Smith Commission presents opportunities for charities

The Smith Commission. Changes for Holyrood have important implications for the Scottish Charity Sector. Picture: PA

THE changing political environment in Scotland presents opportunities for charities that may wish to consider whether their own legal structure and governance arrangements are appropriate for their future.

The commitment to take forward the Smith Commission Report represents an extensive package of new powers for both the Scottish Parliament and the Scottish Government. For the first time the majority of money spent by the Scottish Parliament will come from revenues raised in Scotland.

They will have authority on disability and housing payments, the ability to create new welfare payments and to set the rates of Income Tax. These changes have important implications for the Scottish Charity Sector.

So what are the considerations for charity boards?

In light of the changing political environment, the boards of all UK charities with an operation in Scotland should be asking the following questions:

• What are your current governance arrangements for Scotland?

• Have your governance arrangements been reviewed in light of the new political environment in Scotland?

• Could your charitable purposes be better achieved by establishing an independent Scottish charity?

• Could your engagement with Scottish Government and Scottish funders be improved?

• What are the implications for Gift Aid if different tax rates are introduced in Scotland?

The recommendations of the Smith Commission Report in relation to further devolution have caused many charitable organisations to consider their future.

Many charities are perhaps less aware of their UK governance arrangements than they should be. For example, are they a subsidiary of a UK charity or do they operate in Scotland with a Scottish Committee?

A number of charities operate with a representative from Scotland (along with representatives from Wales and Northern Ireland) on a board that sits in London and make decisions on a UK basis. That is rarely an effective way for Scottish issues to be properly considered and the political issue of further devolution has resonated with many charities in Scotland in relation to their own internal governance.

There is often a governance “deficit”, particularly for cross Border charities (of which there are almost 1,000 in Scotland) in terms of how decisions are taken with regard to Scotland and the Scottish operation of the charity.

This governance deficit may be most felt by the charity’s trustees operating in Scotland. It may fall on these individuals or staff working for the charity in Scotland to raise the issue with trustees or managers based in England. We have advised charities operating in different fields who have wished to review and improve their governance arrangements in Scotland. This can often be achieved amicably where the Scottish arm of a UK charity continues to work with colleagues throughout the UK while it becomes an independent Scottish charity. The relationship with the rest of the organisation can be regulated by a Partnership Agreement or Memorandum of Understanding. So what of funding engagement with Scottish charities?

As political change in Scotland continues, there are a number of examples suggesting that the Scottish Government and Scottish funders prefer to engage directly with organisations that are independent Scottish charities, and where the ultimate decision making of the charity resides with those based in Scotland. This is likely to be an important consideration for the Scottish arm of many UK charities prompting further reflection on their current governance arrangements.

Now is an appropriate time for charities to review their external environment and consider whether their structure is appropriate for the changed political landscape. Although most Scottish charities will want to engage with Scottish Government in the future, many will also be impacted by decisions taken at Westminster and will wish to retain some influence there.

Altering governance arrangements within a charity can be a sensitive issue and difficult to raise, and there may be internal political hurdles to be overcome. It will be important for boards to seek neutral expertise, on a confidential basis, that will outline ways to improve the delivery of the charitable purpose.

A charity specialist will assist by facilitating the initial discussion and identifying the processes involved with reviewing current, and exploring potential alternative governance structures. They will also discuss the governance challenges unique to individual organisations in Scotland and set out a range of options to take matters forward.

• Alastair Keatinge is a partner and head of charities at Lindsays www.lindsays.co.uk