Charities Act 2022 - What Does it Mean for Universities?
The first phase of charity law reforms brought in by the Charities Act 2022 (the Act) came into force on 31 October 2022.
The Act amends the principal act governing universities as charities, the Charities Act 2011. It is the culmination of a 2017 review of 'Technical Issues in Charity Law' by the Law Commission, with the changes being aimed at removing unnecessary or inefficient regulation. The remainder of the reforms will be introduced over the course of the next year, with the final changes due to be implemented in Autumn 2023.
While the reforms are wide ranging and impact on a number of different areas of charity administration, many are unlikely to be directly relevant to universities, the vast majority of which in England are exempt charities (rather than being registered with and directly regulated by the Charity Commission) and constituted either by Royal Charter or as statutory higher education corporations.
There are however some key deregulatory changes which may be welcomed by Chartered universities; those which act as trustee of charitable endowments and funds; and those with significant development programmes. We summarise below the most significant of these.
New Statutory Power to Amend Royal Charters (from 31 October 2022)
Chartered universities which do not have a constitutional power to change their Charter now have a statutory power to amend any provision in the Charter (with the approval of the Privy Council by Order of His Majesty the King in Council) rather than having to petition for a Supplemental Charter. For any university without an express power of amendment in its Charter, this will be of significant benefit and may present an opportunity for constitutional review - a review which may be overdue due to the previous practical restrictions on amending Charters without an express power of this kind.
Dealing with Endowment and Restricted Funds (from Spring and Autumn 2023)
From Spring 2023, universities which act as trustee of permanent endowment and restricted funds will have more flexibility to make changes to these funds in order to maximise their impact and direct their application to where need is greatest.
Permanent endowment funds are subject to a restriction requiring the capital of the fund (and normally any capital gains) to be retained in perpetuity and only the income spent. Restricted funds are those which are held for particular purposes within a university's wider charitable objects. Typically these kind of funds will represent gifts and legacies made to a university, sometimes over an historic period, and often of relatively small value.
The Act gives more flexibility to spend out smaller permanent endowment funds without the Charity Commission's consent, by extending the availability of the existing power to release restrictions on spending capital to funds with a value of up to £25,000 (currently this power is available for funds up to £10,000).
The Act's new regime for unincorporated charities to amend their governing documents (coming into force in Autumn 2023) will also simplify the process for changing the purposes of endowment and restricted funds (which currently is often complex and may require a scheme from the Charity Commission). Changes may be needed to remove historic eligibility restrictions on prize or bursary funds which now breach the Equality Act 2010; to ensure these funds can be directed in line with current spending priorities; or to restructure and/or consolidate a portfolio of smaller funds into larger funds, in order to maximise their impact and streamline their administration.
Another new power will allow for borrowing from the permanent endowment (of up to 25% of the value of the endowment to be repaid within 20 years), giving access to funding (on an interest free basis) for a relatively long period of time, so long as this is expedient in the interests of the relevant fund.
Some universities operating a total return approach to investment will from Spring 2023 be able to use their permanent endowment to make social investments where the financial return is expected to be negative or uncertain. This power does not apply to universities established by Royal Charter.
Powers Relating to Legacies and Appeals (some from 31 October 2022)
Development teams involved in fundraising appeals may be interested in the new more flexible rules for dealing with donations from a failed appeal which apply from 31 October 2022. The new rules will allow small donations from an appeal which raised insufficient or surplus funds, or where the circumstances have changed, to be applied for other similar purposes without involving the Charity Commission (subject to certain conditions being met).
The Act also gives charities a delegable power to make small "ex gratia" payments of up to £20,000 without the need for Charity Commission authorisation. An "ex gratia payment" is a payment to discharge moral obligations which neither furthers a charity's charitable purposes nor settles claims and which there is no legal obligation to make. In a university context, they are typically most likely to arise in the context of estate administrations where the university is a beneficiary. The date for implementation of these changes has not yet been confirmed.
Deregulation of Land Transactions (from Spring 2023)
For Welsh HEIs and the few English higher education providers which are registered charities, there are welcome relaxations to the statutory procedure under the Charities Act 2011 for disposing of land. These include removing the requirement to advertise the disposal and expanding the range of professionals from whom a valuation report can be obtained.
The Act also repeals the complex provisions of the Universities and Colleges Estates Act 1925, which applies in the HE sector to the Universities of Oxford, Cambridge and Durham and their colleges and halls. These institutions are now given the general power of an absolute owner of land, which will apply in addition to any express powers in their governing documents.
What's Next?
The changes brought in by the Act are enabling in nature, so the Act is not something which needs to be added to the 'to do list' of Legal and Compliance teams to ensure compliance.
However, any university contemplating a project to consolidate endowment and restricted funds could start the preparatory work now, in anticipation of the reforms affecting endowment and restricted funds coming into force in 2023. This work will typically involve reviewing the endowment status of the funds and their purposes; considering any potential Equality Act breaches; and, if necessary, establishing new charities to hold the funds on a consolidated basis.