An influential parliamentary committee has called for private schools and hospitals to be stripped of their automatic right to charitable status.

The joint committee established to scrutinise the government's draft Charities Bill said they should only receive the status if they can prove a "public benefit" from their work.

Under the existing proposals, ministers had suggested the Charity Commission would decide what bodies could register as charities.

But the MPs and peers said in their report: "We believe that the government should consider reviewing the charitable status of independent schools and hospitals with a view to considering whether the best long term solution might lie in those organisations ceasing to be charities but receiving favourable tax treatment in exchange for clear demonstration of quantified public benefits".

The report also concluded that modernisation of charity law was "long overdue".

It added that additional charitable purposes should be recognised, including "the provision of religious harmony, racial harmony, and equality and diversity".

Responding to the report, home office minister Fiona Mactaggart said the government would respond "in due course" to the proposals.

"I am very confident that we are on the right track to produce legislation that will benefit charities, will enable them to play an even bigger role as a force for good in society, and will encourage people to give their time, talents and money to charities," she added.

Charity commission approval

The Charity Commission also said it was pleased with the report.

"We are delighted to see the committee's focus on maintaining the independence of the sector and encouraging active citizenship," said chairman Geraldine Peacock.

"We welcome the report's affirmation of the crucial importance of an independent commission as an essential element in this.

"We also welcome the committee's desire to ensure the meaning of public benefit is clear.

"Now is an exciting time for the sector and we look forward to working with the sector and with government towards the successful introduction and passage through parliament of the Charities Bill."

The Charity Finance Directors' Group also backed the proposals.

"We are now presented with a valuable opportunity to reduce a regulatory burden that is unnecessary and wasting the precious resources of many charities," said deputy chairman Helen Verney.

She backed suggestions that would ease restrictions on trading by charities.

But a spokesman for the Independent Schools Council said there was already evidence that its members produced a "public benefit".

He said public schools save the country around £2 billion a year by educating half a million pupils at virtually no cost to the public purse.

"Those children are of all abilities and come from a wide variety of backgrounds; nearly a third of them receive help with fees," he added.