FE Governance

The Charities Act 2006 received Royal Assent on 8 November 2006 and is to be implemented in phases throughout 2007 and 2008 by means of commencement orders and secondary legislation.

This section outlines the key changes introduced by the Act and considers what implications they have for FE Colleges.

• The Act introduces a statutory definition of "charity" for the first time, based largely on existing categories. The advancement of education of course remains a charitable purpose.
•  The presumption that educational and religious charities, and charities for the relief of poverty, exist for the public benefit is removed. In future all charities will have to demonstrate that they exist for the public benefit.
• The structure and role of the Charity Commission has been reformed and the Commission has been given additional powers to ease the administration of charities.
• A new Charity Tribunal is to be established to hear appeals from Charity Commission decisions.
• The regulation of exempt charities, including FE corporations, is to be increased. In future all exempt charities will have a principal regulator which will oversee the compliance of the charity with charity law.
• The Act introduces a number of de-regulatory measures intended mainly to simplify the administration of smaller charities.
• A new form of corporate charity is to be introduced called the Charitable Incorporated Organisation. This will provide an alternative to the charitable company limited by guarantee and will not require to be registered with Companies House.
• The Act introduces new measures for the regulation of public charitable collections.

The Charity Commission has published a ten-page guide to the Act on its website (see Useful Links below). The Commission has also undertaken to publish a 'plain English' guide to the Act later this year.

The Act represents a major shake-up of charity law and introduces some far-reaching changes. However, many of its provisions will not have a direct effect on FE Colleges.

The two main areas where the Act has significant implications for FE Colleges are:

1 the regulation of exempt charities;

2 the new emphasis on public benefit.

Exempt charities - introduction of the principal regulator

The Act requires all exempt charities to have a principal regulator. For FE corporations which are exempt charities under the FHEA 1992, the principal regulator will be the Learning & Skills Council.

As principal regulator, the LSC will have a duty under the Act to promote compliance by the charity trustees with their legal obligations in exercising control and management of the charity. In the case of an FE College the governors are the charity trustees. Therefore it will be more important than ever for governors to be fully aware of their duties under charity law.

In addition the Charity Commission will be able to investigate an exempt charity at the request of its principal regulator. The Charity Commission is required to consult with the principal regulator before exercising any of its powers in relation to an exempt charity. The provisions regarding the principal regulator will not take effect until spring 2008 at the earliest.

Public Benefit

Under the old law it was presumed that an educational charity existed for the public benefit. That presumption has been abolished, and all charities will now have to show that they exist for the public benefit.

The Act does not define the term "public benefit" but the Charity Commission is required under the Act to provide guidance as to what it means in the context of particular charity sectors. The Commission will be consulting widely during 2007 before publishing its guidance.

In future all charities will have to give an account each year of the public benefit they provide. It is unlikely that community based educational institutions such as FE colleges will have difficulty in demonstrating public benefit. The provisions of the Act relating to public benefit will not come into force before early 2008.

The Act became law on 8 November 2006 with phased implementation throughout 2007 and 2008, The Office of the Third Sector has published an Implementation Plan for the Act available on the Internet (see Useful Links below).

The first commencement Order will come into effect on 27 February 2007. It deals mainly with the objectives, functions and powers of the new Charity Commission. The provisions relating to public benefit, exempt charities, the Charity Tribunal and the Charitable Incorporated Organisation will not come into effect until the spring of 2008.

No - FE corporations retain their status as exempt charities but they will be subject to the LSC as their principal regulator under the Act (See above, under What are the main implications of the Act?)

No - the LSC will not assume any duties as principal regulator for those colleges which are registered charities.

Students' unions are regarded as charities, because they advance the educational purposes of the parent institution. Under the old law, students' unions were accepted as exempt charities by virtue of being administered on behalf of the college and being established for a special purpose of the college, namely student welfare.

The Act expressly removes exempt charity status from students' unions. Therefore, if they have an income of more than £100,000 per year (and note the emphasis on "income", not "turnover") they will be required to register with the Charity Commission. However, unions are not likely to have to register before 2008.

The Act contains a number of useful deregulatory measures aimed at unincorporated charities. These may be of interest to unincorporated colleges or colleges which have charitable trusts closely connected with them.

For example the Act allows smaller unincorporated charities (with an annual income of not more than £10,000) to transfer property including permanent endowment, to another charity. The Act also extends the powers of unincorporated charities to spend their permanent endowment, which should assist charitable trusts wishing to transfer their assets to an FE college. These provisions are expected to come into force in 2008.

For charitable companies limited by guarantee the Act relaxes the circumstances in which the company must obtain the prior written consent of the Charity Commission to certain changes to the memorandum and articles of association. From October 2007 companies will only need to obtain Commission consent to changes to the objects clause, the dissolution provisions or provisions authorising benefits to directors or members.

No - the CIO must be a charity in its own right and therefore cannot operate for non-charitable purposes.

Charities Act 2006

Implementation Plan for the Charities Act 2006