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

Part of the debate – in the House of Lords at 6:12 pm on 10th June 2015.

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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.