New accounting rules could ‘nationalise’ donations says Charity Commission

By: 

Cheryl Chapman

Managing Editor, Philanthropy UK

Hospitals are facing a rule change that could mean that an estimated £2bn in assets held by NHS charities effectively become part of the general NHS budget.

In the summer, the Department of Health (DH) wrote to all health authorities updating them that any NHS body that is the sole trustee of a charity may now be required to consolidate the linked charity into its main accounts as a result of changes to international accountancy rules (IAS 27). It estimates that the new rules will apply to around 10% of these organisations.

"Each charity will still be responsible for how donations are spent and must still provide independently audited annual charitable funds accounts,” it said in a statement. It advised each body to consult with their auditors regarding this decision."

It said it was working closely with NHS organisations - as well as other stakeholders including the Charity Commission - to “ensure they are supported in making any necessary changes”.

However, on Tuesday (12th January ) health minister Phil Hope told the House of Commons that charitable donations made to hospital fundraising campaigns will never become part of general NHS budgets.

In response to a question from Conservative Tory former minister David Heathcoat-Amory, Hope said: “That is not the case and never will be. Charity trustees will continue to have full responsibility for charitable funds – there is no question whatever that charitable funds could be used as part of NHS budgets; I want that very important message to go out from the House today.”

However, he admitted there was a ‘question’ about accounting requirements, “but that is not a matter for Department of Health jurisdiction,” he said.

The Charity Commission has issued a statement saying it does not agree with the interpretation of the accounting rules in the DH letter to NHS bodies. “It is important for all charities to guard their independence and for their independence to be recognised by public and private sector bodies, and their independence is something that the donating public value.”

In a briefing note for MPs, the commission said: “This could be viewed as tantamount to a form of nationalisation of the gifts and donations of the public, which could lead to a decline in public trust towards NHS charities. Moreover, by including charitable assets within the consolidated accounts of NHS bodies, there is a substantial risk that misapplication of charitable funds will become more frequent, resulting in real losses to beneficiaries and damage to the reputation of public bodies in their communities.”

London law firm Berwin Leighton Paisner LLP, says on the whole charities could take the view that the consolidation requirements in IAS 27 do not apply to them. “Although NHS hospitals clearly benefit from grants made to them by NHS charities, there is generally no inherent power for the NHS hospital or other body connected to the charity to control the charity,” it says.

However, charity leaders are concerned that with public spending restraint, ministers would find it difficult to allocate more public funds to organisations with access to millions of pounds of voluntary donations, according to a Times report.

Jenny Willott, the Liberal Democrat spokesperson for the third sector, has lodged a parliamentary motion calling on the government to put a stop to accounting changes that she says will undermine the independence of some NHS charities and put their income from donations under threat. “These rules are designed for the private sector. They should not apply to charities and the public sector,” she said.

Charitable income accounts for over 10% of three of the UK’s best known hospitals: Guys Hospital, Great Ormond Street Hospital and Christie Hospital. The Great Ormond Street Hospital Children’s Charity (GOSH), which supports work at the world-famous hospital, said 2008/09 was the charity’s most successful fundraising year, raising £51m towards a total income of £60.3m, compared with £53m in 2007/08.

GOSH has issued a statement saying it believes its funds will continue to be treated exactly as at present. “Our understanding is that proposed changes do not apply to us as under IAS 27 we would not meet the criteria that would require consolidation of the hospital accounts and the charity accounts. We believe that we will continue to have separation, because Great Ormond Street Hospital Children’s Charity (the charity) is run separately from Great Ormond Street Hospital for Children NHS Trust (the hospital), and has a separate management structure via its special trustees.”

The Charity Commission has been in discussion with HM Treasury and will continue talks. It has also produced practical guidance to explain the obligations of trustees of NHS charities. The guidance, Maintaining Independence, has been developed in consultation with the Association of NHS Charities and the Healthcare Financial Management Association, and is available on its website: