RESULTADOS ANÁLISIS DE CORRESPONDENCIAS MÚLTIPLES

The Triennial Review process requires that we consider whether the current delivery model is the most effective and cost effective, or whether alternatives could be better (Annex V summarises options considered in line with Cabinet Office requirements). We have identified a number of significant concerns, primarily accountability and conflicts of interest that appear to have their root causes in organisational structure and governance.

We consider it important that any changes to the Council's business model should address these root causes, ensuring that the British Council can operate as:

- a strong, effective cultural diplomacy operation for the UK that enhances reputation and influence through high quality activities coordinated with UK diplomatic missions and others working for UK interests;

- a well-structured and regulated commercial provider of English Language Training and Exams, with clearly visible financial flows, thus providing assurance on conflicts of interest and competition issues;

- an organisation accountable to Government for public funds, properly applying government and commercial controls and discipline and demonstrating value for money; and better aligned with UK interests, with clear mechanisms for setting

strategies collaboratively in the UK and at country level, and for evaluating the longer term impact of activities;

- a more transparent and responsive organisation that generates trust and builds stakeholder confidence.

Royal Charter

One of the challenges with the Council's current hybrid model is the complexity of its structures and governance arrangements as a Royal Charter body, a charity, an NDPB and, to some extent, a commercial entity operating on a global scale. We looked at whether its status could be simplified.

We considered whether the Council should remain a Royal Charter body or not. We concluded that Royal Charter status confers particular prestige and its removal would diminish UK impact and reputation. Royal Charter status also underlines the Charter body's association with the State while preserving its political impartiality, clearly relevant for the Council. It does not in itself increase the governance burden. We could see no particular advantage in removal of Royal Charter status.

We therefore recommend that the British Council remain a Royal Charter body, but that the terms of the Charter and its bye-laws be reviewed by British Council and FCO Legal Advisers in the light of the outcome of this Review.

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Charitable Status

We also considered whether it was right for the British Council to retain charitable status. The British Council assess the advantages of this status as follows:

- fiscal: primary purpose trading exemption from UK corporation tax (c £1.1 million a year); EU VAT exemptions on income from educational services (c £16m a year); overseas local tax exemptions for non-profit entities (c.£3.9m a year);

- financial: many large grant making organisations can only make grants to charities. Businesses receive tax relief when they make donations to charity, making the

British Council more attractive as a recipient of Corporate Social Responsibility donations;

- political impartiality: charitable status, and the requirements of charity law in relation to matters such as independence from donors, underlines the arm's length nature of the relationship with government;

Some overseas operations derive their local status from the British Council‟s charitable status. The Council note that changes to the British Council‟s charitable status in the UK would entail significant legal, as well as fiscal, costs.

We could see no particular fiscal or financial advantage to be gained from removal of charitable status. However, since charitable status reduces the ability of a

sponsoring Government department to ensure that the NDPB‟s priorities are fully aligned, we considered of whether removal of charity status would be the answer to the major concerns about Council accountability that have been raised by

departments and other stakeholders.

We discussed this issue with the Charity Commission. The governance of a charity is effected through a Trustee Board, which is accountable by default to the Charity Commission. The Trustee Board presents its annual accounts to the Charity Commission which is responsible for ensuring that the charity has been using its resources solely in pursuit of its charitable objectives. The Charity Commission has neither locus nor substantive expertise to consider how well a charity has been delivering its charitable objects, ie how well the British Council has been performing in a qualitative sense.

We considered whether alignment and accountability might be improved by

transferring the role of Principal Charity Regulator to the FCO and thus improving its ability as sponsoring department to consider how well the British Council has been using public money in pursuit of its objectives. A number of other independent charities are similarly regulated by a government department as Principal Charity Regulator, for example the Department for Culture Media and Sport is the Principal Regulator for certain national museums, galleries and the British Library. However,

45 as the British Council is directly regulated already by the Charity Commission, its situation differs from such charities which were previously „exempt‟ charities. A change would require „an order‟ under the Charities Act 2011 from the Minister for the Cabinet Office. Details of the responsibilities of charity regulators are at Annex U. We have decided against recommending this at the present time.

We recommend therefore that the Council retain charitable status.

Non Departmental Public Body Status (NDPB)

We next considered the case for the British Council remaining an NDPB, noting that the link to Government helps it to deliver effective cultural diplomacy on behalf of the UK. Without this link the British Council would be less accountable, could choose to pursue activities of less direct benefit to the UK and could lose the significant

reputational benefits of its association with Government.

Cabinet Office guidelines demand that all NDPBs have either a technical function that needs external expertise; or a function that needs to be, and be seen to be, delivered with political impartiality; or needs independently to establish facts and/or figures with integrity. In our view the British Council meets the first two of these tests – it needs professional expertise in English language, Arts and Education, and political impartiality to fulfil its purpose credibly and effectively.

We therefore recommend that the British Council be retained as a non-departmental public body (NDPB).

We considered whether the FCO could use its Grant-in-Aid to contract the British Council to take on specific projects, programmes or services, rather than make a block grant to the British Council. The British Council would retain its Royal Charter and its charitable status, and its link to government. The benefit of contracted services would be to allow the FCO to increase its influence over the scope and nature of British Council engagement and, potentially, give greater flexibility on the level of expenditure. However with over 60% of current Grant-in-Aid already ring- fenced for ODA activity, the advantage of moving to contracted services is less evident. Furthermore, doing so would put an increased administrative and resource burden on the FCO, without increasing the department‟s overall visibility of British Council operations. We also consider that moving to contracted services would weaken the link between the British Council and the FCO, and further reduce accountability to Government.

We therefore recommend that the FCO continue to contribute to the funding of the British Council through Grant-in-Aid.

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Options for alternative delivery methods

We believe that our recommendation to consider the merits of transferring the responsibilities of Principle Charity Regulator to the Foreign Secretary, together with recommendations elsewhere in this Review concerning exercise of FCO oversight and coordination with other Government Departments and UK bodies, could improve accountability and alignment with broader national interest. But we also see a need for structural change to address other significant concerns, including lack of

transparency, conflicts of interest/competition, and UK stakeholder trust. For this reason we see a strong case for clearer separation, providing greater transparency of money flows, between the principal income generating activities of the British Council and those carried out purely for public benefit. In our view, such clearer separation could also help the British Council improve performance in both areas and increase the ability of the organisation itself and the FCO to assess whether different types of activity are delivering good value for money. Such separation might be provided through one of the following:

(i) administrative changes in internal structure and stronger governance arrangements between FCO and the Council;

(ii) legal changes to create a separate commercial entity under the BritishCouncil brand but reporting directly to, and remitting surplus through, the FCO or other Government entity. Separate provision would be needed to establish the company's public purpose and set parameters for its activities;

(iii) legal changes to create a separate commercial subsidiary reporting to the Board of the British Council.

Given the conflicts of interest we have identified, and the level of concern we encountered among relevant Government departments and external stakeholders, we are not convinced that a solely internal administrative solution (option (i)) would provide sufficient transparency or reassurance on competition issues, even if it entailed publication of separate accounts and transfer to UKTI of some of the British Council‟s responsibilities for supporting and promoting other UK providers. We recognise, however, that there may be merit in further expert analysis of this option. Under option (ii), a separate commercial entity owned and reporting directly to the FCO could take the form of a Government Owned Company (or GovCo - further information on GovCos is also at Annex V). We believe that income generating activity should be under closer FCO supervision than is presently the case for „full cost recovery‟ work. We therefore have considered this option and accept that it merits further examination. However, the FCO does not presently have the

professional skills to direct a specialised commercial operation of this kind (though the FCO Services Trading Fund does provide language and translation services).

47 We also have concerns that the British Council brand might be diluted under this option.

Under option (iii), income generating activity - primarily ELT and exams - would be undertaken separately from the Council's broader cultural diplomacy activities by a subsidiary commercial arm of the Council. This could take the form of a suitable legal entity, for example a Community Interest Company (further information on Community Interest Companies is at Annex V). The British Council, if necessary reinforcing its in house commercial expertise, would continue to operate the separate legal entity, under FCO supervision. We note that in some countries for legal or fiscal reasons the British Council has already established separate legal entities for

income generating activity.

We believe that option (iii) would provide clearer separation, transparency,

accountability and assurance to the FCO, other stakeholders and competitors while maintaining the benefits of the British Council brand. We believe that advantages for the British Council could include greater ability to give clear focus, develop

professionalism and drive up performance in both areas of activity. This could enhance the organisation‟s reputation whilst, potentially, increasing generation of financial surplus available for other activities delivering impact and influence for the UK.

We therefore recommend fuller comparative analysis of the costs, benefits and risks of:

- option (i) - clearer administrative, including accounting, separation of income generating functions, possibly with a view to running as a subsidiary legal entity in the future, and at the same time transferring to UKTI some

responsibilities for support to other UK commercial providers.

- Option (ii) – setting up a separate commercial entity under the British Council brand but reporting directly to, and remitting surplus through, the FCO or other Government entity, with separate provision to establish the company‟s public purpose and set perameters for its activities; and

- option (iii) - setting up a commercial subsidiary in the form of a suitable legal entity, such as, for example, a Community Interest Company overseen by a Board of Directors, reporting to the Board of Trustees of the British Council, with close FCO supervision.

This analysis is likely to go beyond the capabilities of an internal FCO review team and, as well as drawing upon other expertise within Government, should seek focussed commercial legal advice to ensure the model selected can deliver the required outcomes.

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