Registration and levy
Proposals for discussion
This discussion paper considers the arrangements for funding the Fundraising Regulator through a registration and levy system, recommended as the way forward in the cross-party review of fundraising regulation (the Review), ‘Regulating Fundraising for the Future: Trust in Charities, Confidence in Fundraising Regulation’, published in September 2015 (1).
The paper sets out proposals for the registration and levy system and seeks responses to questions set out at the end of the paper.
The Fundraising Regulator
The Fundraising Regulator is the voluntary, independent regulator for charitable fundraising in the United Kingdom (2). The Fundraising Regulator is a company limited by guarantee without a share capital (registered company number 10016446). It aims to ensure that fundraising is respectful, open, honest and accountable to the public. Its role as regulator is to:
- Set and promote standards for fundraising practice (the Code of Fundraising Practice and associated Rule Books) in consultation with the public, fundraising stakeholders and legislators.
- Investigate cases where fundraising practices have led to significant public concern.
- Adjudicate complaints from the public about fundraising practice, where these cannot be resolved by the charities themselves.
- Operate a fundraising preference service to enable individuals to manage their contact with charities.
- Where poor fundraising practice is judged to have taken place, recommend best practice guidance and impose proportionate sanctions.
The Fundraising Regulator is governed by a 10-member non-executive Board of Directors, drawn from both inside and outside the fundraising sector. As a company limited by guarantee, the Directors are responsible for the overall control and strategic direction of the company. The Board is chaired by Lord Grade. More information about the Fundraising Regulator is available on its website at www.fundraisingregulator.org.uk.
The Review and the new Fundraising Regulator
1. The cross-party review of fundraising self-regulation proposed the establishment of a new Fundraising Regulator as part of the overhaul of how fundraising by charities is overseen and regulated.
2. The Fundraising Regulator started work in January 2016 ahead of its formal launch on 7 July 2016 when it will take over from the Fundraising Standards Board (FRSB) and start to adjudicate on new complaints from members of the public and carry out investigations. On that day, the Code of Fundraising Practice will transfer to the Fundraising Regulator from the Institute of Fundraising (IoF) as will the street and door-to door fundraising Rule Books from the Public Fundraising Association (PFRA).
3. Start-up costs are being met by contributions from up to 50 charities with the highest expenditure on fundraising, supporting the Fundraising Regulator’s initial revenue and capital costs. These contributions are separate from the continuing annual funding needs of the Fundraising Regulator to be met through a registration and levy system.
Options for funding
4. The Review considered in some detail how the new fundraising regulator would be funded, having concluded that lack of sufficient funding and the absence of an appropriate funding mechanism has had a significant impact on the ability of the FRSB as regulator to fulfil its duties effectively in the current system.
5. The Review considered a range of options to find an appropriate and sustainable funding source for the new model of fundraising regulation. It looked at a number of possible models (3) and weighed up the pros and cons of each. These included:
- A membership model used by the FRSB, IoF and PFRA as the existing regulatory bodies. They rely on a membership model whereby fundraising bodies or individual fundraisers sign up to their organisation in order to receive benefits which include regulation among a number of other services.
- State funding, through grant-funding by the state.
- A levy on voluntary income, based on the amount of voluntary income fundraising organisations receive.
- A levy on fundraising expenditure, through a general levy on fundraising organisations based on fundraising expenditure instead of income.
A levy on fundraising expenditure
6. The Review concluded that the fairest and most effective approach to resourcing the Fundraising Regulator would be a levy on fundraising expenditure, applying to organisations reporting annual fundraising expenditure of £100,000 or more to generate donations from the public. This information is already provided as part of the annual return and audited accounts that charities submit to the Charity Commission. Because the information is already provided, it should not be an additional burden on those charities in the scope of the levy. 7. The Review considered that the levy should be:
- Applied on a sliding scale requiring those organisations with high fundraising expenditure (and thereby higher contact volumes with donors) to contribute more towards the cost of effective regulation.
- Proportionate, so that no organisation (or group of organisations) contribute so large an amount that they could be seen or said to influence the Fundraising Regulator or have a stake in its operations.
8. The Review considered the size of the Fundraising Regulator’s operations would be larger than its predecessor at the FRSB because it would take on additional responsibilities from other organisations and handle a higher volume of cases. Therefore, its budget would be larger and it would need to build up adequate reserves to ensure both its independence and the viability of its continuing operations. The Review estimated the annual budget as being between £2m and £2.5m.
9. To raise this sum, the Review estimated that about 2,000 charities with annual fundraising expenditure of £100,000 or more would be required to pay a levy at an average of £1,300 each although the Review recommendation was that the levy should be stepped.
A registration fee
10. The Review also recommended that the Fundraising Regulator should consider a consultation on whether £100,000 is the appropriate level to start charging and how the bands should be set. The Fundraising Regulator would also consider whether there should be a small administrative fee for registering bodies below the levy threshold.
11. The proposals now set out for discussion affect charities in England and Wales registered with the Charity Commission. They also affect a smaller number of exempt charities that also raise voluntary income through donations from the public. These are organisations which are charitable but are regulated by another body, for example English universities that are regulated by HEFCE (the Higher Education Funding Council for England) and also those national museums and galleries which are registered charities but where the Department for Culture, Media and Sport issues policy directions to them as non-departmental public bodies in respect of any grant-in-aid received from Government.
12. At the time of writing, decisions about whether Scotland would join the Fundraising Regulator or set up separate arrangements are due to be taken in the summer 2016. Similarly, in Northern Ireland, decisions will be taken later in 2016 about whether to join. If the decision is to become part of the Fundraising Regulation system applying in England and Wales, then the levy arrangements may apply to some charities registered with the Office of the Scottish Charity Regulator (OSCR) and the Charity Commission for Northern Ireland (CCNI).
13. The Fundraising Regulator has considered a number of propositions, including the recommendations in the Review, in particular whether the threshold for the levy should be set at annual fundraising expenditure of £100,000 and more or some other figure as well as a banded or percentage based system.
14. In considering the options, the Review recommendations have been taken into account and the following principles have informed the assessment and choices set out for discussion:
- Fairness, so that those charities that spend most on generating fundraising contribute the highest rate of the levy.
- Ensuring that smaller charities within the scope of the levy are not disproportionately disadvantaged by the cost of the levy or the requirements of being registered with the Fundraising Regulator.
- Ensuring that the level of costs for a small number of charities does not allow them to have, or to be perceived to have, undue influence or impact on the Fundraising Regulator.
- Comparison with the funding arrangements for membership operated by the FRSB and the PFRA.
- Simplicity, to minimise the overhead costs of allocating and collecting the levy so that it will be as straightforward and simple to administer as possible.
15. The proposals put forward by the Fundraising Regulator for the levy are;
- That it should be based on charities that spend over £100,000 on fundraising to generate voluntary income, as proposed in the Review.
- That the amount of the levy for each contributing charity is based on figures for fundraising costs in the latest Annual Returns to the Charity Commission for the year ending 31 December 2014 (or for the most recent date in 2014) the latest date that a full set of figures is available (4).
- That the levy will be set for 2 years and 8 months from 1 August 2016 - 31 March 2019. Using historic data to set the levy in this way will discourage organisations from seeking to evade a higher levy (or paying the levy at all) by allocating fundraising expenditure elsewhere. Setting a rate now over several years (before review) limits the burden on them because changes being introduced to the charity SORP (Statement of Recommended Practice) in January 2016 mean that fundraising spend in the annual return will not be easily available in future unless re-introduced later as a result of review. Setting a levy to last for nearly 3 years will allow both charities and the Fundraising Regulator to plan financially with some certainty. The first request for payment will be for a full year whilst the new system beds in and to cover rates of payment.
- That there is also an expectation that charities will continue to keep a record of fundraising expenditure as a matter of good practice even if the SORP does not require it and keep the Fundraising Regulator informed.
- That some exempt charities, meaning those not regulated by the Charity Commission for England and Wales, with a different accounting regime pay a flat rate levy. This will apply in particular to Universities in England regulated by HEFCE, where data about fundraising spend is not available. These organisations do have similar public-facing fundraising operations to other charities, targeted at their former students, though not necessarily exclusively. The proposal is to include them in the levy at a flat rate of £1,500 per annum.
- That there should be an annual administrative charge for other charities registering with the Fundraising Regulator that will show their support for good practice and fundraising regulation. This arrangement will also be open to fundraising agencies wishing to register on the same basis.
Options for the levy
16. Annex A sets out 3 ways of calculating the levy, all based on fundraising expenditure as proposed in the Review and described in the annex as the smooth banded levy. There is no perfect way to calculate it.
17. Our preference is for option 1, which is a sliding scale levy. This puts charities into bands and shows their annual spend on generating voluntary income based on their total spend. Option 1 shows the number of charities in each band, the annual levy proposed and the annual income generated for the Fundraising Regulator in each band designed to achieve an annual budget of up to £2.5m. The levy would apply to 1,961 charities and the Option 1 table also shows the figure as a percentage of total charity spend, which varies between 0.03% for those with the highest amount of expenditure on generating voluntary income and 0.17% for those with lower expenditure. In this model the largest contribution is £10,000 and the lowest is set at £250 in a full year. The option includes the flat rate applied to exempt charities.
18. We prefer this arrangement because it is the most straightforward and transparent and seeks proportionate contributions from charities in the levy arrangement.
19. We have looked at variations on this preferred option in options 2 and 3 to see if the impact can be smoothed more, to make it fairer for smaller organisations so that those charities spending £100,000 contribute a lower percentage of their total spend. These options might also avoid a situation in which a charity spending £1 over the band limits would fall into a higher bracket. Options 2 and 3 are levies based on the proportion of total sector spend on fundraising that the 1,961 charities incur.
20. However, the calculation in options 2 and 3 also has significant drawbacks because there are very few charities spending at the top end of the range. These approaches result in significant distortions, whereby those with higher spend start to contribute significantly larger sums to the point where the risk identified in the Review kicks in – namely, that large payers might exercise or be seen to exercise undue influence. If a cap is placed on maximum contributions, then more of the burden falls on a significant number of charities spending lower amounts on fundraising.
21. To illustrate this, if the levy is based on option 2, and a cap is placed on maximum contributions at £20,000 (four times the highest rate charged by the FRSB for membership) 18 organisations would contribute at this amount. The lowest rate of the levy would be £500 falling to be paid by 1143 charities and the 800 in between would pay a levy at varying rates but averaged out at £1,829.
22. In option 3, if the lowest rate of the levy is reduced to £250, then the top rate becomes £40,000 to be paid by 6 organisations with the highest fundraising spend. The lowest rate would be paid by 624 organisations and 1,331 charities in between would contribute at variable rates averaging out at £1,487.
23. We consider that options 2 and 3 have a disproportionate impact on charities spending most on fundraising whilst not necessarily achieving benefit to charities spending lower sums. For this reason, option 1 remains our preferred option.
FRSB membership rates
24. For comparative purposes only, Annex B sets out the membership rates applying for charities currently in membership of the FRSB. Registration
25. We propose to run an annual registration scheme and want to encourage charities to register. Registration with the Fundraising Regulator will be open to any charity and commercial fundraising agencies who wish to demonstrate their commitment to best fundraising practice. The annual registration fee will be included as part of the levy for those charities paying it.
26. We propose to charge an administrative fee for registration as set out in the flat rate charges shown in Annex A. There is a rate for charities and a separate one for fundraising agencies corresponding to the rate they pay now to the PFRA though for some this may be lower than the membership fee paid to the FRSB.
27. Those organisations choosing to register will be required to agree to a set of agreed terms and conditions about their commitment to the Code of Fundraising Practice. Once registered, organisations will be able to use a Fundraising Regulator ‘badge’ that will say they are registered with the Fundraising Regulator on their websites and in all printed materials. Registration will show:
- A commitment to best practice
- A commitment to donors
- Public accountability of those registered
- Public awareness of fundraising regulation
- Support for fundraising regulation.
28. More information on how to register and details of what it means, including the terms and conditions, will be available in the autumn, but charities interested in registering can advise the Fundraising Regulator now and we will get in touch again as soon as an on-line system is ready to take details and the costs are confirmed following the closing date for discussions on the proposals in this paper.
29. We will make collection and payment as easy as possible for those registering with us as well as paying the levy and will release details when we start to send out invoices, initially for the 8 months from 1 August 2016 – 31 March 2017.
Register held by the Fundraising Regulator
30. The Fundraising Regulator will maintain and publish a register of those charities within the scope of the levy and whether they have paid it. It will also hold a register of those charities and other organisations that have registered and paid the administrative charge.
31. The Fundraising Regulator operates a system of voluntary, independent regulation and the proposals to fund operations from August 2016 are modelled on those set out in the Review. These depend on the support and co-operation of the charity sector to make the arrangements work by showing their commitment to it through both the levy and registration. In accepting the recommendations of the Review, the Government also took reserve powers in the Charities (Protection and Social Investment) Act 2016 to ensure there is a statutory back-up to require payment of a levy in the event that charities do not respond to the Fundraising Regulator’s request for levy contributions (5). Short of that, non-payment may result in the Fundraising Regulator’s decision to publish a list of charities that have not paid the levy. Non-payment could also have the effect of increasing payments that those paying the levy are asked to contribute.
32. Having weighed up different approaches to the levy we have concluded that the Review recommendations should be followed because they have the advantage of providing the fairest and most accurate baseline data for the levy to be paid and to populate the register that the Fundraising Regulator will hold.
33. The proposal to apply the levy for 2 years 8 months from 1 August 2016 – 31 March 2019 will give levy payers certainty about their contribution and ensure that the Fundraising Regulator can keep collection costs as low as possible.
34. We welcome views on the propositions made in this discussion paper. In particular, we welcome responses on:
- Whether £100,000 is the right threshold to set the levy?
Setting it at this level means it will apply to 1,961 charities. We have looked at the effect of setting the levy threshold at £150,000 which would mean the levy would apply to about 1,600 charities and at £200,000 it would apply to around 1,300 charities. The higher the threshold, the more those charities included would have to contribute.
- Whether option 1 for setting the levy is the best option?
This option and alternatives in options 2 and 3 are all based on fundraising spend. Although options 2 and 3 seek to lessen the impact on charities spending lower amounts on fundraising, the amounts needed from those spending most rise in a way that becomes disproportionate.
- Whether the proposed banding is right and whether the highest and lowest rates for the levy are appropriate?
We are keen to have a system that is as simple as possible so we propose a limited number of bands. The advantage is one of clarity but we recognise there are some ‘cliff edges’ in terms of the amounts calculated for each band. However, we welcome views on whether there are too many or too few bands.
- Whether there are any other issues in setting the levy for just under 3 years in the first instance, the period 1 August 2016 – 31 March 2019, not already covered?
Are there any issues for charities that may come in and out of the £100,000 threshold during the period? What evidence would they need to submit to show they were subsequently spending less than £100,000? We will also expect charities to keep records of their fundraising expenditure (even though the SORP may not require it) and to contact the regulator if they start to spend more than £100,000 a year.
- Are the proposals for flat rate charges set at the right levels?
If not, what suggestions do respondents have for different systems or charges?
Responding to the discussion paper
35. Comments on the Levy and Registration proposals with particular reference to the questions set out in paragraph 34 above are invited for submission in writing by not later than Friday 22 July 2016.
This consultation is closed.
(1) Published by NCVO, available on its website www.ncvo.org.uk.
(2) The regulatory arrangements for fundraising in Scotland and Northern Ireland are currently being negotiated (see paragraphs 11 and 12 of this discussion paper).
(3) Section 4.5 on Funding, pages 44-46.
(4) The full set of Annual Return data for 31 December 2015 is not yet available.
(5) Section 14 of the Charities (Protection and Social Investment) Act 2016, Reserve powers to control fundraising, inserts a new section 64B into the Charities Act 1992 (reserve power in relation to fundraising regulators). This enables regulations to be made under section 64A of the 1992 Act to impose on charitable institutions requirements (a) to comply with requirements imposed by a regulator; (b) to comply with guidance issued by a regulator; (c) to pay fees to a regulator of an amount determined by the regulations or determined by the regulator in accordance with regulations; (d) to be registered with a regulator for the purpose of its regulation of charity fundraising.