Further written evidence from the National Union of Student (NUS) (FSU0107)

Thank you for your letter of 2 February 2018.  You have asked the National Union of Students (NUS) to comment on the following questions:

• What are the benefits of students’ unions having charitable status?

• What would be the practical consequences if a students’ union operated in one of the following ways?

• Operated as a non-charitable organisation, e.g. as a company limited by guarantee?

• Or operated only its student welfare services as a charity, and its other activities as a non-charitable organisation?

We have provided our comments on these questions at paragraphs 2 and 3 below.  At paragraph 1 we have provided some context on the charitable status of students’ unions to assist your understanding of our views.  At paragraph 4 we suggest an alternative way forward. 

We have separately provided a copy of the opinion commissioned by the National Union of Students in 2016 from Christopher McCall and Raj Desai, concerning students’ union No Platform policies, among other matters (the NUS Opinion).

1. Context behind the designation of students’ unions as charities

1.1                   The vast majority of students’ unions, and the vast majority of universities, are regarded as charitable.  This means that they are governed by the provisions of the Charities Act 2011 (the 2011 Act) and operate within the well-established legal framework of charity law.

1.2                   However, in England and Wales, not all charitable students’ unions and universities are registered with the Charity Commission.  Under the 2011 Act, certain charities are exempt from registration. 

Exempt charities

1.3                   When a system of registration of charities in England and Wales was first introduced under the Charities Act 1960, certain charities – known as exempt charities – were not obliged to register.  It is assumed that this was on the basis that they were adequately supervised by another regulator

1.4                   Initially, exempt charities were able to register voluntarily, but this changed under the Charities Act 1992 and it remains the case that exempt charities may not register with the Charity Commission.

1.5                   Originally, the Charity Commission’s powers of supervision over exempt charities were extremely limited.  However, the position changed significantly under the Charities Act 2006 (the 2006 Act).  The Cabinet Office, in its report “Private Action: Public Benefit”, published in 2002 following a review of charity law, concluded that some exempt charities were not being monitored in relation to charity law requirements and recommended changes to the system.  These were introduced in the 2006 Act.

1.6                   Under the 2006 Act, some previously exempt charities lost their exempt status.  They are now required to register with the Charity Commission and are treated in exactly the same way as any other registered charity: the only exception is that previously exempt charities with a gross annual income of under £100,000 are not currently required to register. 

1.7                   For charities which remained exempt, a new “principal regulator” was appointed for them (different principal regulators were appointed depending on the nature of the charity).  Principal regulators have a statutory responsibility for ensuring compliance with charity law.  The Charity Commission’s powers to intervene in the activities of exempt charities were also significantly extended: most of the Commission’s powers now apply to exempt charities, although the Commission must consult with the principal regulator before exercising its regulatory powers.  There are Memoranda of Understanding between the Commission and the relevant principal regulators.

1.8                   Prior to the 2006 Act, universities in England and Wales, and students’ unions, were exempt charities.  Exempt charities were listed in Schedule 2 to the Charities Act 1993:  this included a provision to the effect that institutions administered by or on behalf of an institution in the list and established for the general purposes of, or any special purpose of, or in connection with, the exempt institution would also be exempt (these are now referred to as “connected institutions” under the 2011 Act[1]).  It was generally assumed that students’ unions fell within this category. 

Students’ unions and the 2006 Act

1.9                   Under the 2006 Act, most English universities remained exempt charities, with HEFCE as their principal regulator.  It is proposed that the new Office for Students (OfS) will replace HEFCE as principal regulator for exempt charities from April 2018[2]  The universities are, therefore, subject to charity law, but they cannot (indeed they may not) register with the Charity Commission and the job of ensuring compliance with charity law rests with both HEFCE (and, from April, the OfS) and the Charity Commission, rather than with the Charity Commission alone.

1.10               Some English universities, including the colleges and halls of the universities of Oxford, Cambridge and Durham, and universities in Wales, lost their exempt status under the 2006 Act.  Students’ unions also lost their exempt status.  The 2006 Act introduced an additional provision into Schedule 2 of the Charities Act 1993 (now paragraph 28 of Schedule 3 of the Charities Act 2011) making it clear that students’ unions are not regarded as connected institutions.  This means that they must register with the Charity Commission (unless their annual gross income is £100,000 or less).

The charitable status of students’ unions

1.11               The NUS Opinion, which was issued in 2016 after the changes introduced by the 2006 Act (and the 2011 Act), notes that as a result of those changes “a higher education students’ union will … almost invariably be a registered charity”.[3]  However, students’ unions were charities even before they came to be registered with the Charity Commission pursuant to the 2006 Act, which removed their exempt status.  The loss of exempt status did not confer charitable status upon students’ unions; it merely altered the scope of the Charity Commission’s jurisdiction over them. 

1.12               The charitable status of students’ unions has been recognised as a matter of common law long before the 2006 Act removed their exempt status.  In Baldry v Feintuck [1972][4] Brightman J noted that “recognition of the union as an educational charity seems to me clearly to be correct” and “The union is, clearly, an educational charity.”  This was supported by Attorney General v Ross [1985][5], in which it was held that a students’ union “was formed and existed for the charitable purpose of furthering, and did further, the education function of [the relevant HE institution]” and therefore was a charity subject to the jurisdiction of the Attorney-General. 

1.13               The charitable status of students’ unions therefore pre-dates their obligation to register with the Charity Commission. They are charities because they exist exclusively for charitable purposes and public benefit.[6]  Those charitable purposes will typically be the advancement of education of students at the associated university for public benefit, by promoting the interests and welfare of students, representing, supporting and advising students, being the recognised representative channel between students and the university and providing social, cultural, sporting and recreational activities and forums for discussions and debate for the personal development of students.[7]  The purposes have been recognised as charitable by the Charity Commission in its registration of myriad students’ unions whose objects are based on the model NUS articles of association.

Political activity and debate

1.14               As explained above, students’ unions are established for educational purposes.  It is well established that educational charities may promote a range of views, including controversial views, provided that those being educated are given the freedom to make up their own minds.[8]  Arguably this is one of the fundamental functions of a students’ union.  As stated in the NUS Opinion “Providing a forum for students to debate controversial political issues in order to facilitate the educational and personal development of students is at the heart of the traditional role of a students’ union as a body designed to support the educational functions of the partner institution and assist in such development.”

1.15               It is worth noting that charity trustees are not obliged to promote public trust and confidence in charities generally (although this is one of the statutory obligations of the Charity Commission).  The trustees’ role is to pursue the purposes of their particular charity.  While they should not expose the charity and its resources to undue risk, which may include reputational risk, this does not mean that they must shy away from controversial activities: indeed, there is an expectation that students’ unions will promote a range of views – some controversial – so long as they do so in an appropriately balanced way.  This is emphasised in the NUS Opinion, which states that “…as a matter of principle, the constructive debating of [controversial] issues may be of greatest educational value to members.”

1.16               The Charity Commission has produced guidance on the extent to which charities can engage in political activity (http://www.charitycommission.gov.uk/publications/cc9.aspx).  Reflecting the common law position, the Charity Commission’s guidance is clear that a charity can advocate for changes to (or the retention of) law or government policy (referred to by the Charity Commission as “political activity”), provided the activity furthers or supports its charitable purposes. For example, a charity with environmental objects might campaign for changes to environmental policy. 

1.17               Students’ unions are in a unique position in terms of how these rules on permissible political activity affect them, as recognised by specific operational guidance the Charity Commission has previously issued.[9]  As a students’ union exists to advance education, including student welfare, it can only campaign corporately on issues which are educational or affect students in their capacity as students (i.e. issues which, broadly, affect the educational experience of students, as students).

Expressing a corporate view on an issue of political controversy

1.18               As noted at paragraph 1.13, providing forums for discussions and debate for the personal development of students is recognised as a legitimate means of advancing the education of students, in furtherance of the union’s charitable objects.[10]    The leading case on this issue is Baldry v Feintuck [1972][11], in which it was found that part of the educational process which may be facilitated in furtherance of a students’ union’s educational purposes was ”research, discussion, debate and reaching a corporate conclusion on social and economic problems.”  

1.19               Baldry v Feintuck demonstrates that the key distinction for students’ unions is between facilitating debate of political issues and implementing any corporate conclusions reached as a result of that debate.

1.20               Incurring reasonable expenditure on debating matters of corporate concern is a charitable use of students’ union funds, subject to the matters of corporate concern being handled in a balanced way.  As recognised in Baldry v Feintuck, it is even acceptable under charity law for a students’ union to express a “corporate conclusion” on a controversial, political issue (whether or not it affects students as students) as the result of a process of educational debate, provided the debate is facilitated in an appropriately balanced manner. 

1.21               However, any application of a union’s funds towards implementation of a corporate conclusion once it has been passed must be educational, or relate to issues which affect students as students, in order for it to be in furtherance of the charity’s objects.  This principle is clear from the case law and is reiterated by the Charity Commission’s operational guidance[12], which states that:

(a)              “The circumstances in which funds and facilities can be used for campaigning (either on local or national issues) are very limited”; and

(b)              “union funds cannot be used to promote or support campaigns on matters which may be of general interest or concern but which do not affect members of the union as students”.

1.22               However, as stated in the NUS Opinion “it is … vital for trustees to understand that this does not mean that students’ unions cannot expend funds to facilitate debates, motions or speaker events on controversial current political issues that do not affect students as students pursuant to their educational objects.”[13]

Clubs and societies

1.23               It has been accepted that students’ unions are able to fund a wide range of clubs and societies of union members, including political clubs, as an educational activity.  Students’ unions are even able to fund party political clubs and societies (such as Conservative, Labour and Liberal Democrat societies).  Students’ unions are therefore unusual in the charity sector, in that it is accepted that they can fund the expression by their members of party political views.  This is consistent with the educational purposes of students’ union, which will be served by ensuring that students are able to participate in wide ranging discussions and debate to enhance their educational experience at university. 

1.24               Provided the students’ union supports clubs and societies across the political spectrum in an even handed manner, the students’ union will not be supporting any particular political party at a corporate level.  The unusual position of students’ unions in this area is, therefore, nonetheless consistent with the requirement that charities must not be partisan to any political party.  Rather, it reflects the particular education purposes of a students’ union and the distinction between (a) facilitating engagement by students in political activity as an educational activity, and (b) supporting political activity at a corporate level.

External speakers, no platform polices and charity law

1.25               As noted in the NUS Opinion, under section 43 of the Education No. 2 Act 1986 (the Education Act), those involved in the governance of universities are required to take such steps as are reasonably practicable to ensure that freedom of speech within the law is secured for members, students and employees of the establishment and for visiting speakers.

1.26               Section 43 only protects lawful speech.  As per the NUS Opinion:

(a)              “where a no platform policy is directed solely to preventing unlawful speech, this is likely to be unproblematic, provided that the policy is carefully tailored to achieve this goal.”

(b)              “An example of such a policy would be a no platform policy in respect of proscribed terrorist organisations or members of such organisations.”

(c)               “We consider that no platform policies extending to lawful speech are more difficult to reconcile with s.43.  Such policies are in obvious tension with the central purpose behind the enactment of s.43 … since they will very likely be the direct product of the majority of the union’s membership finding the beliefs, views, policies or objectives of the individual or body that has been ‘no-platformed’ to be unacceptable.”

1.27               The NUS Opinion accepts that there may be limited circumstances in which a students’ union might restrict lawful free speech, despite the general conflict between such restrictions and the educational purposes of the union:

(a)              “… we consider that it may be possible to operate a no platform policy extending to organisations or individuals who have demonstrated through their track record a clear propensity for engaging in extreme, though lawful, speech (for example, racist views falling short of relevant criminal offences) of a type that means that trustees could reasonably conclude that inviting such an organisation or individual to speak would under all circumstances place the union in breach of its charity law duties because, for example, this could not reasonably be expected to further the union’s educational objects, because this would not further the public interest or would bring the union into disrepute, or because in an extreme case it might reasonably be regarded as likely to put the union’s property in jeopardy.”

(b)              “If operating a no platform policy on such a basis, unions would need to be very careful that the policy reflects a genuine and reasonable assessment of their obligations under charity law, and is not overly inclusive in its scope.”

(c)               “… we also note that the s.43 duty (as applied via the partner institution’s code of practice) is unlikely to prevent a union from taking steps to ensure that their members are enabled to choose not to attend speakers or events that they may find offensive or upsetting. This could include measures regulating where, when, and subject to what conditions (such as advertising) controversial speaker events take place. Such measures are less likely to conflict with the s.43 duty than a full-blown no platform policy.”

2. The benefits associated with students’ unions being designated as charities

2.1                   The advantages of charitable status for students’ unions include both public policy advantages and operational advantages for the unions themselves:

(a)              Charitable resources must be used for charitable purposes and public benefit.  The public can therefore be assured that the resources of a students’ union will be used for educational purposes and public benefit.

(b)              Transparency and accountability.  All charities fall within the jurisdiction of the Attorney General, the Charity Commission. 

(c)               For students, the experience of charity trusteeship.  This is beneficial for the individuals themselves, and for society as a whole, as it confers valuable skills on young people.  Young trustees are in demand.  The House of Lords Select Committee on Charities concluded, in its March 2017 report Stronger Charities for a Stronger Society, that “trustee diversity is important, as boards with a range of skills, experiences, ages and background are likely to lead to better governance”.   This is supported by the Charity Governance Code[14], which also emphasises that a “board is more effective if it includes a variety of perspectives, experiences and skills”.

(d)              Tax advantages. Operationally, charities benefit from a range of tax benefits, including some relief from business rates, exemption from tax on many forms of income (including profits from primary purpose trading, such as the sale of food and drink in union facilities) and the ability to fundraise tax effectively (through use of the gift aid scheme).

2.2                   The above advantages derive from the charitable status of students’ unions, not from their status as non-exempt, registered charities (as a result of the changes made by the 2006 Act).  However, there are particular advantages that derive from registration with the Charity Commission:

(a)              Independence. The removal of exempt status for students’ unions under the 2006 Act (via express recognition that students’ unions were not connected institutions as regards their parent university) helped remove some previous confusion as to whether students’ unions were independent of their universities.  Subsequently, Charity Commission operational guidance[15], states that “…student unions, used to be exempt charities because of their links to exempt universities. But actually they are independent; their universities do not control them. These charities now have to register with the Commission.”  The independence of students’ unions is supported by the NUS Opinion, which advises that students’ unions are independent bodies in law[16].  Such independence is also reflected by the Education Act 1994, which provides a framework under which students’ unions are supported by, but independent of, their universities[17].  Registered charitable status reinforces this independence.

(b)              Improved governance. Clarity in respect of the independence of students’ unions as regards their associated university prompted significant changes for students’ unions.  Prior to the 2006 Act, students’ unions were typically unincorporated associations, rather than corporate bodies.  Many students’ unions operated under unwieldy governance arrangements.  The loss of exempt status provided an opportunity for these to be modernised and for the unions to become more accountable.  The NUS now provides model constitutions for students’ unions, which have been approved by the Charity Commission.  While some students’ unions remain unincorporated, and have adopted the model student union constitution for unincorporated associations, most are now established as charitable companies limited by guarantee, following the model Articles of Association for students’ unions.

(c)               Transparency and accountability.  When unions lost their exempt status, it was felt that registration with the Charity Commission afforded a more significant degree of transparency and accountability.   As registered charities, students’ unions are required to file accounts and annual returns with the Commission[18] (much of which information is published on the Charity Commission’s website) and report serious incidents.[19]

(d)              Public trust and confidence.  As registered charities, students’ unions have their own distinct charity registration number, which can inspire public trust and confidence and assist, amongst other things, with fundraising.

(e)              Dedicated charity regulation. The Charity Commission regulates all aspects of charity regulation relevant to students’ unions, including fundraising (e.g. as in relation to RAG activities), charitable trading (e.g. in relation to the sale of goods and services on campus) and the particularities of political activity involving students’ unions (as discussed above).  OfS will be a new regulator specialising in the application of education law requirements, which typically apply directly to universities but only indirectly to students’ unions (via their relationship with a university).

3. Practical consequences of operating wholly or partially as non-charities

3.1                   We have been asked what would be the practical consequences of a students’ union (a) being operated as a non-charitable organisation, e.g. as a company limited by guarantee, or (b) operating only its student welfare services as a charity, and other activities as a non-charitable organisation.

3.2                   Most students’ unions are currently structured as companies limited by guarantee with charitable status.  They are therefore subject to the constraints of company law, with a charity law overlay ensuring that their resources must be used to pursue their purposes, for the public benefit, in compliance with charity law.

3.3                   Were students’ unions to be established (wholly or partially) as companies limited by guarantee without charitable status, they would operate as companies but without the framework of charity law.  This would have the following disadvantages:

(a)              They would lose all the advantages mentioned at paragraph 2.1 above. 

(b)              They would be free to change their purposes and distribute income and capital to private individuals, without regard for the public benefit. 

(c)               Students’ unions are largely funded by universities.  As charities, universities must use their funds in order to further their own objects.  It is therefore highly likely that funds received from the universities would be ring fenced and held on trust for charitable purposes in any event.  Governance of the student union in order to manage this could be complicated.

(d)              For an existing students’ union the loss of charitable status would not be straightforward.  Broadly speaking, if the purposes of a charity fail (for example because they become outdated), the property of the charity on the date that it loses its charitable status must be used for charitable purposes (under the oversight of the Charity Commission and Attorney General).  It is only assets acquired after the loss of charitable status that can be used for non-charitable purposes. 

(e)              If students’ unions were to operate partly as charities and partly not, it would be necessary for two legal entities to exist in parallel, one pursuing charitable purposes, the other not.   The Charity Commission has recently expressed concern about the potential for such ‘dual structures’ to result in confusion, and complexity where resources are shared between the two organisations, resulting in its publication earlier this week of new draft guidance applying to charities which are associated with non-charities.[20]  As such, this approach would be likely to result in governance complexity, which may be disproportionate to the countervailing benefits.

4. Alternative proposal

4.1                   Given the Committee’s remit, we appreciate that there are concerns that students’ unions, operating as they do within the confines of the rules on charitable campaigning and political activity, may be constrained in some of their activities.  Any constraints of this nature would fall away if the activity was carried out by a non-charity, although they would, of course, need to operate within the framework of the general law.  However, as explained at paragraph 1 above, charity law constraints on political activity apply to students’ unions in a distinct way, which recognises the importance of facilitating debate as a means of furthering the union’s educational purposes. 

4.2                   We believe that there would be a better way of dealing with the Commission’s concerns, which could ensure that the Charity Commission is able to play a more supportive role for students’ unions, better reflects their particularities as charities (as explained above), and reduces the adverse impact of regulatory approaches which can directly or indirectly hinder students’ unions in their duty to promote freedom of speech on campus (including by self-censorship and wariness of engaging with complicated bureaucracy, etc).

4.3                   On balance, our view is that students’ unions, and society as a whole, would be best served by:

(a)              maintaining the status of students’ unions as non-exempt charities, regulated by the Charity Commission;

(b)              whilst ensuring greater clarity, proportionality and consistency in the approach taken by the Charity Commission and other regulators to their regulation of students’ unions, which recognises the central importance to students’ unions of facilitating educational debate.

4.4                   We believe that the best way to achieve this would be the production of new bespoke guidance for students’ unions on political activity and freedom of speech, to be agreed and issued jointly by the NUS and all relevant regulators, principally including the Charity Commission (as regulator of students’ unions) and the OfS (as principal regulator of universities).  For the reasons provided at paragraphs 4.5 and 4.6 below, we would suggest that the Electoral Commission, the Office of the Scottish Charity Regulator (OSCR) and the Charity Commission of Northern Ireland (CCNI) should also be involved. 

4.5                   We believe that the Electoral Commission should be involved in the production of this guidance, as its regulation of non-party campaigning rules contained in the Political Parties, Elections and Referendums Act 2000 (PPERA), as amended by the Transparency of Lobbying, Non-Party Campaigning and Trade Union Administration Act 2014 (often referred to as the Lobbying Act) has contributed to uncertainty and concern amongst students’ unions about the extent to which they are able to continue their usual educational support of student engagement in party political and policy debates during an election period.[21]

4.6                   Although this letter is limited to the legal position in England and Wales, we believe that OSCR and CCNI should also be involved in the production of joint guidance, to ensure that there is a consistent approach to these issues across the UK.  In the past, there have been examples of unhelpful divergence in the regulatory approach between the different UK charity regulators, despite no current divergence in the underlying law.  For example, the Charity Commission was widely perceived to have taken a more restrictive approach to regulation of charity involvement in the 2016 EU referendum campaign, resulting in a chilling effect on charitable involvement in that campaign (even where relevant to the delivery of charitable purposes).[22]

4.7                   NUS would be happy to work closely with the Charity Commission and other regulators, providing practical examples of the challenges encountered by unions, to prepare this new guidance.

4.8                   We would also advocate for the withdrawal or amendment of existing guidance which contradicts or infringes the ability of students’ unions to pursue their educational purposes.  In our view these include:

(a)              Section M of the Charity Commission Toolkit “Protecting Charities From Harm” Chapter 5 “Protecting Charities from abuse for extremist purposes”, which suggests (for example) that “higher education institutions, debating societies and student unions can be challenged on whether they have given due consideration to the public benefit and associated risks when they, or one of their affiliated societies, invite controversial or extremist speakers to address students.”  The implication that it may be improper for a students’ union to invite “controversial”, as opposed to “extremist”, speakers to speak to students is contrary to the education purposes and Education Act duties applicable to students’ unions (via their associated university) and has, in our view, had a chilling effect on freedom of speech on campus.

(b)              The Prevent Duty Guidance: for higher education institutions in England and Wales.  Although the Prevent Duty is beyond the scope of this note, the guidance associated with it has caused significant concern for students’ unions through the imposition of unrealistic burdens.  For example, the guidance in relation to hosting external speakers suggests that relevant higher education bodies (RHEBs) “should consider carefully whether the views being expressed, or likely to be expressed, constitute extremist views that risk drawing people into terrorism or are shared by terrorist groups. In these circumstances the event should not be allowed to proceed except where RHEBs are entirely convinced that such risk can be fully mitigated without cancellation of the event.”  The requirement for an event to be cancelled if it is not possible to “fully” mitigate any risk that views will be expressed that “are shared by terrorist groups” is unduly onerous. For example, it may be possible to share some views with a terrorist group whilst fundamentally disagreeing about the means of giving effect to those views.  The result of this and other aspects of the Prevent guidance has been a further chilling effect on free debate on campus.

14 February 2018