The Scottish Council for Voluntary Organisations is the membership organisation for Scotland's charities, voluntary organisations and social enterprises. Charity registered in Scotland SC003558. Registered office Mansfield Traquair Centre, 15 Mansfield Place, Edinburgh EH3 6BB.
Review of Charity Regulation: Scottish Government consultation
About our submission
SCVO welcomes the opportunity to respond to the Scottish Government’s consultation on the Review of Charity Regulation. In this response, we draw on evidence from:
Summary of our response
The Scottish voluntary sector is an employer, a partner, and a vital social and economic actor. Our sector manages an annual income of over £9.2 billion, employs over 133,000 paid staff, and works with more than 1 million volunteers to support communities across Scotland. You can find out more about the sector here.
Voluntary organisations are crucial to Scottish society. This has never been more evident than over the course of the last few years, but we can’t forget that, long before the pandemic and the cost-of-living crisis, voluntary organisations have been relied on every day 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is a sector that is consistently facing uncertainty and insecurity in a multitude of areas, including within a largely out-of-date regulatory landscape which governs how charities and voluntary organisations operate. With the Charities and Trustee Investment (Scotland) Act 2005 having been in place now for almost two decades, and the Charities (Regulation and Administration) (Scotland) Act 2023 focusing on specific, technical aspects of value to the regulator, the need for modernisation and improvement has been a long time coming. It is because of this that SCVO, and we believe the majority of the sector, supports the need for the wider review of charity regulation in Scotland that Ministers promised when the 2023 act was making its way through parliament.
We, therefore, wish to use our response to highlight just a fraction of the suggestions that have been made from within the voluntary sector, in relation to areas and aspects that should be considered for inclusion in forthcoming review. It is important that the Scottish Government does not use the current struggles facing the sector, particularly in relation to capacity, to restrict the scope of a review that could lead to improvements that would help to alleviate those difficulties. As the Scottish Government plans the parameters for this review, each suggestion should be taken on merit not simply based on the level of support from those organisations who have capacity to respond to the consultation, but in terms of how each proposal could truly improve and modernise the circumstances that even the smallest of voluntary organisations find themselves in.
We welcome the Scottish Government’s commitment to push forward with the three identified technical strands – reorganisation of statutory and Royal Charter charities, incorporation to a SCIO, and audit income thresholds – but the scope of this review must extend beyond these areas. Scotland’s voluntary sector and the services it provides are under pressure, and the regulatory landscape in which it operates are in urgent need of the kind of improvement that can only come from a joined-up, holistic approach that takes into consideration the many different aspects of charity regulation. Without modernisation, our voluntary organisations will continue to be held back by out-of-date regulation that does not reflect the modern world that charities in Scotland operate in.
Our response
Should there be a review of charity regulation?
Yes.
Please explain why you think there should or should not be a review of charity regulation.
In 2019, when the Scottish Government launched the original consultation on potential changes to charity regulation that would become the Charities (Regulation and Administration) (Scotland) Act 2023, many across the sector – including SCVO – were somewhat underwhelmed after hoping for wider reform. We felt that the proposals, although undoubtedly covering areas of importance, had simply not gone far enough. The proposals had been designed to improve very specific aspects of regulation that were of relevance to the regulator itself and, although generally supported, were not necessarily driven by an understanding of what it meant to be a modern charity almost two decades since the 2005 Act was introduced. Indeed, these proposals were not developed with any input from the voluntary sector in Scotland prior to the legislative process and, instead, were simply changes desired by the regulator. It is therefore no surprise that the needs of charities themselves remain far from being met by the 2023 Act.
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 amidst the magnitude of ongoing change. The voluntary sector is not only regulated by the 2005 Act. Charities are regulated by a variety of different regulators, duties, and obligations, and therefore there must be a holistic approach to regulating the sector in a way that supports the role of charities two decades on from the inception of the 2005 Act.
SCVO is consistently engaged with the regulatory frameworks that apply to voluntary organisations in Scotland. For example, we have recently engaged with proposals to update freedom of information legislation that will have a direct impact on the voluntary sector, highlighted the additional burden that could be placed on voluntary organisations as a result of a Human Rights Bill for Scotland, and challenged Disclosure Scotland’s plans to scrap the current volunteer fee waiver, which would have a hugely detrimental impact on a sector already suffering from a shortage of volunteers. This ongoing piecemeal approach to the regulatory landscape will continue to result in gaps and overlaps in accountability. Regulatory regimes should support organisations to work in a joined-up way 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. As outlined in the Social Justice and Social Security Committee’s Stage 1 report on the Charities (Regulation and Administration) (Scotland) Act 2023, “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”. Furthermore, during the subsequent Stage 1 debate on the bill, Collette Stevenson MSP, in her role as Convenor of the Social Justice & Social Security Committee confirmed to Parliament that “witnesses made it clear that it is essential that any review is independent”.
The Scottish Government cannot afford to kick this recent commitment down the road or conduct a review that avoids the vital improvements required to ensure suitable, modern charity regulation in Scotland. It will only be by working together – the voluntary sector, regulators, and the Scottish Government – that it might be possible to review and improve policy, and legislative and regulatory frameworks, for charities in Scotland, so that these meet regulatory objectives in an efficient and effective way, ensuring that regulations are responsive to what it means to be a charity in 2024 and the decades to come. 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.
If a review of charity regulation is undertaken, which of the following should be the purpose of the review:
Other.
SCVO has long called for a comprehensive, holistic, independent review of charity regulation, with an extensive scope informed by voluntary organisations. With that in mind, we are unsure why any review would focus on either assessing the effectiveness of current charity regulation in meeting the future needs of the sector or reviewing the Charities and Trustee Investment (Scotland) Act 2005 to explore if the Act is doing what it set out to do and if any changes are required. It would be our contention that, if any review is to be truly comprehensive, it should be both considering whether the 2005 Act requires updating, while also assessing current charity regulation and its effectiveness in meeting the sector’s future needs. We do not see these as in opposition but, instead, aspects that should both be included.
It is important to consider the purpose of regulation when considering how to take forward this review and whom to consult in the process. The purpose of regulation is to act in the interests of the public, to ensure public trust and confidence in the organisations or individuals being regulated. The regulator should not act in the interests of government or of the sector it regulates. Therefore, it is crucial that Scottish Government seeks the views of the public on their expectations of what a charity should or should not be; what do they need to trust the “charity brand”?
It is SCVO’s role to act in the interests of the voluntary sector, so our response should be read in that context.
Do you think you or your organisation will have capacity to contribute views to a review process in the next 12 months?
Yes
SCVO remains willing and able to contribute to a review process in the next 12 months, both in terms of direct contribution and in facilitating engagement with and promotion to the sector. We would anticipate that other intermediary bodies (umbrella bodies that support voluntary organisations in certain sectors, e.g. sport or work with young people) will also be able to play this role. In terms of the sector more widely, we cannot ignore that times are difficult for voluntary organisations across Scotland.
After years of underfunding and upheaval, the pandemic and cost-of-living crisis have been just the latest chapters in a longer story of instability and unpredictability in voluntary sector resourcing. The cost-of-living crisis has, for many organisations, increased demand for the essential services and support the sector provides while organisations, like households, struggle with rising costs. In addition, challenges facing the recruiting and retaining of volunteers only continue to grow. In short, the sector is struggling. See the latest Scottish Third Sector Tracker, published in February of this year, for evidence of this.
In advance of the 2023 regulations, when the sector was still struggling with the impact of the pandemic, we took the view that it was not the right time for a wider review given capacity in the sector. Since then, however, it has become clear that the difficult situation voluntary organisations find themselves in is likely to continue. There is therefore no perfect time to review charity regulation. Additionally, the potential improvements and positive steps that could result from a comprehensive review of charity regulation could go great lengths to alleviating some of those burdens.
With that in mind, we would urge the Scottish Government to consider any concerns from the sector over capacity to contribute to a review process as a signal that there are challenges for this process to overcome, to ensure that organisations are able to feed into the review. It is Scottish Government’s responsibility to ensure a process that is as accessible and as inclusive as possible, rather than utilising a perceived lack of capacity to whittle down the scope of any forthcoming review.
If a review of charity regulation is conducted, what topics should it cover and why?
As already outlined in previous answers to question 2 and 3, SCVO has long called for a comprehensive, independent review of charity regulation with an extensive scope informed by voluntary organisations.
SCVO has conducted initial consultations with voluntary organisations across Scotland, which surfaced a range of regulatory issues requiring reform. These are, of course, examples of areas that require attention, rather than an exhaustive list.
Reorganisation of statutory and Royal Charter charities
In 2019, SCVO responded to the consultation on the charity regulation proposals that would subsequently become the Charities (Regulation and Administration) (Scotland) Act. In our response, we encouraged “the Scottish Government to listen to the views of those organisations established under Royal Charter to establish whether they are content with continuing to seek approvals for reorganisation from the Privy Council”. We note that this proposal was ultimately dropped from the process and resulting legislation. Therefore, we are encouraged that it has been identified as an area for focus as one of the technical strands, and our position remains that this is an issue for those organisations it directly impacts.
Incorporation to a SCIO
As above, the legislative process for the Charities (Regulation and Administration) (Scotland) Act provided the opportunity for a number of organisations to propose suggestions for regulatory aspects that could be included in any further wider review. Reforms to the process for becoming a Scottish Charitable Incorporated Organisation (SCIO) were suggested, as highlighted in Annexe A of the Social Justice and Social Security Committee’s Stage 1 report, and SCVO is, therefore, encouraged that this area too has been identified for inclusion in the review as a technical strand.
Audit income thresholds
SCVO also welcomes the addition of audit income thresholds as a technical strand in the wider review of charity regulation. We would encourage Scottish Government to ensure, however, that consideration of the issues around audit and independent examination is wider than just the income threshold.
Difficulties in accessing audit services have been raised with us as an issue outside of this consultation; more than 10% of organisations that require an audit expressed a difficulty in engaging an auditor in the July 2023 Scottish Third Sector Tracker. We would welcome the opportunity to explore the issue of thresholds for both audit and independent examination in more detail as a potential way to address this practical difficulty. There are also arguments for reviewing the financial value of the threshold to take account of inflation, and the increasing complexity of audit requirements.
In addition, as raised by ICAS and others in their submissions, wider issues relating to audit should be included in the review, including consideration of the most appropriate treatment of organisations in receipt of a large one-off payment and so requiring audit for one year only, potentially including the granting of one-year filing exemptions at Companies House.
Charity test
SCVO is aware that the charity test was an area suggested for consideration in any wider review during the legislative process for the Charities (Regulation and Administration) (Scotland) Act, as highlighted in Annexe A of the Social Justice and Social Security Committee’s Stage 1 report. Our view is that no aspect of charity regulation should be off the table and the scope should be informed by the voluntary sector. Therefore, if there is demand for this aspect to be included in the review’s scope, as the polls conducted by the Scottish Government’s Third Sector Unit during two SCVO engagement webinars suggest, then it is entirely sensible to include charitable purposes within the scope of this review.
Public benefit
As above, it is our view that no aspect of charity regulation should be off the table and that the scope should be informed by the voluntary sector. Therefore, if there is demand for public benefit to be included in the review’s scope then that should be what is taken forward. The polls conducted by the Third Sector Unit during two SCVO engagement webinars would suggest that majority support is indeed in favour of including public benefit within the review’s scope.
Charity trustee duties
Of the polls conducted by the Third Sector Unit during two SCVO engagement events, it was clear that, although majority support existed for all three of these proposed areas, there was an overwhelming majority for including charity trustee duties within the scope of the review. We believe that it is vital that this aspect is included in the forthcoming review, particularly given the increasing difficulties in recruiting trustees.
For example, the Charities (Regulation and Administration) (Scotland) Act 2023 introduced a number of measures intended to improve charity transparency and accountability and, while the legislation will do so, it will also add to the responsibilities of charity trustees at a time when we know that recruitment difficult. As outlined in our response to the Social Justice and Social Security Committee’s consultation at Stage 1 in early 2023, there were, and still remain, some concerns over the impact of measures introduced by the Act, such as including charity trustee names in the Scottish Charity Register. As OSCR’s own Scottish Charity Survey 2022 showed, a quarter of charities were concerned about the recruitment of trustees, with this being of particular concern to smaller charities. Therefore, this still presents a potential barrier to the participation of trustees and requires further review.
In addition, there is a need to identify and address the potential barriers to trustee diversity currently in place in charity regulation, perhaps by ensuring this review includes a concerted effort to understand and reduce such barriers.
Other areas
Beyond the technical strands and suggested areas for inclusion in the wider review identified by the Scottish Government, it is important that the review reflects the impact of current regulation and the improvements and modernisation needed to better serve charities and voluntary organisations across Scotland, regardless of size or reach.
In any consultation, it will be the larger, better resourced organisations who are most able to contribute – but the issues faced by those larger organisations will not necessarily be the same as those faced by smaller organisations. Therefore, the Scottish Government should fully consider the suggestions put forward from the sector as a whole, before identifying a scope that ensures a thorough, comprehensive review based on the needs of all organisations, and not just mirroring the most popular ideas selected from the consultation. SCVO, of course, will continue to support the Scottish Government to do that.
The webinars in June, hosted by SCVO in partnership with the Third Sector Unit, were great examples of how the sector has within it wide-ranging views and suggestions for the scope of this review, based on first-hand experience of what could lead to tangible, beneficial improvements. For example, ensuring a greater focus on the responsibilities placed on people with significant control as well as trustees, implementing the recommendations outlined in the Review of Governance of NHS Endowment Funds (source: https://www.gov.scot/publications/review-governance-nhs-endowment-funds/documents/), and the need for the review to include a focus on upskilling the sector as a whole on regulation and what requirements are placed on organisations were all valuable contributions that should be considered on merit, rather than widescale support, along with the countless other suggestions that will be raised as a result of this consultation. Only by doing so can this review lead to the kind of regulatory improvements and modernisation required to alleviate burden and improve conditions for voluntary organisations of all shapes and sizes.
Other issues we are aware of which could usefully be included in the review include:
Access to banking
SCVO’s work on charity banking has raised huge concerns over the inability for voluntary organisations to obtain accessible and fit-for-purpose banking, while administrative burden in areas such as anti-money laundering legislation increases at pace. Although this is a UK-wide issue, the Scottish Government could consider whether there is any part of this review that could better understand and seek solutions to a growing issue that is damaging the ability for voluntary organisations across Scotland to adequately manage their finances.
Volunteering
For example, the Scottish Third Sector Tracker’s latest wave has shown that, as of Winter 2023, 33% of voluntary organisations list volunteer shortages as one of their top three challenges. This is unsurprising, coming on the back of the Tracker’s waves 1-6 report showing that, between August 2021 and April 2023, “staffing pressures relating to paid staff and volunteers” increased significantly as a top three challenge for organisations from one-third to two-thirds. Furthermore, we know from SCVO’s recently refreshed Sector Stats that volunteer rates have fallen in recent years from 26% in 2018 to 22% in 2022. It is therefore paramount that the scope of this review takes into account the specific issue of declining volunteer participation and how any charity regulation can help alleviate or improve the situation.
Registration thresholds
Currently in Northern Ireland, the Department for Communities is consulting on a threshold below which charities would not be required to register with the Charity Commission for Northern Ireland, or to provide an annual report and accounts. The consultation also seeks views on the regulatory framework for those charities falling below the threshold and choosing not to register. This has the potential to both reduce the administrative burden for small charities and remove barriers to volunteering. It seems sensible that the Scottish Government could consider the benefits of including similar provision within the scope of its own review of charity regulation.
What topics should it not cover, and why?
We believe that the focus should currently be on ascertaining what topics need to be included in a wider review of charity regulation to ensure a comprehensive review that meets the needs of voluntary organisations. Therefore, we do not currently believe there is a need to identify topics which should be off the table.
Charitable purposes: Should this aspect of charity regulation be reviewed?
Yes.
Public benefit: Should this aspect of charity regulation be reviewed?
Yes.
Charity trustee duties: Should this aspect of charity regulation be reviewed?
Yes.
Is there anything else you think should be included in a review of charity regulation?
See our answer to question 5.
Should this technical topic (Reorganisation of statutory and Royal Charter charities) be reviewed?
Yes.
Should this technical topic (Incorporation to a SCIO) be reviewed?
Yes.
Should this technical topic (Audit income thresholds) be reviewed?
Yes.
Are there any other technical issues you think should be added to the technical workstream?
We believe it should be for the Scottish Government to ascertain which topics should be considered ‘technical issues’ for addition to the technical workstream, and which topics should remain in the wider scope of the review.
About Scotland's voluntary sector
Our sector is a powerful force for positive change and a significant part of our economy. From grassroots volunteer-run community groups like village halls and playgroups to major providers of public services in social care and housing, the voluntary sector is present in every aspect of our society. Together the over 46,500 voluntary organisations that make up Scotland’s voluntary sector work with over 1 million volunteers and employs over 133,000 paid staff.
Our sector provides practical and emotional lifelines for people and communities, supports people on their journey out of poverty, highlights the causes of poverty, and shares solutions. We employ 5% of Scotland’s workforce, support people to be economically active, and undertake vital environmental and medical research. Our sector is also a vital part of Scotland’s public service infrastructure, providing a range of essential public services. You can find out more here.
About us
The Scottish Council for Voluntary Organisations (SCVO) is the national body representing the voluntary sector (sometimes referred to as the third sector). We champion our sector’s social and economic contribution, provide essential services, and debate big issues.
SCVO and our community of nearly 4,000 members understand that charities, social enterprises, and voluntary groups work with people and communities across Scotland to make Scotland a better place. Find further details about SCVO at www.scvo.scot.
Our policy team work closely with the voluntary sector, the Scottish Government, COSLA, and the Scottish Parliament on a wide range of issues relating to the voluntary sector’s operating environment, including funding, partnership, and regulations.
Contact
Jason Henderson
Policy and Public Affairs Officer
jason.henderson@scvo.scot
scvo.scot
