Charity regulation review: consultation analysis

Executive Summary

A public consultation on a review of charity regulation ran from 29 April to 22 July 2024, based on a Scottish Government commitment to work with stakeholders to develop the scope of a potential review. The consultation sought views on whether there needs to be a review of charity regulation and, if so, what the purpose and parameters of a review should be. In total, 163 responses were received^[1], 80 of which were from organisations and 83 from individuals. The analysis also included notes collated from nine consultation events.

Purpose of a review

A majority of respondents (83%) agreed that there should be a review of charity regulation, while 8% disagreed and 9% were unsure. Most prevalent in open comments was the view that a review would be timely, though other reasons for support included concerns about charity governance or a need to strengthen existing regulations or reduce complexity. Reasons for supporting any review included increasing confidence in charity leadership, ensuring organisational structures were correct, enabling the provision of clearer guidance, and emphasising the need for regular reviews. Conversely, many respondents left comments to suggest there was no need to conduct a review at this time or that there could be challenges associated with a review, such as the other demands on the charity sector potentially resulting in an ‘implementation gap’.

Just over half of respondents (54%) preferred any review to focus on assessing the effectiveness of current charity regulation in meeting the sector's future needs, for instance, to ensure regulation is fit for purpose in the future and that it can address current challenges in the sector. However, over a quarter of respondents (28%) felt the primary reason for a review should be to review the Charities and Trustee Investment (Scotland) Act 2005, again, with the primary reason being to ensure regulation is fit for purpose. Other reasons were suggested by many respondents, the most prevalent of which was that both of these options should be included in any review. Respondents who chose ‘other’ felt the scope of the review would need to be carefully considered. While there were calls for the review to be comprehensive, concerns were also expressed, such as the potential for a review to become time-consuming or costly.

70% of respondents indicated that they or their organisation will have the capacity to contribute to a review process in the next 12 months. While 9% of respondents felt they would not, one in five (21%) were unsure. Many respondents indicated in their comments that they would contribute to a review or welcomed the opportunity to do so. However, capacity issues were highlighted as having the potential to impact an ability to contribute, particularly among smaller organisations.

Parameters for a review

Respondents were initially asked two open questions to explore which topics they felt should or should not be included in any review. Many respondents raised the topics that would be addressed by the technical workstreams (see below). Beyond these topics, the most prevalent topics that respondents felt should be included in a review were aspects of charity governance and trustee roles and responsibilities, finance and the need to simplify regulation. Suggested financial aspects to include were wide-ranging and included simplifying accounting requirements, fundraising and charitable trading, financial and asset management and use, tax requirements, and application of endowments. Many respondents felt strengthening and simplifying regulatory requirements or reviewing the role and powers of OSCR should be included. Other less frequently suggested topics included the charity test (public benefit and charitable purposes), organisational structures and becoming a charity, constitutions, activity reporting, trustee motivation and recruitment, and how to increase public trust in charities.

When asked to consider what should not be included in any review of charity regulation, the most prevalent theme was that the review should be wide-ranging or that nothing should be excluded. Thereafter, themes covered the charity test, recent regulation changes, or specific suggestions on what to exclude. Some respondents suggested anything covered in recent consultations should be excluded from any review. Several respondents made recommendations to exclude certain aspects of regulation, for example, the guidelines for financial accounting and reporting. A few respondents cautioned against aspects of any review that might add further complication or burden to charity regulation.

In response to three specific topics highlighted in the consultation paper, around half of those answering felt these should be included. In order of prevalence, agreement was recorded for reviewing charity trustee duties (69%), public benefit (57%) and charitable purposes (54%). Beyond these topics, respondents highlighted other areas that could be included in any review of charity regulation. These included safeguarding and disclosures for staff and volunteers, accountability structures for staff, discrimination against staff, and employee benefits, each mentioned by some respondents. Some others also mentioned the need for strengthened regulation.

Technical areas

On three suggested technical workstreams, the highest support was recorded for reviewing the audit threshold, with three quarters (75%) of those answering agreeing this should be taken forward. In open comments, it was suggested the current audit threshold of £500,000 was set too low and was a disproportionate burden for smaller charities. Calls were made for this to be aligned with other regulatory bodies and to allow exemptions for those who temporarily breached the threshold. Less support was expressed for technical workstreams on incorporation to a Scottish Charitable Incorporated Organisation (SCIO) and reorganisation of statutory and Royal charter charities, with 57% and 51%, respectively, in favour. However, for these two topics, around a third of those who responded were unsure if these should constitute technical workstreams.

Other considerations and suggestions for how the Scottish Government should proceed with any review included ensuring that it is based on objective criteria, that there is consultation with the sector, that it is completed within the current Parliamentary term, and that recommendations are taken forward.