Charities (Protection and Social Investment) Bill [HL] — Second Reading (Continued)

– in the House of Lords at 5:18 pm on 10th June 2015.

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Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Conservative 5:18 pm, 10th June 2015

My Lords, we descend from the rarefied atmosphere of world diplomacy to the rather more pragmatic matter of the Charities (Protection and Social Investment) Bill. I admit that my fingerprints are on a good many parts of this Bill and I therefore begin by pleading guilty as charged. It will come as no surprise to my noble friend on the Front Bench, or indeed the House as a whole, that I am very supportive of the principles behind this legislation.

My noble friend was kind enough to say some nice things about my review in his opening remarks. I reciprocate by congratulating him on his maiden speech. Maiden speeches are, for all of us, a moment of terror. If it is a maiden speech from the Front Bench the hurdle is commensurately higher. I have to say that he cleared the hurdle with aplomb and I congratulate him on that. Of course, he need not think that I will not probe him in Committee. I am a Back-Bencher and I will do my scrutinising work. However, as to the direction of travel, I have no doubt that the Government are on the right track.

My nearly year-long review of the Charities Act, from which a good many of these proposals flow, was fascinating but also humbling because one saw around the country groups of men and women, often with not much money or resources but with commitment, drive and enthusiasm, setting out to tackle some of the most difficult and deep-seated problems of our society, and doing so without expecting any reward or publicity, or to be noticed or praised. They are in many cases totally unsung heroes.

When I began the review, I asked the charitable and voluntary sector to bring forward its ideas for change. It did so with a will—so much so that I ended up with 115 recommendations, only a minority of which required statutory effect, some of which we are considering today, while others required action by the Charity Commission and the sector or, indeed, by the professions or other parts of our society. However, the House can imagine that the volume of paper and submissions behind those ideas was very substantial. It all had to be read through, absorbed and integrated into the report.

This debate gives me the chance once again to put on record my thanks to the Cabinet Office team who supported and looked after me and prevented me going too far off-piste, at least one of whom is in the officials’ Box to the left of my shoulder. It also gives me the chance to inquire about the fate of some of the other more technical proposals. These have been taken up by the Law Commission, which currently has a consultation out—a paper rather forbiddingly entitled

Technical Issues in Charity Law

. It is 279 pages long and will, I fear, never hit the bestseller list, nor can it be described as a ripping yarn. However, the Law Commission, with its normal forensic attention to legal detail, has laid out the pros and cons in the consultation paper. The consultation closes on 3 July. Today all I really seek from my noble friend is an assurance that, when the results of the consultation are absorbed, the Government will find time quickly to bring forward another Bill on charities—this time using the Law Commission procedure for non-controversial measures. I comfortably predict that the contents of that Bill will not have people dancing in the saloon bar of the Dog and Duck. However, there is an opportunity to greatly facilitate and bring up to date charity administration and procedures in a number of areas such as land transactions, permanent endowment, charity mergers and the operation of the Charity Tribunal. Therefore, I hope that at some point during the proceedings on the Bill, my noble friend will reassure me that the Government will give any such Bill proper priority.

I said in my earlier remarks that the report contained 115 recommendations and I was rather gratified that it was well received by the sector. However, in life, particularly in political life, if you have a moment of self-satisfaction, you can be quite certain that someone is going to smack you on the nose straightaway. My smack on the nose was given to me by a lady who, on being introduced to me, having just got involved in charities, said rather peremptorily, “Do you know anything about charities?”. I replied, “A little”, I hope in a duly modest tone. She said, “I have just joined the board of my hospice”. I said, “Splendid. How is it all going?”. She replied, “It’s going wonderfully except for one thing”. I said, “What is that?”, to which she replied, “Some idiot has produced a report with 115 recommendations that we are going to have to absorb”, so I went on my way duly chastened.

I turn to the Bill itself. My work on the review revealed the stupendous breadth of the Charity Commission’s work. The briefings state that there are more than 160,000 registered charities. However, as the noble Baroness, Lady Barker, pointed out, there are probably as many again which are unregistered, exempt or excepted. So, there are probably a third of a million charities, with more than 1 million trustees, the regulation of all of which ultimately ends up with the Charity Commission. To put it in context, if you take just the 160,000 registered charities and assume that they send their accounts in to the Charity Commission on a 250-day working year, that is 650 sets of accounts the Charity Commission would have to get every day. As everyone has pointed out, malfeasance is gratifyingly rare but, with the numbers of charities and trustees, there are bound to be occasions when people behave less well than we might like. If public trust and confidence in the sector are to be maintained, it is vital that the commission has the necessary powers.

My non-political life has been spent in industry, commerce and the City. The regulators of those sectors have draconian powers. By comparison, I found that the Charity Commission was rather underpowered.

Two simple examples have come up today. The fact that when you hear the heavy tread of the Charity Commission coming towards you, you can resign and get away without any censure at all seems extraordinary. The fact that, if I have behaved badly, the Charity Commission will remove me as the trustee of a charity but cannot prevent me from reappearing five minutes later as the trustee of another charity also seems unacceptable. Of course, the powers need to be used proportionately and we will no doubt discuss those checks and balances in Committee but public trust and confidence will be eroded if bad apples repeatedly turn up as trustees, directors or senior managers in the charity sector.

I will add a word on the inclusion of the terrorist funding offence, which, if the Bill is implemented, will lead to automatic banning as a trustee. I began my review thinking that this was an open-and-shut case which one could have no problem with. But I found—as those of us who served under the able chairmanship of the noble and learned Lord, Lord Hope of Craighead, on the pre-legislative scrutiny committee subsequently found—that it was more complex than it at first appeared. Charities that provide aid to dysfunctional and broken areas of the world—and I believe they should, for moral reasons and because it is part of our soft power and reputation building around the world—may have to make compromises.

What do I mean by compromises? I will give the House a brief example. I am sent these things quite a lot. The example concerns Iraq and Syria—both areas much in our minds when it comes to the funding of terrorism—and a very unfortunate people called the Yazidis. The Yazidis live—actually, lived—mostly in the Nineveh province of Iraq and they belong to a very ancient religion that I think is linked to Zoroastrianism. ISIL considers them to be devil worshippers and believes the state should be purified and purged of them. The House will appreciate what “purified and purged” means if you are an ISIL freedom fighter. For Yazidi men it often means brutality followed by death, and for Yazidi women it means sexual slavery and repeated rape by ISIL freedom fighters. Yet hope exists. There is a market for these luckless women. For about $10,000 the freedom of one Yazidi woman can be purchased. The legal and moral dilemma for a British charity seeking to buy the freedom of one of these unfortunate women—and who can blame it or criticise it for wishing to do that?—is that the $10,000 is almost certainly going to go straight to ISIL.

As the noble and learned Lord, Lord Hope of Craighead, pointed out, too inflexible an application of the terrorist provision will have a chilling effect on the provision of charitable aid of the sort that I have just described. We need at some point, either here or in other bits of Bills—and I take the stricture of the noble and learned Lord about this—some form of “safe harbour” provision so that charities that are doing responsible work in these ghastly areas of the world can do so without feeling that they are opening themselves up to criticism and legal threat.

I turn to the Bill’s provisions on social investment, which was another chapter in my review. This is a new development and one in which the United Kingdom is a world leader. I hope that it can remain so, as it has fantastic possibilities to be achieved by combining charitable purposes with the opportunity to earn a modest financial return. Not only could it greatly increase the volume of charitable investment and spread the number of investors; it also opens the way for new approaches and ideas in the operation of individual charities. But—and I am afraid that it is a significant but—it is a very new movement and we need to be careful not to place on it a weight of expectation which it cannot sustain, so there is a need for incremental reform to the statutory framework as the social investment movement develops.

Research that I carried out for the review revealed that the provisions of the Trustee Act 2000 are a significant impediment to established charities becoming involved in social investment. This is because, first, it emphasises that the primary duty of a trustee is to preserve capital and, secondly, it makes no distinction between a charitable trust and a private trust. They have very different objectives. For a private trust such as a person’s pension fund, the preservation of capital is of course critical, otherwise the pension cannot be paid. However, for a charity it is a different matter because it has a public benefit requirement, so it could be perfectly proper for a charity concerned with, say, prisoner rehabilitation to spend some of its capital on those objectives—not to do so capriciously or without due care and attention, because in those circumstances the trustees would certainly be liable, but soberly, carefully and after due inquiry. I am sure that the noble and learned Lord will know better than I do that some lawyers argue that a distinction already exists in law, but the evidence I got suggested that there was a chilling effect. So I am glad that the Government are now proposing to put beyond doubt that the position of a charity trustee is different from that of a private trustee.

I referred a moment ago to the need for a gradualist approach in assisting the development of social investment. It is of course not just the Government who have to play a part; so do the regulators, the FCA and the Charity Commission, as well as myriad professional bodies including accountants, advisers, investment managers and financial advisers. At some point in proceedings on the Bill, it would be helpful if my noble friend could tell the House or the Committee what actions the Government are taking to chivvy up this group in their support of social investment, and what the present position is on those developments.

Finally, I turn to something which is not in the Bill as drafted. One of the issues which I expect we will explore in Committee is whether the commission’s new powers are proportionate or represent an inequality of arms, especially as regards smaller charities. When the Labour Government brought in what became the Charities Act 2006, they introduced the concept of the Charity Tribunal. This was to be a user-friendly, non-adversarial, quick and cheap means for charities—again, especially smaller charities—to get access to redress when they believed that they had been unfairly treated by the commission. Prior to this, the only method of redress was an appeal by the charity to the High Court. As we all know, Silks, like supermodels, do not get out of bed for less than a few thousand pounds a day. The result was that charities mostly had no option but to submit automatically to the commission’s direction.

It is fair to say that the tribunal got off to a bit of a slow start and that early hopes were not entirely fulfilled, but progress towards the original idea is now being made. One inhibition is contained in Schedule 6 to the consolidated Charities Act 2011. This is a complex, 10-page schedule as to who may do what, how they may do it, what the timescales are and what the outcomes or redress may be. To the trustee of the smaller charity, it is a formidable bureaucratic list. If your Lordships look at line 22 on page 6 of the Bill, you will get a flavour as there is an amendment to that schedule. I argued in my review that this represented an inequality of arms and an unnecessary impediment to access to justice for charities. I recommended that the whole schedule should be replaced by two simple provisions: first, that any charity should have a right of appeal to the tribunal against any legal decision of the Charity Commission; and, secondly, that it should have the right of review against any other decision by the commission. In so far as the House may wish to explore proportionality in the commission’s new punitive powers, a reform to remove the existing Schedule 6 and have that simple replacement would represent a rebalancing. I hope that the Government will reflect on the advantages of such an approach between now and Committee.

Today, I conclude by saying that the principles of the Bill are doing the right things in the right way. The Bill has my support.

Photo of Viscount Chandos Viscount Chandos Labour 5:35 pm, 10th June 2015

My Lords, I welcome the Bill. I thank the noble Lord, Lord Bridges of Headley, for introducing it with such an excellent maiden speech and congratulate him on his appointment as Minister. I also pay tribute to the work of the noble Lord, Lord Hodgson, and his review and to the noble and learned Lord, Lord Hope of Craighead, and the members of the Joint Committee on the predecessor, draft Bill. I start by declaring an interest as a trustee of a number of charities, as disclosed in the register, in particular as a trustee and past chair of the Esmée Fairbairn Foundation, one of the largest grant-making foundations in the country and also one of the most active social investors. For that reason, in speaking briefly, I will concentrate on the issues relating to social investment.

I thoroughly welcome the clarification of the powers of charities in that respect, reflecting the recommendations, among others, made by the Law Commission. As well as expressing my strong support for the excellent points made by my noble friend Lady Hayter, I will first make a brief comment about the role of charities and the implications of that for the main measures included in the Bill, which is another way of saying what both the noble Lord, Lord Hodgson, and the noble and learned Lord, Lord Hope, have already said.

A few years ago, Bill Gates, on one of his visits to London, was asked how the Bill and Melinda Gates Foundation saw its role and its relationship to Governments—not just its own Government but Governments around the world. Innovation, he said, should lie at the heart of philanthropic activity. Philanthropy could never replace government funding for those in need, so its role had to be to lead the way. If that is true for a foundation with an endowment of over $40 billion, how much truer must it be for all other charities? With innovation, comes risk; and as in the corporate sector, charities must therefore be free to fail. Although I wholeheartedly support measures to ensure that the Charity Commission can act decisively to prevent abuse, this must not be at the cost of discouraging proper risk-taking or of the creation of a risk-averse environment that stifles the vital innovation about which Bill Gates has spoken. The noble and learned Lord, Lord Hope, spoke about the risk of the Bill’s provisions being too specifically restrictive. That is obviously something we should look at, but we should also be looking at and fostering the culture and environment around the third sector.

As the House has heard, the social investment provisions are essentially a clarification. The noble Lord, Lord Hodgson, has already described the UK as a world leader in this area. The Esmée Fairbairn Foundation and others have been able to pursue social investment prior to this clarification, but it is clearly welcome, across the board, that a wider range of trusts and foundations should be able to consider social investment. However, in clarifying this there is obviously the challenge of definition. In general parlance, “social investment” can cover—if I am allowed to use the phrase—a multitude of sins, ranging from quite lightly or negatively screened investment to take out tobacco or, fashionably, fossil fuels, all the way to mission-related investment. The Law Commission report has an excellent diagram showing the range of investments covered by the definition.

The Bill sets out a definition that there are two purposes of a social investment: both,

“furthering the charity’s purposes; and”,

at the same time,

“achieving a financial return for the charity”.

The very helpful notes provided by the Cabinet Office make the point that that return can be negative but cannot be wholly negative, otherwise a social investment is in reality a grind. It may be that in the later stages of the Bill we should look at whether the simple definition—that is the great benefit of its simplicity—needs to be clarified to make sure that it is not interpreted as requiring a financial return that is greater than zero.

It has always been easier to assess social investment where the financial return is low and the social impact high. Of course, it is difficult to measure social impact or impact in grant making. That is the holy grail of the charitable sector, and all the major foundations and trusts work hard to otherwise measure it. None the less, it is clear that if the financial return is 1% or 2%, there must be social impact to justify that sacrifice of financial return. There are those—including Sir Ronald Cohen, who has been one of the most important people in this area—who argue that you can make social investments without sacrificing financial return. While that may be true exceptionally, generally, if it is to be a meaningful definition there must be some sacrifice of financial return in exchange for the social impact. After all, almost everybody in this House would agree that all forms of investment through the financial market can and should be productive in terms of the economy and society—contrary to scurrilous rumours, that is certainly a belief on these Benches. The risk that social investors face when presented with investments where there is a high financial return and relatively low impact is that it may be easy to make poor commercial investments on the grounds of a somewhat illusory impact.

It may be the cynicism of old age but I wonder why the Government have introduced this clarification with this enthusiasm. The smoke signals that seemed to come out of the Cabinet Office during the last Parliament suggested that there was an element of seeing the investments of trusts and foundations as a cow to be milked to try to cover the challenges resulting from the public expenditure cuts being made.

It is hugely important, as the noble Lord, Lord Hodgson, said, that we do not force the pace of social investment. There are two risks if the pace is forced. One is that charities will lose money and see little or no benefit in terms of their objectives or mission. At the other end of the extreme, with regard to instruments such as social investment bonds, based on payments by results, if you chase volume rather than cost efficiencies, it is too easy for it to become another expensive way to finance social welfare—something similar to what we saw with the worst of the PFI.

This is a complex area. The nearly 90 investments that the Esmée Fairbairn Foundation has made over eight years cover every sort of instrument that you can imagine. We are fortunate to have the scale—even though the social investment portfolio is only 3% of the total investments of the foundation, two full-time executives run that programme. That is clearly not a resource that most trusts and foundations can justify. Therefore, in promoting the growth of this market, we have to be realistic about what prudently smaller trusts and foundations can do. There are already a number of social investment funds, and there will be an increasing number. If you have heard the vigorous debate in the investment management world about the trade-off between returns and fees, you can imagine that there is an even more complex debate when trying to assess fees against some mixture of financial and social return.

Subject to those quibbles, I very much welcome the Bill and the facilitation and encouragement of social investment that it brings. I look forward to the further stages of the Bill and its ultimate enactment.

Photo of Lord Borwick Lord Borwick Conservative 5:47 pm, 10th June 2015

My Lords, I declare an interest in that I am active in five charities—the British Lung Foundation, the Royal Brompton and Harefield Hospitals Charity, the Ewing Foundation, the Federated Foundation and the Science Museum Foundation. I am also on the campaign board of Historic Royal Palaces. All of them are well-run charities, but this Bill is about badly run charities and bad trustees, and I very much support it.

We saw this weekend what happens when charities focus on aggressive fundraising rather than on their objectives. Many have outsourced these functions, and they now give the impression that they are badly run charities. The

Mail on Sunday videos showed cynical attempts to get every last penny from donors. Oxfam is one of the charities that outsourced fundraising in such a way. It aims to tackle poverty, but the company that it authorised to raise money clearly was not concerned about the financial situation of the 98 year- old pensioner whom they talked about getting money from in the video. If there was an equally aggressive focus on achieving the charity’s objectives, more might be done to actually alleviate poverty.

Charities such as Oxfam do not help themselves when they talk about things that do not seem to be in their remit. Oxfam, among others, produced lots of content during the last Parliament about austerity, including a mocked-up film poster of “The Perfect Storm”, featuring a list of coalition policies. The Charity Commission found that this,

“could be misconstrued as party political campaigning”.

We must also emphasise the number of great charities and good trustees. There are great things being done in smaller charities, and they are coming up with innovative ways to achieve their objectives and finance their activity. These things are usually being done voluntarily. Volunteers do what they do because they back the cause. They are paid only in pride, in thanks and in the satisfaction of a job well done. Every one of them is let down by bad apples, so such a scandal might tempt a volunteer to despair.

Bad faith in the charity sector is even more heinous for its effect on others, but can we do more than this? If it is pride that motivates the great volunteers, how can we increase the level of pride and the level of dedication that drives people to stand in the cold on street corners to sell poppies for remembrance? Recognition may be a good way. Two hundred and ninety-two people were given a British Empire Medal in the new year honours list, and they were largely people who undertake charity or community work. The great work done by honours committees to identify and locate these people should be applauded. The attention of the press may be on knighthoods for footballers, but a lot of valuable work is done much more quietly. As well as the main national awards, there are local ones, with mayors giving awards to people in their communities pulling our fractured society together with encouragement and faith that even more can be accomplished. I know that most volunteers are not doing their work for recognition, but all are encouraged by it.

At present there is no equivalent of a label such as “plc” for charities: no simple badge that they are registered and doing their job properly. I suggest that charities could put the letters “RC” after their name, standing for “registered charity”. There should, of course, be penalties for misuse of such a badge, and I do not know if “RC” is the right acronym. It certainly could be wrong for an Anglican Church charity. Others may have better ideas. Such a label would show the country that they are in the good category.

I do not want to stop government giving money to charities, as I feel that that kind of expenditure can often be better than other government expenditure. Indeed, there are very sensible arguments for the

Government to ask a charity to deliver certain public services. It will often do it more efficiently and with more knowledge and compassion than state employees.

There is one group of particularly problematic charities: the “sock puppets”. These are organisations that receive a large proportion of their budget from government and use that money to lobby for even more money. A report from the Institute of Economic Affairs found that 27,000 charities are now dependent on government for more than 75% of their income. The report also found that the voluntary sector receives more money from the state than it receives in voluntary donations. That is astonishing. It creates huge problems because many of these charities lobby for more state intervention, higher taxes and more regulation. Perhaps most perniciously of all, many of these charities use taxpayers’ money to call for even more of it for themselves, so it was right that the previous Government took some action on this.

Back in February, Sir Eric Pickles MP announced that the Department for Communities and Local Government was to become the first government department to insert an anti-sock puppet clause in grant agreements. It is important that further steps are taken to tackle the sock puppets. There is a suspicion that Governments of all parties have form in encouraging some charities to lobby for particular policies. We all know the argument: politicians want to implement a policy, but there appears to be no demand for it from the public—but the politicians know that it is the right thing to do and believe that there must be a hidden demand for it, so they make that demand apparent by encouraging charities to lobby for the policy.

There is a host of differences between a well-funded charity, funded by the Government, and an individual helping people themselves. Should this difference be made clear by refusing the right of government-funded charities to be called an RC or registered charity, as I suggested to earlier? I propose that government-funded charities should use, if they want, an acronym such as “GFC”, but be refused the right to be called registered charities. How could we define GFCs? Perhaps as charities that have 50% or more of their income coming from government. After all, fundraising from government is different from fundraising from individuals, and it has significant implications for integrity and accountability. Just as companies must understand and react to the needs of their customers, GFCs surely become creatures of government—perhaps even unconsciously. This should be apparent to all but sometimes is not so. Therefore, a GFC acronym would be an idea with merit. Does the Minister agree?

I am concerned that Clause 13, which adds a new Clause 292A, is too focused on defining the financial return element of social investments. It does not clearly enough explain or define the social impact element of social investments. That section of the Bill is devoted to explaining what is meant by “financial return”, which is only one side of the coin. It is perhaps even more important to define what kind of social impact the section has in mind when it comes to social investments. The only text on this issue at the moment is set out in new Clause 292A(2)(a), which talks about,

“directly furthering the charity’s purposes”.

That seems to cover programme-related investment, where an investment is exclusively an advancement of a charity’s purposes. I thought that this area of the law was reasonably settled.

I argue that what is needed is a statutory power that enables charities to engage in what the Charity Commission described as mixed-motive investments. There are investments that are justified on the basis of expected financial return and the extent to which an investment is expected to advance one or more charitable purposes of a charity in whole or in part. It is this form of investment that needs a clear statutory basis. That was clear from the Law Commission’s report on the issues. Would the Minister consider again whether the wording would permit the flexibility to make mixed-motive investments?

Lastly, I ask the Minister whether there is room in the Bill to deal with the problem of charities and community interest companies being treated differently from co-operatives and community benefit societies in the financial promotion regulations when raising social finance. A change to the legislation would enable charities to raise social investment capital from local communities.

Photo of Lord Low of Dalston Lord Low of Dalston Crossbench 5:57 pm, 10th June 2015

My Lords, I join everybody else in welcoming the Minister to his new position and in congratulating him on a most accomplished and confident maiden speech. I do not think he has any need to feel trepidation. He has made an extremely auspicious start in the way he has lost no time in reaching out to stakeholders with an interest in the Bill, and that, too, I very much welcome.

As for my own interest, I have a long-standing interest in the charitable sector due to my 40-year involvement with the RNIB, of which I am now vice-president. Most recently, I have been asked to chair a commission on third-sector regulation by ACEVO, the Association of Chief Executives of Voluntary Organisations. These interests I now declare.

I think that I can speak quite briefly, especially given the authoritative contributions that we have heard already from the noble and learned Lord, Lord Hope of Craighead, and other members of the joint scrutiny committee, notably the noble Baroness, Lady Barker, and the noble Lord, Lord Hodgson of Astley Abbotts, who have laboured tirelessly in this particular vineyard for a considerable period.

The Bill has come forward with a remarkable degree of consensus. It confers powers to strengthen the hand of the Charity Commission in regulating charities, which the commission has itself been seeking, and as a result it has the commission’s strong support. It has been subject to pre-legislative scrutiny, which has led to the Bill being strengthened to include two further powers which the Charity Commission was asking for that were not in the original Bill but are now included as a result of the Joint Committee’s recommendations. It also enjoys a broad welcome from the two leading umbrella bodies in the sector, the NCVO—the National Council for Voluntary Organisations—and ACEVO, which acronym I have already deconstructed, so I do not think there is much that is contentious in the Bill.

Following consultation by the Law Commission, Clause 13 removes any doubt that charities may engage in social investment: that is to say, in investments that both further the charity’s purposes and achieve a financial return for the charity. Measuring social impact might be a little more subjective and problematic. From a charity’s point of view, that will make it easier to undertake such investment, so it is very welcome.

The Charity Commission has made it clear that the Bill is aimed principally at strengthening the commission’s hand in dealing with the most serious cases, and that for the vast majority of cases it will have no direct impact. ACEVO has accordingly expressed some concern that this will tilt the balance more towards the commission’s enforcement as opposed to its advisory role, which is arguably of even greater importance in raising and maintaining standards of good practice, a tendency that can only be reinforced by recent reductions in the commission’s budget, which is down almost 50% in real terms since 2007. So care needs to be taken to maintain the right balance here. I was encouraged that the noble and learned Lord, Lord Hope of Craighead, underlined that point.

I will mention one or two provisions where there is room for some concern about the breadth or vagueness with which they have been drafted. I will do this quite briefly, because I am conscious that I am picking up on pretty much the same provisions which the noble Baroness, Lady Barker, drew attention to. Concerns have been expressed that Clause 3(3)(b) and condition F in Clause 10(7) go too far in specifying the range of conduct the commission can take into account in exercising its powers of disqualification. Clause 3(3)(b) identifies,

“any other conduct of that person that appears to the Commission to be damaging or likely to be damaging to public trust and confidence in charities generally or particular charities or classes of charity”,

and condition F is,

“any other past or continuing conduct by the person, whether or not in relation to a charity”.

Those are indeed quite wide. The NCVO has concerns that past conduct could be brought into decision-making where it is not relevant to the case in question, since what is damaging to public trust and confidence in charities involves what they describe as an open and potentially subjective test. We will want to look at those provisions carefully in Committee to make sure that the right safeguards are in place.

As regards Clause 7, which gives the commission broad powers to direct the winding-up of a charity, ACEVO believes that the commission should be required to consult the charities sector on the criteria to be used in deciding whether to direct that a charity should be wound up.

Care also needs to be taken that we do not cast the net too wide when specifying the offences that can lead to automatic disqualification, which are covered in Clause 9. The Bill expands the list of criminal offences that automatically disqualify a person from being a charity trustee beyond those that involve only deception and dishonesty. In particular, anti-terrorism legislation includes offences that have an element not only of clear and deliberate wrongdoing but of inadvertent involvement. The criticism of the current criteria is that they are too narrow and fail to capture other behaviours that should automatically disqualify an unsuitable person from acting as a charity trustee.

The NCVO does not object to the addition of new offences to the list. However, the inclusion of a number of offences under terrorism legislation has raised concerns due to the extraordinary breadth of the definition of terrorism and the unforeseen impact that that could have on the work of international NGOs. The Independent Reviewer of Terrorism Legislation has expressed concern about the fact that criminal offences under UK anti-terrorism legislation are also capable of impeding the legitimate activities of international NGOs in conflict areas. It has therefore been suggested that the Home Office, the Treasury and international NGOs should meet to discuss how the objectives of antiterrorism legislation can be met without prejudicing the ability of NGOs to deliver humanitarian aid. It should also be remembered not only that participation in voluntary action can play an important part in the rehabilitation of offenders but that ex-offenders can also benefit others on the basis of their experience. For example, the Prince’s Trust specifically employs ex-offenders for many of its jobs.

So there is a general welcome for the Bill, to which I subscribe. Where questions have been raised, there is a good deal of agreement on what those are. I hope and believe, therefore, that after due scrutiny in Committee your Lordships will be willing to give the Bill a fair wind so that it can reach the statute book without undue delay.

Photo of Viscount Bridgeman Viscount Bridgeman Conservative 6:06 pm, 10th June 2015

My Lords, it is a great privilege to follow the noble Lord, Lord Low, with his outstanding experience particularly in the field of charities for the disabled.

After a maiden speech there is sometimes a perfunctory statement from the following speaker that we hope to hear future interventions from the maiden speaker. However, glancing at the forthcoming business, and indeed at this Bill, I see that we are fortunate in not having to wait long to hear again from the noble Lord—who in this case is my noble friend the Minister.

It is a paradox that charity is one of the noblest of human sentiments—a point which my noble friend Lord Borwick expanded on—but, in the context of the administration of charities, it is also, as my father would have said, open to abuse by individuals who are less than totally satisfactory. I note that the Joint Committee, so ably chaired by the noble and learned Lord, Lord Hope of Craighead, outlined three issues on which regulation is required: honest mistakes that trustees make, persistent mismanagement of charities, and deliberate abuse where people go out of their way to abuse their position in a charity for personal gain or some other non-charitable purpose. The committee added that the third was, fortunately, the rarest, but also hard to assess accurately. It is therefore appropriate that a major part of the Bill—Clauses 2 to 12—deals with the question of disqualification.

In England and Wales it is the duty of the Government, through the Charity Commission, to tread the fine line between policing the administration of charities with a firm hand but, at the same time, with an appropriate—if not light, then certainly imaginative and helpful—touch. I suggest that the Bill is a further small but significant step towards giving effect to those intentions. I pay tribute to the work of the Joint Committee, chaired by the noble and learned Lord, Lord Hope, and the statutory review by my noble friend Lord Hodgson of Astley Abbotts, together with the Law Commission’s work on social investment. Their work has contributed to the creation of a Bill that is not only reasonable and constructive but, if I may say so, realistically constructive.

The tightening of the provisions on disqualification is timely. Of the many loopholes that have been closed I particularly welcome the action to address the glaring anomaly that permitted disqualified trustees to hold other trusteeships or, indeed, senior management positions in charities. That is addressed in Clause 10(2) with the introduction of new Section 181A, to which my noble friend Lord Hodgson referred.

Clause 1 inserts new Section 75A, which provides the commission with the power to issue a warning to a charity or a charity trustee. This is particularly welcome as it reinforces the concept of proportionality without the need for a statutory inquiry. The Explanatory Notes—I echo the words of my noble kinsman Lord Chandos—have been particularly helpful on the Bill. They give three useful examples of when the warning power could be used, relating respectively to unauthorised payments, governance problems—for instance, a repeated failure to call AGMs—and where a statutory inquiry would be disproportionate. The introduction of this procedure has many advantages, not least in freeing up time for the commission to concentrate on more serious matters.

Another significant feature of the Bill is Clause 13, concerning social investments. This has been well covered, particularly, again, by the noble Lord, Lord Chandos. I am grateful to the Minister for his helpful guidance on this part of the Bill. I particularly welcome new Section 292A(5) introduced under this clause. It addresses the distinction between a loss of investment and a total loss of funds—again, referred to by the noble Lord. However, I had some difficulty with this new section, as did my noble friend Lord Borwick, but the Minister has been very helpful in clarifying that a social investment has to satisfy the two conditions set out in proposed new Section 292A(2): first,

“directly furthering the charity’s purposes; and”,

secondly,

“achieving a financial return for the charity”.

The implications of social investment are quite considerable because of the additional obligations on trustees imposed under new Section 292C, and I have no doubt that this will come back in Committee.

This is a valuable complement to the previous charity Acts and the commission is to be congratulated on giving effect to the many valuable recommendations submitted to it. I have no doubt that they will be further refined as the Bill makes its way through this House and another place.

Photo of Baroness Kramer Baroness Kramer Liberal Democrat Lords Spokesperson (Treasury) 6:12 pm, 10th June 2015

My Lords, I declare an interest as a trustee of two small local charities.

I want to address just two issues, neither of which has been raised so far in this very excellent debate. The first is the power introduced by the Bill for charities to make social investments. The noble Lord, Lord Hodgson of Astley Abbotts, has led the charge on this issue incredibly effectively, and I completely support the proposals that the Bill encompasses.

However, I want to talk about the other side of the coin: the power or capacity, particularly of small charities, to issue those social investments—specifically, for example, social impact bonds. The noble Lord, Lord Hodgson, talked about this, as did I, in the debates on the then Financial Services Bill. We thought that we were getting a response from the Government but in the end it went nowhere, and I hope that this Bill provides an opportunity to retrieve that situation.

A charity may wish to issue social investment bonds because, for example, it has been successful in achieving a contract with a local authority for a payments-by-results project, perhaps working with disadvantaged youngsters to keep them on the straight and narrow, rehabilitating prisoners or all kinds of other important areas. I say to the noble Lord, Lord Borwick, that a charity will have typically won the contract because it will have come forward with innovative ideas on how to tackle the problem in a way that government institutions have historically failed to do. So let us not denigrate the work that is done under contract; it is very important.

If a small charity succeeds in winning a contract, it now has to fund the project, and the obvious direction is a social impact bond. However, under Section 21 of FiSMA 2000 and the financial promotions order that sits underneath it, in order to go to ordinary people and ask them to purchase one of those bonds—perhaps for £100, £200 or whatever—it has to meet the demands on any publicly marketed investment, including a full prospectus under the Companies Act. The estimate is that, on the cheap side, an organisation might be able to achieve that for, say, £150,000. I believe that the noble Lord, Lord Hodgson, thinks that to achieve that benchmark the figure is closer to £500,000. However, it is obviously a ridiculous and completely impossible amount for any small charity that engages in a relatively small project.

We are left with the ridiculous situation that members of the charity—one of whom might be one of your Lordships—could go to members of the community who are excited by the project, who know a lot about it and who think that it is really worth while and say, “Would you make a donation?”. That would be entirely legitimate. If they were to say, “Would you give me some money? In fact I might return it to you. It’s not guaranteed but I might be able to give it back to you when I get my payment through payment by results, and indeed give you a little financial interest on top of it”, that, I am afraid, would be an imprisonable offence. It is an absolutely insane situation which needs to be tackled.

When we went through the Financial Services Bill, the Treasury Minister, the noble Lord, Lord Sassoon, made it quite clear that he understood the problem but, for lack of time and focus in a very complex Bill and at a time when, frankly, financial services were under very broad scrutiny because of so many abuses, the Government were not able to give the time and attention to come forward with a solution. The noble Lord, Lord Hodgson, suggested that there would be a way of introducing a new section under FiSMA that, for example, allowed people to self-certify as a sophisticated social investor without the need for this complicated and expensive process. That could be added to, for example, a materiality benchmark so that an individual could not invest more than £200. Various kinds of packages could be put together to make that possible.

This truly is important for small charities. The majority of donations in this country are, frankly, hoovered up by the big boys and the little charities struggle in every way to access finance, no matter how worthy their causes. It is often their very local communities that understand the good work and the specific projects that they do. Therefore, there is an enormous argument for using this Bill to deal with what I think everyone recognises as an unfortunate and unintended problem.

Perhaps I may raise one more issue, which goes into the area of abuse. My 95 year-old godmother, like many people of her generation, has always been very generous to charities. One can imagine that her daily post includes numerous letters from every charity under the sun requesting money. She can deal with that but there is one form of request that is exceptionally stressful, and that is the request that comes with unsolicited goods in it. I name the British Red Cross as being particularly culpable in this area, sending coasters, bookmarks and cards of every kind. My godmother feels too guilty to put those items in the bin but she also feels that if she uses them she must make a payment, and surely she is not alone in that.

Personally, I make many fewer donations to the British Red Cross because I despise this form of solicitation, and I am also very concerned that a significant proportion of anything that I give is used to send these kinds of items out to thousands of other people on an unsolicited basis. However, it is also a form of pressure. I hope very much that the measures considered in this Bill will at least allow people to disengage from receiving these solicitations or from having their money spent on providing such items for other people. It is a subtle form of pressure that I think, frankly, ought to be beneath any good charity.

Photo of Viscount Eccles Viscount Eccles Conservative 6:18 pm, 10th June 2015

My Lords, following the noble Baroness, Lady Kramer, there is undoubtedly a problem—and an understandable one—in relation to pressure. I have always said that if you are a fundraiser, you need a wicked smile and not to leave until you have the money. It is not easy to raise funds. That leads me to the reflection that, if life is complicated and quite often ends in a muddle, we cannot expect the charitable endeavour in this country ever to be anything else but pretty complicated and quite often in a muddle.

I have one other reflection before I start, as it were. My noble friend Lord Borwick suggested that he who pays the piper calls the tune. We should always remember that if you accept money, you have to pay some attention to the donor.

For quite a long time, I have been a trustee, fundraiser, adviser and donor—I think that I am probably all of those things still. The ones that need to be on the register are, I hope, correctly on the register. To illustrate the length of time that I am talking about, I am a life member of a charity, for which I paid £20.

This Bill is a welcome measure and one that has been very well prepared. In being prepared, it has been discussed in detail and very well argued. It has the full support of the Charity Commission, and I must say that I have been very impressed in recent times by the way in which the Charity Commission puts its points across to those of us who are engaged. No doubt the detail will come out in Committee and later, and other noble Lords have talked about that with much more understanding than I would have done.

Let me go to the wider scene. We all agree about the merits of charitable endeavour: its very long history and the need for it, which grows as life gets more complicated. I think that we all agree that there needs to be a balance in our country between the way that the economy is run and what it is expected to do, how taxation should play its part, the democratic aspirations of the people who pay the taxes and how we control public expenditure. That balance has never been more in question than it is now.

Although I quite understand the point made by the noble Viscount, Lord Chandos, that the Government may expect, in some way, the gaps to be filled by others as they try to reduce public expenditure, my view is that the gaps are inevitable. The noble Lord gave us a very good explanation of why the gaps are there and need to be dealt with. He cited innovation, and that must be right. Lots of things go on in our society which do not fit the postcode lottery school of thought that everything should be the same for everybody. Lots of things go on where ticking boxes about the highest common factor, or even the lowest common denominator, simply does not work and where independent solutions are needed. If charities are full of innovation, some of the solutions will work and some of them will not work so well. However, the flexibility, imagination and judgment that charities can exercise are a very important component of the total picture in our society.

Indeed, on occasion, charities will come up with ideas that we will think are slightly zany. However, if people are exercising flexibility, imagination and judgment, the chances are that there will be problems, that things will go wrong and that some people will deliberately make things go wrong. Therefore, we clearly need a monitor and regulator. We have one with what is, in my view, a growing and excellent database of information, which has made very welcome progress in recent years—on that I entirely agree with the noble and learned Lord, Lord Hope of Craighead. The greater powers for it to exercise its role are welcome as well.

In thinking about the impressive performance of the Charity Commission, we have had reference to the 160,000 regulated charities, the staff of 300 people and the budget of £20 million a year. If noble Lords were to look across the regulator scene and try to find another regulator that is making as good a shot at doing what it is required to do as the Charity Commission is, they might look a long way before finding one.

Much progress is being made, but the really interesting question is, where next? To my mind, the Charity Commission has a clear sense of direction.

The Bill provides for a review, and I want to spend my last couple of minutes on that. The review should be on,

“how the Act affects … public confidence in charities … the level of charitable donations, and … people’s willingness to volunteer”.

There are two negatives to that. First, the motivation for volunteering and the results of volunteering are, in my experience, very complicated subjects. That is for another day, but, in the mean time, I would like to remember, as I always do, that volunteers have a divine right to be unreasonable.

The second negative that I want to get out of the way is about public confidence. It has already been said that there is a danger that Her Majesty’s Government and the Cabinet Office—Parliament, even—can do things that do not improve the public’s confidence in charities. I am sure that that is true. Here we get into the extremely complicated subject of independence, which is best summed up by saying that when somebody tells you that they have independence and are treated at arm’s length, you need to suggest to them that probably their arm is regularly being twisted.

There is an issue around what was billed very prominently—not in the previous Administration but in the one before that—as the third sector. There has been reference today to the degree to which some registered charities are in fact being funded by the taxpayer. There is something there that we have to think about very carefully, because every time you take money, you must remember that he who pays the piper calls the tune.

Another issue is the connection between public confidence in charities and the level of charitable donations. I am not clear as to whether “level of charitable donations” means donations to charities, donations from charities or both. When considering charitable endeavour, one has to be very conscious of the fact that it is both that we are thinking about. For example, Henry Smith was lucky enough to own land that subsequently became part of London. His charity, and others such as the Wellcome Trust, does not spend any time raising money but runs what is, in effect, a massive endowment fund that distributes the income from that fund, and sometimes part of the capital, to other charities. We know a great deal about those very big, top-tier charities. Indeed, the whole charitable endeavour in our country would be completely different if they did not exist. It would be very interesting to have a better grip on exactly how important they are.

Small donors have also been referred to. Charities such as those for birds or lifeboats are massively successful. All through its history the lifeboat charity has been, to a degree, a substitute for money coming from the taxpayer—it is extremely well known and has extremely successful services. However, to introduce a slightly discordant note, sometimes the business of animals gets rather complicated in our minds. We wonder whether we understand what we might call the mass appeal charities as well as we thought.

To me, there is a gap in the middle. There is a great need to understand in much more depth and detail the middle rank of charities. Where do they come from, why are they created, what do they do, how do they do it and can we think more positively about how that part of the system can work better than it does now? Indeed, we would probably find that nearly all the investigations undertaken by the Charity Commission to date—it is a formidable number and there has been a formidable rate of increase over the last three years—have been in that middle sector.

I believe that there is the same need about donors. We understand about big donors. They get their names on boards. I was in the British Library this morning and I read the board with some interest. We understand about how small donors behave; there are millions of them and they behave with great consistency. We have heard today about the difficulties that can be faced in that sector. But I do not believe that we understand at all well what the people in the middle do or do not do about forming charities or giving money to charities—their total charitable endeavour. There is huge potential there which we are not at the moment making a good job of tapping. I look forward to the further stages of the Bill.

Photo of Baroness Pitkeathley Baroness Pitkeathley Deputy Chairman of Committees, Deputy Speaker (Lords) 6:31 pm, 10th June 2015

My Lords, I declare my interests as president, vice-president, patron and former chief executive of various charities, as co-chair of the All-Party Group on Civil Society and Volunteering, and as someone who has spent the large part of a very long working life working in or with the charitable sector.

In those roles, I have been familiar with, connected with and at times frustrated by the work of the Charity Commission. I commend the improvements that it has made to its performance over recent years and I support the new powers given to it in this Bill. I would also like to praise the work of the pre-legislative scrutiny committee under the chairmanship of the noble and learned Lord, Lord Hope of Craighead, which suggested improvements to the Bill. The House should also be mindful, as it has been throughout this debate, of the excellent work done by the noble Lord, Lord Hodgson of Astley Abbotts, in his review of the Charities Act 2006, which was an important background to the provisions we now see in the Bill. Of course, like others, I pay tribute to the excellent maiden speech of the Minister, and look forward to working with him as we proceed.

This is a good, useful and welcome Bill. We shall in Committee be able as ever to suggest improvements, strengthening and so on and, as we shall be in the Moses Room, there will be opportunities for useful discussions about the role and future of the Charity Commission, so here I will raise only one or two cautionary thoughts. While I am fully supportive of extending the powers of the Charity Commission to regulate in the interests of public trust, there are dangers about focusing too strongly and solely on the commission’s enforcement role. The commission has an important role too as an adviser, particularly on charity governance.

The quality of charity governance is equally as important in promoting trust in charities as is tackling abuse. It is welcome that trustees will be able to be removed or disqualified, and no doubt we shall have much debate about how judgments are to be made as to the fitness or otherwise of trustees. What is seen as damaging or unfit in one charity might be seen as appropriate by another, especially bearing in mind the huge range in size and type of charity. Many are tiny and run from someone’s kitchen table, as we know. Some are large multimillion pound enterprises barely distinguishable from businesses. We must ensure that in our enthusiasm for propriety we do not damage or interfere with the spirit of voluntarism, which is the lifeblood of the charitable sector. I am sure that your Lordships’ House, in its inimitable way, will be able to achieve this important balance. With regard to the advisory role of the Charity Commission, we should also remember that advice early in the process of registration can head off many a problem at the pass, preventing larger difficulties that need a stronger reaction down the line. In this regard, the new warning power will be very welcome. In my experience, the charitable sector should look to the commission for advice, support and guidance as well as policing.

I am aware that lobbying and campaigning by charities is not the subject of this Bill, but we cannot fail to have noticed that in the recent general election campaigning charities were not as prominent as they have been in the past. That may be because the agenda for the election was less focused on topics of concern to charities, but it may also be due to a certain nervousness about speaking out given the clear disfavour that has been expressed in some quarters about this type of activity, not least in your Lordships’ House this evening. This is of particular concern to me as former CEO of Carers UK, whose campaigning—absolutely non-party-political campaigning—has been fundamental in raising the carers issue to the importance that it now enjoys. As this is Carers Week, I feel justified in reminding your Lordships that we should bear in mind the importance of charities representing the views of underprivileged sections of our society as we examine this Bill

In drawing attention to the role of the Charity Commission as adviser as well as regulator, I am only too well aware of the resources problem that the commission can face. The Bill gives the Charity Commission increased powers but no lasting increase in its budget. Whether in the long term this is feasible is something that we must all—the Government, the charitable sector and the commission itself—be extremely concerned about.

I turn now to the social investment section of the Bill and declare a further interest as chair of the Big Society Trust, which oversees the work of Big Society Capital—a leading wholesaler in the field of social investment. The Bill introduces a power for charities to make social investments and sets out trustees’ duties in relation to social investments. The social investment market has grown significantly, as we have heard, and helped many charities and social enterprises, but too many are not able to access the capital they need. It may be that they are not investment-ready, that loans are considered too risky for a charity to take on, or that the transaction costs are considered too high. Charity trustees have been particularly reluctant to venture into this area. In this regard, the encouragement and support given to trustees in the Bill will be especially welcome.

I also want to draw the House’s attention to the setting up, in a collaboration between the Cabinet Office, the Big Lottery Fund and Big Society Capital, of Access, the Foundation for Social Investment. Through two programmes—the growth fund and the capacity-building programme—Access aims to fill the gap which many charities at present find exists when they try to access social investment for innovative projects that they want to put in train for their beneficiaries. The noble Baroness, Lady Kramer, may be interested in the Access foundation. Finance will be provided that blends grants with loans, which will help to provide reassurance about the risks of this type of finance. The foundation will also be able to make smaller loans, perhaps up to £150,000, and to reduce the costs of those smaller investments. Many charities are nervous when taking on this type of finance for the first time, so the support and capacity building provided by Access will be especially welcome to many charities and perhaps particularly to their trustees.

Social investment never has been and never will be the solution to all the resource problems of the charity sector, especially at this time of growing need for so many of the recipients of charitable services. But it can make a useful and important contribution, enabling charities to be more sustainable and deliver greater impact, so the provisions in Section 13 are very welcome. I look forward to detailed consideration of the Bill in its further stages.

Photo of The Earl of Lindsay The Earl of Lindsay Conservative 6:39 pm, 10th June 2015

My Lords, I welcome the maiden speech of my noble friend Lord Bridges of Headley and I congratulate him on his appointment as a Minister. I share with him the experience while on the Front Bench of carefully prepared briefs being shredded by the noble Lord, Lord Williams of Elvel. That is a memory that will not fade.

First and foremost, I welcome the Bill, and in doing so I should declare an interest in having various roles in or links to charitable bodies as listed in the register. In principle, I support any measures that can be sensibly developed to give the public greater confidence in the probity and good governance of the charities they choose to support, and to provide charities themselves with greater protection from individuals who are either unfit to be trustees or who might seek to exploit them. I therefore support the Charity Commission being given new powers to take action when necessary against individual trustees or, where appropriate, against the charities with which they are involved.

Public and donor confidence in the probity and governance of charitable bodies strikes me as essential. In supporting the increased powers that are being proposed for the Charity Commission, I acknowledge at the same time that even with these increased powers, the scale, magnitude and extraordinary diversity of the 160,000-plus charities for which it is responsible will continue to pose a considerable challenge for it, given the resources that it has available—and that is before one considers the large number of unregistered charities, as mentioned by my noble friend Lord Hodgson of Astley Abbotts. The figures are startling. There are probably a third of a million charitable bodies throughout the UK with more than 1 million trustees.

Recognising this continuing challenge for the commission along with the Government’s commitment to a more intelligent approach to regulation and its enforcement, I want briefly to explore an additional, parallel opportunity for improving confidence in the governance of charities and the fitness of trustees to perform their duties. It is an opportunity that I believe could be developed alongside the enactment of the new statutory powers being proposed for the commission. As well as delivering greater confidence, it could assist the commission in enabling it to focus its efforts and resources in a more risk-based manner, and to resort less frequently but more effectively to the exercise of its proposed new powers.

In raising this opportunity, I should declare an interest as the chairman of the United Kingdom Accreditation ServiceUKAS—which is the country’s national accreditation body, as it is in this role that I have been involved in exploring a number of different initiatives to promote demonstrable good governance and management in the charity sector. I should add that UKAS, as the national accreditation body, already supports voluntary and regulatory standards across a broad range of policy areas in a way that benefits both the regulator and the regulated. There are therefore some useful precedents in other policy and regulatory areas on which to draw.

Current discussions with a number of relevant parties in the sector are exploring whether agreed standards, underpinned by accredited certification or inspection, might be a useful and robust means by which the quality of a charity’s governance or the calibre of a trustee can be demonstrated to a donor, a regulator, or indeed the public interest. In recent years, bodies such as the NCVO have developed a number of different voluntary standards and codes of practice for the sector, and many charitable bodies have adopted one or more of them. However, given the general need for greater confidence in governance and the calibre of trustees, the current discussions are exploring whether there might be multiple benefits from aligning these voluntary standards more closely with the regulatory requirements and underpinning those certifying the charities for their compliance against them with UKAS accreditation.

It has also been recognised that such an approach might at the same time be an opportunity to address the challenges that many charitable bodies face, such as how the multiplicity of standards, codes of practice and awards makes it difficult for organisations to decide which ones to use. There is a need to identify which standards or marks are valid and meaningful, along with the need for a more coherent and rationalised approach. Such an approach, intelligently designed and configured so that it complements the objectives sought by this Bill and intelligently endorsed so that compliance is recognised and where appropriate rewarded by external parties such as the regulator, could have a significant effect on improving the standard of both charities’ governance and trustees’ abilities. It could be value-adding for charitable bodies that choose to be certified as having adopted the relevant standards.

It could increase public, regulatory and donor confidence in certified charities, and assist the Charity Commission by enabling it to better direct its efforts and resources to where there is the greatest need for oversight or intervention, thereby making it a more robust regulator. It could also reduce the need for costly legal action.

While potentially having a significant impact where it matters most, such an initiative could none the less remain entirely voluntary. It would be largely owned and driven by the sector, and it could be managed so that the bodies for which it is not relevant do not feel compelled to participate. At the same time, a more robust and better-recognised standards-based option, underpinned by accredited certification, might be helpful in respect of the large number of charities that are not registered with the Charity Commission, and obviously to the large federated charities.

As I said at the start, I fully support the Bill and the proposals that it will bring forward, but I believe at the same time that there may be an opportunity to develop a credible regime of voluntary, well-designed, sector-owned standards, underpinned by accredited certification that will, in conjunction with the provisions of the Bill, help to address the concerns surrounding governance in the charities sector.

Photo of Lord Green of Deddington Lord Green of Deddington Crossbench 6:46 pm, 10th June 2015

My Lords, I first congratulate the noble Lord, Lord Bridges of Headley, on a most impressive maiden speech. I thought that it demonstrated the elegance, economy and judgment that bode well for his future in this House and in the Government.

I shall be very brief. I would like to focus just on Clause 10 covering the revised powers to disqualify a trustee. The noble Baroness, Lady Barker, spoke of a possible chilling effect on Islamic charities, and I think that similar concerns were voiced by the noble and learned Lord, Lord Hope, and the noble Lord, Lord Hodgson. I come to this from a rather different angle. We need to be fully aware of the risk that our charity system can be exploited by Islamic extremists, who pose a very serious threat to our society. I speak with some background in both counter-terrorism and the Middle East.

Noble Lords will be well aware that charitable giving is a fundamental and of course very welcome tenet of the Muslim faith. They may also be aware of the difficulty that Muslims often feel when challenging actions that are dressed up in religious clothing. It follows, therefore, that a charitable cloak is ideal for Islamic extremists in pursuing their intentions to infiltrate Muslim communities in Britain. Of course we have to tread gently in these matters, but we also have to be firm. I suggest that there is a clear case for strengthening the powers of the Charity Commission when such activities are identified.

At the same time, of course, it is no less important to be quite sure that we do not interfere with proper charitable activity in the region. I speak as a former chairman of Medical Aid for Palestinians. I am well aware of the need to ameliorate the appalling situation in which Palestinians find themselves in the Occupied Territories, and of course one need hardly mention the problems of Syria, Iraq, Libya and Sudan. Those charities must be allowed to operate. However, what we are talking about here is, frankly, dodgy trustees, and when they are detected by whatever agency, there must be powers which the Charity Commission can use to deal with it.

I think that covers it, and I commend the Bill.

Photo of Lord Moynihan Lord Moynihan Conservative 6:49 pm, 10th June 2015

My Lords, first, I echo the congratulations which have been offered to my noble friend Lord Bridges, with whom I had the pleasure of working some 10 years ago when on my noble friend Lord Howard’s team. He had clear insight, humour and intelligence which shone through in all our dealings, and there is little doubt that he has replicated that again today and will enjoy life in your Lordships’ House.

I am very supportive of the principles of the Bill, and I declare my interests, which are in the register: I have worked closely with the Haberdashers’ Livery Company on its educational initiatives, and I have interests in a range of sports charities. I am conscious that there is one area which has been much debated in the context of the work of the Charity Commission—the often challenging subject of the public benefit requirement. That is a difficult issue because there are advantages to having clarity in the Bill but that would be complex and challenging, as is the guidance that is available. That debate needs to continue and I intend to raise it in a specific context—the advancement of amateur sport—in Committee.

The Charity Commission has recognised that there is room for improvement, and we need to help charities understand that, far from being an irrelevant distraction, the public benefit is one of the core questions of mission. It is about charities being clear what their aims are, who they serve and how they serve. No simple statutory definition of public benefit exists; it has therefore been contested and is subject to case law. Fee-charging schools have been recognised in the voluntary action research in the Sheffield Hallam University report as very well informed on the subject, yet they have been involved in costly Upper Tribunal cases. So there is uncertainty, misunderstanding on occasion and a lack of impact. This subject has led to opaque debate which I hope will be clarified.

The report concludes that if independent schools are to benefit from the privileges of the charity sector they have to be clear that charities are working for the public benefit in an understandable way. I believe that Parliament needs to define public benefit more precisely, as opposed to the alternative route at present, namely the Charity Commission developing practical guidelines. That is especially important since public benefit needs to be built in to the purposes of the charity.

I am not alone: the Select Committee on Public Administration report stated that the current position on the public benefit test has been,

“an administrative and financial disaster for the Charity Commission and for the charities involved”.

The Charities Act 2006 was considered to be “critically flawed” on the question of public benefit. The report said that the Act removed the presumption of public benefit from religious, educational and anti-poverty charities and required the Charity Commission to create guidance on public benefit, but it did not give a definition. The report stated that changes in the Act left the Charity Commission in an “impossible position” and led to costly Charity Tribunal cases involving independent schools, which I have mentioned. The committee said that the 2006 Act had absorbed vast amounts of energy and commitment, as well as money. Bernard Jenkin, in another place, said:

“We should never have opened up the whole can of worms called public benefit. Parliament needs to legislate, because the time and money being wasted suggests the act as it stands is not well-drafted and needs to be amended”.

I introduced the governance of sport Bill shortly before the election, in which I proposed that the Secretary of State for Education should table an annual report to Parliament for debate in both Houses entitled The Transformation of School Sport, documenting the state of sport in schools in England and Wales. Specifically relevant to today’s debate, I propose that all schools should publish annually a report setting out policy in relation to sharing schools’ sports facilities and coaching expertise with state primary and secondary schools in order to benefit the local community. Effort made in the previous year to implement such a policy should also be covered. I took the view that all schools holding charitable status should submit reports as set out in Clause 4 and that the Charity Commission should take into account such reports in assessing whether the school continued to meet the public benefit requirement in Section 2(1)(b) of the Charities Act 2011.

In pursuing this objective, I believe that we should place public benefit on the face of the Bill. To avoid the complexity of a wide debate, I suggest that we legislate in a specific area of public benefit as it applies to the promotion of amateur sport directed at independent schools holding charitable status. Those colleagues on all sides of your Lordships’ House who take a keen interest in sport will, I hope, take the opportunity in Committee to focus on the specific requirement for independent schools to deliver public benefit under the Charities Act. We will explore whether it is possible to define public benefit specifically to ensure that independent schools should be required to share their sports facilities and co-operate with primary schools in their catchment area. Many independent schools achieve this objective and achieve it admirably, through dual use of their facilities, engagement with local clubs in after-school hours, as well as coaching and pupil engagement. But there is a lack of clarity as to what specifically is required from schools to deliver public benefit under the Charities Act. The purpose of my intervention is to continue that dialogue between sports organisations, independent schools and those who will be in Committee as to whether primary legislation in this context is desirable.

Why do I raise the subject of sport? I have in the past highlighted the fact that more than 50% of our medallists at the Beijing Games came from independent schools. That means that half of all our medals for Team GB came from just 7% of the children in this country. In the excellent Ofsted report a year ago entitled Going the Extra Mile, Michael Wilshaw said:

“Only 7% of school-aged pupils attend an independent school in England at any point in time and only up to 14% of students aged 16 or above are reported to have attended an independent school at any point in their schooling. If maintained schools and independent schools were equally successful in nurturing sporting talent, we would expect approximately 86–93% of elite sportspeople to have been educated in a state school. However, 41% of the medallists from the UK team from the London 2012 Olympic Games were reported to have attended an independent school”.

I strongly believe that we need to address this imbalance. Independent schools are very well placed to play an important role in assisting state schools in their catchment area. That statistic of 41% of our medallists from Team GB in the London Games coming from 7% of our children means that thousands of talented young athletes are not being identified in the state sector. We have a duty to identify and develop that talent and to create a pathway for it from primary school to podium.

There are schools that are doing this outstandingly well. Their interpretation of the charitable requirement for public benefit is very clear. I cite Tonbridge School as an example. It works with 27 primary schools; it engages with those schools and provides the opportunity for boys to help with coaching, for state schools in the area to have access to its facilities and for a community action co-ordinator to work with those schools. Every year the school brings nearly 1,000 children from the primary schools in its catchment area to an Olympic day. It also sets up a freshers’ fair at the end of the day, when it invites local clubs, local community clubs and local sports clubs and the governing bodies to come to the school so that they can engage with the primary schoolchildren, their teachers and their parents to encourage them to become engaged in sport.

The best of our independent schools are doing exactly what I seek. The problem is that that is not a universal position for independent schools. I believe that focusing on the legislation before us, as we should, provides an opportunity to unlock the challenge and the real opportunity there will be for enabling public benefit to be interpreted in a very clear way to engage independent schools with local communities. If each of our independent schools built a relationship with the local primary schools and their local communities similar to that of Tonbridge School we would transform this country when it comes to the provision of sporting opportunity and engagement with the state schools and independent schools. That is much needed as part of our legacy from London 2012.

In closing, I cite John Claughton, chief master of King Edward’s School, Birmingham, who shares this vision. He identifies two kinds of resources: facilities and people.

“Much good work has been done over the past decade or so in making the high quality facilities found in many independent schools available to local communities”— a commitment, incidentally, that pre-dates discussions about charitable status and public benefit. There are numerous examples of partnerships with local schools and communities to be cited. He says:

“Not all former professional sportsmen and women have the skills or the desire to be both teachers and coaches. Many are excellent coaches but do not have the qualifications, desire or skills to be full-time teachers. These colleagues would enjoy working as full-time coaches across a variety of schools …

Professional coaches employed (and frequently housed) by independent schools mainly work during the afternoons (when team sports are usually scheduled), early evenings, and at weekends. These members of staff could be employed on contracts where they spend some of their mornings (and non-sports afternoons) working in local state schools. The cost to the state schools would be low (calculated on an hourly basis without the additional costs of employment which are carried by the independent school) but would offset some of the costs incurred by the independent school”.

I believe that we have a far-reaching opportunity through this legislation to address a key, albeit complex, area of charity law. In so doing we can provide much-needed clarity over the concept of public benefit, reduce the Charity Commission’s focus on costly Charity Tribunal cases, and, above all, link our independent schools to state schools through the dual use of facilities and coaching to provide a genuine sports legacy to London 2012.

Photo of Baroness Brinton Baroness Brinton Party Chair, Liberal Democrats 7:02 pm, 10th June 2015

I start by also congratulating the noble Lord, Lord Bridges of Headley, on his maiden speech. It is interesting that others have commented on his mix of charitable and business interests, but much of the charitable world has benefited from the involvement of those in business and industry. Having served as a trustee of a range of charities, and on the executive of charities, over the last 20 to 25 years, I know that the expertise brought in from outside is one of the things that has most transformed the charitable sector. I do not recall any charity talking about risk assessment any particular detail 20 years ago in. The whole planning of activity and finance has been transformed in smaller charities across the country, and there is much to commend the charitable sector in that regard. I am delighted to welcome the Minister because of his expertise, but also because he embodies the expertise that we see in our charities throughout the country.

I declare my interests as recorded in the register. As I have already outlined, I have current and past trusteeships. I am a trustee of UNICEF UK, of the Joseph Rowntree Reform Trust and of UFI Charitable Trust, which provides grants for technology in further education and which used to run learndirect. That is a very diverse range of charities, which sums up the whole sector: we all come with expertise from different areas, but public benefit is key. I am very glad to follow the noble Lord, Lord Moynihan, because later in my speech I will refer to disbenefit, detriment and harm—issues that have not been raised so far today.

I am a trustee of UNICEF UK and in the past have been a trustee of Christian Blind Mission, both of which work in international development. They have an understanding of assessing risk in the field around the world for staff and volunteers, and for the beneficiaries in those communities, who often are at risk from terrorists, opposing armies or natural disasters. It is always difficult for those charities to assess such risk and to make a decision when things are happening thousands of miles away. I echo the concerns expressed by others about the breadth of restrictions relating to any activity that might come up against terrorism. However, most other speakers have thought of that only in the context of charities run for the benefit of Muslims and those in Muslim countries. That is not the case. Any charity working in international development has to be fully aware of it. We need to look at the practicalities of what is happening in different parts of the world, rather than make assumptions. It becomes very easy to use a blanket statement—“We can resolve this, we can stop people being trustees in the future, we can wind charities up”—when it is actually extraordinarily difficult for the charity to control some of the things happening on the periphery.

I also wanted to ponder the point made by the noble Lord, Lord Borwick, on the different nature of charities and his interesting notion that we could have a registered charity versus one that was publicly funded. I have to say that, for me, that jars rather. In recent years, many charities have started to receive funding from the public purse—not just from government, but from local government and from the National Health Service—to deliver services to a particular community that that charity may understand well. Indeed, many people who have said that it should be not just the state that delivers those services have welcomed the expertise of a large charity or a small charity that can provide something relevant. In my book, those charities deserve just as much the high accolade of being a registered charity, as outlined by the noble Lord, Lord Borwick, simply because of their expertise and public benefit, despite the fact that the resources may come from the public purse. I therefore worry that we will get into a semantic debate about “which charity” and where its funds come from. I understand that the nature of charities has changed as money has come from the public purse, as well as from private donors.

In international development, we have chosen to move away from handing funding over to foreign Governments. In the previous coalition Government, we made a particular point where there were concerns about human rights. We handed money to charities to deliver partly because they were accountable to us. I am concerned that they would be denigrated as not quite a top charity if they received government funding.

The focus of what I want to say comes back to this issue of “disbenefit”. I welcome the clauses in the Bill that give the Charity Commission further strength and resource, particularly official warning by the commission and other actions that it can take. However, I have spoken in your Lordships’ House before about the Exclusive Brethren, also known as the Plymouth Brethren Christian Church. It had been asking since February 2009 for recognition for the Preston Down Trust, one of its meeting halls. There was an investigation —one of the few that the Charity Commission has carried out over the years, given the hundreds of thousands of charities registered—partly because there was concern about public benefit. It became apparent in its investigation that there was public disbenefit, detriment and harm. The Bill does not seem to address those issues. I will come back to those in more detail in Committee.

Something that concerned me from the investigation and the subsequent Charity Commission report is that—despite much detail in the report that accepted that there was detriment, harm and disbenefit— the Preston Down Trust was given charitable status.

That seems quite extraordinary. I understand that it was given with the proviso that changes had to be made and that the commission would assess it, but if we are to be strict in other areas of the charitable sector, I wonder whether we should also be strict if we or the commission see evidence of detriment or harm, and whether there should not be provision of charitable status. The organisation submitting the application should have to prove that things had changed and that it was now able to offer public benefit as well. Therefore, I will seek an amendment from the Minister on that issue and look forward to discussing it at a later stage.

Overall, the Bill makes the real strides in policing and regulation that the Charity Commission itself says need to be made if it is to be able to do its job. I echo the comments of those noble Lords throughout the House who said that we must also make sure that the Charity Commission has the funds to deliver these provisions. I hope that the funds will follow to meet the extra requirements and responsibilities that the Bill will place on the commission.

Photo of Lord Watson of Invergowrie Lord Watson of Invergowrie Labour 7:10 pm, 10th June 2015

My Lords, I am pleased to add my name to those of other noble Lords who have welcomed the Minister to your Lordships’ House, and to congratulate him on a distinguished maiden speech. There cannot surely be many legislatures where a maiden speech can be delivered from the Front Bench—although I was privileged to be an elected Member of the resumed Scottish Parliament in 1999, when, of course, all ministerial speeches were maiden speeches.

The noble Lord is perhaps fortunate in being allowed to cut his ministerial teeth on one of the least controversial Bills likely to come to your Lordships’ House in this parliamentary Session, but that does not mean, I suspect, that our days in Committee will be tame. We on these Benches will seek to improve the Bill where we believe that that is necessary—although, given the Minister’s experience to date, I have no doubt that he will take that in his stride, his tender years notwithstanding. I say that from the slightly unnerving position of facing a Minister more than 20 years my junior.

We have heard an interesting debate reflecting the considerable experience of noble Lords in various forms in relation to the charity and voluntary sector. I like to call it the third sector—a term which I think my noble friend Lord Chandos used—but perhaps that seems to be a bit out of favour at the moment. However, we understand clearly what we are talking about. As those contributions demonstrated, the Bill is not one likely to cause much controversy or disagreement, providing, as it does, for greater freedom for the Charity Commission to act where there has been abuse within a charity, either by the charity itself or by a trustee. The new powers for charities to make social investments were a welcome, if surprise, addition to the Bill, not having been part of the draft Bill that was the subject of pre-legislative scrutiny between November last year and February this year.

I was fortunate in being a member of the Joint Committee of both Houses which undertook that scrutiny, and I pay tribute to the noble and learned Lord, Lord Hope of Craighead, who chaired the committee with distinction and who has brought his wealth of experience to bear on the debate today. Like him, I welcome the Government bringing forward this Bill without delay.

The Government have accepted many of the Joint Committee’s recommendations, although it is disappointing that a comparison of the Bill with the undertakings given by the previous Government in response to the committee’s report reveals that eight commitments given then have not been met. Clearly, I do not expect the Minister to respond to those points this evening, but I and colleagues will raise them in Committee, seeking to ascertain what changed between March and May—apart, that is, from the disappearance of the Liberal Democrats from government.

The Charity Commission has a statutory role in maintaining public trust and confidence in charities—a duty which is more necessary than ever at a time when criticism of charities, not least in terms of fundraising, is increasing. However, the commission also acts as the regulator for the sector. It could be argued that there is an inherent contradiction in those two roles rather in the manner that applies to the BBC Trust, but the commission has those dual responsibilities and it is important that it has the necessary powers to ensure that charities are compliant with their legal obligations. Many noble Lords, most notably perhaps the noble Baroness, Lady Pitkeathley, and the noble Lord, Lord Low, made the point that one must not be pursued at the expense of the other. However, I think that the noble and learned Lord, Lord Hope, captured it best when he said that the two were inextricably linked—as I believe they are.

The Association of Chief Executives of Voluntary Organisations stated, in a briefing which I believe all noble Lords will have received, that,

“timely, expert advice from the Commission can prevent problems before they arise”— a sound point which I believe should never be lost sight of. That said, regulation of charities is, of course, essential, although it should be proportionate. The Charity Commission must ensure that charities are given sufficient room to operate without excessive intervention and regulation.

Although, as I said, the Bill is to be welcomed, there are nevertheless some concerns relating to certain measures, either because they are too vague or too wide—both issues have been referred to by noble Lords today—as well as some provisions that might be added to those already in the Bill. The first of those relates to the additional offences that automatically disqualify someone from acting as a trustee of a charity. The addition of offences under terrorist legislation has, of course, some merit. However, given the breadth of the definition in the Bill, it is quite likely to have a negative impact on some NGOs working overseas, particularly in conflict zones. This was referred to by several noble Lords, who in a sense reflected the experience that they have had with various charities.

These measures could also impact disproportionately on some Muslim charities, as was mentioned by the noble and learned Lord, Lord Hope, and, in a slightly different manner, by the noble Lord, Lord Green. However, the comments which struck me most were those made by the noble Lord, Lord Hodgson, who, in highlighting the awful plight of the Yazidis in the face of so-called Islamic State, gave a very good example of how a charity could get into real difficulty. However, I take issue with the noble Lord’s description of these people as freedom fighters. I believe that they are absolutely nothing of the sort. They are psychopaths with a medieval mindset who must be rooted out and put out of business as soon as possible, however that may be done. However, that is an important example of some of the difficulties that charities can get into.

An example was given to members of the Joint Committee scrutinising the draft Bill of an NGO seeking to provide humanitarian aid in a conflict zone, where perhaps the only means of getting aid to people desperately needing it is to make a payment to so-called “gatekeepers” controlling access to those zones. These “gatekeepers” might be representatives of organisations deemed to be terrorists, and any money paid to them could be treated under this Bill as assisting terrorism—but how else could the humanitarian aid be delivered, and would it be in any way appropriate to pursue a charity, or individuals involved with a charity, for simply delivering humanitarian aid?

I certainly would like to see the suggestion made by the noble Lord, Lord Low, taken up—namely, for the Charity Commission to bring together the various organisations involved in providing such aid to discuss the matter, and, I hope, find a way forward. Both Australia and New Zealand already have legislation that exempts NGOs in such situations. However, in response to the Joint Committee seeking the Government’s views on the prospect of similar legislation being introduced in this country, the noble and learned Lord, Lord Hope of Craighead, was told by the then Home Office Minister that the previous Government were quite unsympathetic to the prospect. When the Bill goes into Committee, there will be an opportunity for an amendment on the matter to be considered. Will the Minister give an undertaking that, in advance of Committee, he will hold discussions with his opposite number in the Home Office to seek to bring about a more flexible and practical response to this important matter?

Further, in relation to additional offences that automatically disqualify a person from being a charity trustee, there is a lack of any mention of a person placed on the sex offender register. The Charity Commission has published a strategy for dealing with safeguarding issues associated with vulnerable groups, but it seems strange, to put it mildly, that those found guilty of behaviour serious enough to have them placed on the sex offender register do not constitute a category to which automatic disqualification applies. My noble friend Lady Hayter raised this issue. We believe that this should appear on the face of the Bill, and I hope that it will be possible for this to be achieved in later stages as we progress.

Charities depend, of course, on the trust and confidence of the public, and high standards of fundraising practice are essential to uphold levels of public trust. Recent events and media reporting that many noble Lords will have seen have highlighted that all is not well in this area of the charity sector, although the ability of the Bill to introduce meaningful changes may be limited. However, we shall see. The Fundraising Standards Board needs to raise its public profile and convince the remaining 35% of charities that voluntarily raise more than £1 million a year to affiliate to it.

On the latter point, perhaps it is now time to adopt the suggestion of the noble Lord, Lord Hodgson, to require all such organisations to be part of the Fundraising Standards Board. That was in his report of 2012, but he suggested that it should be revisited if the situation regarding fundraising was not resolved satisfactorily. Recent events demonstrate that that is where we are just now, and I can tell the Minister that it is a view supported by the CEO of the board itself that the time has now come to require charities within that sector—that is, those that voluntarily raise more than £1 million a year—to be part of the board. This could be achieved by the Minister for the Cabinet Office utilising the reserve powers given to that office by the Charities Act 2006 to introduce regulations,

“in connection with regulating charity fund-raising”.

Of course, the Minister is in an ideal position to progress that, should he choose to do so.

Other important issues have emerged from today’s debate, one of which is the ability of the Government to force housing associations that are charities to sell off properties against their will. I am rather surprised that only my noble friend Lady Hayter has raised this issue, because it certainly is exercising a lot of minds within housing associations, the vast majority of which are indeed charities. Perhaps the Minister can tell us whether he anticipates that in order to progress the policy that the Conservative Party announced during the election campaign and now intends to implement, primary legislation will be necessary so that properties that are owned by housing associations—in other words, not public property—can indeed be sold off, as the Government intend.

Many noble Lords referred to the vexed question of the demands for the additional responsibilities being placed on the Charity Commission to be matched by the resources to enable those additional responsibilities to be carried out. Although the Prime Minister announced last year that additional funding would be provided to coincide with the introduction of new powers, concerns remain about the resourcing of the commission, which saw a significant reduction in funding during the previous Parliament, as many noble Lords said. The additional powers will be effective only if the commission has the resources to use them properly.

Clause 14 states:

“The Minister for the Cabinet Office must carry out reviews of the operation of this Act”,

with the initial one being required within five years of the Bill becoming an Act. We believe that to be too long a delay and that three years would be more appropriate. To some extent, this relates to my previous point about adequate resources being made available, but in any case a shorter period than that envisaged in Clause 14 would enable any changes required to be identified and acted upon as soon as possible; thereafter, five-yearly reviews would be reasonable. This does not cut across the recommendation by the Joint Committee that there should be a broader review of the operation of the Charity Commission: rather, Clause 14 refers to this Bill specifically, so if that is what is carried forward, it should be three years rather than five years in the first instance.

Although it is not explicitly part of the Bill, an important issue was raised by my noble friends Lady Hayter and Lady Pitkeathley: a charity’s ability to speak out on behalf of others in pursuit of its objectives. My noble friend Lady Pitkeathley commented on the reduction in the number of charities involved in the recent general election. I believe that that is a natural consequence of the lobbying Bill which went through your Lordships’ House last year, and it represents a democratic deficit because it ought to be perfectly possible for charities to enter the debate without adopting a party-political stance—indeed, it is perfectly possible—and it is much to be regretted that many felt constrained from doing so during the election campaign.

There were also some excellent contributions on the question of social investment, not least from the noble Lord, Lord Hodgson, to whom we are indebted for highlighting this issue some years ago. But I particularly enjoyed the contribution of my noble friend Lord Chandos, whose thoughtful and thought-provoking comments I found very interesting. I look forward to hearing those developed further in Committee.

In conclusion, perhaps there has not been too much disagreement on these Benches or indeed the Benches opposite, but there is no shortage of issues for noble Lords to get involved in when the Bill enters Committee. I am sure that that will prove enjoyable for all noble Lords who have participated today, not least the Minister.

Photo of Lord Bridges of Headley Lord Bridges of Headley The Parliamentary Secretary, Cabinet Office, The Parliamentary Secretary, Cabinet Office 7:25 pm, 10th June 2015

My Lords, I thank all those who have spoken for their excellent contributions and for the kind words spoken about me. Clearly, the pressure is now on for me to live up to your Lordships’ expectations. I particularly thank the noble Lord, Lord Watson of Invergowrie, for his speech and for his contribution to the pre-legislative scrutiny of the Bill. The last few hours confirmed what I said at the start of the debate: your Lordships’ House is indeed a place for quiet but incisive scrutiny. Much more than that, it is a forum in which the voice of our nation’s “little platoons” can be heard. I counted more than 30 charitable organisations being represented by the speakers in this debate.

Taking a step back, it is clear to me that, thanks in very large part to those who spent so long scrutinising these proposals over many months, there is considerable support in this House for the principles that underpin the Bill and most of its measures. Let us not forget why these powers are needed. It was the independent National Audit Office that pointed to,

“gaps in the Commission’s statutory powers which were hampering its ability to regulate effectively”.

In the years since that report was written, many in the charity sector have supported the need for change, as my noble friend Lord Hodgson did again today. These powers need to be carefully balanced, as does the role of the Charity Commission, between being a regulator and an adviser, as the noble and learned Lord, Lord Hope of Craighead, said. Here again I pay tribute to and thank the noble and learned Lord—the Usain Bolt of charity law, as we are told to call him—for all he did in making that process so productive and worth while.

Photo of Lord Hope of Craighead Lord Hope of Craighead Judge

My Lords, it occurs to me that Usain Bolt suggests that we rather rushed our job. I think Mo Farah might be a better analogy.

Photo of Lord Bridges of Headley Lord Bridges of Headley The Parliamentary Secretary, Cabinet Office, The Parliamentary Secretary, Cabinet Office

I am brought up short. The noble and learned Lord is quite right: Mo Farah would be much better. Thanks to the noble and learned Lord’s hard work, and the work of so many others in this Chamber, I am pleased but not entirely surprised that rather than wheeling out the wrecking ball for this Bill, your Lordships have simply started to stick little pins into it before the House, to test, to probe and to clarify a little bit more. I very much welcome this, my first experience of legislative acupuncture, an experience I am told will leave me feeling invigorated, refreshed and revitalised.

Turning to address the points made, I hope to cover as many as I can, starting with some of the more detailed comments. The noble and learned Lord, Lord Hope, asked whether we could amend Clause 8 to make it clear that there are other circumstances in which a third party may be unable to comply with the Charity Commission direction. I am sympathetic to this point as we want the provisions to work effectively. We will need to look at this in some more detail before Committee, as we will other words such as “privy”, which I think the noble and learned Lord also mentioned.

My noble friend Lord Lindsay referred to the complementary role that standards and accreditation could play alongside the new powers proposed in the Bill in addressing governance and trustee issues. I agree and I welcome the work being done by the United Kingdom Accreditation Service and the NCVO to explore the potential that standards and accreditation have to offer in the charity sector.

My noble friend Lord Hodgson made a number of incisive points, as one would expect. He asked for the tribunal appeal rights to be consolidated and simplified. While recognising his point, it is important to note that not all Charity Commission decisions are subject to appeal and the existing table of appeal rights provides a useful checklist of what decisions can be appealed and who can appeal them. The Charity Tribunal itself has, I am told, not expressed concerns about it in practice. My noble friend Lord Hodgson also asked for time to implement the Law Commission’s recommendations. I am sorry to say that I cannot give any guarantees, but my noble friend knows that the Government will look favourably on deregulatory and simplification measures.

A number of comments were made about the social investment aspects of the Bill, and I am very encouraged and heartened by the interest that your Lordships paid to this. The noble Viscount, Lord Chandos, for example, made a number of perceptive points about social investment, as did the noble Baroness, Lady Kramer. I would very much like to meet with both of them to pick their brains, as they clearly have a lot of experience in this sector. I know that the noble Viscount sits on a number of foundations, and it is quite clear from the noble Baroness’s very eloquent speech that she, too, has a lot to offer.

My noble friend Lord Borwick made some very interesting points on the definition of social investment, including a slightly detailed point on mixed-motive investment. I will not detain the House on that point now but I would be delighted to discuss it with him, as I would with my noble friend Lord Bridgeman. As regards the naming of charities, a point which my noble friend Lord Borwick brought up, I simply point out that it is an offence to call yourself a charity if you are not; and as regards charitable income, charities must now declare income from central and local government in their accounts.

I turn to my noble friend Lord Moynihan’s remarks about independent schools, and pay tribute to the extensive and fantastic work that he has done in this area and on sports in general. He made some interesting points about the public benefit test. I would like to make it clear that charities already have to report on their public benefit in their trustees’ annual report. However, I would be happy to meet my noble friend before Committee to discuss the points that he has raised. Likewise, I would like to discuss the public benefit issue with the noble Baroness, Lady Brinton, who also brought this up in a number of ways.

Perhaps I may turn to some of the substantive points in the Bill itself. Clause 3, as noble Lords will remember, will enable the Charity Commission to take account of other relevant evidence of a person’s conduct in the context of a statutory inquiry into a charity. I think that the noble Baroness, Lady Barker, and the noble Lord, Lord Low, raised concerns about this. I would simply point to several safeguards on this point, and I shall do so quickly. First, there must be a statutory inquiry open and the Charity Commission must be satisfied that there is misconduct or mismanagement linked to the individual in that charity before it can rely on conduct from outside the charity in its decision-making. Secondly, when exercising its powers the commission must provide a statement of reasons which sets out the evidence it relied on in making the decision. This would include any evidence it relied on from outside the charity. Finally, there is a right of appeal to the Charity Tribunal in relation to the exercise of the commission’s compliance and remedial powers, ensuring judicial oversight of the exercise of the power.

The noble Baroness, Lady Barker, and the noble Lord, Lord Low, also referred to Clause 7, which contains a power to direct a charity to be wound up. As your Lordships will know, the commission’s usual practice is to restore a charity to health following an inquiry. However, in some very rare cases—and I stress they are rare—it would be more appropriate for any remaining assets to be transferred to another charity. The commission can already do that under existing powers, but now the commission will have the power needed for the shell to be wound up. This power is available only in the context of a statutory inquiry where there is misconduct or mismanagement, or risk to charity property. In addition, the commission must be satisfied that the charity does not operate, or that its purpose could be more effectively promoted if it were to cease to operate, and that the exercise of this power is expedient in the public interest. There is also a requirement for the commission to publish details of a proposed winding-up order and invite representations. A winding-up order can be appealed to the tribunal. So, there are a number of safeguards around that clause too.

Two points were made on Clause 9, which concerns the automatic disqualification powers that the Charity Commission is to be given. The noble Baronesses, Lady Hayter and Lady Barker, and the noble Lord, Lord Low, among others, raised this point. I am sure that we will discuss this further in Committee. As regards their wish for sex offences to be added to the list, I would simply say that there is an existing regime to ensure the suitability of anyone in a charity with unsupervised access to children and vulnerable adults. Whether they are a trustee, an employee or anyone else, they must all have had a Disclosure and Barring Service check. It would be impractical for the Bill to break down the charities type by type and prescriptively list criteria for automatic disqualification in each case. Charities should be trusted to make their own decisions on how suitable a potential trustee is when recruiting. Where charities fail to take their safeguarding responsibilities seriously, the Charity Commission can and does intervene to take regulatory action.

Photo of Lord Bridges of Headley Lord Bridges of Headley The Parliamentary Secretary, Cabinet Office, The Parliamentary Secretary, Cabinet Office

I would point out, if I may finish my point, that under the Bill the commission would also be able to rely on the disqualification power if a person’s conduct clearly made them unfit to serve as a trustee or senior manager of a particular charity or class of charities. The commission’s draft guidance on how it would exercise the disqualification power makes clear that it could be used in the circumstances. This is made clear on page 4, under paragraph (b)(i) concerning condition F. I know that we will probably return to this point in Committee, so I hope the noble Baroness will forgive me for going on right now.

Also as regards Clause 9, the noble Baronesses, Lady Barker and Lady Brinton, and the noble and learned Lord, Lord Hope, were among a number of your Lordships who raised the issues that counterterrorism legislation might have in this context. I have been fortunate enough to talk to a number of your Lordships about this point and I recognise that there is a concern for some charities operating in some of the most difficult parts of the world—not just the Middle East, as the noble Baroness, Lady Brinton, pointed out. However, I would point out that several government departments, including the Home Office, the Treasury and DfID as well as the Charity Commission and the Cabinet Office, are engaging with NGOs to understand their concerns and ensure that, wherever possible, they are given proper guidance.

In many cases there is already detailed guidance dealing with the points that were raised, and it may be a case where better signposting is needed. We are also not aware of any legitimate NGO worker who has been convicted in the UK under the counterterrorism legislation. Providing some sort of exemption for charities from aspects of counterterrorism legislation may sound attractive, but I would argue that it could create a loophole in the law that could be exploited by the unscrupulous—something which I am sure we would all want to avoid. I was particularly struck by the remarks made on this point by the noble Lord, Lord Green of Deddington, given his extensive experience in this area, and I thank him for his contribution.

The noble Lord, Lord Low, raised Clause 10, particularly as regards whether condition F in the proposed new section is too broad. This condition needs to be considered in the context of other criteria for the exercise of the disqualification power, namely the test of fitness that disqualification,

“is desirable in the public interest … to protect public trust and confidence in charities”,

and the safeguards relating to the operation of the power, including the right of appeal to the Charity Tribunal. The Charity Commission’s draft guidance on how it would exercise the power should provide reassurance that it will use the power only when there is a clear case for doing so; that the commission would clearly explain what it would take into account before using the power; and that in exercising the power, the commission would provide an explanation identifying the conduct in question and why it thought that the conduct met condition F.

I turn to some of the wider issues that have been raised. The noble Baroness, Lady Hayter, and a number of other noble Lords raised the tragic case of Olive Cooke. This was a very sad case and I start by paying my condolences to the family of Olive Cooke and pay tribute to her outstanding work in the field of charity, which the noble Baroness, Lady Corston, referred to. I would like to say here that the charity sector needs to move quickly and firmly to show that self-regulation works in the best interests of the public and that fundraising can set itself sufficiently high standards to meet public expectations.

Last week, my honourable friend the Minister for Civil Society met with three chief executives of the self-regulatory bodies. He made it clear that action must be taken quickly to protect the long-term reputation of charities. The self-regulation bodies agreed to pull together a plan of action that could be taken in the short term, together with plans to work on in the longer term. The FRSB published its interim report yesterday, and its findings and recommendations are being discussed at the Institute of Fundraising’s standards committee today—a point, I think, that the noble Lord, Lord Watson of Invergowrie, was referring to. Charities need to ask for funds, but that is not an inalienable right and it needs to be exercised responsibly, particularly if we are to protect public trust and confidence in charities for the long term.

A number of your Lordships raised the issue of charity campaigning, including the noble Baronesses, Lady Hayter and Lady Pitkeathley, and the noble Lord, Lord Watson. The Government have been consistently clear that charities have the right to campaign within the law and that this can be a valuable way in which charities can further their charitable purposes.

The Charity Commission’s guidance, CC9, makes it clear that charity law recognises that campaigning can be a legitimate activity for charities and sets out the general principles. The Charity Commission keeps all its guidance under review to ensure that it remains relevant and up to date. The commission has monitored charities’ observance of the guidance during the election campaign and is considering the findings from that monitoring along with the impact of the lobbying Act and other issues relating to the current guidance. The Charity Commission will need to take account of any findings of the statutory review of Part 2 of the transparency of lobbying Act by my noble friend Lord Hodgson of Astley Abbots. If the commission considers revisions should be made to CC9, it has committed to say so publicly and to consult widely.

I turn to housing associations, right to buy and their charitable assets. The noble Baroness, Lady Hayter, raised the Government’s policy to extend right to buy. This, of course, is being taken forward in another Bill. The Government are determined that anyone who works hard and wants to get on the property ladder should have the chance to do so. There is indeed, as the noble Baroness knows, a precedent for housing association tenants accessing discounts to enable them to buy their own home. I believe many people exercised the right to buy their housing association home between 1997 and 2010.

Finally, a number of your Lordships raised the resources and role of the Charity Commission, including the noble Lords, Lord Low and Lord Watson of Invergowrie. I would make two points. First, on its resources, if we are to bring down the deficit, we need to make savings and efficiencies right across government, and that includes the Charity Commission. The Treasury has agreed a sensible settlement for 2015-16 with the Charity Commission, based on its forecast needs and focused on protecting its investigation and enforcement functions. The 2015-16 settlement also increased the Charity Commission’s capital budget by £500,000 to invest in a new digital online system for charities to file their annual accounts. This will improve the Charity Commission’s efficiency and help it to identify and tackle fraud and mismanagement. I also welcome the £8 million investment in the Charity Commission announced last October by my right honourable friend the Prime Minister. All this will help the Charity Commission refocus its regulatory activity on proactive monitoring and enforcement in the highest risk areas, such as the abuse of charities for terrorist and other criminal purposes, such as tax avoidance and fraud. Secondly, as regards supporting charities, I am confident that the Charity Commission will get the balance right between regulator and adviser, and I was heartened to read what the National Audit Office said in its interim report.

I look forward to debating and discussing these measures, and more, in more detail with your Lordships in the weeks ahead. As I said, my door is always open. That said, I would be grateful if your Lordships do not follow the example set by my formidable great-aunt, who was general secretary of the Women’s Institute during the Second World War. I am told that when she ran into some bureaucratic obstacle, she found that the best way of overcoming it was to harry Ministers by ringing them at home well before breakfast. That is something that I recommend your Lordships do not follow, as you may get my four year-old daughter, who is twice as formidable as her great-great-aunt.

This Bill is just one part of the Government’s programme to strengthen the fabric of our nation—one nation. In myriad ways, in every community across the land, charities are performing that vital role. Some are tiny, others enormous—together they are a golden thread, weaving together those who want to do their bit. The Bill will give the Charity Commission strengthened powers to tackle abuse so as to maintain the public’s trust in charities, and it will enable those who have to do still more to help those who have not. I thank your Lordships for all your contributions today and for the many months spent scrutinising the Bill’s proposals. I ask the House to give the Bill a Second Reading.

Bill read a second time and committed to a Grand Committee.