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From the file

An embroidery scandal | Why did a century-old embroidery charity, led by a CEO who proudly said he’d never picked up a needle, go to war with its craft-loving members?

Wild west

Wild west

How charities in England operate in a world of little law

Charities are the Wild West in Britain: do not expect a lawman to show up any time soon. In principle, they are bound by a complex web of laws, designed to make sure that people can set aside money for social improvement and the public interest without fearing it will be nabbed. But, in practice, you will struggle to find a sheriff.

The case of the Embroiderers’ Guild illustrates the problem: in February, the charity’s national leaders froze the bank accounts of the charity’s 145 local branches with neither notice nor discussion. A group of members believe that new, sudden plans to restructure the institution – shutting down its regional branches – will not succeed in saving the charity and promoting their craft. 

This is, in part, about feeling ill-treated. As one member put it – in an embroidered piece, naturally – she felt “angry, disgusted, ignored, disdained, robbed, cheated, furious, deceived, patronised, vengeful, livid, victimised, incensed…”

But the critique is bigger and more important than that: the critics fear that the charity’s leaders are not effectively pursuing the stated objectives of the institution. The leaders, of course, disagree. This is, at root, a schism between subs-paying members and the trustees over how the charity can best meet its legal obligations to the future of their art.

The Guild is also no minnow: with an income of more than £1m per year, it is comfortably in the top 3 per cent of charities by size. And embroidery is niche, but hardly enormously arcane: it is an art form that covers many of the surfaces of our grandest stately homes. And the culture secretary, who oversees charity regulation, cracked jokes about the Bayeux Tapestry just this past week.

A detail from the Bayeux Tapestry, a 230ft-long embroidered cloth that depicts the events leading up to the Norman conquest of England

But the members and officers of the charity will be left to fight it out. The only institution that might plausibly be asked to intercede is the Charity Commission, the regulator for England and Wales. But its attitude is that it ought to be hands-off. And, to be fair, it really has no choice.

There are 168,000 charities in England and Wales, which collectively raised £81bn in 2019-20 and spent £79bn. In that year, around 8,000 new charities joined the register and 6,000 left. Between them, they have about £142bn of assets. But the Commission has just 421 members of staff. That is, for context, around one tenth of the headcount of the Financial Conduct Authority alone – or Croydon borough council. It has little capacity. As one special adviser put it: “It’s not a regulator, it’s a register.”

There are ways to make a small regulator work. First, you can ask the charities themselves to do a lot of compliance work – as we do with banks. They need to continuously prove they are meeting rules and obligations. But 47 per cent of all charities have an income below £10,000 per year. At this size, even modest compliance requirements could tip them over. 

Second, you could simply have a low-regulation system. Regulatory action by the Commission is “risk-based” and targeted. But that, in truth, is another way of saying that the bar for action has been set at a very high level. If the complaint you are raising is not about fraud, safeguarding or terror finance, you are unlikely to get a response. 

There are other sources of authority that cover the sector and are more active: schools, housing authorities and care homes are incorporated as charities but answer to other regulators. Tax officials watch for tax fraud. And charities’ clients, donors, contract-awarding and grant-making bodies all apply pressure to them. But this is a system with a hole at its heart.

Even when charities are large and influential, the Commission struggles to spot issues. The biggest charity scandal of recent years was Kids Company, a youth-work charity that collapsed in 2015. There were approaches to the Charity Commission about its dismal performance well before its demise. By the end, with an annual income that hit £23m, it would be comfortably within the biggest half-percent of charities. 

Kids Company founder Camila Batmanghelidjh is surrounded by supporters and camera crews as she joins a rally opposite Downing Street in 2015

It would also not take much detective work to spot the mismanagement. When it collapsed, Kids Company claimed to have 16,000 high-need clients, but the records seized by local authorities imply a total closer to 1,900. It needed eight separate public bail-outs and burned through well over £40m of taxpayers’ money without being able to explain what it actually did. 

Or take BeatBullying, which collapsed in 2014 – another case of financial mismanagement and imperial overreach. And, once again, it was a very large institution. Yet the Commission could not be made to focus on these charities until it was too late. 

In a better run country, a lot more charity management would be questioned. Trustees often act as though the money is theirs. It is not: trustees are simply there to make sure it gets to the cause for which it has been given. It is, by definition, a matter of public interest whether a charity is well run or not – and whether the money is being used for the purposes for which it was set aside.

Huge sums are tied up in institutions that do not vigorously pursue their aims. In some cases, financial security has freed them from pressure from donors – leaving them free to be either needlessly thrifty, quirky, political, or egregiously wasteful. There are also tough questions to ask about whether some charities would be better off shut. Some are carrying crushing deficits from ancient pension schemes. It might be best to wind them up, use the assets to cover the pension deficits, and leave the field to charities with less baggage. The regulator should be enabling these discussions.

Two of the oldest pieces in the Embroiderer’s Guild collection, woven in Egypt during the late Roman and Byzantine eras.

In the case of the Embroiderers’ Guild, a more engaged Commission could be asked to stick its head around the door and issue guidance. There is risk at the moment to the Guild’s two sets of irreplaceable assets – the heritage collection of items and the good will of its network of devoted volunteers. It is in the public interest to try to keep both safe.

But these are all things that are currently not possible because the regulator does not have the bandwidth. The problems stemming from its lack of size go well beyond its ability to mediate in charity disputes or drive improvement. England and Wales would need a significantly bigger Charity Commission just to make sure that rules are actually being followed. At the moment, the charity sector is a pretty lawless place.

Photographs Getty Images, Embroiderer’s Guild Collection