Charities Bill [HL]

– in the House of Lords at 3:14 pm on 18th October 2005.

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Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip 3:14 pm, 18th October 2005

My Lords, on behalf of my noble friend Lady Scotland of Asthal I beg to move that the Bill be now further considered on Report.

Moved, That the Bill be further considered on Report.—(Lord Bassam of Brighton.)

On Question, Motion agreed to.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendment No. 61:

After Clause 26, insert the following new clause—

"RESTRICTIONS ON MORTGAGING

(1) Section 38 of the 1993 Act (restrictions on mortgaging) is amended as follows.

(2) For subsections (2) and (3) substitute—

"(2) Subsection (1) above shall not apply to a mortgage of any such land if the charity trustees have, before executing the mortgage, obtained and considered proper advice, given to them in writing, on the relevant matters or matter mentioned in subsection (3) or (3A) below (as the case may be).

(3) In the case of a mortgage to secure the repayment of a proposed loan or grant, the relevant matters are—

(a) whether the loan or grant is necessary in order for the charity trustees to be able to pursue the particular course of action in connection with which they are seeking the loan or grant;

(b) whether the terms of the loan or grant are reasonable having regard to the status of the charity as the prospective recipient of the loan or grant; and

(c) the ability of the charity to repay on those terms the sum proposed to be paid by way of loan or grant.

(3A) In the case of a mortgage to secure the discharge of any other proposed obligation, the relevant matter is whether it is reasonable for the charity trustees to undertake to discharge the obligation, having regard to the charity's purposes.

(3B) Subsection (3) or (as the case may be) subsection (3A) above applies in relation to such a mortgage as is mentioned in that subsection whether the mortgage—

(a) would only have effect to secure the repayment of the proposed loan or grant or the discharge of the proposed obligation, or

(b) would also have effect to secure the repayment of sums paid by way of loan or grant, or the discharge of other obligations undertaken, after the date of its execution.

(3C) Subsection (3D) below applies where—

(a) the charity trustees of a charity have executed a mortgage of land held by or in trust for a charity in accordance with subsection (2) above, and

(b) the mortgage has effect to secure the repayment of sums paid by way of loan or grant, or the discharge of other obligations undertaken, after the date of its execution.

(3D) In such a case, the charity trustees must not after that date enter into any transaction involving—

(a) the payment of any such sums, or

(b) the undertaking of any such obligations, unless they have, before entering into the transaction, obtained and considered proper advice, given to them in writing, on the matters or matter mentioned in subsection (3)(a) to (c) or (3A) above (as the case may be)."

(3) In subsection (4) (meaning of "proper advice")—

(a) for "subsection (2)" substitute "this section"; and

(b) for "the making of the loan in question" substitute "relation to the loan, grant or other transaction in connection with which his advice is given"."

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, I beg to move the amendment standing in the name of my noble friend Lady Scotland of Asthal and to speak to Amendment No.101. These are deregulatory amendments.

At present, the grant of a mortgage over charity land requires the Charity Commission's or the court's consent unless the mortgage is being granted by way of security for the repayment of a specific loan. Where the mortgage is granted for that purpose, the commission's or the court's consent is not needed provided that the trustees of the charity follow what I shall call the no-consent procedure. This requires the trustees to take advice on certain specified matters such as the charity's ability to repay the loan on the terms proposed. The advice-taking requirement is concerned with whether it is in the interests of the charity to take out the loan.

In Committee the noble Lord, Lord Phillips, tabled amendments intended to enable a mortgage over charity land to be granted via the no-consent procedure in one other circumstance. That circumstance was where the mortgage is granted by way of security for the repayment of a conditional grant made to a charity.

The Government accept that the current scope of the no-consent procedure is more limited than is necessary for effective regulation. We agree that the circumstances in which a mortgage over charity land can be given without the need for the court's or the commission's consent ought to be extended. We propose to go a little further than the noble Lord, Lord Phillips, and to allow trustees to avoid the need for consent provided they follow the no-consent procedure to a mortgage which is granted to securing the discharge of any obligation—not just the repayment of a loan or a grant. Liability under a guarantee is an example of another type of obligation which could be secured by a mortgage.

Our amendments will also remove another restriction on the scope of the no-consent procedure.

It is common practice for a commercial lender to take mortgages which are intended to secure not only the loan which is under immediate consideration but also of any future loan which the lender might make to the borrower. This approach saves administrative and legal expense. But the grant of a mortgage of this nature over charity land has been understood to require the court's or the commission's consent every time a future loan is made. This is on the basis that a mortgage can be granted under the no-consent procedure only if it is intended to secure solely the discharge of a loan on which trustees have taken advice before the grant of the mortgage.

Section 38 was not drafted with such mortgages in mind and this understanding of the law is the source of frequent complaint to the Charity Commission. Our amendments will have the effect of bringing this sort of mortgage within the no-consent procedure. But a condition is that before a new loan can become validly secured by this sort of mortgage, the trustees will have to obtain and consider the same sort of advice that they would have had to obtain and consider in relation to the original loan.

The amendments to Section 39 of the Charities Act 1993 are consequential on the amendments to Section 38, the effect of which I have just described. I apologise for the length of that explanation, but I thought that it might be useful to your Lordships in terms of the amendment's complexity and so on.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Spokesperson in the Lords (Id Cards & Charities Bill), Home Affairs

My Lords, I thank the Minister and the Government for taking up my amendment and producing the one before us. As the noble Lord said in conclusion, it is a pity that such a simple change requires 50 lines of new statute law. However, that is the nature of legislation these days. Everything is so complicated that a simple change requires an "unsimple" amendment. I am grateful for the improvement that it represents for life in the real world.

On Question, amendment agreed to.

Photo of Lord Swinfen Lord Swinfen Conservative

moved Amendment No. 62:

After Clause 26, insert the following new clause—

"RIGHT OF REPLY TO INQUIRY REPORTS

After section 8(6)(b) of the 1993 Act insert—

"(c) all persons and organisations referred to in a report which is to be published must be invited on 28 days notice to sign their agreement with the report or alternatively to submit a dissenting opinion which must be published as an appendix with the report, and no agreement or dissenting opinion or lack of them shall be taken into account by the Commission or the court in deciding whether a trustee subject to an order removing him as a trustee shall be re-instated.""

Photo of Lord Swinfen Lord Swinfen Conservative

My Lords, the purpose of the amendment is to require the Charity Commission to publish with its inquiry reports the agreement or otherwise of the affected parties. The proposal is necessary because the commission's reports are often very one-sided and leave a burning sense of injustice in the people referred to in the reports, giving them no opportunity to refute unbalanced information. In too many of the commission's cases, the victims have suffered unjust treatment and then have had to further suffer a one-sided account published on the Charity Commission's much-visited website where it remains, I understand, for two years.

On 12 July, at col. 1054 of Hansard, I quoted the Minister as saying that anyone affected by an inquiry is free to publish his own account of it however he wishes. That is of course true, but I do not believe that it is good enough. The Minister also said that maligned trustees would already have had the opportunity to put evidence to the commission during an inquiry. So they would, but that does not help them to feel better if the commission publishes a one-sided account justifying its own behaviour. The Minister added that the trustees were asked to comment on the draft before it was published. That is true, but they are often given only a few days to comment on a document that has taken months to prepare and are confined to commenting only on factual content. They may well feel that the playing field is tilted towards the vertical.

I have seen a recent case in which an inquiry was closed, but the charity, its lawyers, and its trustees were not told. I understand that the Charity Commission prepared a report on the charity on 11 February that was not sent to the charity until 13 July—at any rate that is the date on the covering letter. It was received by first class post on 15 July, with the reply to the report required by 25 July. That allowed, as there were two weekends in between, a pure six working days for it to arrive not by 25 July but on 25 July. Really that gave only five working days if one was to take first class postage into account as guaranteed by Royal Mail.

Bearing in mind that many people, trustees included, can be away for a fortnight at that time of year on holiday, that is not good enough, and it is not fair and reasonable. It is because of that cavalier attitude of the commission that I move the amendment. I hope that noble Lords will agree it. I beg to move.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Spokesperson in the Lords (Id Cards & Charities Bill), Home Affairs

My Lords, I regret to say that I cannot support the noble Lord, Lord Swinfen, in his amendment, although it would be helpful to the House if, in dealing with it, the Minister could address what seems to me to be an unarguable criticism by the noble Lord, of which he gave an example, of the occasional practice of the commission of not allowing those who are severely affected by a report a reasonable time in which to respond to it before publication. That may not be a suitable subject for legislation, at least in the form before us now, but it is real and it causes hardship in a few cases. If the Minister could say something reassuring about that, I have no doubt that it would be listened to by the commission.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, the noble Lord, Lord Swinfen, has steadfastly raised the issue at every stage of the Bill's progress, and I congratulate him on his persistence in arguing the case. I gave the Government's clear view on the amendment, as the noble Lord said, when we last discussed the amendment on 12 July, as recorded at col. 1054.

For the benefit of those who were not in the House on that occasion and who have not had the opportunity to peruse Hansard I will briefly reiterate our case. First, it must be understood that anyone who does not agree with all or part of an inquiry or report published by the commission is, as I have made plain and as the noble Lord has also explained to the House, entirely at liberty to publish their own account. Secondly, trustees have the opportunity to express their views to the commission throughout the course of any inquiry that is conducted. Finally, the commission routinely sends inquiry reports to persons affected for comments on factual issues.

The commission has a statutory duty to undertake inquiries, and the inquiry report reflects the commission's view and the commission's conclusions. It is entirely right to express those views and draw conclusions from its own inquiry. It is a neutral body and is entirely independent. It does not take sides in inquiries but aims to take an objective view on the best interests of the charity. There are a number of internal quality checks on the report before it is published. Once the caseworker has drafted the report, it is checked by a senior manager and additionally by legal advisers. It is then sent to those who are affected by the inquiry. If substantive comments are received, the report could be rewritten, and the checking mechanisms would be processed again.

At the commission's recent open AGM, it was made plain through an announcement that it was reviewing the form and content of inquiry reports, although the review itself does not extend to including a right of reply on inquiry reports. It is also reviewing how long inquiry reports remain on its website—the point that the noble Lord, Lord Swinfen, raised in moving the amendment.

I cannot agree that it is appropriate for people other than the commission to add comments to a report that is nothing more and nothing less than the commission's own description of its inquiry and its own conclusions. We have to have confidence in the commission. It cannot be right that Parliament does not trust the independent regulator to draw up properly considered inquiry reports to the extent that it expects future inquiry reports to be unfair and unbalanced and in need of a right of reply. Other regulators work in the same way, and I do not see that we could accept the amendment and expect the commission to differ from what most Members of your Lordships' House would agree is a practical and workable model that has served this regulator and other regulators well.

The commission will ensure that those affected by an inquiry report will have a reasonable time to consider a draft report and make representations about it. That is a guarantee from the commission. I am interested in the case that the noble Lord, Lord Swinfen, has raised. It is entirely reasonable that the time limits for a response are clear and that those affected are given ample opportunity to make their views known to the commission in the way in which it prepares its inquiry reports. I am assured that the commission is determined to provide reasonable time for proper representations to be made. For all those reasons, I cannot accept the noble Lord's amendment today, as I have been unable to accept it on other occasions.

Photo of Lord Swinfen Lord Swinfen Conservative

My Lords, I note what the Minister says. I hope that, when ensuring that sufficient time is given for trustees and those working for charities to respond to a draft report, account will be taken of the time of year. At the time of year that the report was sent to that small charity, those who were actually running it—the trustees—might have been away on holiday, which is not unreasonable in July, as a lot of people go on holiday in July, including some Members of the House. When most people go on holiday, they go for at least a fortnight. If that five or six days fell within that fortnight there would be no earthly chance, with the letter in the charity's office and those running the charity in the Mediterranean, of anyone having an opportunity to read it, let alone comment on it.

The Charity Commission should make certain that ample time is given to consider reports. I will read carefully what the Minister said, but I maintain my right to come back on the matter at Third Reading if I feel it necessary. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Lord Swinfen Lord Swinfen Conservative 3:30 pm, 18th October 2005

moved Amendment No. 63:

After Clause 26, insert the following new clause—

"RECEIVER AND MANAGER TO BE PAID BY COMMISSION

In section 19(6)(b) of the 1993 Act, for "income of the charities concerned" substitute "Charity Commission for England and Wales"."

Photo of Lord Swinfen Lord Swinfen Conservative

My Lords, this amendment is on a rather different matter. Its purpose is to make the Charity Commission responsible for paying its own receivers and managers, rather than the charity on which the receivers and managers are imposed having to pay. The Charity Commission already has the power to pay its own receivers and managers, as set out in the 1993 Act, but usually if not invariably charges those costs to the charity. The commission should also pay the fees and expenses of any receiver and manager, and consultants appointed to assist a receiver and manager, in all cases.

In the past, the commission has shown itself to be somewhat careless with charity funds when appointing and monitoring receivers and managers. For example, in the Voice of Methodism Association case, the receiver and manager was in post for more than six years, at a cost to that charity of £100,000. In the current Cancer Care Foundation case, the receiver and manager has already run up costs in excess of £600,000, and those costs are increasing. The commission's legal authority for appointing a receiver and manager is to protect the assets of the charity. Running up such costs is hardly protecting the assets of the charity. Questions may well be asked in certain cases on whether such an appointment has been detrimental to that responsibility.

There have been a number of cases in which the receiver and manager has been in post for several years, incurring costs to the charity concerned running into hundreds and thousands of pounds or, on occasions, more than £1 million. The amendment will serve to help the new commission management in its attempts to restrict the use of receivers and managers for the more serious cases, in which they are still bound to be required. Bluntly, the commission is likely to be more careful when incurring receiver and manager costs if it has to find them out of its own pocket rather than that of the charity. I note that, in the Charities Act 1993, the costs of the receivers and managers are to be paid out of the income of the charity. I suspect in some cases that the charity may well have had to delve into its capital, and I wonder whether that is entirely legal. I beg to move.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Spokespersons In the Lords, (Assisted By Shadow Law Officers), Spokespersons In the Lords, (Also Shadow Secretary of State for Scotland - Not In Shadow Cabinet)

My Lords, my noble friend has brought to our attention an important point. It has obviously caused a lot of concern in the sector; witness the postbag that those of us involved in the Bill have received.

I have some concerns about the way in which the amendment is phrased and the background to it. My concerns are twofold. The first is the read-across from the private corporate sector, where a company that goes into administration or receivership has to pay the costs of that receiver or administrator, and there is no charge to the Department of Trade and Industry. Moving the payment from the company that is in difficulty—or the charity, as in my noble friend's example—to the taxpayer seems to raise a difficult issue. The reason is that, if we are not careful, we end up with what might in effect be a subsidy for bad behaviour. If a charity is so badly run that a receiver or manager is appointed, why should the taxpayer, who is after all the funder of the Charity Commission, pick up the bill? A possible subtext is that there is a small, probably marginal, incentive for trustees to behave well, in that, if they behave badly and an administrator or receiver is appointed, there will be a penalty attached to their bad behaviour. Those are my two problems with what my noble friend has put before us this afternoon.

On the other hand, there is no doubt that there is an obligation on the receiver and manager to operate efficiently and on the Charity Commission to ensure that it is operating efficiently. My noble friend has given some examples of cases where the administrator, receiver or manager has been in the post for several years, where the sums involved have been very large. That is an important issue that needs to be addressed, although I am not sure that the way that my noble friend suggests is the right one. It is, the Minister will know, a frequent complaint about the behaviour of receivers and managers in the private sector that they are cavalier with their time and therefore cavalier with the funds of the company that they are managing or administering. Redress is not easy to obtain, because a company in administration or receivership has no capacity to fight the administrator or manager, because it is obviously on the back foot.

My noble friend has raised an important issue about how the Charity Commission is going to behave and the way in which future managers and receivers should behave to ensure that they are efficient and timely in their work. I look forward to hearing how the Government believe that that important balance will be struck.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Spokesperson in the Lords (Id Cards & Charities Bill), Home Affairs

My Lords, I largely agree with what the noble Lord, Lord Hodgson of Astley Abbots, has just said. There are a few cases where the Association of Charitable Trusts has pursued this with great tenacity. I hope that the Minister will encourage us in the belief that the Charity Commission might be more wary of what goes on after managers and receivers have been appointed because there are some bad cases.

In an extreme case, where there has been a breach of trust by one of the trustees of the charity, the costs of the manager or receiver would—in theory, at any rate—be recoverable against the trustees that, by their breach of trust, have given rise to the appointment.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, we have spent a long time discussing the appointment of interim managers during the passage of the Bill. It has been time usefully spent.

In practice, of course, the appointment of an interim manager is usually a last resort, when it is essential temporarily to secure the assets of a charity where there has been serious maladministration, misconduct or—perhaps worse—where the assets are clearly at risk. That is not a desirable position.

An interim manager can be appointed by the commission only after the opening of a formal enquiry and after evidence of misconduct or mismanagement in the administration of the charity is obtained or in the event that it is necessary or desirable to protect the charity's property. The Government continue to believe that, in most circumstances, it is appropriate for interim managers to be remunerated from the income of the charities concerned. Such appointments are made only after careful consideration of all other possible options and generally after a tender exercise to ensure both value for money and that the right appointment is made to deal with the circumstances that have arisen. Unfortunately, the need for appointments arises in circumstances where the problems are often complex and the trustees are either unwilling or unable to put the matters right themselves.

Charities run their own affairs and, we would all agree, must be responsible for the consequences of their decisions and actions, including the consequences of mismanagement. We believe that in most cases it should not fall to public funds to pay the costs of an interim manager appointed to a charity as a result of the decisions and actions of the trustees of that charity. I invite noble Lords to agree with that basic principle.

Interim manager appointments are rare: only two were appointed in 2004–05. We accept that the costs associated with the appointment can be high, but they must be considered alongside the value of the charity assets that are secured—almost £20 million for the seven cases that concluded in 2004–05. The commission has a statutory responsibility to supervise all receiver and manager appointments, which it discharges in all cases.

The new powers to give directions to be conferred on the commission under Clauses 20 and 21 of the Bill may lead to a reduction in such appointments, as they will provide an alternative and simpler route to dealing with some of the concerns that give rise to appointments now. One of the points that has been made is about the high cost of disbursements and other professional fees incurred by interim managers. There is an argument that such professional advice would be necessary for the charity to restore itself to a sound financial footing in any event, regardless of whether it was being administered by the original trustees or by an interim manager appointed to it. The commission in supervising the appointment will clearly wish to keep those costs, as it does other matters, under careful review.

We also agree that there may be some circumstances where it would be more appropriate for the interim manager to be remunerated out of public funds. An example might be where serious issues have arisen in the administration of the charity but the charity concerned is small and would not have the resources to pay the costs of an interim manager. It is perhaps with those circumstances that the noble Lord, Lord Swinfen, is most concerned. Nevertheless, if the commission decides that it is in the public interest and the best interests of the charity to appoint an interim manager, it may appoint one at public expense. It is only right that there is a clear understanding that nothing in the existing legislation would preclude the use of public resources to pay the costs of an interim manager where appropriate. However, our view remains that those should be exceptional cases and that the norm would be for interim managers to be paid out of the charity's resources under the supervision of the commission.

There is no reason why public resources cannot be used to pay for interim managers where it is right for them to do so. We understand entirely the point about the size and capacity of charities to fund the costs and expenses of the interim manager and any disbursements that they may have to make. Given the flexibility that is already in the law, I suggest to the noble Lord, Lord Swinfen, that it might be more appropriate to withdraw his amendment.

Photo of Lord Swinfen Lord Swinfen Conservative

My Lords, I thank all noble Lords who have spoken on the amendment. My noble friend said that the drafting could probably be improved. My drafting can always be improved; I have no objection whatever to that.

I am not attempting to produce a subsidy for bad behaviour. There are occasions when obviously the trustees have misbehaved and the funding of an interim manager should come out of their personal pockets rather than those of the charity. I have no objection to that, but sometimes an interim manager needs to be appointed because the trustees and managers have mismanaged out of pure lack of expertise. They have been doing the best they can, but they have not succeeded because they do not have the training or the management skills to deal with it.

The noble Lord, Lord Bassam, said that on occasions the interim manager has been remunerated out of public funds. I should be grateful if he would write to me with some examples, because I know of none. My noble friend said that it was wrong for the taxpayer to pay in commercial cases because of a manager who has been put in to wind up a company.

There is a difference between taxation and donation. Taxation is money paid to the state for the state to do its work. Donation is money paid to a charity for the charity to use for charitable purposes, and by law those donations can be used only for those charitable purposes. Theoretically, if a charity has enough to fulfil those purposes and wants to use it for another charitable purpose, it should offer that money back to the donor. I have never yet come across a Treasury offering money back to a taxpayer because it feels it has enough. I wish that day would come.

I am not entirely happy with the answer given to me by the Minister. I will, however, read carefully what he has said, and I will look at this matter and may well return with a revised amendment at Third Reading. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Lord Best Lord Best Crossbench

moved Amendment No. 64:

After Clause 26, insert the following new clause—

"SALE OF FUNCTIONAL PROPERTY

After section 36 of the 1993 Act insert—

"36A SALE OF FUNCTIONAL PROPERTY

(1) Notwithstanding the provisions of section 36(2), no land or buildings forming part of the functional assets of a charity shall without an order of the court or the Charity Commission be mortgaged or charged for the repayment of money borrowed, nor in the case of land or buildings in England or Wales be sold leased or otherwise disposed of save in accordance with the provisions of this section.

(2) For the purposes of this section, "the functional assets of a charity" shall mean all such assets as are or have within the preceding 4 years been used or occupied for the purposes of an undertaking conducted by the charity in the pursuit of any primary purpose of the charity (but not including property used or occupied in the course of profitable investment for the benefit of or in the course of the management and administration of the charity).

(3) Subsection (1) above shall not apply to any mortgage or charge for the purposes of securing borrowings or any sale lease exchange or other dealing with land or buildings which the trustees duly certify to be in their opinion required for or expedient in the interests of the better functioning or development of the undertaking of the charity in relation to which the land or buildings shall have been used or occupied, and in relation to any such transaction so certified the provisions of section 36 shall apply accordingly.

(4) Any person dealing with the trustees of a charity in good faith and acting without actual notice of any impropriety in the giving of any such certificate as is referred to in subsection (3) hereof shall be entitled to rely on the giving of such certificate as conclusive evidence that the certificate has been properly given but save as aforesaid a certificate given in breach of the duty of the trustees shall have no effect.""

Photo of Lord Best Lord Best Crossbench

My Lords, Amendment No. 64 has been suggested by the Independent Schools Council, the body which represents about 1,300 independent schools, almost all of them charities, with over 500,000 pupils. The amendment is not unconnected with your Lordship's deliberation of the previous amendment tabled by the noble Lord, Lord Swinfen, concerning trustees who are not terribly expert, and, indeed, it is not unconnected with your Lordships' deliberations last week on the amendment from the noble Lord, Lord MacGregor of Pulham Market, concerning schools with charitable status which fail to satisfy the public benefit requirements. Its intention is to buttress these charities against sales of their buildings or lands at below full value by improving the bargaining power of voluntary, unpaid, charitable trustees when faced with a predatory approach from a much tougher commercial purchaser.

Earlier in Report stage, I made reference to the new breed of purely profit-making commercial providers of education. These operators will not be giving bursaries, providing help to the maintained sector, opening premises to state schools or doing any of the other public-benefit activities which charities will undertake. These commercial companies are currently looking for opportunities to buy out existing premises. Pressure from such commercial purchasers may be greater if some independent charitable schools—a small minority, I trust—find they are unable to stay in business because they cannot demonstrate public benefit.

Many schools, but also hospitals and retirement homes, carry out their activities on land or in buildings with considerable development value. There are astute commercial operators, backed by private equity funds, who can muster property development expertise to acquire those assets. Such purchasers can run circles around less commercially astute charities whose volunteer trustees may well have no expertise in property development or commercial negotiation. There is a requirement on the charity to sell for full value, but this can be met by a single letter from a local surveyor saying that the price seems right. The problem is that the trustees of schools will often wish to sell the school as a going concern, but the underlying reality is that the value of the premises may be much higher if some or all the assets are stripped out and land is developed.

There are special problems where trustees of a school feel unable to continue but nevertheless hope that the school can continue. In general, their negotiations must be conducted in the utmost secrecy because knowledge that a school is for sale can precipitate the withdrawal of pupils, further impair the school's financial viability and depress its value as a going concern. In those circumstances, a well funded commercial purchaser can strike a less-than-equitable bargain with trustees who are unable to test the open-market value. The certificate from a surveyor or valuer can state that the sale price is the best value obtainable, but negotiations and conditions of secrecy with a charity in financial distress can lead trustees to accept an unequal bargain.

This amendment would redress that inequality of bargaining power in favour of the trustees. It would help them to attain full value for the assets that they sell by making it necessary, in limited but important circumstances, to obtain the Charity Commission's sanction for the proposed sale. That requirement would not apply if the trustees were simply moving their operations from one building to another or selling land or buildings held for investment purposes. It would apply where trustees were bringing to an end or substantially reducing the charitable undertaking carried on in those buildings or on that land. So whether in the case of a school or a retirement home, trustees could move premises without the Charity Commission's permission, unless they were significantly downsizing, but they would always need the commission's approval if selling the premises and discontinuing the activity; for example, ceasing to run a school.

I am told of a real example where the development value of a school was between £16 million and £20 million but the offer for purchase, on the basis that the school would carry on as a going concern, was between £2 million and £3 million. In that case, the purchaser was also negotiating for a commitment from the trustees to use part of the proceeds of sale to fund bursaries in the newly commercial school. That sounds very much like having one's cake and eating it. After the commercial operator had purchased the charitable assets for a knock-down price it would then benefit from part of the amount that it had paid when it came back in the form of bursaries, which gave that school a competitive advantage in the local market.

I understand that that process then makes neighbouring schools more vulnerable to predatory purchasers. The endgame could well be a number of purchasers in the local market, a merger of schools and the sale of surplus land, with a development gain accruing not for charitable purposes but to the private-equity investor. I can see that over a generation there could be considerable loss to the total charitable estate. The perverse outcome is that schools, which as charities must demonstrate public benefit, get replaced by profit-making schools that turn their back on the local community and have no charitable aim.

The concern of the amendment, therefore, is the protection of charity assets in an increasingly tough financial environment. The guiding principle is that, if there is a fundamental change in a charity's activities which involves selling land or buildings, the Charity Commission should check that the sale is properly handled in the best interests of charity. Where there is the possibility of development gain further down the line, for example, the commission should check that the proper amount of that gain will accrue to the charitable estate rather than to the commercial purchaser. With the expert input from those appointed by the commission wherever that seems appropriate, the imbalance in skills between an ailing charitable body and a well funded commercial purchaser can be redressed. The dangers here are real already, but the position becomes more urgent if there are any cases where the Bill's public-benefit requirement means that more sales by charitable trustees become necessary. Putting the protection of the amendment in place seems a wise plan. I beg to move.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Spokespersons In the Lords, (Assisted By Shadow Law Officers), Spokespersons In the Lords, (Also Shadow Secretary of State for Scotland - Not In Shadow Cabinet)

My Lords, I am grateful to the noble Lord, Lord Best, for having raised this important issue. It is one that deserves proper consideration. Along with many other noble Lords, I received the briefing from the Independent Schools Council on which some of the arguments and background to this amendment rest. But while I understand the argument and the strength of the argument, I am by no means convinced that this approach is the right way to tackle the problem the noble Lord raises and which needs to be addressed. I say that for three reasons.

The first reason is simply that a trustee is a trustee is a trustee, and a trustee must take full responsibility for the operation of the organisation of which he or she is a trustee. To introduce a category of transactions for which trustees are not fully responsible, in that they have to seek Charity Commission advice, is undesirable. We run the risk of having a two-tier type of trusteeship. That is the wrong approach to follow.

The second part is the argument advanced by the noble Lord about inequality of arms. On one side are the well resourced, experienced people of the acquiring non-charitable company and on the other are the inexperienced trustees of a failing institution. That is a poor reason for introducing this change in our primary legislation. The fact is that trustees need to inform themselves. In this connection, it is interesting that I have just become a trustee of a charitable foundation. The Charity Commission sent me a most extraordinarily helpful set of documents. I will not quote from them in extenso but there are a couple of paragraphs that show that even if you are the least experienced babe in the woods as far as trustees are concerned, if you just read what the Charity Commission tells you, you will get round the point that the noble Lord made.

I shall quote two paragraphs of the letter addressed "Dear New Trustee":

"You might find it helpful to make an induction plan identifying and prioritising what you need to do to familiarise yourself with your new role.

You do not need to be a financial or legal expert to run your charity, but you will need to consider carefully when to take specialist advice. While risk of personal liability is small, you are more likely to be at risk if your charity suffers a loss because you didn't take specialist advice when you should have done".

With this comes an easy-to-read welcome from the Charity Commission. There are a couple of pages but the part that is worth quoting is as follows:

"Your liability as a charity trustee: In principle, you may be personally liable if your charity loses money as a result of a mistake you have made. However, this is unlikely to happen if you have: acted reasonably; worked within the governing document; and taken proper and appropriate professional advice where you don't know enough to make a decision, or where you are required to by law".

Within the guidance that people receive that is not complicated or difficult to understand. There is every reason to believe that trustees can and should familiarise themselves with their wider and broader responsibilities.

The third and more practicable concern I have about the noble Lord's amendment is that introducing the Charity Commission to the circumstances envisaged in the amendment could make things worse. A failing charity, like a failing company, is always in a weak position and it is ingenuous to suppose that automatic involvement with the Charity Commission will somehow in reality strengthen the position of the weaker company. It takes us into a whole series of other legal and corporate legal concepts, in particular the issue of trading while insolvent. Let us consider the example the noble Lord has given of a school that is no longer able to trade effectively and is therefore being forced to accept an offer from an outside organisation. The fact is that it will not be a question of waiting for a week or two while the Charity Commission decides, but a question of whether the directors or trustees can order the weekly milk, because they will be liable for that if they continue to trade knowing that they will not be able to meet that debt as it falls due.

So there is a real danger that we will introduce ossification to the process. Indeed, we might increase the risk of inexperienced trustees being exposed to trading while insolvent claims, which are a very serious breach of company law. In my experience in the corporate sector, speed is of the essence where companies and indeed charities begin to fail. Failure compounds extraordinarily quickly and is catastrophically steep at the end. I feel that the Charity Commission will not be able to facilitate and help that process.

My final point concerns the law of unintended consequences. We raise here a particular set of circumstances. I accept what the noble Lord has said about the dangers, but if we were to put that into the primary legislation that we are discussing today, we will be stuck with it for 14 or 15 years until the next charity Bill comes along. I am not quite clear whether the thread that the noble Lord introduces, with the very best of intentions, might not take us in a way that is undesirable.

So while I accept that there is an issue, I would hope that it can be addressed by a degree of self-regulation by organisations such as the Independent Schools Council writing to their members offering them a helpline and advice, and telling them of the dangers that they may find themselves in if they begin to fail. In those circumstances, it is much better to have this sort of flexibility rather than the inflexibility of primary legislation which carries with it complications and consequences that today we cannot possibly hope to see through.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Spokesperson in the Lords (Id Cards & Charities Bill), Home Affairs

My Lords, I do not think that I received the briefing to which everyone is referring. I hope that that is not because I pursued an amendment with regard to public interest that was not favoured by the Independent Schools Council. Indeed, it cannot be, because the noble Lord, Lord Best, had his name to the same amendment.

I should like to make two quick points. First, surely, in the example that the noble Lord, Lord Best, gave, there would be an action for negligence against the surveyor. The difference between the value he certified the property as bearing and the real value as realised shortly after the acquisition by the predatory buyer was so enormous that there must have been negligence.

Secondly, granted that I have had to try to understand this new section from the lips of the noble Lord, Lord Best, without any background information, it seems that the check to sales of this sort which the noble Lord, Lord Best, seeks to insert in the Bill simply is not there. Unless I have misread it, all that the trustees have to do in the event of a sale of functional land is to certify that in their opinion it is expedient for the charity to make the sale. There is an implicit opinion for every sale that trustees ever make. They do not make sales unless they think that it is expedient to make the sale. I do not see how there is a remedy here to the very real problem that the noble Lord, Lord Best, identified when he opened his argument in support of the amendment.

Photo of The Earl of Caithness The Earl of Caithness Conservative

My Lords, in defence of surveyors, I would merely point out to the noble Lord, Lord Phillips, that in the instance that the noble Lord, Lord Best, gave, there might well have been a substantial difference between a valuation and a purchase price. That is not necessarily the surveyor getting the price wrong. It is the decision of the owners, whether they be trustees or a private individual, under the circumstances in which they will sell. If there was a potential for huge development and, therefore, the valuer valued it on that basis, but the trustees or owners decided to sell it for another use that did not release that potential for development, of course there would be a different price.

But my point of concern with the amendment of the noble Lord, Lord Best, is that it would negate what trustees ought to be doing in the first place. Under the amendment, trustees would be able to hide behind the Charity Commission. Surely that is not the position we want trustees to be in. Trustees for a particular charity should be competent to run it and, where necessary, should bring in expertise. If a charity is failing or not fulfilling its original purpose, the trustees are obliged to bring on board another trustee who knows about the problem or to bring in at an early stage expert advice. To hand it over to the Charity Commission would be, in my view, a retrograde step.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, like the noble Lord, Lord Hodgson of Astley Abbotts, I have some sympathy with what the noble Lord, Lord Best, has said. But as will become clear in the next few minutes, a different solution from his is preferable. Like other noble Lords who have contributed to this short debate, while we agree that this is something of a problem, the solution constructed in the proposed new clause is not one that finds our support. We too think that it may bring into play the operation of the law of unintended consequences. I am also very much drawn to the point made by the noble Earl, Lord Caithness, on the importance of relying on the good sense of the trustees and making them face up to their responsibilities. That is very important. To offer the option of hiding behind the Charity Commission by asking it to intervene in situations of this kind is probably unwise.

I agree with the principle put forward by the noble Lord, Lord Best, that there should be safeguards preventing charity trustees disposing of their property at an undervalue. Indeed there is a general principle of law that charity trustees must obtain the best terms reasonably achievable in the circumstances when they dispose of any of their assets, except where the disposal furthers a charitable purpose. That point is understood.

Before 1992, there was a requirement in charity law that trustees had to obtain the Charity Commission's consent by order before disposing of any land that had at any time, not just in the previous few years, been occupied for the purposes of the charity. That requirement was repealed as unduly bureaucratic and over-regulatory and replaced by the present arrangements set out in Part V of the Charities Act 1993. Under those arrangements, charity trustees do not need to obtain a Charity Commission order for the sale of their property if they follow a prescribed procedure. That procedure requires trustees to obtain a written report on the proposed disposal from a qualified surveyor acting exclusively for the charity to market the property in the way recommended by that surveyor—unless he recommends that it should not be marketed—and to satisfy themselves that the terms of the disposal are the best reasonably obtainable; which is the important principle. Regulations made by the Home Secretary prescribe the information that the surveyor must include in his report to the trustees.

Where we part company with the noble Lord, Lord Best, is over his belief that the best safeguard against disposals at an undervalue is to give back to the Charity Commission the role of inspecting the terms of the transaction. In my view, that role is best left in the hands of an expert in the valuation and sale of property, which a qualified surveyor is, but the Commission—with due respect—is not. However, we are willing to contemplate a review of the Charities (Qualified Surveyors' Reports) Regulations 1992. These regulations set out what matters the surveyor must cover in his report to trustees on any projected disposal of land. Our review of these regulations, which we would begin after the Bill has been enacted, would ensure that a surveyor was required to alert trustees to any factors, such as development potential or ransom value, which charity trustees should take into account when agreeing the terms of a disposal. Our review of the regulations will involve full consultation with schools and other landowning charities—obviously we would want to take on board the views of the profession itself.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Spokespersons In the Lords, (Assisted By Shadow Law Officers), Spokespersons In the Lords, (Also Shadow Secretary of State for Scotland - Not In Shadow Cabinet)

My Lords, when the Government come to look at the regulations, would they be prepared to give attention to the introduction of clawbacks of the future value? Too often, the regulations talk about what happens at the present moment, but, clearly, one can get value down the road. Therefore, some form of clawback would be helpful.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, that might best be expedited through some reference to sell-on clauses and so forth. It is a sensible suggestion and no doubt those are the sorts of issues that the consultation will need to address. I am grateful to the noble Lord for that intervention.

I am grateful to the noble Lord, Lord Best, for raising this issue because I recognise its importance. Other noble Lords who contributed to this discussion also recognise that. We cannot agree with the noble Lord's solution—if solution indeed it be. However, perhaps by reviewing the regulations and taking on board a broader range of views on the way in which those regulations have operated in the past, we can find a way that deals with an important part of the issue identified by the noble Lord. I hope that the noble Lord will feel able to withdraw his amendment.

Photo of Lord Best Lord Best Crossbench

My Lords, I am very grateful to noble Lords for expressing their views on this matter and for all the good advice that has come from this exchange. I am sorry that the noble Lord, Lord Phillips, did not get the excellent briefing that I prepared for him. I recall that correspondence is not always opened in his office when it is expected to be opened, but when he comes to read it I know that he will find it entirely convincing.

It may well be that the problem that I identified is best handled by enhanced regulation through the Charity Commission, particularly covering the important point that the noble Lord, Lord Hodgson, seized on—that value can accrue later and not at the moment of sale. Development value comes after the acquisition of the school as a going concern when either part of that school or another school which, in the process of a number of acquisitions now becomes redundant, can be redeveloped. That is the point one needs to capture. If regulation through the Charity Commission can do that it would be more than helpful. Indeed, perhaps better advice, more advice and a helpline, as suggested by the noble Lord, Lord Hodgson, through the Independent Schools Council could heighten awareness of the issue and help people avoid the problem. Such measures would support the less astute trustees of charitable independent schools in the face of powerful pressures from purchasers who have very different motives from those of charities. I thank your Lordships. I also thank the noble Lord, Lord Bassam, for that positive, encouraging and helpful response. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 6 [Group Accounts]:

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendment No. 65:

Page 98, line 8, leave out "to which" and insert "which, by virtue of"

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

I rise to move Amendment No. 65 standing in the name of my noble friend Lady Scotland and to speak to Amendment No. 66 which is grouped with it.

Paragraph 1 of new Schedule 5A to the 1993 Act, as inserted by Schedule 6 to the Bill, supplies the meaning of a "subsidiary undertaking" for the purposes of the new group accounting provisions. If the requirement to prepare group accounts applies, a parent charity must prepare accounts covering itself and its subsidiaries as a group. The definition of a subsidiary undertaking is important because it determines, for each parent charity, which other entities must be accounted for in the group accounts.

Sub-paragraph (4) of paragraph 1 lists entities which are not to fall within the definition of a subsidiary undertaking. One such entity is any institution to which a direction under Section 96(5) of the 1993 Act applies for the purposes of the group accounting provisions. Section 96(5) allows the Charity Commission to determine that an institution established for any special purposes or in connection with a charity shall be treated as either forming part of that charity for accounting purposes or as forming a distinct charity. If the commission has already determined that a particular institution forms a distinct charity for accounting purposes, it does not make sense for the Bill to exclude that institution from the definition of subsidiary undertaking. However, at present the Bill does make such provision.

These amendments are designed to correct that, and I am greatly indebted to the Association of Charity Independent Examiners for bringing this matter to our attention and enabling us to make that correction.

On Question, amendment agreed to.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip 4:15 pm, 18th October 2005

moved Amendment No. 66:

Page 98, line 9, leave out "applies" and insert ", is to be treated as forming part of a charity"

On Question, amendment agreed to.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendment No. 67:

Page 102, leave out lines 36 to 38.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, in moving this amendment, I shall speak also to Amendments Nos. 75, 76, 77, 78, 79, 103, 108 and 111.

Clause 37 of the Bill gives the Charity Commission the power to relieve trustees, auditors and others from liability for breach of trust or duty where the relevant person has acted honestly and reasonably and should fairly be excused for the breach. These are minor, technical amendments to that provision and their purpose is twofold, as I shall now briefly explain.

First, we have discovered that the Bill as drafted does not cover all those who report on a charity's accounts. Logically, the commission's power should extend to all those who report on charities' accounts, including group accounts, and these amendments ensure that it does. Secondly, the amendments also extend the court's existing power to grant relief to an auditor or independent examiner of an unincorporated charity appointed under the current Section 43 of the Charities Act 1993. The amendments give the court the power to relieve from liability all those who report on the accounts of an unincorporated charity, including the group accounts of an unincorporated charity. I hope that noble Lords will agree that this is a sensible and logical group of amendments that tidy up the existing powers in the Bill.

On Question, amendment agreed to.

Schedule 7 [Charitable incorporated organisations]:

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendment No. 68:

Page 105, line 25, leave out "the address of its principal office" and insert "whether its principal office is in England or in Wales"

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, in moving this amendment, I shall speak also to Amendments Nos. 73 and 74.

I am grateful to the Hospital Broadcasting Association for bringing to our attention this and a number of other issues on which we have made amendments. One receives a lot of correspondence on these matters which is most helpful. It is important that the address of the principal office of a CIO is known to the public. Those who have dealings with any corporate body need to be assured that they will have no problems communicating with it. For that reason, the Bill as currently drafted would require the address of the principal office to appear on the face of the CIO's constitution. But the consequence of that is that any change to that address would need a constitutional amendment. The procedure for constitutional amendments, set out in paragraph 14 of new Schedule 5B, rightly contains a number of safeguards. However, representations have been made to the effect that those safeguards are unnecessary and that accordingly the amendment procedure is over-burdensome when a CIO is simply changing the address of its principal office. We agree that the procedure set out in paragraph 14 is burdensome for the process of simply changing the address of a principal office.

The effect of the amendments now tabled will be that the address of the principal office need not appear in a CIO's constitution. Therefore, a constitutional amendment will not be necessary to change the address. The need to publicise the address of the principal office can be achieved in other ways. It can appear in the Charity Commission's register entry for the CIO, any change being effected only when it has been notified to and recorded by the commission. It could be made a requirement that the address of the CIO's principal office should appear in its correspondence. These are matters to be considered when framing the regulations to be made under Schedule 7. However, since the application of some of the CIO provisions will depend on whether the principal office is located in England or in Wales, we think that the country of location should still appear on the face of the CIO's constitution. The national location of that office should be capable of change only by the normal constitutional amendment procedure.

The second part of these amendments has the effect that all changes to a CIO's constitution will take effect only on registration by the commission. I hope that the House will agree that this is a sensible set of amendments designed to reduce burdens on charities. I beg to move.

Photo of The Earl of Caithness The Earl of Caithness Conservative

My Lords, if it is a burden on charities to have to write a new constitution every time they move their principal office, is it still not a burden to have to write a constitution if they move their principal office from England to Wales or from Wales to England?

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, I am not sure how many times this occurs. It may be a minor inconvenience, but we are trying to be helpful. This matter has been helpfully drawn to our attention.

Photo of The Earl of Caithness The Earl of Caithness Conservative

My Lords, with respect, and before the Minister sits down, if he is trying to be helpful, it would be much better not to include anything. If one lives in the Welsh Marches—which I do not—and one moves one's principal office 10 miles across the border—which would be quite likely for a charity in some circumstances—one would have to go to the trouble of rewriting a constitution. If the Government are seriously trying to help charities, it would be much better not to include this measure in the Bill at all. Will the noble Lord consider that point rather than answering it now?

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, I will happily take the point away and we shall think about it. I do not think that it will constitute a major problem but we shall consider it.

On Question, amendment agreed to.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Spokesperson in the Lords (Id Cards & Charities Bill), Home Affairs

moved Amendment No. 69:

Page 111, line 21, leave out from "subject" to end of line 22 and insert "immediately prior to conversion"

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Spokesperson in the Lords (Id Cards & Charities Bill), Home Affairs

My Lords, I hope that this amendment is clear and that the Government are inclined to accept it. Perhaps I should explain to the House that this affects a provision in the Bill relating to the conversion of charitable companies and charitable industrial and provident societies into charitable incorporated organisations, or CIOs. Broadly, the subparagraph, which my amendment seeks to amend, states that converting from a charitable company, or registered society as it is called, into a CIO does not let debtors off the hook, or rather—I beg your Lordships' pardon—does not prejudice creditors. That is the point. Although the Act provides an automatic transfer of the assets of the charitable company or the registered society to the CIO, you do not leave behind the poor old creditors.

My "grouse" with subparagraph (9) as it is drafted is that the words that I seek to delete seem to me not only to add nothing to that intent, but actually to confuse it. At present subparagraph (9) states that the transfer will have no effect on,

"any liability to which the company or registered society was subject by virtue of its being a charitable company or registered society".

However, one does not owe a debt to someone by reason of being who one is but by reason of having incurred the debt. Those seem to me to be muddling and confusing words which can only be a hostage to future interpretation. My amendment would add the concept that liabilities immediately prior to the conversion are carried over into the new CIO. However, I would be ready to forgo those words if the words that I seek to delete are deleted. I beg to move.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, the purpose of subsection (9) of the new Section 69I is to make it clear that liabilities of a charitable company or registered society are not affected by conversion to a CIO. Since the process of conversion will not interrupt the legal personality of the entity, liabilities will clearly not be affected, but this subsection is designed to put the matter beyond doubt. In particular, it is designed to highlight that, although a CIO is not a company, it will still be liable for liabilities incurred by the charitable company as a company such as a penalty incurred for late submission of accounts.

This would still be the position were subsection (9) not in the Bill because, as I have mentioned, a CIO is the same legal entity as the charitable company or registered society which converted to it.

I am grateful to the noble Lord for raising the issue. I trust that that explanation will suffice. On the subject of conversions to CIOs, perhaps I may advise your Lordships' House that we intend to bring forward an amendment at Third Reading to provide for power to make regulations to enable the direct conversion of a community interest company into a CIO. I hope that noble Lords will welcome that provision. I hope that the noble Lord feels able to withdraw his amendment.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Spokesperson in the Lords (Id Cards & Charities Bill), Home Affairs

My Lords, I confess that I did not understand the justification given by the Minister unless it were to state that the subsection applies only to a very narrow class of liabilities: he mentioned a fine for the late filing of accounts. I thought that the provision was designed to sweep into the CIO the liabilities of the charitable company or registered society converting into the CIO. If the Minister is right in his interpretation, I accept that my amendment is redundant. However, I believe that the wording of subsection (9) does not encourage the ordinary reader to think that it is defined as narrowly as he states.

I suggest that I withdraw the amendment and that we pursue the matter outside the Chamber. If necessary an amendment can be brought back at the final stage of the Bill. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendment No. 70:

Page 114, line 10, at end insert—

"(7A) If the Commission does not notify the transferor CIO within the relevant period that it is either confirming or refusing to confirm the resolution, the resolution is to be treated as confirmed by the Commission on the day after the end of that period.

(7B) Subject to subsection (7C), "the relevant period" means—

(a) in a case where the Commission directs the transferor CIO under subsection (4) to give public notice of its resolution, the period of six months beginning with the date when that notice is given, or

(b) in any other case, the period of six months beginning with the date when both of the copy resolutions referred to in subsection (2) have been received by the Commission.

(7C) The Commission may at any time within the period of six months mentioned in subsection (7B)(a) or (b) give the transferor CIO a notice extending the relevant period by such period (not exceeding six months) as is specified in the notice.

(7D) A notice under subsection (7C) must set out the Commission's reasons for the extension."

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, I beg to move Amendment No. 70 standing in the name of my noble friend Lady Scotland and to speak to Amendments Nos. 71 and 72.

The Bill envisages that the transfer of the undertaking of one CIO to another will require validation by the Charity Commission. This is to ensure that the purposes for the furtherance of which the property of the transferor CIO is held, and the rights of those dealing with that CIO, are not inappropriately modified by the transfer. In Committee, the noble Lord, Lord Hodgson, tabled an amendment, in order to ensure that this validation process was completed within six months of its initiation.

We accepted that the interests of the charities involved could be prejudiced if the validation process takes too long, and agreed to give further consideration to the matter. However, I did explain that the period of six months may be insufficient for proper consideration to be given by the commission in complex cases.

The effect of the amendment we have now tabled will be, if the commission has not notified the transferor CIO that it has either validated or refused to validate the transfer within six months from its receipt of the copy resolutions of the transferor and the transferee CIOs relating to the transfer, that the transfer is treated as automatically validated once that period has ended.

If the commission exercises its discretion to require public notice of the transfer resolution, the six month period only starts on the date when the public notice is given.

If the commission wants to extend the six month period, it can do so for a period of up to six months by notice to the transferor CIO, giving the reasons why the extension is considered necessary.

We think that this strikes a fair balance between effective regulation, and acceptance of the point made by the noble Lord, Lord Hodgson, that an uncertain and/or over-lengthy validation process may put at risk the success of the transfer and the success of the organisation.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Spokespersons In the Lords, (Assisted By Shadow Law Officers), Spokespersons In the Lords, (Also Shadow Secretary of State for Scotland - Not In Shadow Cabinet) 4:30 pm, 18th October 2005

My Lords, I am grateful to the Minister for bringing forward the amendments. I express one hope. Six months is considered to be a long period, not a short period—six months is a huge period in corporate life. To have a state of suspended animation as a matter of course for six months would be very unhelpful to the development of the sector. The danger of having the words "six months" in the Bill is that what is supposed to be a maximum becomes standard fare. Will the Minister clarify how long the period may be extended thereafter? As I understand it, it could be extended for another six months, giving a maximum of 12 months. Or can we go on having six-month period after six-month period? It was not clear from what the Minister said. I am grateful for the broad thrust, but I have concerns about the detail.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, I am tempted to make a cheap comment about the length of the period that it takes to choose a Conservative Party leader, but that is unfair. I withdraw that.

I think that the answer to the question is that, as I explained, it can be extended for a period of up to six months, but it has to be a period of no longer than 12 months in total.

On Question, amendment agreed to.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendments Nos. 71 to 74:

Page 114, leave out line 11 and insert "If the resolution is confirmed (or treated as confirmed) by the Commission—"

Page 114, line 20, after "confirmed" insert "(or treated as confirmed)"

Page 120, line 12, leave out "Except as mentioned in sub-paragraph (3),"

Page 120, leave out lines 14 to 20.

On Question, amendments agreed to.

Clause 37 [Power of Commission to relieve trustees, auditors etc. from liability for breach of trust or duty]:

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendments Nos. 75 to 78:

Page 35, leave out lines 21 to 25 and insert—

"(b) a person appointed to audit a charity's accounts (whether appointed under an enactment or otherwise), or

(c) an independent examiner, reporting accountant or other person appointed to examine or report on a charity's accounts (whether appointed under an enactment or otherwise)."

Page 35, line 38, at end insert—

"( ) For the purposes of this section and section 73DA below—

(a) subsection (1)(b) above is to be read as including a reference to the Auditor General for Wales acting as auditor under section 43B above, and

(b) subsection (1)(c) above is to be read as including a reference to the Auditor General for Wales acting as examiner under that section; and in subsection (1)(b) and (c) any reference to a charity's accounts is to be read as including any group accounts prepared by the charity trustees or directors of a charity."

Page 35, leave out lines 44 and 45 and insert—

"(c) section 73DA(2) below (which extends section 727 to auditors etc. of charities which are not companies)."

Page 35, line 45, at end insert—

"73DA COURT'S POWER TO GRANT RELIEF TO APPLY TO AUDITORS ETC. OF CHARITIES WHICH ARE NOT COMPANIES

(1) This section applies to a person acting in a capacity within section 73D(1)(b) or (c) above in relation to—

(a) the accounts of a charity which is not a company, or

(b) any group accounts prepared by the charity trustees of such a charity.

(2) Section 727 of the Companies Act 1985 (power of court to grant relief to officers or auditors of companies) shall have effect in relation to a person to whom this section applies as it has effect in relation to a person employed as auditor by a company.""

On Question, amendments agreed to.

Clause 38 [Trustees' indemnity insurance]:

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendment No. 79:

Page 36, line 2, leave out "73D" and insert "73DA"

On Question, amendment agreed to.

Clause 39 [Power to transfer all property]:

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Spokespersons In the Lords, (Assisted By Shadow Law Officers), Spokespersons In the Lords, (Also Shadow Secretary of State for Scotland - Not In Shadow Cabinet)

My Lords, I shall speak extraordinarily briefly to Amendments Nos. 80 and 81, which are concerned with Clause 39 on the power to transfer all property. We have discussed on several occasions, most recently in Committee on 12 July, the problem of a small charity wishing to wind itself up having to find a single charity with precisely matching charitable objectives to merge with. The Minister gave an encouraging reply then, as a result of which I withdrew my amendment. I understand that the tectonic plates are about to shift but have not yet done so. Perhaps the Minister could update us. I beg to move.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, I shall try to deal with this tectonic fare as rapidly as I can. The noble Lord is right: I did say in Committee that we saw a lot of sense in the amendment and we would go away and think about it, and we did. I am sorry that we have not been able to table an amendment for today, but we have every intention of tabling what I am sure the noble Lord will agree will be a suitable amendment at Third Reading.

We have identified a problem with the amendment as it is drafted, for reasons I will explain. Let us imagine that there is a charity with purposes A and B, whose trustees want to use the power in the Bill to transfer all of its property. As drafted, the amendment that the noble Lord, Lord Hodgson, has tabled would allow the charity to divide its property between a charity with purpose C and a charity whose purposes encompass both purposes A and B. This comes about because the transferees together can be said to have purposes wide enough to encompass the purposes of the transferor. But it would not be right to allow a charity which had only objects A and B to transfer property to a charity with a purpose outside the transferor's own trusts—in this example, purpose C.

We are having to juggle and conjure here and we are working on the exact scope of our amendments, which we intend will satisfy the noble Lord's concerns, and we are seeking to iron out the problem that I have just identified. I am sure that the noble Lord will withdraw his amendment and I look forward to moving our amendment to address his points at Third Reading.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Spokespersons In the Lords, (Assisted By Shadow Law Officers), Spokespersons In the Lords, (Also Shadow Secretary of State for Scotland - Not In Shadow Cabinet)

My Lords, I am grateful to the Minister and I understand the issue of charities A, B and C. I hope that the Government will come forward with an amendment which has a reasonably commercial and practical application, otherwise we will find ourselves so constrained in what can and cannot be done as to make the whole idea of smaller charities being able to wind up to merge with other charities stillborn. The purpose behind these amendments is to improve efficiency and effectiveness in the charitable sector. I look forward to seeing an amendment, but in the mean time I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 81 not moved.]

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendment No. 82:

Page 38, line 23, leave out "sent to" and insert "received by"

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, I rise to move Amendment No. 82 tabled in the name of my noble friend Lady Scotland. Clause 39 inserts a new Section 74 into the 1993 Act. In doing so it makes provision for a small unincorporated charity to transfer all of its property to one or more other charities, subject to certain requirements—including the passing of a resolution. A copy of the resolution must be sent to the Charity Commission, and, subject to Section 74A, it would take effect 60 days after it was sent to the commission.

It has been pointed out to us that it could be difficult for the commission to establish the date on which the resolution was sent. This amendment would remove such potential uncertainty by amending new Section 74(9) so that the 60 day period begins on the date the commission receives the resolution. It also has the advantage of making this section consistent with new Sections 74B(9) and 75A(10) which similarly provide for time periods to commence on the date of receipt of a resolution by the commission. I hope that simple explanation suffices and I beg to move.

On Question, amendment agreed to.

Clause 42 [Power to spend capital]:

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Spokespersons In the Lords, (Assisted By Shadow Law Officers), Spokespersons In the Lords, (Also Shadow Secretary of State for Scotland - Not In Shadow Cabinet)

My Lords, I rise to move Amendment No. 83 and to speak to Amendment No. 84, which address Clause 42. The purpose of these two amendments is to end the confusion which currently exists about what is or is not permanent endowment. The guts of what we are seeking to achieve are in the second of these, Amendment No. 84, the amendment which leads the group and is an introductory necessity. This ordering caused some confusion among the Minister's officials but I hope that I shall now be able to clarify the intention. In short, we seek to insert a new clause into the Bill that will provide a clear and unambiguous definition of what constitutes permanent endowment. Difficulties with the present position have been brought to our attention by several law firms expert in charity law.

Section 96(3) of the Charities Act 1993 contains a definition of permanent endowment that is widely interpreted as meaning that property is permanent endowment unless, at the time of the gift of it, it is expressly stated by the donor that both the capital and the income of the donated property can be spent on the charity's purposes. Given that it would never occur to most lay people that there was a need to state that—they would assume that it would be the effect—much more charity property is held as permanent endowment than was ever intended by the original donors.

The purpose of the amendment is to turn the definition around so that, in future, property will be deemed to be permanent endowment only if, at the time of the gift, there was an express stipulation that only the income from the capital could be spent on the purposes of the charity. If that definition is adopted, it will be only where donors have deliberately intended that their gift should form permanent endowment that those restrictions will apply. It is extremely unsatisfactory for service-providing charities, often schools, to find that they cannot sell a piece of land with valuable planning permission to enable them to construct new buildings on land already owned by them because of that definition. In consequence, the Charity Commission requires some system of recoupment of the money spent on the basis that the buildings to be erected are "wasting assets". I fear that too often the Charity Commission has, without having taken professional advice from chartered surveyors, come to the conclusion that because many of the buildings are being constructed with a view to having a lifespan of a century or more—in any event, that their existence enhances the value of the land on which they have been built—its requirement to recoup money spent is unnecessary.

I am told that Clause 42 will not necessarily help the situation. That is because the trustee's right of freedom to deal with permanent endowment will not apply to,

"land held on trusts which stipulate that it is to be used for the purposes, or any particular purposes, of the charity".

Those are the words that Amendment No. 83 seeks to leave out. The proposed clause would have a number of considerable advantages. First, it would create a positive definition of permanent endowment instead of the present rather vague and odd definition. Secondly, it would clearly exclude from permanent endowment all those user-type trusts and ancient deeds in which no intention was expressed, probably because the donors and other parties had no such intentions. Thirdly, it would catch those trusts specifically set up with the intention of creating a permanent endowment in the sense that only the income can be spent on the purposes of the charity.

The Government may be concerned that, if the wishes of donors can be overridden by Parliament, that will put off future donors. That is no doubt a very good argument in respect of more modern charities or those charities where a clearer intention is expressed, but it is not satisfactory where charities have their assets brought in as permanent endowment primarily by an implication drawn by the Charity Commission over the years and now reflected in the 1993 Act. A letter that I received from Mr Michael King of Stone King, a well known firm of solicitors specialising in charity law, states:

"I think it is perfectly understandable that the law should seek to give effect to the wishes of past donors to charity, but why should it be assumed that such donors wanted the money or property they gave to be restricted for income (or occupation) for the rest of time?

"What are now Clauses 39-42 of the current Bill already provide for the spending of capital in limited circumstances, extending the 1993 Act, so Parliament is prepared in principle to ignore the express wishes of donors. What I cannot understand is why Parliament should wish to continue to imply permanent endowment where there is no such express wish. As we suggested in our submission to the Scrutiny Committee, this rule comes from another age when accountability by charities was policed in a less sophisticated way.

"However, many such charities do have some land which they hold on special trusts and even more so this applies to schools and care homes. Clients are infuriated to find that selling off a small piece of land or redundant building for development in order to pay for a much-needed new facility on their campus is not possible without Charity Commission consent, which often requires a recoupment arrangement to be worked out with the commission".

The Minister should be aware that I have received similar representations from Lee Bolton & Lee as well as the Charity Law Association.

The House will have strong feelings about this issue, and I hope the Government will be able to give a sympathetic response. I beg to move.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Spokesperson in the Lords (Id Cards & Charities Bill), Home Affairs 4:45 pm, 18th October 2005

My Lords, I am sympathetic to what the noble Lord, Lord Hodgson of Astley Abbots, has said, and to my fellow practitioners in the field of charity law.

I have two or three questions I would like to address to the noble Lord. First, Amendment No. 84 is drafted on the basis that this definition will apply for the purposes of this Act. It seemed to me from the way in which he introduced his amendment that he would really want the meaning of "permanent endowment", as in Amendment No. 84, to apply for the purposes of charity law generally. There could be a problem if it applies for the purposes of this Bill but not beyond it.

Secondly, it states in Amendment No. 84 that it will not be permanent endowment other than,

"by virtue of a clear and express intention to that effect at the time that such property was acquired by the charity".

I wonder whether using the word "intention" there does not give rise to considerable uncertainty. That would mean that it would not be enough to rely upon a deed of gift; one would need to see whether or not there was a letter to the charity, accompanying the deed of gift, saying "My intention, of course, is that you should keep this for ever", or words to that effect. That would undo the purpose behind this otherwise admirable amendment.

Finally, is it the noble Lord's intention that, if passed, this amendment would be effective for past gifts? Would it have the effect of translating existing permanent endowment into non-permanently endowed assets? I would be grateful if the noble Lord could enlighten the House when I sit down. If, as he said, the law was hitherto clear as to what permanent endowment was, albeit on a negative basis, there would be many donors in the past who, on the basis of the law as it then stood, would have made gifts which they intended to be held as permanent endowment and which are held as permanent endowment but which, by reason of the amendment, would cease to be held as permanent endowment. That does not seem to me to be a satisfactory or fair state of affairs, but I put those points forward in a constructive spirit, merely designed to make the amendment shockproof.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, I am grateful to the noble Lord, Lord Hodgson of Astley Abbotts, for his explanation of the amendment, and the noble Lord, Lord Phillips of Sudbury, for raising his questions. They reflect some of the concerns that we have had in looking at the proposed changes to the clause.

As we have noted, the effect of the amendment to be inserted after Clause 42 is to create a presumption against permanent endowment. I hope that the House will indulge me while I spend a minute or two explaining what happens at the moment. It is worth noting that the Charity Commission does not operate a presumption that property is held as permanent endowment. It makes the best assessment of what restrictions apply to the property by looking at the trusts on which the property is held and, if those are not conclusive, at other available evidence.

If that evidence indicates that particular functional land and buildings which the charity trustees want to sell is permanent endowment, then there are two different regimes, depending on the circumstances. The commission may or may not require recoupment. "Recoupment" is the replacement, out of income, of the capital sum that has been spent.

The first regime is this: if the proceeds of sale of land and buildings are to be applied in the purchase of other land and buildings to be used for the purposes of the charity, the commission does not require recoupment of the proceeds of sale. If, however, the proceeds of sale are to be applied wholly or partly in the provision, improvement or development of buildings, the commission would normally require recoupment. In this case, land is effectively being exchanged for buildings. The basis for the distinction between the two regimes is that land has perpetual existence and buildings do not.

I know that it is sometimes difficult for some charities, such as schools, to determine the trusts on which different parts of their land is held, because the school premises may have been put together over many years—in some cases over many centuries—and acquired in several different ways at different times. However, we do not think that the ordinary law of evidence should be interfered with in this way. The nature of the trusts attaching to particular property should continue to be determined in accordance with established legal principles.

Amendment No. 84 would apply to existing charities. The original founders and donors to existing charities would therefore find, if the amendment were passed, that the goal posts had been changed in that the commission would have to start presuming that all property was not permanent endowment. Even if there were some evidence, falling short of a "clear and express intention" by the donor—that it was intended to be permanent endowment, the commission would have to presume that it was not. We argue that this cannot be right, not least because there has never been a requirement on a donor to state a "clear and express intention" in order to establish the donated property as permanent endowment. Once the restriction on permanent endowment is removed, it cannot be put back. In addition, the amendment does not contain any safeguards, unlike Clause 42, which gives a limited power to spend capital.

Amendment No. 83 would include land held on trusts which stipulate that it is to be used for the purposes, or any particular purpose, of the charity in the new power for unincorporated charities to spend capital in certain circumstances. As the noble Lord ably explained, this is directly related to the first amendment because it lifts the restriction on permanently endowed land to allow it to be sold and the capital proceeds of sale expended without any recoupment. Where the trusts on which land is held specifically stipulate that that land is to be used for the purposes of the charity, we do not think it right to override that stipulation and allow the capital sum the land represents to be expended. My earlier comments explaining that the commission does not presume land is permanently endowed, but that it looks at individual circumstances on a case-by-case basis, are relevant here, too.

While I know that for some landowning charities determining which parts of their property are permanently endowed and which parts are not can be difficult, it is not impossible and the commission aims to take a constructive approach in helping, where appropriate.

The current system, whereby the commission, together with the charity, looks on a case-by-case basis at different pieces of property and makes informed judgments according to the available evidence, seems to be the best and most practical approach in the tricky kind of circumstances in which some landowning charities can find themselves. The disadvantages I have highlighted which the noble Lord's amendment would introduce are not insignificant and I am therefore not able to accept the amendment.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Spokespersons In the Lords, (Assisted By Shadow Law Officers), Spokespersons In the Lords, (Also Shadow Secretary of State for Scotland - Not In Shadow Cabinet)

My Lords, I am extremely grateful to the Minister for the careful consideration he has given to the amendment. Clearly, for those of us who are not blessed with a law degree, endowment and permanent endowment is tricky territory.

I want to make two comments in response. He stated that the Charity Commission makes no presumption as to endowment. That may be the case, but the law firms which have contacted us do not see it that way. Therefore, at least a couple of the firms experienced in charity law in a way that I am not believe that, in practice, the Charity Commission does not operate in the even-handed, open way the Minister's remarks suggested.

There has been a breakdown of communication, if not worse, between some of the experts in the field and the Charity Commission. The second point was that he talked about the moving of the presumption, which is absolutely right—the amendment seeks to move from half full to half empty, depending on which way one looks at it. That was right and indeed was the purpose behind the amendment.

The noble Lord, Lord Phillips, with his usual forensic skill tore into this on at least three counts. The first question was the purposes of the Act. The purpose was that it should apply in general charity law. I believed that it did, but the noble Lord is of course expert and will tell me that that will not be the case. The second question was about the use of the word "intention". As he has heard me say many times before, I have not had the benefit of a legal training. I was assured that the use of the word "intention" would not give rise to the sort of problems that he described. I turn to past gifts—permanent endowment. The amendment was intended to move the issue from half full to half empty, except where specific instructions have been given and specific wishes expressed in the past, when the donation was originally made.

I accept that those are tricky and difficult areas. We have had some important questions from the noble Lord, Lord Phillips. The Minister laid out the Govenrment's position clearly. I will talk to those who have forgotten more about permanent endowment than I will ever know and reserve the right to bring back the amendment if there is still an issue that should be dealt with. In the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 84 not moved.]

Clause 43 [Merger of charities]:

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendment No. 85:

Page 46, line 20, at end insert—

"(4A) In the case of a merger involving the transfer of property of any charity that has both a permanent endowment and other property ("unrestricted property"), subsection (4)(a) or (b) applies in relation to any such charity as if—

(a) the reference to all of its property were a reference to all of its unrestricted property, and

(b) the reference to its ceasing to exist were omitted."

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, in moving the amendment I shall speak also to Amendments Nos. 89, 90, 91, 92, 93 and 94. The purpose of Clause 43 is to facilitate charity mergers. It does so in two ways: it speeds up the process of transferring property from one charity involved in the merger to another; and it preserves, for the benefit of the transferee charity in the merger, gifts made to the transferor charity after that charity has ceased to exist. A gift made to a charity after it has ceased to exist is currently exposed to the possibility of being ineffective as a charitable gift.

In its current form, Clause 43 does not apply at all to permanently endowed charities but applies only in the case of charities which cease to exist as the consequence of a merger. The intention of a person who sets up a permanently endowed charity is that the charity cannot cease to exist. We agreed during our discussions in Committee that the courts have decided that such a charity does not cease to exist simply because the arrangements for its administration have been changed.

We resisted the amendment that the noble Lord, Lord Hodgson, tabled in Committee because the merger facilitation provisions cannot be applied to property that is permanent endowment. The property is not transferred to a new charity and any gift that may be added to the endowment after the merger does not need any protection, because the charity will not have ceased to exist. However, it is possible for a charity to have both permanent endowment and other property and we accept that the provisions of Clause 43 could have a useful application to such other property, even though the charity as a whole does not cease to exist.

The effect of the amendments will be that the merger of a charity with a permanent endowment can still be registered where all the unrestricted property of that charity will pass to the transferee charity. The provisions that speed up the transfer of property in a merger can be applied to the unrestricted property. Where, after the merger, a gift is made adding to the unrestricted property, that will automatically take effect in favour of the charity to which the unrestricted property passed on the merger.

These provisions will not, however, affect the legal position of the charity's permanent endowment and it will not be transferred to a new charity. Any gift adding to the permanent endowment made following the merger will take effect in the usual way. In practice, we envisage that the new charity resulting from the merger and the separate charity consisting of the permanent endowment will be managed together.

The amendments also include a technical provision to ensure compatibility with the Land Registration Act 2002 where the transfer provisions apply to registered land or land which is required to be registered. That has been requested by the Land Registry to make clear that transferred land must still be registered. I beg to move.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Spokesperson in the Lords (Id Cards & Charities Bill), Home Affairs 5:00 pm, 18th October 2005

My Lords, I have only one point on the Minister's very clear explanation of this group of amendments. That is in respect of Amendment No. 85. I gave notice to his office of my question. At the end of that amendment it states that the reference to the charity ceasing to exist on this merger shall be omitted. I wanted confirmation that if that be the case—namely, that because of permanent endowment it is in future to be held back by one or more of the merging charities so that it does not cease to exist—any creditor of that charity whose claim was unmet could go against the permanent endowed assets retained by the rump charity, if I may call it that. It is very important that it should be clear where creditors will gain their satisfaction in the complicated arrangements that these new provisions provide.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, I am grateful to the noble Lord for his question. Charities which merge will want to make arrangements for their liabilities. If, for whatever reason, there is an unforeseen liability which cannot be met in any other way, it is possible to use funds held as permanent endowment. The noble Lord will know more than me, but my understanding is that that is permitted by Section 31 of the Trustee Act 2000. We do not see that any difficulty will arise as a result of the merger arrangements.

It also seems to me that there is a question about whether the new charity formed from the transfer is liable and whether the funds of that charity should be used before recourse is made to the residual permanent endowment charity. I think that that is a slightly more complex question. I am more than happy to write to the noble Lord giving further chapter and verse on that, because I think it is a valuable point to explore and set out.

On Question, amendment agreed to.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Spokesperson in the Lords (Id Cards & Charities Bill), Home Affairs

moved Amendment No. 86:

Page 46, line 21, leave out from "above" to end of line 22 and insert "shall be given by the transferor charity or charities concerned within 28 days of the relevant charity merger"

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Spokesperson in the Lords (Id Cards & Charities Bill), Home Affairs

My Lords, Amendments Nos. 86, 87 and 88 stand in my name. I am grateful to the noble Lord, Lord Hodgson, for having added his name to Amendment No. 87. I crave the indulgence of the House for what is an extremely technical set of amendments to an extremely technical set of new clauses inserted into the Charities Act 1993 by Clause 43 of the Bill. They all relate to mergers; that is, where two or more charities decide that they want to pool their resources either by creating a new charity into which they all transfer their assets or where one of them is the surviving charity and the other one or more charities transfer all their assets into it.

The provisions created by the Bill are in many ways admirable and to be desired. One aspect of the arrangements is that if the merging charities make what are called in proposed new Section 75D "pre-merger vesting declarations", so long as they comply with the provisions of that clause there will be an automatic transfer of all the assets of the charities concerned—what is called "automatic vesting". That is a most dramatic thing to happen in English law, under which the transfer of any assets is a laborious business and that of charity assets is extremely laborious, for the obvious reason that it is in the public interest to protect charity assets.

We and noble Lords on the Conservative Benches are anxious that those arrangements work in the way in which the Government undoubtedly intend them to. The concern that the three amendments address is that a creditor of one of the charities merging could wake up one morning and find that the assets against which his or her claim might normally be met are no longer with the charity concerned. Indeed, creditors might find that the charity against which they have a claim—it may be a straightforward debt—no longer exists. Between them, the amendments are designed to tighten up the merger provisions.

Amendment No. 86 fills a gap in the legislation. New Section 75C is all about the register of charity mergers and starts by saying:

"The Commission shall establish and maintain a register of charity mergers".

If you put a cold towel around your head and study the provisions, you will find that the register is voluntary; that is to say, no charity engaged in a relevant merger is obliged to notify the Charity Commission. That is most obvious in subsection (5) of new Section 75C, which says:

"A notification under subsection (3) above may be given in respect of a relevant charity merger at any time after".

The subsection then refers to the transfer of property of the charity concerned. That in itself is misleading, because an automatic vesting is not a transfer but a vesting of property—I shall return to that point.

It is essential that we tighten up those arrangements for the benefit of creditors, bearing in mind that no charity doing a proper and honourable job will want to disadvantage creditors. The first requirement of Amendment No. 86 is that it is compulsory, not voluntary, for those involved in a relevant charity merger to notify the Charity Commission so that it can keep its register up to date. The amendment would make it compulsory to give notice,

"within 28 days of the relevant charity merger" rather than at some indeterminate time, which could mean a year or two later.

The other two amendments are in a separate group, so the only other thing that I need say at this juncture is that, under those arrangements, an automatic vesting of all the assets of the charities concerned can take place without notification being given to the Charity Commission. For reasons that I have briefly sketched, that seems wrong in principle and contrary to the public interest. It is a matter that ought to be rectified. I beg to move.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, my original speaking note started with the legend "Resist", but having listened to the remarks of the noble Lord, Lord Phillips, and taken further advice from officials, who thought that there was a fair point at the core of the amendment, I think that the best approach is to invite the noble Lord to withdraw his amendment today but to agree to consider the matter further, obviously in consultation with him, with a view to tabling at Third Reading our own amendment, on which I am sure we can agree. I am grateful to the noble Lord for approaching us in this way. If he is happy to follow that course I am sure we can come up with something which answers the point.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Spokesperson in the Lords (Id Cards & Charities Bill), Home Affairs

My Lords, I am most grateful to the noble Lord and I accept that invitation. There are some other aspects of these two new clauses that we could usefully discuss at the same time. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Spokesperson in the Lords (Id Cards & Charities Bill), Home Affairs

moved Amendment No. 87:

Page 46, line 32, at end insert—

"( ) Where the statement in subsection (6)(b) above is false, or appropriate arrangements for discharge of any liabilities have not been made, the relevant charity trustees at the time concerned shall be jointly and severally personally liable for such liabilities."

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Spokesperson in the Lords (Id Cards & Charities Bill), Home Affairs

My Lords, we have discussed this issue on a number of occasions. We discussed it at Committee stage when we dealt with this Bill, or its predecessor, before the last election. The Government were as good as to accept the need for there to be a statement of appropriate arrangements made by charities that are engaging in what is called relevant charity merger, and that is now in Clause 42(6) on page 46. Let us leave aside the issue of whether it is required to be made, but the notification, if given, must,

"include a statement that appropriate arrangements have been made with respect to the discharge of any liabilities of the transferor charity or charities".

I am grateful for that having been placed in the Bill.

However, there is a further lacuna in that there is no sanction on the part of any charity or charities giving such notification if the statement of arrangements that they give to the Charity Commission is not appropriate and if the statement that they make is otherwise false. I have had discussions with officials on this matter and one answer is: you have your normal remedies. You can go to the registrar of companies—by this time at least the charity having ceased to exist—and ask the registrar to reinstate the corporate charity, and then you can bring an action against the corporate charity that has been put back on to the register. It may have no assets but you can bring an action against it, and if you are successful you can look into the question of whether the directors have been in breach of other provisions of the Companies Act in winding it up without due allowance made for the liabilities concerned. All that is a grotesquely unreasonable and unfair set of so-called remedies with which to lumber an innocent creditor in the event that these arrangements take their course.

My amendment, to which the noble Lord, Lord Hodgson of Astley Abbotts, has added his name, seems to be abundantly fair, because it simply says that if your statement is false you cannot hide behind it, and if you have not made appropriate arrangements you cannot hide behind them. In those circumstances, instead of going round the mulberry bush you can proceed against the trustees of the corporate charity themselves personally. They then stand on the same footing as trustees of an unincorporated charity; namely, that they are jointly and severally liable for the debts concerned. On that basis, I beg to move.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Spokespersons In the Lords, (Assisted By Shadow Law Officers), Spokespersons In the Lords, (Also Shadow Secretary of State for Scotland - Not In Shadow Cabinet)

My Lords, as the noble Lord, Lord Phillips, said, my name is down to Amendment No. 87. I wish to add two points to the very expert proposition for the case put by the noble Lord.

The Government have said that they want to maintain confidence in the charitable sector. That is one of the strategic purposes behind this Bill. Therefore, where we have mergers, making false statements is not only clearly a very serious matter by any standard, legal or moral, but it is also the sort of effect that is likely to undermine confidence in the sector. Those who are affected by it are likely to take a much more stringent view of the charitable sector in the future, which is something that we should seek to avoid.

Moreover, in the past I have talked about systemic risks. Where a series of false statements are made, you may endanger not just one charity—the charity that has been taken over—but also the charity that has done the taking over. You may have a series of difficulties that flow from it. What the noble Lord, Lord Phillips, is trying to achieve here is important. I cannot see any downside for including this sort of health warning in the Bill. I support what he has said.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip 5:15 pm, 18th October 2005

My Lords, I shall address both amendments. Amendment No. 87 seeks to add to the general law as regards liability for the liabilities of a charity, in the circumstances where the property of that charity is being transferred to another charity in the context of a registered merger. The noble Lord has explained his amendment clearly. As we see it, it would make the charity trustees of the transferor charity jointly and severally liable for its liabilities, in addition to whoever else (if anyone) would be so liable under the general law, in any case where those trustees had failed, as part of the merger process, to make "appropriate arrangements" for the discharge of those liabilities. I assume that the trustees would have the usual right to an indemnity out of the charity property, but they would still have the primary liability to settle the debts, and would have a personal liability in the event that they were unable to enforce their indemnity.

We cannot see the justification for giving creditors a potentially additional selection of people to sue, simply because the option to register the merger is exercised, and the "appropriate arrangements" have not been made. Charities can go out of existence for reasons other than merger, and the general law would then simply take its course as regards the enforcement of any liabilities of the charity which are left outstanding. If creditors are given rights which they would not otherwise have had to sue trustees simply because the option to register the merger is exercised, and the "appropriate arrangements" have not been made, registration of charity mergers will be discouraged, and the beneficial purpose of these provisions will be undermined. For those reasons, I would invite the noble Lord to withdraw his Amendment No. 87.

I shall now deal with Amendment No. 88 in the group. Charities—

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Spokesperson in the Lords (Id Cards & Charities Bill), Home Affairs

My Lords, I am grateful to the noble Lord for giving way. I did not move the second amendment in the group. I wonder whether it would be appropriate to leave it until we have disposed of Amendment No. 87. It would help the House if we did. I realise that it is grouped, but it is always open to us to ungroup. As neither of us has spoken to the second amendment, perhaps I may invite the Minister to simply deal with Amendment No. 87.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, I am obviously very much in the hands of the House. As regards Amendment No. 88, I was going to suggest, in order to expedite matters, that we were minded to give it fair consideration. We thought that the noble Lord had a point. That was my intention. Perhaps if I sit down now we can deal with Amendment No. 87—I suspect that the noble Lord wants to.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Spokesperson in the Lords (Id Cards & Charities Bill), Home Affairs

My Lords, I am most grateful to the Minister. Without having moved Amendment No. 88, I accept his kind offer of discussions, so that we can bring matters forward.

Photo of The Earl of Caithness The Earl of Caithness Conservative

My Lords, I hope that when we come to Amendment No. 88, we, too, will be entitled to know what the point is that the noble Lord has moved that has attracted the Minister so much.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Spokesperson in the Lords (Id Cards & Charities Bill), Home Affairs

My Lords, is the noble Earl sure that he wants to listen to that explanation at this time of day? In any event, let us deal with Amendment No. 87. I am grateful to the Minister for what he has said, but I am also not grateful because, with respect, he did not address the argument. The point about these new merger provisions is that they do two things by the operation of law: first, to see the cessation of charities that merge; and, secondly, the automatic vesting of all their assets in the new charity. In my view, it is a nonsense to declare that this is comparable with any existing arrangements; it is not. It is also grotesquely unfair to the poor old creditor who may know nothing whatever about the merger business. Indeed, if it is not on the register of notification, he would not know in any case. He will suddenly wake up to find no charity to go up against and no assets anyhow. On that basis, I feel that I ought to test the opinion of the House.

On Question, Whether the said amendment (No. 87) shall be agreed to?

Their Lordships divided: Contents, 128; Not-Contents, 152

Division number 1 Private Parking: Ports and Trading Estates — Charities Bill [HL]

Aye: 128 Members of the House of Lords

No: 152 Members of the House of Lords

Ayes: A-Z by last name

Nos: A-Z by last name

Resolved in the negative, and amendment disagreed to accordingly.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Spokesperson in the Lords (Id Cards & Charities Bill), Home Affairs 5:32 pm, 18th October 2005

had given notice of his intention to move Amendment No. 88:

Page 46, line 34, leave out from first "the" to ", and" in line 35 and insert "matters to be notified in subsection (6) above"

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Spokesperson in the Lords (Id Cards & Charities Bill), Home Affairs

My Lords, on the basis of what the Minister said before the Division, I am content to withdraw the amendment and I look forward to our discussion.

[Amendment No. 88 not moved.]

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendments Nos. 89 to 94:

Page 47, line 11, leave out "subsection (3)" and insert "subsections (3) and (3A)"

Page 47, line 17, leave out "subsection (3)" and insert "subsections (3) and (3A)"

Page 47, line 29, at end insert—

"(3A) In its application to registered land within the meaning of the Land Registration Act 2002 (c. 9), subsection (2) has effect subject to section 27 of that Act (dispositions required to be registered)."

Page 47, line 32, after "section" insert—

"(a) "

Page 47, line 34, at end insert ", and

(b) any reference to all of the transferor's property, where the transferor is a charity within section 75C(4A), is a reference to all of the transferor's unrestricted property (within the meaning of that provision)."

Page 48, line 1, at end insert ", unless it is an excluded gift.

( ) A gift is an "excluded gift" if—

(a) the transferor is a charity within section 75C(4A), and

(b) the gift is intended to be held subject to the trusts on which the whole or part of the charity's permanent endowment is held."

On Question, amendments agreed to.

Clause 54 [Transfer of certificate between trustees of unincorporated charity]:

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendment No. 95:

Page 56, line 33, leave out paragraph (a) and insert—

"(a) each of the holders is or was a trustee of a charity which is not a body corporate;"

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, before I start, I should offer an apology to the noble Earl, Lord Caithness. I fancy that he will not know why we thought that the noble Lord, Lord Phillips, had a good point, but I will explain it to him later.

We believe that these amendments improve Clause 54, which makes provision for a simple process to transfer a public collection certificate between trustees of an unincorporated charity. Under the clause as drafted, the holder of a public collections certificate must be a trustee of the charity and consent to the transfer. However, it was pointed out to us during the Summer Recess that, under the clause as drafted, problems could arise where a holder of the certificate resigned or retired as a trustee and a significant period of time then elapsed before the appointment of a replacement trustee. In such a case, the holder would no longer be a trustee of the charity, and it may be difficult to obtain the consent of that holder of the certificate to transfer it to a new holder. It would also be possible for the holder of a certificate to withhold consent as a result of an unrelated dispute with the other trustees. These amendments remove such potential blockages and difficulties, while maintaining the principle that the proposed new holder must consent to the transfer. They also require the charity's trustees rather than the charity to consent to the transfer. I hope that your Lordships will accept these sensible and practical amendments. I beg to move.

On Question, amendment agreed to.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendment No. 96:

Page 56, line 37, leave out "consents" and insert "trustees consent"

On Question, amendment agreed to.

Clause 56 [Appeals against decisions of the Commission]:

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendment No. 97:

Page 58, line 24, leave out "Appeal"

On Question, amendment agreed to.

Clause 57 [Applications for permits to conduct collections in public places]:

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendment No. 98:

Page 59, line 29, leave out subsection (4) and insert—

"(4) Where an application ("the certificate application") has been made in accordance with section 50 for a public collections certificate in respect of the collection and either—

(a) the certificate application has not been determined by the end of the period mentioned in subsection (2) above, or

(b) the certificate application has been determined by the issue of such a certificate but at a time when there is insufficient time remaining for the application mentioned in subsection (2) ("the permit application") to be made by the end of that period, the permit application must be made as early as practicable before the day (or the first of the days) on which the collection is to take place."

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, Clause 57 makes provision for applications to be made to the relevant local authority for a permit to collect in a public place. It requires such an application to be accompanied by a valid public collection certificate issued by the Charity Commission. The amendment simply makes provision for an application for a permit to be made as early as practicable after the prescribed period for such applications in circumstances where the applicant has not received a public collections certificate from the Charity Commission either within the prescribed period or in time to apply for a local authority permit within the prescribed period. I hope that noble Lords will agree that this small but perfect amendment improves the current provision. I beg to move.

On Question, amendment agreed to.

Clause 58 [Determination of applications and issue of permits]:

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendment No. 99:

Page 59, line 42, after "application" insert "within the prescribed period"

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, under the Bill at present there is no specified period within which a local authority must determine an application for a permit to collect in a public place. Our concern is to ensure that a decision is made sufficiently in advance of the date of the proposed collection as not to frustrate the planning and organisation of the collection. The amendment will achieve that. It is a simple amendment that will allow us to prescribe in regulations the period within which a local authority must determine such an application.

The Bill already provides for application periods to be prescribed in regulations, as we have discussed in previous debates. Those regulations will be subject to full consultation, to ensure that the views of charities, local authorities and other interested stakeholders are properly taken into account. Our aim is for the resultant application periods, and now the period for determination of a permit, to be workable in practice. I beg to move.

On Question, amendment agreed to.

Clause 73 [Amendments, repeals and transitional provisions]:

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendment No. 100:

Page 73, line 31, leave out "contains repeals, including repeals of spent enactments" and insert "makes provision for the repeal and revocation of enactments (including enactments which are spent)"

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, these are two consequential amendments recommended by the draftsman. Article 3(5) of the Regulatory Reform (National Health Service Charitable and Non-Charitable Trust Accounts and Audit) Order 2005 (S.I. 2005/1074) amends subsection (3) of Section 46 of the Charities Act 1993. However, the whole of that subsection is to be substituted by paragraph 133(3) of Schedule 8 to the Bill. So we think that Schedule 9 to the Bill should include a consequential revocation of Article 3(5), to be achieved by Amendment No. 109. As Schedule 9 does not yet contain any revocations, we need also to amend the inducing words, as achieved by Amendment No. 100. I beg to move.

On Question, amendment agreed to.

Schedule 8 [Minor and consequential amendments]:

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendment No. 101:

Page 143, line 31, leave out paragraph 125 and insert—

"(1) Section 39 (supplementary provisions relating to mortgaging) is amended as follows.

(2) In subsections (2)(a) and (4) for "the Commissioners" substitute "the Commission".

(3) After subsection (4) insert—

"(4A) Where subsection (3D) of section 38 above applies to any mortgage of land held by or in trust for a charity, the charity trustees shall certify in relation to any transaction falling within that subsection that they have obtained and considered such advice as is mentioned in that subsection.

(4B) Where subsection (4A) above has been complied with in relation to any transaction, then, in favour of a person who (whether under the mortgage or afterwards) has acquired or acquires an interest in the land for money or money's worth, it shall be conclusively presumed that the facts were as stated in the certificate.""

On Question, amendment agreed to.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Spokespersons In the Lords, (Assisted By Shadow Law Officers), Spokespersons In the Lords, (Also Shadow Secretary of State for Scotland - Not In Shadow Cabinet)

moved Amendment No. 102:

Page 143, line 36, at end insert—

"( ) In subsection (2), at the end of paragraph (a) insert "but so that the requirements of such regulations shall be the minimum conmmensurate with the need to ensure that the statement of accounts provides a true and fair view of the charity's financial position".

( ) In subsection (2), after paragraph (b) insert-

"(c) for more than one type of statement to be prepared to reflect the differing natures and sizes of different charities.""

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Spokespersons In the Lords, (Assisted By Shadow Law Officers), Spokespersons In the Lords, (Also Shadow Secretary of State for Scotland - Not In Shadow Cabinet)

My Lords, I move Amendment No. 102, to which is added the name of my noble friend Lord Sainsbury of Preston Candover. I need to make it clear that my noble friend has been instrumental in developing the amendment. He contributed extensively and knowledgeably to the pre-legislative scrutiny committee and has been most helpful on various points concerning charitable foundations to try to encourage others to follow his example as a generous donor and, indeed, trustee. I look forward to hearing his contribution to the debate in a moment.

It is an amendment to the numerous provisions in Schedule 7. It would make changes to Section 42 of the Charities Act 1993. That gives the Secretary of State power to make regulations prescribing the form and content of charity accounts. Section 42(1) refers to,

"a statement of accounts complying with such requirements as to its form and contents as may be prescribed by regulations made by the Secretary of State".

Subsection (2) provides,

"for any such statement to be prepared in accordance with such methods and principles as are specified or referred to in the regulations".

It is one of the key principles of the Bill that charity regulations should be appropriate and proportionate. The Government accepted that argument during earlier debates. We recognise that a "one size fits all" approach to regulation is not in the best interests of the charity sector as a whole. However, at present all charities from the simplest grant makers to the giants of the charity world are obliged to prepare their accounts in accordance with the statement of recommended practice, commonly known as the SORP. The SORP is a long and complex document. The original charity SORP, issued in 1995, contained 240 paragraphs. The SORP in 2000 contained 358 paragraphs. The SORP in 2005 contains 439 paragraphs—nearly double the length of 10 years ago. That is in addition to compliance with the growing volume of regulations applicable to all UK organisations: employment, health and safety, discrimination and so forth. Surely that scale of accounting regulation is not applicable or worthwhile for all charities.

The Minister may argue that the Charity Commission will address the issue; one would hope so. However, the relevant paragraph of the annual report refers to,

"publishing a new Statement"— a statement, not several—

"of Recommended Practice (SORP) for the preparation of charities' annual accounts and reports. Recognised by the Accounting Standards Board, the new SORP further hones charity reporting within existing principles. It aims to help charities explain what they do, how they go about it and what they achieve, merging narrative and financial reporting into a coherent, outcome-focused package, improving their transparency and accountability".

Leaving aside the ghastly collection of buzz words that disfigures that statement, I do not see much that leads me to believe that the new SORP will make sufficient distinction between large and small charities. We propose that the principle of appropriate and proportionate regulation should be extended to the preparation of charity accounts. That is why the amendment would give the Secretary of State powers to achieve just that. I hope that the Government will look with favour on it. I beg to move.

Photo of Lord Sainsbury of Preston Candover Lord Sainsbury of Preston Candover Conservative

My Lords, I put my name to the amendment for three reasons. First, as my noble friend Lord Hodgson said, the accounting regulations encompassed by SORP have grown and grown. They have become a serious burden to charities, especially small charities. I suggest that the only gainers of that proliferation of regulation are the accountants. In the opinion of those in the charity sector whom I have consulted, the regulations have not resulted in clearer accounts than those that existed in charities five or more years ago.

The amendment should be a real help to charities. Requiring minimum regulations commensurate with giving a true and fair view of the charity's financial position should reduce significantly the number of paragraphs in the SORP. Ending the "one size fits all" regulations should result in appropriate regulations that take account of charities of different size and type, and thus, I suggest, provide a more meaningful account.

My second reason for supporting the amendment is that the current regime of SORP is a serious disincentive to some potential large benefactors considering establishing a grant-making trust as an alternative to channelling their charity giving via gift aid, which they might do. It is obviously in the interests of the charity sector that grant-making trusts be established for the long-term benefit of charities rather than the valuable gift aid, which is the immediate way to help. The shorter, simpler and more appropriate the regulations the less likely that potential benefactors will be discouraged.

My third reason for supporting the amendment is my belief that under the present regime the accounts of some charities are actually forced to be misleading. That is a serious allegation, and I feel that I must justify it by explaining exactly why it is the case. The existing regulations require charities to report expenditure made in one year and what is committed for the following year against the income that is received in the first year and reserves. That in itself is certainly entirely sensible. However, the definition of "reserves" specifically excludes capital of a grant-making charity. In the case of many endowed grant-making trusts, the charity's governance document specifically makes endowment expendable if required for grant-making.

In logic therefore, the so-called endowment is obviously part of the reserves. I know of cases where existing regulations, SORP 2005, require such trusts to post a deficit of several million pounds where in practice it has an endowment of several hundred million pounds on which it can draw to make its grants. If trustees comply with the current legally enforceable practice, they will not be providing a true and fair view of the charity's financial position.

A further example of the inappropriateness of the current SORP regime is the regulations concerning endowed trusts or foundations, which in many cases are set up solely to pursue what are defined as "general charitable objects". In practice, that means that they exist to give grants to other charities. In the latest accounting regulations applying to all UK charities, those charities are required to make a more detailed statement of their activities. However, grant-giving is specifically excluded from the definition of charities. Therefore, current regulations deny trusts in that position the scope to report simply and precisely what they exist to do. There are hundreds of charities in this country giving well over £2 billion together to charity every year. Surely that anomaly—that extraordinary situation—is in itself enough to justify the amendment, which will ensure that in future we are not limited to a single type of statement.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Spokesperson in the Lords (Id Cards & Charities Bill), Home Affairs 5:45 pm, 18th October 2005

My Lords, I strongly support the tenor of the amendment. We spent a lot of time earlier in the Bill's passage trying to decide by what principles the Charity Commission should undertake its general duties. The House will remember that we came up with an amendment that talked about the Charity Commission operating in a proportionate, accountable, consistent, transparent and targeted way. However, none of that applies to the regulations issued by the Secretary of State under Section 42 of the Charities Act 1993, which is being amended. It seems to me for all the reasons so ably set out by the noble Lords, Lord Hodgson and Lord Sainsbury, that we need something very like this amendment. I urge the Government to be sympathetic to it, because it affects every charity of any size and causes huge headache, frustration and extra cost if the SORP regulations are disproportionate.

Photo of The Earl of Caithness The Earl of Caithness Conservative

My Lords, this was discussed at various meetings of the pre-legislative scrutiny committee. I see that there are five of us in your Lordships' Chamber who sat on that committee, so if I am wrong I know that I will be taken to task immediately. Two things in particular struck us: first, the number of small charities—the great proportion of charities are small—and, secondly, the huge difference between a recipient charity and a donor charity. When we came to examine evidence from the Charity Commission and the Home Office, I was not sure that they had fully understood the significance of that. That is why I support my noble friend.

What my noble friend Lord Sainsbury is of great concern. As a trustee of a heritage charity, I would much prefer to receive my money from a grant-giving charity than from gift aid because, as my noble friend said, there is a continuity there which there is not with gift aid. With a small charity, fund raising is slightly easier when you know that you can go to certain charities and where their interests are listed in the charity books rather than going to specific donors for gift aid. If, following the logic of what my noble friend said, the SORP regulations and other regulations that have been introduced are reducing the willingness of people who have the ability—thank goodness that this country has people with the ability to create grant-giving trusts—to stop them doing so would be a hugely detrimental step.

I go back to that evidence that we received. It was not encouraging that there was sufficient flexibility in the commission and the Home Office to take account of those big differences. That is why it is so important to have something like this in the Bill and I support my noble friend's amendment.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, I am grateful to the noble Lord, Lord Hodgson, for moving the amendment and to other noble Lords—in particular the noble Lord, Lord Sainsbury—for their involvement in the debate. The noble Lords speak with great experience, and few, I would wager, have the great experience that the noble Lord, Lord Sainsbury, has in charity matters. That said, we take a different view. Although I understand the mischief that has been traced down here, we cannot agree with the analysis that is offered, in particular with regard to the way in which the current law operates.

There are two elements to the amendment tabled by the noble Lord, Lord Hodgson. One is his new paragraph (c) of subsection (2), which would allow the Home Secretary's regulations on the form and content of accounts to prescribe different forms of accounts for different sizes and types of charity. I deal with that matter quickly by saying that it is not necessary. Section 86 of the Charities Act 1993, which applies to all regulations made under the Act, already allows the Home Secretary to make different provision for different cases. Indeed, the current regulations do exactly that, by making different provision for common investment fund charities and for some housing and some educational charities. That element of the noble Lord's amendment adds nothing to what is already possible in legislation that was enacted by his party's government back in 1993, when they had the foresight to put in that flexibility.

The other element of the amendment would, in summary, require the regulations to make only the minimum prescription needed to ensure that the accounts gave "a true and fair view" of the charity's financial position. That is misconceived. The amendment proposes that the Charities Act 1993 generally requires charities' accounts to give a true and fair view, an expression well known and understood by those in the accountancy trade. However, the Act—I am looking at the noble Baroness, Lady Noakes, on the Benches opposite—does not in fact do so. The concept of a true and fair view has no statutory definition.

The amendment would, in the absence of a statutory yardstick for what is a true and fair view, create an unworkable system. Currently, the Charity Commission and charities and their auditors rely on the methods and principles set out in the statement of recommended practice on charity accounting to provide the interpretation of what true and fair means in the context of charities. That statement is not part of the law, except to the extent that regulations under the 1993 Act import some specific provisions of it into the law. The amendment could force regulations directly to import a whole raft of further accounting standards into law, which would create problems of interpretation that SORP was designed to solve. Furthermore, the amendment would prevent the regulations requiring disclosures that were relevant to stakeholders or the public interest but were possibly not relevant to the criterion of true and fair. An example might be the disclosure of salaries of a charity's highest paid employees, in which there was a justified public interest.

In summary, the amendment would have the opposite of the effect that the noble Lord intends. It seeks to import into the legislation the notion of true and fair in a way that could complicate matters and make the application of SORP more involved. It also seeks to import something into the legislation that is already there, which is the flexibility that the Home Secretary has to vary the form and content of the accounting rules and regulations so far as they apply to different sizes and shapes of charities. For those reasons, I continue to resist the amendment.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Spokesperson in the Lords (Id Cards & Charities Bill), Home Affairs

My Lords, I invite the Minister to consider the language of, say, sale of goods legislation, which is built around certain broad concepts, of which true and fair is but another example. Is it not one of the virtues of the amendment that it does not go into yards of small print about what true and fair is, but ultimately leaves it to the decision of a court, if the matter gets that far, which of course it rarely would? I invite him to wonder whether the argument that he outlined should not be rewound and played back the other way.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, the noble Lord is perfectly at liberty to invite me to do that, but I am equally at liberty to reject that supposition. That is what I shall continue to do. The argument that I have made is probably more accurate than his, but I shall have to rest my case on that.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Spokespersons In the Lords, (Assisted By Shadow Law Officers), Spokespersons In the Lords, (Also Shadow Secretary of State for Scotland - Not In Shadow Cabinet)

My Lords, I am grateful to all noble Lords who spoke in support of the amendment; namely, my noble friends Lord Sainsbury and Lord Caithness, and the noble Lord, Lord Phillips.

I find the Minister's explanation extraordinary. The concept of true and fair is well understood. The noble Lord, Lord Phillips, explained the background of the thinking to it. Anyone who has any corporate experience and has signed off accounts will be perfectly clear on what true and fair is. The phrase is in common use in commercial practice in corporate law and in the preparation of every set of accounts that I have ever signed off. The Government say that they will reject the amendment, despite what we have said about regulatory activities being proportionate, accountable, consistent, transparent and targeted—that accounts should be prepared to reflect the differing natures and sizes of charities. Even at the end of nine months and on the 14th day of our consideration, I find myself speechless that the Minister can do that. Therefore, I intend to test the opinion of the House.

On Question, Whether the said amendment (No. 102) shall be agreed to?

Their Lordships divided: Contents, 114; Not-Contents, 130

Division number 2 Private Parking: Ports and Trading Estates — Charities Bill [HL]

Aye: 114 Members of the House of Lords

No: 130 Members of the House of Lords

Ayes: A-Z by last name

Nos: A-Z by last name

Resolved in the negative, and amendment disagreed to accordingly.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendment No. 103:

Page 145, line 18, leave out sub-paragraph (4) and insert—

"( ) Omit subsection (3)."

On Question, amendment agreed to.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendment No. 104:

Page 148, line 25, after "Commissioners"" insert "(in the first place)"

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, the amendment has been suggested by parliamentary counsel to correct an earlier drafting error. Like other noble Lords I wish that these things did not happen, but from time to time they do. I beg to move.

On Question, amendment agreed to.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendment No. 105:

Page 151, line 30, leave out ""70"" and insert ""17(2),""

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, the amendment is needed solely to reflect a repeal made to the Charities Act 1993 by the Charities and Trustee Investment (Scotland) Act 2005, which received Royal Assent shortly after Committee stage of this Bill in your Lordships' House. I beg to move.

On Question, amendment agreed to.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendment No. 106:

Page 153, line 38, leave out "Appeal"

On Question, amendment agreed to.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendment No. 107:

Page 154, line 19, at end insert—

:TITLE3:"Deregulation and Contracting Out Act 1994 (c. 40)

(1) Section 79 of the Deregulation and Contracting Out Act 1994 (interpretation of Part 2) is amended as follows.

(2) For subsection (3)(a) substitute—

"(a) any reference to a Minister included a reference to the Forestry Commissioners or to the Charity Commission;

(aa) any reference to an officer in relation to the Charity Commission were a reference to a member or member of staff of the Commission; and".

(3) In subsection (4) after "those Commissioners" insert "or that Commission"."

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, the purpose of the amendment is to preserve the position of the Charity Commission under the Deregulation and Contracting Out Act 1994. Currently, the Charity Commissioners would be regarded as an office-holder under Part 2 of that Act, which would enable the contracting out of any of their functions which come within Section 69(1) of that Act, where a Minister makes an order providing for such contracting out.

This provision amends the Deregulation and Contracting Out Act 1994 to provide that for the purposes of Part 2 of that Act any reference to a Minister includes a reference to the Charity Commission, such that any function of the commission to which Section 69 applies could be contracted out if a Minister by order so provides. However, the commission would not be able to make use of the ministerial order-making powers in Sections 69 and 70 of that Act. So the commission itself would not be able to make an order providing for the contracting out of any of its functions.

We currently have no specific plans for the use of this power. However, we believe that the amendment will preserve the flexibility to contract out a function of the commission if it is considered appropriate to do so in future. I beg to move.

On Question, amendment agreed to.

Schedule 9 [Repeals]:

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendments Nos. 108 and 109:

Page 158, column 2, leave out line 43 and insert—

"Section 44(3)."

Page 159, line 20, at end insert—

"Regulatory Reform (National Health Service Charitable and Non-Charitable Trust Accounts and Audit) Order 2005 (S.I. 2005/1074) Article 3(5)."

On Question, amendments agreed to.

Schedule 10 [Transitional provisions and savings]:

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip 6:15 pm, 18th October 2005

moved Amendment No. 110:

Page 159, line 22, at end insert—

:TITLE3:"Section 4: guidance as to operation of public benefit requirement

Any consultation initiated by the Charity Commissioners for England and Wales before the day on which section 4 of this Act comes into force is to be as effective for the purposes of section 4(4)(a) as if it had been initiated by the Commission on or after that day."

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, I rise to move Amendment No. 110 standing in the name of my noble friend Lady Scotland. Under Part 1 of the Bill the new Charity Commission will have a duty to issue guidance in pursuit of its public benefit objective and a duty to carry out such public and other consultation as it considers appropriate and wise before issuing the guidance.

Our current intention is to bring Part 1 of the Bill together with the provisions creating the new provision into force on the earliest appropriate date. As the Bill is drafted, consultation on the public benefit guidance would not in practice begin before that commencement date. This is because consultation carried out before the new commission comes into existence would not count towards discharging the new commission's consultation duty. The practical result of that would be a delay in issuing the public benefit guidance while a valid consultation was constructed and completed. It is clearly desirable that the period between the provisions concerning the public benefit requirement taking effect and the appearance of the commission's guidance should be as short as possible. This amendment will greatly help in that respect because it will treat any consultation carried out by the current commission before commencement as if it were consultation carried out by the new commission after commencement. I understand from the Charity Commission that it would propose to begin consultation as early as possible.

In summary, the amendment will allow a head start to be made in the consultation required before the issue of guidance on general public benefit principles applying to all charities, so that it can be issued much sooner after commencement than would otherwise be possible. I am sure that because the noble Lord, Lord Phillips, is very keen on this he will support the amendment very enthusiastically. I beg to move.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Spokesperson in the Lords (Id Cards & Charities Bill), Home Affairs

My Lords, I am indeed going to support the amendment with enthusiasm so long as I have an assurance that the Government will not have their consultation before this Bill has been through the Commons. We know they have a cast-iron majority there, but I am sure that it would be polite to await the consideration at the other end.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Spokespersons In the Lords, (Assisted By Shadow Law Officers), Spokespersons In the Lords, (Also Shadow Secretary of State for Scotland - Not In Shadow Cabinet)

My Lords, my question follows to some extent what the noble Lord, Lord Phillips, said. I understand the practical implications of this, but there were some fairly weasel words about "earliest appropriate date" and "as early as possible". Out there in the charity world there is interest in this matter and the timetable the Government expect to work to. Perhaps the Minister could lift the green baize curtain a little and tell us a bit about what the Government have in mind, given the normal sorts of legislative progress, regarding the "earliest appropriate date" for implementation and "as early as possible", in terms of the commission starting the consultation. Wherever one may stand on that particular issue there is a great deal of interest in what the practical implications of this delightfully introduced Amendment No. 110 would be. So I should be grateful if the Minister could give us some guidance.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, the thing is that weasely words have a value, and we all know that. I am not going to hover around and define them further, but basically we want this to go ahead as soon as can get on with it. The noble Lord, Lord Phillips, made the point that it ought to be after the clauses have had proper consideration in another place. That is a fair point. I shall see whether I can get some idea from my officials and advisers about what the timetable is and then let colleagues who are enwrapped by this provision have some idea of how it looks. Perhaps that will satisfy both noble Lords.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Spokesperson in the Lords (Id Cards & Charities Bill), Home Affairs

My Lords, before the noble Lord sits down, I am grateful for what he said. Will he give the House an assurance that the huge extra task that will be placed on the shoulders of the commission in this regard will be reflected in the available staff resources?

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, the noble Lord knows that I cannot go around interfering in the detailed staffing of the Charity Commission. That would be quite wrong. It is an independent organisation, as the noble Lord well knows. We have had lots of debate about that issue over the past nine months or so. I am sure that the Charity Commission will put the resource required into it because we all understand that this is a very important issue. It has been the subject of public debate. It is new and it will be a real test for those involved in charity work. I am sure that the commission will have heard what the noble Lord said and be taking very careful note of it. I think he is right to encourage it to do so.

On Question, amendment agreed to.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendment No. 111:

Page 161, line 14, leave out paragraph 12 and insert—

"12 Sections 73D and 73DA of the 1993 Act (as inserted by section 37 of this Act) have effect in relation to acts or omissions occurring before the day on which section 37 comes into force as well as in relation to those occurring on or after that day."

On Question, amendment agreed to.

Clause 74 [Pre-consolidation amendments]:

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendment No. 112:

Page 74, line 5, leave out "an Act" and insert—

"(a) a single Act, or

(b) a group of two or more Acts,"

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, this is the last group of amendments. I shall speak also to the five other amendments grouped with Amendment No. 112. All the amendments relate to a possible consolidation of charity law. A long time ago, at the beginning of the debates on the Bill, there was a heartfelt plea for consolidation—it was probably made by the noble Lord, Lord Phillips, who seems to be putting his hand up. It was a popular cause.

The Bill contains a power to make pre-consolidation amendments of the enactments relating to charities. However, as drafted, it allows for the possibility of only one consolidation Act. Amendments Nos. 112, 114 and 115 allow for the possibility of more than one consolidation Act. We have not decided that we would like to have more than one, and the amendments are not supposed to indicate that that is necessarily our proposed course of action. However, there is at least a possibility that more than one consolidation Act might be desirable; for example, one Act covering public charitable collections and another covering everything else. It is better to err on the side of caution and to allow for that possibility, ensuring that if more than one consolidation is required the Secretary of State has a power to make pre-consolidation amendments.

Amendment No. 113 is simply a drafting correction suggested by parliamentary counsel, and Amendments Nos. 113 and 116 define more precisely the enactments to which the Secretary of State could make pre-consolidation amendments. Clause 74 already defines the enactments relating to charities in general terms, but we now believe that it would be better to define more precisely which enactments we are talking about. Those two amendments achieve that objective. I beg to move.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Spokesperson in the Lords (Id Cards & Charities Bill), Home Affairs

My Lords, it is nice to respond to the last group of amendments on Report by saying how strongly one supports them, particularly the notion of having various consolidating Acts. The noble Lord is quite right: a public collection is a good example of where a discrete Act might be of benefit to all concerned.

My only additional point is that the new definition in Amendment No. 116 seems either long-winded or necessary. I think that it is the latter, as the definition in the Bill does not include charities in Scotland but the amendment does. Otherwise, it is a helpful group.

On Question, amendment agreed to.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendments Nos. 113 to 116:

Page 74, line 7, leave out "legislation" and insert "enactments"

Page 74, line 8, after "Act" insert "or group of Acts"

Page 74, line 9, after "Act" insert "or group of Acts"

Page 74, line 14, leave out from "means" to end of line 16 and insert—

"(a) the Charities Act 1992 (c. 41), the Charities Act 1993 (c. 10) and this Act,

(b) any other enactment relating to institutions which fall within section 1(1) of this Act, and

(c) any other enactment, so far as forming part of the law of England and Wales, which makes provision relating to bodies or institutions which are charities under the law of Scotland or Northern Ireland, and section 75(2)(a) (definition of "charity") does not apply for the purposes of this section."

On Question, amendments agreed to.

Clause 75 [Interpretation]:

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendment No. 117:

Page 74, line 30, leave out "or 74"

On Question, amendment agreed to.

In the Title:

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

moved Amendment No. 118:

Line 2, leave out "Appeal"

On Question, amendment agreed to.