More regulation isn’t the answer to everything...

What are we talking about here?

Regulation could be widely understood as anything from primary legislation such Acts of Parliament, secondary legislation or statutory instruments, decisions and activities by regulators and inspectorates, all the way to self-regulatory systems and voluntary codes and principles. With respect to charities, at DSC we talk about ‘Responsible Regulation’, which means it should have a demonstrable benefit, and should aim to empower and strengthen voluntary activity rather than control it unnecessarily.

When you step back and look at the big picture, the regulatory regime for charities has changed a lot recently, even just considering stuff that’s specifically related to charities (not to mention any number of other things affecting certain types of activity – like criminal justice, health etc.).

Some initiatives are worthwhile and could be transformative in their own regard – for example around safeguarding and diversity. Others seem to be more about the latest government agenda than necessarily what is most need or will work.

But far too much of this is put into place without giving much thought to the choice of approach and its potential for effectiveness, benchmarks for success, clear review mechanisms and most importantly: the capacity for implementation on the side of those being regulated.

Capacity for implementation differs

We have to remember that the social sector is extremely heterogeneous and dominated by very small organisations with little capacity. Many face trade-offs when it comes to prioritising resources. This affects their ability to adapt to changes in their regulatory environment. Adjusting to what’s mandatory and skipping what’s voluntary might become the default – when actually some of the voluntary initiatives might be more relevant and useful. Larger charities have more resources, but implementing changes is likely to come with higher administrative costs. The infamous ‘overheads’ rise as a result – adding to the challenge of communicating their costs to the public.

Doing nothing isn’t really an option – so what can be done?

Not taking into account charities’ capacity for implementation can undermine the success of introducing new regulation. Increasing the capacity of each individual charity to cope might also not be possible or realistic. So what could policymakers and funders do to help?

• Invest more in the development phase of regulation: Government and statutory regulators need to do a better job setting out the rationale for why regulatory activity is needed, making the case for choosing a particular regulatory approach based on its effectiveness, having clear benchmarks for success, and thinking about implementation capacity of the sector first. Improved consultation is key here too – ‘nonsultation’ remains a major problem.
• Get rid of what’s irrelevant or no longer works: This requires evaluation, clear review mechanisms and benchmarks on the side of regulators and government. Sometimes sunset clauses can help too. The point should be to help free up capacity in the sector to comply with the right regulations. A decade ago, Lord Hodgson’s ‘Red Tape Review’ proposed a blizzard of cuts to regulatory red tape affecting charities and community groups. How many have come to pass?
• Change the narrative around charity overheads: The mantra ‘donors want everything to go to the end cause’ implies a certain hierarchy of activities and their related costs (although in reality, everything has to support the cause anyway because otherwise it’s illegal). Core costs are at the heart of charities ability to adapt to regulatory changes, yet they’re probably at the bottom of this (largely fictional) hierarchy. This is a false economy.
• Change funder practice: Funders can set incentives and change whole funding environments. This goes for private or charitable funding as well as government grant-making and contracting. This could include for example transparency around monitoring and terms and conditions, or fairer contracting processes, as well as a change in reporting requirements taking notice of charities’ capacity. An increased willingness to fund or pay for core costs will be part of the puzzle as well.
• Increase funding for the Charity Commission: The regulator does a fantastic job in many areas with limited resources but lacks capacity and resources to really transform the way it supports charities to adjust to myriad regulatory changes. Accessible guidance and a hotline where trustees can ask questions (and get clear answers) whenever they have to must be part of the equation. This shouldn’t be a chargeable service; it’s a public service.

Without a clearer focus on creating enabling regulatory environment for charities, and the right support to help them navigate that environment, many won’t be able to keep up with or embrace new initiatives, however positive. We also need policymakers to remember that charity trustees and other volunteers are human beings driven by passion for the cause, not regulatory minutiae. Over-burdening them threatens the proper functioning of the entire charity sector.