1,000 Bodies Are Targeted in Charities Clampdown

Universities, care homes, colleges and the Royal British Legion as well as private schools are among nearly 1,000 organisations facing tough new tests to prove they deserve their lucrative charity status. Scotland’s charity watchdog will today unveil plans to demand evidence from bodies as diverse as NHS endowment trusts, independent schools, miners’ welfare societies and students’ unions that they comply with laws introduced last year by the Scottish Parliament.

The Office of the Scottish Charity Regulator (OSCR) will announce that it has found five types of charity where there is “risk” or “uncertainty” over their charitable status – which confer massive tax breaks on charities.

Last night MSPs warned that the operation, which will begin in June of next year and also covers religious groups, should not restrict the growth of charities in Scotland.

However, Jane Ryder, the chief executive of OSCR, promised the first phase of a “rolling review” of all of Scotland’s 21,500 charities would be “proportionate” and not overly bureaucratic.

The review comes under legislation passed by the parliament last year to address concerns raised after scandals involving the Breast Cancer Research and Moonbeams charities.

However the breadth of the list of organisations will come as a surprise as it was thought that OSCR would focus much of its attention on fee-paying schools. Left-wing MSPs had been accused of using the Charities and Trustee Investment Act, which set up OSCR, to wage a vendetta against the independent schools sector by forcing them to prove the fees they charge are not “unduly restrictive”.

Ms Ryder told The Scotsman that OSCR had rejected the idea of just looking at the largest charities or at a random sample.

She said: “We will address first the charities which appear to have risk or uncertainty about what they meet the conditions under the legislation.”

OSCR officials will ask charities to provide a brief statement of their activities, including whether they propose to charge for any of the services they may offer.

In the case of independent schools and universities and which charge fees, they will have to prove that this is not “unduly restrictive” to those who could benefit from the institution as a charity.

The Royal British Legion branches, miners’ welfare societies and students’ unions will be probed to see if their commercial activities conflict with their charitable aims.

For example, students’ unions, which run bars and other businesses,will be looked at for conflicts between their businesses and their stated charitable purpose.

Further education colleges, and NHS trusts – set up to raise money for hospitals across Scotland – may be disqualified because the law says organisations which can be directed by ministers do not qualify as charities.

John Swinney, an SNP member of Holyrood’s finance committee, said OSCR was right to press ahead with the review.

However, he warned ther regulator must take a “considered approach”.

“If they do not do that, some organisations could lose the opportunity to operate charitably and Scotland would be the poorer for that,” he said.

Last night representatives of those organisations facing scrutiny said they were confident they would be found to meet the charity test.

A spokesman for the British Legion in Scotland said: “We are not just relaxed about this, we are proud of our record of providing benevolence in the community since the 1920s.”

“Our social clubs are run as separate businesses from the branches which are charities.”

James Alexander, President of NUS Scotland, said: “In almost all cases, money generated through union bars and shops is channelled back into their core functions of providing welfare services and supporting clubs and societies”

A spokeswoman for the Council of Independent Schools said that many of their members were increasing the bursaries and scholarships made available to children from poorer backgrounds.

She added: “We believe these schools are charities and will pass any reasonable test of public benefit.”

And although there are private fears among some university leaders, a spokesman for Universities Scotland said: “Universities have an extremely strong case for remaining as charities. They operate for the public benefit and they are not unduly restrictive in what they offer students.”{mospagebreak}

There is no firm estimate for the total benefits of charity status. However John Matheson, director of finance for NHS Lothian, one of the endowment trusts that will need to prove it is entitled to charitable status, said: “If the decision is taken to remove charitable status from endowment funds, this would lead to an annual tax liability of around £1m for NHS Lothian.”

OSCR will also be examine the work of churches – including the Church of Scotland and the Catholic Church – to enure that they become “designated religious charities” by October 2007.

After the first phase of the review, which will last from June 2007 to march 2009, OSCR will move on to smaller charities like girl guide and scout groups.

  • Students’ unions

HOW MANY: Twelve student associations or unions are registered with the charity regulator.

BENEFIT: There is no estimate of the benefit to student associations from the tax breaks but they will qualify for at least an 80 per cent business rates relief.

ISSUES FOR REGULATOR: The regulator may judge that facilities like bars or travel shops are not in line with defined charitable purpose of supporting students in their education.

ORGANISATIONS’ DEFENCE: Student leaders argue that they are a charity as any money made is ploughed back into services.

  • NHS endowment trusts

HOW MANY: There are 12 across Scotland.

BENEFIT: Money from these funds is used to invest in special healthcare, including equipment. There is no estimate for Scotland but removing the tax relief would land NHS Lothian with a tax bill of £1 million.

ISSUES FOR REGULATOR: The funds are used by health boards which can be directed by ministers. Bodies directed by ministers cannot be charities.

ORGANISATIONS’ DEFENCE: The public are less likely to donate to hospitals if they are not donating to a charity.

  • Further education colleges

HOW MANY: A total of 43 are registered charities.

BENEFIT: Like universities, they get business-rates relief. Colleges estimate that charitable status is worth a total of £18 million to £20 million a year.

ISSUES FOR REGULATOR: The legislation says that bodies under the direction of ministers, as colleges are, cannot be charities.

ORGANISATIONS’ DEFENCE: Students benefit from their being charities.

They say there is no need to remove the ministerial power but will support such a move to keep charitable status.

  • Royal British Legions

HOW MANY: According to the regulator, there are 167 across Scotland.

BENEFIT: There is no central estimate available but they do get some business-rate relief.

ISSUES FOR REGULATOR: Whether the profitable social clubs owned by these comply with the organisations’ charitable objectives. The issue also applies to miners’ welfare societies.

ORGANISATIONS’ DEFENCE: That they provide benefits to ex-service personnel and also to the wider community.

  • Universities

HOW MANY: A total of 19 universities are registered charities.

BENEFIT: It is estimated that the institutions benefit to the tune of between £10 million and £30 million a year.

ISSUES FOR REGULATOR: As with schools, do the fees charged for some students unduly restrict those same students from gaining benefits?

ORGANISATIONS’ DEFENCE: Universities say that as there are no fees for Scottish undergraduates, they are not restricting the benefits.

  • Independent schools

HOW MANY: There are 53 schools registered as charities.

BENEFIT: It is estimated that they would lose up to £6 million between them if their charitable status was removed.

ISSUES FOR REGULATOR: Do the fees represent “unduly restrictive” conditions on gaining a benefit from the charity?

ORGANISATIONS’ DEFENCE: Independent schools say that their charitable ethos is more important than the financial benefits. They say they provide a large number of bursaries and scholarships for poorer pupils.