Paul Goodman (Shadow Minister (Childcare), Treasury; Wycombe, Conservative)

I beg to move amendment No. 92, in page 43, line 20 [Vol I], leave out ‘shall' and insert

‘may at the election of the charity'.

Edward O'Hara (Knowsley South, Labour)

With this it will be convenient to discuss amendment No. 93, in page 43, line 26 [Vol I], leave out ‘shall' and insert

‘may at the election of the charity'.

Paul Goodman (Shadow Minister (Childcare), Treasury; Wycombe, Conservative)

It is a pleasure to see you in the Chair this morning, Mr. O’Hara. When we considered clause 54, the Paymaster General was keen to say that she would be happy to examine any examples of difficulties caused by these clauses to charities or institutions. I have been given such an example, upon which amendment No. 92 hangs. I shall put it to the Paymaster General to hear her response.

The clause as drafted requires the primary purpose and non-primary purpose of a charity to be divided into two separate traits. One might reasonably infer from that division that the expenditure apportioned to the non-primary purpose would be non-charitable expenditure. However, the argument has been put to me that such expenditure might be for the charity’s benefit—not simply for tax avoidance—without being exclusively for the charity’s purposes.

I come to the example. Let us suppose that a university college seeks to mitigate losses on its primary purpose trade—providing services to students—by undertaking catering and conferencing. Unless the amendment is accepted, colleges in which catering and conferencing are small-scale—that is, colleges that do not trade through a wholly-owned subsidiary—and many smaller and less financially sophisticated charities might find themselves at risk of challenge by a tax inspector. I should be interested to hear the Paymaster General’s response to the amendment.

Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)

Good morning, Mr. O’Hara. The amendments would allow a charity to opt for the rules that it wants to operate within. It was interesting that the hon. Gentleman picked a university and mentioned the line between being a business and having a charitable educational objective, because that area of tax law is quite complex.

Although I appreciate the hon. Gentleman’s example, I do not know whether it is a real or theoretical one. As he knows, the boundaries between charitable and business objectives—particularly in universities—and the issue of which set of rules therefore applies are quite an interesting challenge already. I can give the hon. Gentleman a straight answer on the Government’s view. Allowing businesses to opt, so that a charity could decide whether it is charitable or partly charitable, would mean that a small number of cases could be kept in. I am still not convinced. I think that he needs to find another example that does not involve universities, because that is a complex area of tax for lots of reasons.

Paul Goodman (Shadow Minister (Childcare), Treasury; Wycombe, Conservative)

Will the right hon. Lady give way?

Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)

Just a minute. I will finish the first point and then the hon. Gentleman can come back. The amendment would create a hugely complex set of rules about when charities may or may not opt in or out. It would do so for all charities and so would cause a problem for all of them. That is what I seek to avoid. In earlier amendments the hon. Gentleman probed by suggesting that it would be difficult if there were extra record keeping, yet here he proposes that all charities should face that. Therefore I am not attracted to the amendments.

Neither amendment fits very well with charity law and the definition that it uses to permit charities to conduct limited non-primary purpose changes. Not only is the hon. Gentleman adding more complexity in amendment No. 92, but amendment No. 93 appears to be disadvantageous to charities. While I appreciate his point about universities and the complex relationship between their business and charitable status, I am sure that they are not conducting the type of misuse of charities at which the clause is targeted. Therefore I am still of the view that the rules are entirely proportionate. I ask the hon. Gentleman to withdraw his amendment on that basis.

Paul Goodman (Shadow Minister (Childcare), Treasury; Wycombe, Conservative)

We will have to come back to this and I shall explain why. I understand why the Paymaster General does not like the amendment. She understands that it is essentially a probing amendment in relation to the example that I gave. She said that this was a complex area and that I would have to find another example. But it was precisely to establish what the clause will mean in relation to complex areas such as universities that I tabled the amendment.

I note that the Paymaster General did not address my example directly and say whether a university in that situation would find itself unexpectedly open to tax. She asked whether it was a real life example: it was given to me by a university that was worried that carrying out some catering and conference trading as a secondary objective would leave it open to tax. The Paymaster General has not really addressed that point. I shall not press the amendment to a vote because it was a probing amendment and a very blunt instrument, but I give her notice that we need to return to this matter in the light of what she has said and, more significantly, what she has not said. I beg to ask leave to withdraw the amendment.