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

Part of the debate – 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.