When is charity not a charity?

Is it time to change our ideas about what is and what is not a charity? More importantly, should changes in the perceptions, goals and techniques of charities be backed by changes to the law?

Probably the most famous example of an institution that is a charity in law, but not in public opinion, is Eton College. It is dedicated to excellence in education, which is a general good, and, therefore, it constitutes a charity.

However, with fees set at £13,000 a year, someone who is academically average, but very wealthy, is likely to be accepted above a highly gifted academic with less money in the bank. So should we as a nation subsidise the privileged education of the very rich by way of tax relief on so-called charities?

Nobody would doubt the charitable status of the National Society for the Prevention of Cruelty to Children. But if the NSPCC comes to an arrangement with printing firm Dickinson – which makes no claim to being anything but a profit-driven commercial enterprise – to make and sell Christmas cards, where is the line drawn between charity and business? If it is a business, the NSPCC loses income. If it is a charity, Dickinson makes more profit.

Last year, the Deakin Report advocated a redefinition of charitable status on the basis of “public good”. This seems simple, but not everyone agrees.

According to barrister Christ opher McCall QC, it is easy enough to say there should be change, but difficult to see what the change should be.

“The great strength of our charity law is that it is vague,” he says. “It gives tremendous scope for new ideas. A precise definition would be disastrous.”

In reply to the Eton example, McCall cites the colleges of Oxford and Cambridge, which are also charitable trusts. They too are dedicated to educational excellence, and the cost of attendance is also high. The only difference is that if you are accepted on a course, the Government pays.

Anne-Marie Piper, a partner at Paisner & Co and chairman of the Charity Law Association, disagrees. “There should be a radical re-start,” she says.

Although Piper refuses to be drawn on what she herself would like to see in a new charity law, she feels the way forward is through “regional juries” coming together to make recommendations to the Government. In her view, there would be no need to lose the current advantage of flexibility. “Whatever system is chosen, it has to be adaptable,” she says.

The way charities have evolved in recent years – and therefore, how they are defined – has thrown up the question as to the extent to which they should be allowed to trade on a commercial basis. At present, trading operations have to be directed through a hived-off subsidiary. “The result is a legal fiction,” claims Gary De'Ath, a partner at Shakespeares in Birmingham. “We should come out in the open.”

Laurence Holden, senior partner at Brabner Holden Banks Wilson in Liverpool, comments: “The rules put a considerable burden on the trustees. I have to do a great deal of work to clarify the complications in the minds of trustees.”

Both Holden and De'Ath would like charities to be allowed to trade directly. Holden suggests this could be done through an extension in the range of concessions allowed by the Inland Revenue, while De'Ath proposes tax bands that might be specifically applied to charities.

Christmas cards and other such items throw up few complications other than ensuring the necessary legal structure is in place. But Holden is beginning to deal with new kinds of charities: those seeking to establish commercial entities as a means of creating economic activity in areas of urban decay. “Local authorities are sympathetic, but setting up something like this involves endless and unnecessary delay,” he says.

De'Ath adds: “The results of the present law can be quirky. If you say you wish to create employment, that will be seen as a business. But if you say you wish to address issues of poverty, that will be charitable. It ends up being a farce.”