Poverty Charities Can Keep A Restricted Beneficiary Class
22nd February 2012
It will probably come as no surprise to most people that, on the 20th February, the Charity Tribunal’s long-awaited judgment confirmed that benevolent funds with a restricted beneficiary class are still charitable under the 2006 Charities Act, in the same way as they were under the previous law.
Benevolent funds are usually linked to employment in both the public and private sectors, and the judgment in this case illustrated that there is a wide range of such charities – some dealing with hundreds of thousands of potential beneficiaries, and some with a much narrower focus, but all providing a lifeline to those in need of assistance. The issue in this case was whether such cases are the exception to the general rule that a sufficient section of the public must benefit, in order for the requisite public benefit to be established.
Despite the Attorney General initiating proceedings with a Notice of Reference made on the 27th January 2011, the parties were largely in agreement that the old law was not changed by the Charities Act 2006 by the time the case came to be heard in November last year. The Charity Commission remained neutral, and presented the reverse argument to the Tribunal to enable them to make a formal decision on the basis of the case law.
The Tribunal reviewed the presumption argument in relation to poverty charities, as it did with education charities in the Independent Schools Council (“ISC”) case last year, and came to the same conclusion – namely, that the existence of the presumption of public benefit prior to section 3 of the Charities Act 2006 coming into force did not automatically mean that charities established for the purposes of the relief of poverty, advancement of education and advancement of religion were charitable. It has always been possible to have an organisation established for one of these purposes that is not charitable because it is not established for the benefit of the public. The classic example given by the Tribunal in both cases is the imaginary example of a school established to train pickpockets. Undoubtedly, the school would be advancing education, but the potential harm caused by this particular education outweighs the general public benefit inherent in education!
The Tribunal also confirmed the ISC ruling as regards the two elements of public benefit. The first is that an organisation must be established for the benefit of the community, and the second element is that a sufficient section of the public should benefit, and it is this second limb that benevolent funds cannot always meet.
The Tribunal considered the case law on poverty charities in some detail, and concluded that it had been long established that poverty charities were an exception to the general rule that a sufficient section of the public must benefit for there to be “public benefit”. Whether this is because the relief of poverty of a small group is sufficient, or the indirect benefit to society of the relief of any poverty is so great that it is sufficient to pass the test, is not clear from the authorities, and the Tribunal did not decide this point. However, in practical terms, the reason does not matter – what is important is that the Tribunal has confirmed that charities established for the relief of poverty will be charitable even where the beneficiary class is limited to a small, specific class of persons.
The Charities Act 2006, for the first time, linked relief of poverty with the prevention of poverty as a charitable purpose. The Tribunal therefore considered whether an organisation established for the purposes of preventing poverty can still be charitable with a limited beneficiary class. All parties agreed that a charity established for both the relief and the prevention of poverty would still be charitable, even with a limited beneficiary class. To be otherwise would be illogical. The Tribunal also agreed with the Charity Commission guidance on the relief and prevention of poverty, that a charity established only for the purposes of prevention of poverty could also be charitable with a limited beneficiary class, provided the circumstances showed that any restrictions were appropriate. In the case of prevention of poverty, it is unlikely that the beneficiary class would be limited in any event, but the judgment provides certainty that, in the right circumstances, a limited beneficiary class will not be a bar to charitable status.
It may have taken a long time to get here, but the legal certainly will be welcomed – if only by lawyers! If you have any questions about charities established for the prevention and relief of poverty – whether new or established – please do get in contact with a member of our Charity team.
For further information, please contact Vicki Bowles, Barrister At Law, Charity Team on Telephone: 01225 326789 or Email: vb@stoneking.co.uk
