Charities Bill [Lords]

– in a Public Bill Committee at on 11 July 2006.

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[Mr. Roger Galein the Chair]

Registration of charities

Photo of Martin Horwood Martin Horwood Shadow Minister (Environment, Food and Rural Affairs) 10:30, 11 July 2006

I beg to move amendment No. 88, page 11, line 39, leave out ‘(subject to subsection (11))’.

Photo of Roger Gale Roger Gale Conservative, North Thanet

With this it will be convenient to discuss the following amendments: No. 89, page 11, line 42, leave out paragraph (11).

No. 20, page 12, line 3, at end insert—

‘(12) Regulations made under section (11) may exempt only part of the copies from public inspection.’.

Photo of Martin Horwood Martin Horwood Shadow Minister (Environment, Food and Rural Affairs)

I shall be brief. The amendments relate to public access, transparency and openness. The proposed section 3(10) of the Charities Act 1993 is laudable and the principle that copies of charity trusts should be open to inspection at all times is desirable. It is therefore strange that proposed subsection (11) has a qualification that is not explained or justified. I wonder whether it has accidentally fallen into the Bill or whether there is a perfectly rational explanation for it. I look forward to the Minister’s comments.

Photo of Andrew Turner Andrew Turner Conservative, Isle of Wight

How nice it is to see you once again this morning, Mr. Gale. The hon. Member for Cheltenham (Martin Horwood) must be optimistic because he is still wearing his summer suit. I understand why he wishes to expunge the subsection. I have looked on GuideStar and believe that the subsection covers charities such as women’s aid charities that might have registered addresses or even names of trustees who might be subject to pressure were they to become widely known. Amendment No. 20 is designed to allow only part of the details that are recorded by the commission to be withheld from public inspection. It is not necessary to do either all or nothing; the Government should have the opportunity to go part-way on such matters.

Photo of Ed Miliband Ed Miliband Parliamentary Secretary (Cabinet Office)

It is nice to see you back in the Chair, Mr. Gale. The amendment is worth considering properly. I shall briefly explain the position for the benefit of the Committee. The hon. Member for Isle of Wight (Mr. Turner) rightly raised the issue of when disclosing the name of a trustee may place that person at risk. The Charity Commission has a dispensation to  remove such information from its register. A separate power is available only to Ministers, which is to restrict access in respect of the trusts of a charity. The power has existed for 45 years or so since the early 1960s, but has not been used by Ministers. Labour Members will know that Aneurin Bevan said that the purpose of getting power is to be able to give it away. In that spirit, I make a commitment to the Committee to consider whether the power is really necessary. My immediate presumption is that it probably is not, but I shall come back on Report and I hope that I will have good news then.

Photo of Martin Horwood Martin Horwood Shadow Minister (Environment, Food and Rural Affairs)

I should have also said that it is good to see you in the Chair, Mr. Gale. I am encouraged by the Parliamentary Secretary’s comments and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Andrew Turner Andrew Turner Conservative, Isle of Wight

I beg to move amendment No. 160, page 12, line 8, after ‘charity’, insert

‘the gross income of which does not exceed £100,000’.

Photo of Roger Gale Roger Gale Conservative, North Thanet

With this it will be convenient to discuss the following amendments: No. 21, page 12, line 20, leave out ‘£5,000’ and insert ‘£10,000’.

No. 161, page 13, line 11, leave out ‘different’ and insert ‘higher’.

No. 162, page 13, line 22, after ‘(7)’, insert ‘(a)’.

No. 90, page 13, line 22, leave out from ‘unless’ to end of line 25 and insert

‘a draft of the order has been laid before, and approved by a resolution of, each House of Parliament.’.

No. 91, page 13, leave out lines 33 to 36.

No. 163, page 14, line 32, at end insert—

‘(6) Subsections (1) to (5) of this section do not apply to exempt charities.

(7) An exempt charity which is required to be registered on the register of charities shall supply for inclusion the name of its principal regulator.’.

Photo of Andrew Turner Andrew Turner Conservative, Isle of Wight

Amendments Nos. 160 to 163 are about exempt charities. When I acquired my responsibility, I seemed odd that, although the Charity Commission has a list of most charities, I had to search quite a lot in the depths of the legislation to find which charities are exempt. I found a useful page in the Charities Act 1993 that contained a long list of exempt charities as well as a long list of gaps. One then has to go further, because things have been removed, to find out which things have subsequently been added to that list at different stages. One then finds that the Minister will have the power to create new exempt charities.

Amendment No.160, regarding the proposed new section 3A(2)(a) to the 1993 Act, would mean that an exempt charity would be subject to the same requirement to register with the Charity Commission as excepted charities. That is to say, they are not required to register if they have an income that does not exceed £100,000. Most exempt charities have an income that exceeds that figure, because they are creatures of Government and are therefore well funded by them or because they are long-established organisations, such as the Church Commissioners. Therefore, my proposal would require  exempt charities to register except those which have an income of less than £100,000.

Amendment No.161 is about the power to vary the threshold of any charity that registers. It would mean that the Secretary of State is limited to raising the threshold and could not lower it. We have heard how onerous registration might be for some charities.

Amendment No.163 continues the theme of exempt charities. It sets out that they would not be required to do anything other than register, except to provide the name of their principal regulator. As they have a different regulator, they would not be required to do any of the other things that charities have to do, such as supplying documents to the Charity Commission. However, they would be required to supply the name of the principal regulator. I hope that—because it was too late to put that under the responsibilities of the commission—the commission would take that information about the name of the regulator and include it in the register. Amendment Nos. 161 and 162 are about raising the thresholds for registration.

I turn now to amendment No. 21. On Second Reading, we heard that there are 190,000 charities, and 420 charities of them responded on the issue of the thresholds to registration—the maximum response to any part of the consultation—and that is a poor response rate and even lower than we would find in the European elections. It suggests that the voluntary and charitable sectors have had no detailed engagement with the consultation. It undermines some of the conclusions that were reached in the preparatory stages of the Bill, whether by the Government or the Joint Committee.

The strategy unit recommended a lower threshold of £10,000 for mandatory registration, permitting smaller organisations to register if they wished to do so. The Government responded to the review’s recommendation of £10,000 by going for £5,000. I am not entirely clear about the reasons for that except that they may have split the difference, an understandable Government position but one that does not seem to have any justification. The Minister in the House of Lords agreed with that when he said:

“We can see that there is some merit in raising the threshold to £10,000. But it is not a step we should take without there being full consultation because the figures in the Bill have been consulted on”.—[Official Report, House of Lords, 28 June 2005; Vol. 673, c. 231.]

It is true that the Government consulted on the figures, but the response rate was pretty low. One theory was that no one would be allowed to register below £10,000, but that was removed as a result of the consultation. I do not see any particular justification for the figure of £5,000, and I do not see anything particularly bad about the figure of £10,000. I commend the amendment to the Committee.

Photo of Martin Horwood Martin Horwood Shadow Minister (Environment, Food and Rural Affairs)

Amendment No. 90 is designed to address the Secretary of State’s power to change the list of exempt charities, to which the hon. Member for Isle of Wight has referred, and the income threshold for the registration of charities.

The power is critical. It will affect the status and the regulator of any number of exempt charities or charities that might become exempt, including significant bodies such as the ancient universities and other charitable and  benevolent institutions. It deserves proper consideration, and Parliament should have the opportunity to consider it in full. That is why amendment No. 90 would require an order to be

“laid before, and approved by a resolution of, each House of Parliament.”

Amendment No. 91 examines proposed new section 3A(10)(b). It is not so much a probing amendment as a cautionary one. It is clear that an alternative is necessary to simply referring to a charity’s gross income during its previous financial year, because that can sometimes be misleading. The obvious example is an organisation such as Comic Relief. In the year of a red nose day, its income is in the tens of millions; in other years, it is much less. Charities’ incomes rise and fall. Occasionally, they rise and fall for other reasons that are much less predictable. The classic example for smaller charities involves legacies. A run of good legacies during a couple of years can double or quadruple a small charity’s income compared with that for previous years, but that is not necessarily a guide to subsequent years’ performance, which might be much less.

The idea that the commission will reliably be able to estimate a charity’s likely gross income stretches its powers of prediction. It is often difficult enough for the charities themselves to predict their income the following year, for reasons other than legacies. The value of investments can rise and fall suddenly. One charity with which I was involved relied heavily on an endowment fund. When the stock market—I hate to say “crashed” in a Minister’s presence—experienced a seasonal fluctuation, the charity’s income dropped unexpectedly.

It is a difficult clause. The Association for Charities included in its dossier an example of the Charity Commission estimating income quite wrongly in the case of the Cancer Care Foundation. I am not sure what the alternative is, but I am sure that the present measures are not a good way forward. I should like the Minister’s comments on the clause and how practical it is. However, the alternative might have something to do with being able to amend the provisions for income in the following year.

I turn to the Conservative amendments. Amendment No. 21, which would raise the threshold at which a charity must register from £5,000 to £10,000, seems laudable. In theory, we all want to lighten the burden of regulation on small charities, but we are talking about tens of thousands of charities. Many examples that we have encountered of less-than-perfect administration pertain to smaller organisations. It has been mentioned in previous sittings that failure to produce financial returns might be the first indicator that something more serious is wrong and might be the precursor to somebody disappearing with the charity’s money. Such a process leads to loss of donors’ money and public confidence, and ultimately to the damaging of beneficiaries’ interests. So I am not sure that it is always right to keep raising the threshold to remove more small charities.

Photo of Andrew Turner Andrew Turner Conservative, Isle of Wight 10:45, 11 July 2006

Does the hon. Gentleman agree that although the percentage of inquiries affecting charities with income of less than £10,000 is 13.2 per cent., the income of such charities accounts for only 0.8 per cent  of the gross income of charities? We need a sense of proportion. I fear that the Charity Commission, and charities themselves, are spending money haring after the possibility that some of that 0.8 per cent. of income is ill used, despite the fact that smaller charities spend far less on administration and fundraising than the larger charities do. The larger charities are probably wasting money but doing so in a reputable way, whereas the smaller charities, although they may from time to time lose money, lose a great deal less of it.

Photo of Martin Horwood Martin Horwood Shadow Minister (Environment, Food and Rural Affairs)

I think that what the hon. Gentleman is talking about is simply a function of the fact that the largest organisations generate a much higher percentage of the sector’s entire income. Two thirds of the sector’s total income is, I believe, generated by approximately 3,200 organisations, which constitute just 2 per cent. of the sector. The statistics can be worked any way, but even in charities that account for only a small percentage of the income, a well publicised scandal can damage confidence in the whole sector. That does no good to small or large charities. I am therefore content for amendment No. 21 to fall, and for the registration amount to remain at £5,000 for the time being.

I have no strong views on amendments Nos. 161 or 162. It seems desirable for the Secretary of State to have more flexibility on the time scale in which to raise or lower the threshold.

I am puzzled by amendment No. 163. The general tone of the contributions made by the hon. Member for Isle of Wight is of wanting to avoid red tape, yet despite exempt charities having regulators and being scrutinised, the amendment would make them subject to extra regulation just for the hell of it. They would have to supply their details to the Charity Commission for inclusion on the register and give the name of the principal regulator. I therefore oppose that amendment.

Photo of Ed Miliband Ed Miliband Parliamentary Secretary (Cabinet Office)

I shall start with amendments Nos. 160 and 163, which were tabled by the hon. Member for Isle of Wight. I accept the point made by the hon. Member for Cheltenham that the regulatory burden of charities should not be increased, and that is why I cannot accept the amendment. I am sympathetic to the idea of listing exempt charities that are regulated for charity law purposes by a principal regulator other than the Charity Commission, if it is possible to do that non-bureaucratically. It would be even better if there could be a comprehensive list that included those charities, perhaps with a little “e” next to them to denote that they were exempt. I do not know if that is possible, but I shall consider it and talk to the Charity Commission about it. The powers of investigation of the hon. Member for Isle of Wight are impressive, but it should be possible to see a list of exempt charities. I shall revisit that point on Report. I hope that that satisfies the Committee.

Amendments Nos. 161, 21 and 162 also deal with the threshold. We are sympathetic to the hon. Gentleman’s deregulatory aims and have said that there will be a review of all thresholds within a year of the legislation receiving Royal Assent. The Committee might like to know that, after the Bill is enacted, there will be a  number of thresholds in charity law—£5,000, £10,000, £90,000, £100,000 and £500,000—that will have different requirements. We want to have a comprehensive look at such matters.

I take the hon. Gentleman’s point that, although there has been consultation on the Bill as a whole, it was not focused specifically on registration so we should consult on such issues and take into account the balance. The hon. Gentleman is right. We can think of a charity with, say, £160,000-worth of capital that might have a 5 per cent. return—£8,000 of income—but it is not clear to me that that charity should be outwith the requirement to register. We shall consult about matters within a year of Royal Assent and I hope that my reassurance has satisfied him in respect of amendment Nos. 161, 21 and 162.

On amendment No. 90, unbeknownst to him, the hon. Member for Cheltenham, has discovered a flaw in the legislation. It suggests that we may only vary the thresholds after a report has been submitted on the operation of the Act. We have made a commitment to submit that report within five years of Royal Assent, so that provision will get in the way of our ambition to have a review a year after Royal Assent. Thanks to the hon. Gentleman, we shall be coming back on Report to make good the flaw in the Bill. I am not sure that we agree with him about the resolution procedures, but we shall investigate that as part of the wider subject.

I come now to amendment No. 91 and gross income. It is important to realise that subsection (10)(a) clearly states that a reference to a charity’s gross income shall be construed, in relation to a particular time

“as a reference to the charity’s gross income in its financial year immediately preceding that time”.

That will clearly be the presumption of the Charity Commission. The only purpose of subsection (10)(b) is to deal with those circumstances in which a charity has just been set up and we would not want it not to have the obligation to register for the whole year during its first year of operation. The provision allows the Charity Commission to say that, on the basis of the charity’s expected gross income, it will be subject to a requirement to register. Similarly, if a charity faces difficult times and its income has dropped precipitously to below the threshold, it will be removed from the requirement to register on the basis of its expected gross income. I hope that that explanation has satisfied the hon. Gentleman.

Photo of Martin Horwood Martin Horwood Shadow Minister (Environment, Food and Rural Affairs)

It does not entirely satisfy me. If that is the purpose behind the clause, perhaps it should say so. The clause gives a much broader power than that.

Photo of Ed Miliband Ed Miliband Parliamentary Secretary (Cabinet Office)

I can honestly assure the hon. Gentleman that the Charity Commission will not ask the 190,000 charities in Great Britain, “What is your expected gross income? Is it different from the income in the previous financial year?” The clause will cater for such circumstances. I hope that he will accept my assurances in a charitable spirit and not press the amendment to a Division.

Photo of Andrew Turner Andrew Turner Conservative, Isle of Wight

I am grateful for the Minister’s assurances on amendment No. 160 and grateful on  behalf of the hon. Member for Cheltenham for his comments on amendment No. 90. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 9 ordered to stand part of the Bill.