be so with very old charities) and also in assessing whether a charity is operating as a charity ought. However, charitable status is derived from purposes, not activities. 

2. Meaning of Public benefit. Public benefit should be understood in two ways. First, the purpose must be of benefit to the general public or the community at large. This will rarely be an issue for most charitable purposes. Second, those who are benefited must constitute ‘the public’ as this is accepted in law. This must be a numerically significant group, not linked to a particular person or organisation (like an employer), and should not exclude the poor. 

3. Meaning of ‘the poor’. ‘The poor’ is a relative term. It need never mean destitute, but can also mean different things in different contexts. Someone who cannot afford the modest top-up fees of a residential care home for the elderly may have a great deal less means than someone who cannot afford an independent school’s fees, yet both may legitimately be viewed as ‘poor’ in the circumstances. 

4. Provision for the poor. A charity cannot exclude the poor, and must make some provision for benefits to be available to them. However, as long as the provision is more than minimal it is up to the trustees what and how much provision is given. 

5. Benefits which count. Subsidised services, concessionary fees, bursaries, and the like are important to consider in assessing whether sufficient provision is made for the poor. However, other benefits, including less direct benefits, are also legitimate to take into account in assessing whether the public benefit requirement is met. For schools this might mean offering teaching resources, teachers, and facilities to state schools at reduced rates. For other fee charging charities there will be a variety of provisions which are possible and relevant in their own contexts. 

6. Charity Commission’s guidance. The Charity Commission must now redraft some of its guidance and we must therefore be alert to the issuing of the updated guidance. The independent schools sector claims victory in this case and there is no doubt that a dark cloud of financial challenge has been significantly dispersed. However, the Charity Commission states that its guidance is in large measure upheld by the decision, although in truth most of the guidance was not in issue either within the charity sector in general or in this particular case. 

What is the impact of this decision? This has been a crucial case for the charity sector for the reasons outlined above, although plotted on a graph of challenges for the sector it barely registers. By far the greatest challenge remains financial: for charities to prosper and for the Commission to remain an effective regulator whilst battling a perfect storm of financial challenges. Public benefit may yet be an academic issue for some. 

If you would like to discuss more about the public benefit requirement, please contact Chris Knight on 01604 463103 or chrisknight@hewitsons.com You can also read here more about our services to charities and the education sector.