Voluntary organisations are crucial to Scottish society. This has never been more evident than over the course of the last few years, but we cannot forget that, long before the pandemic and the cost-of-living crisis, charities have been relied upon on a daily basis by individuals, families, and communities across Scotland, and this will continue to be the case in the future.
Despite this, ours is a sector that is consistently facing uncertainty and insecurity in a multitude of areas, including within a largely out-of-date regulatory landscape which governs how charities operate. With the Charities and Trustee Investment (Scotland) Act 2005 having been in place now for almost two decades, the need for modernisation and improvement has been a long-time coming. It is because of this that SCVO, and we believe a majority of the sector, broadly supports the proposals contained within the Bill.
However, it must be recognised that this is a Bill that seeks improve a specific array of regulatory measures, rather than bringing about the widespread improvements required by the sector.
Despite our general support for the Bill, we are keen to highlight some concerns that still remain, particularly around a lack of detail and clarity. There are a number of proposals within the Bill that, although sensible and proportionate on paper, still require far more detail in order to aid the understanding of how they will be implemented and maintained, alleviating sector concerns in the process.It is, at present, unrealistic to expect ourselves or others in Scotland’s voluntary sector to be able to accurately predict whether the proposals contained within the Bill will have administrative or other burdens on charities, given the lack of detail provided. We welcome the Social Justice and Social Security Committee’s Stage 1 Report which further highlights this matter, stating that “stakeholders expressed concern regarding the lack of clarity around implementation of the proposed Bill”.
We also have concerns over the level of responsibility that now falls upon the regulator to ensure that charities across Scotland are fully aware of the changes in this Bill and the expectations these changes will place upon them. It is crucial that, should this Bill pass into legislation, OSCR undertakes efficient and thorough engagement and communication with Scotland’s charities, providing greater clarity and guidance in most areas of the Bill and ensuring further detail and support where necessary. This could be particularly important in relation to certain proposals, for example those that strengthen the regulator’s new powers, to ensure that charities can feel assured, confident, and informed going forward, and we are again encouraged that these concerns have been highlighted by the Social Justice and Social Security Committee.
Given the requirement for OSCR to adequately communicate and engage with charities across Scotland on the full package of new regulatory measures, the costing of this should be realistic and must not come at the expense of funding available to voluntary organisations.
We would note that particular proposals have been added to the Bill without proper consultation – namely those concerned with charity mergers and the appointment of interim trustees - which, when considered alongside the approach to the original proposals developed by OSCR without input from charities, suggests that this extensive process has been something of a missed opportunity. Alternatively, charities could have been involved in the development of proposals from the beginning, ensuring that more effective additional changes could have been included in the resulting Bill.
This missed opportunity has further fuelled calls for a wider review of the regulatory landscape in which charities, and the wider voluntary sector, operate within.
During recent engagement on the Bill, the issue of “undischarged bankruptcy” as a criteria for disqualification and the impact of its extension to senior management functions was highlighted and discussed. However, we would also now like to raise concerns over the impact the Bill could have on individuals with Protected Trust Deeds, given this too is covered in OSCR’s criteria for disqualification. We know that charities all over Scotland can benefit from lived experience and that often that lived experience has come with a greater risk of financial difficulty. It is, therefore, possible that individuals with valuable insights and experience seeking to become, or indeed already in, senior management roles within charities may be more likely to be undergoing some form of debt relief.
According to the Accountant in Bankruptcy (AiB), there were 5,304 bankruptcies in Scotland in 2021/22, but 18,837 Protected Trust Deeds. Trust deeds are also usually discharged after four years, with bankruptcy being discharged after 12 months. Therefore, it seems likely that extending not only bankruptcy but Protected Trust Deeds as criteria for disqualification to senior management functions could have a far greater impact on more individuals and for a much longer period than has been highlighted in relation to undischarged bankruptcy. It is also worth noting that, in order to be eligible for a trust deed as an insolvency solution in the first place, you must be in employment. Therefore, it is not outwith the realms of possibility that someone employed in a role with senior management functions could already be in possession of a Protected Trust Deed at the point of implementation of this proposal.
The proposals included in this Bill are designed to improve very specific aspects of regulation that are of relevance to the regulator itself and, although generally supported, are not necessarily driven by an understanding of what it means to be a modern charity almost two decades since the original legislation was introduced.
The external pressures on the voluntary sector require far more than a select few improvements to a handful of regulatory aspects. Instead, it is important we ask how legislation and other forms of non-legislative regulatory interventions can support charities to thrive amongst the magnitude of oncoming change. The voluntary sector is not only regulated by the 2005 Act. As the Social Justice and Social Security Committee has explained in its Stage 1 Report, “a variety of different regulators, duties, and obligations are in effect and therefore a holistic approach to regulation needs to be taken”. An ongoing piecemeal approach to the regulatory landscape will result in gaps and overlaps in accountability. Regulatory regimes should support organisations to work in a joined-up approach as there remains a risk that layers of regulation are added without consideration being given to the wider picture. SCVO knows that there is support across the voluntary sector for an independent review of the regulatory landscape that underpins the environment our charities operate within.
Only by resourcing a comprehensive independent review, including the adequate involvement of charities, will the Scottish Government get it right. Charities must be an integral part of every step of this review, from designing its processes and shaping its scope, to finalising its conclusions and implementing its subsequent recommendations. As the Stage 1 Report states, “stakeholders explicitly stated the review must be independent and carried out in consultation with a wide range of people and organisations across the third sector, engaging with organisations in a range of ways to increase participation, particularly with smaller charities”.
Policy and Public Affairs Officer
Scottish Council for Voluntary Organisations (SCVO)