Clause 43

Charities Bill [Lords] – in a Public Bill Committee at on 11 July 2006.

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Power to spend capital

Photo of Andrew Turner Andrew Turner Conservative, Isle of Wight

I beg to move amendment No. 44, in clause 43, page 46, leave out lines 34 to 36.

Photo of Joan Humble Joan Humble Labour, Blackpool North and Fleetwood

With this it will be convenient to discuss amendment No. 137, in clause 43, page 47,line 9, leave out £10,000 and insert £5,000’.

Photo of Andrew Turner Andrew Turner Conservative, Isle of Wight

This is an interesting clause with which I profoundly disagree, and I may wish to vote against it on stand part; however, amendment No. 44 is designed to make it work better. That may sound curious, but as we are here to scrutinise the Bill, and as we want a good Bill to be produced at the end of it all, I do not think that there is any great problem with trying both to make the clause better and to get it out of the Bill altogether.

The amendment would remove the last three lines above new section 75A on page 46. The purpose of clause 43 is to enable charities to spend some or all of their endowments. New section 75(7) says that

“‘available endowment fund’, in relation to a charity, means—

(a) the whole of the charity’s permanent endowment if it is all subject to the same trusts, or

(b) any part of its permanent endowment which is subject to any particular trusts that are different from those to which any other part is subject”.

It goes on to make some exclusions, including

“so much of that endowment or part as consists of land held on trusts which stipulate that it is to be used for the purposes, or any particular purposes, of the charity.”

That land, I understand, is called in specie land. Land held on trust is different from money held on trust, because if it is excluded by virtue of subsection (7) it would not be available for expenditure. That would create a real problem for charitable organisations that are landowners, rather than holders of property in the form of money. If a school wants to build a new gymnasium, for example, it may wish to fund that by disposing of some of its land.

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

I do not want to stifle the hon. Gentleman’s eloquence, but I shall anticipate my later remarks and say that we are sympathetic to his amendment. We cannot accept it in its current form,  but the point that he makes, with his customary eloquence, is important. This is a legally complex matter, but we need to look into it.

Photo of Helen Goodman Helen Goodman Labour, Bishop Auckland

I wish to speak to amendmentNo. 137, which stands in my name. I shall be brief, as I am off the Whip at 6 o’clock. The purpose of this amendment, and my previous amendments, is to reduce the regulatory burden on charities. In this instance, that would be done by lowering rather than raising the limit. I propose to lower it to £5,000 in line with the proposal that I made earlier on the cy-près measures. All that I have to say to the Minister, as I shall not have time to hear his reply, is that I hope he will take what I say as an early representation.

Photo of Martin Horwood Martin Horwood Shadow Minister (Environment, Food and Rural Affairs) 6:00, 11 July 2006

Although I would not want to dent the emerging consensus on amendment No. 44, the example that I think the hon. Member for Isle of Wight was about to complete seemed slightly worrying. It would give charities more flexibility to dispose of land, including playing fields. We might want to discourage that. It is not necessarily the sort of thing that we want to give schools and other charitable organisations more flexibility to dispose of willy-nilly. Having sounded that cautionary note, I am interested to hear the Minister’s remarks.

I am extremely sympathetic to the amendment tabled by the hon. Member for Bishop Auckland. I have been a little cautious about some of her amendments, which would have changed thresholds in other respects, but this one seems entirely laudable and would add sensibly to the flexibility available to smaller charities. I support the amendment.

Photo of Peter Bottomley Peter Bottomley Conservative, Worthing West

Will the Minister reflect on whether there is a particular point, meaning or purpose to line 35, which mentions land “held on trusts” in the plural? There may be some reason for it, or it may be imported across from something else, but it might be worth reflecting on at some stage. If it is not important, there is no need for him to respond, but I draw the Committee’s attention to that point.

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

I am grateful to the hon. Gentleman for drawing my attention to it.

My hon. Friend the Member for Bishop Auckland has now departed. We will review the thresholds after a year, including the one that her amendment deals with. The amendment tabled by the hon. Member for Isle of Wight deals with a difficult area, but he spoke eloquently about the issues that might confront some charities that have assets in the form of land held in trust that they want to use. We need to consider further whether the power to spend capital can be extended to them, and I shall endeavour to report back later on that and to take into account the point made by the hon. Member for Worthing, West.

Photo of Andrew Turner Andrew Turner Conservative, Isle of Wight

I am grateful to the Minister for his response, and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Photo of Andrew Turner Andrew Turner Conservative, Isle of Wight

I am concerned about the whole of clause 43 and about giving charities the power to spend capital. I understand why an organisation should want to convert land into something else, or indeed something else into land, and I understand the problem of whether an asset held in buildings is appreciating or depreciating faster than the land on which it is built, but I am concerned about the general principle of charities spending their endowment.

My reading of the clause did not make it absolutely clear. Perhaps the amendment that the hon. Member for Bishop Auckland spoke to a moment ago should have signalled to me that a threshold is involved somewhere, but I am concerned about the principle that endowments might be spent. The Minister said on 6 July that

“once assets are put into a charitable trust, they cannot transition elsewhere. Those assets are a pledge, in a way, in perpetuity.”—[Official Report, Standing Committee A, 6 July 2006; c. 100.]

The clause would enable them not to be a pledge in perpetuity but to be no better than a grant of money to spend. I believe that when people donate money to a charity, particularly a capital sum, they expect the charity—and this would have been particularly true in the past—to take the benefit of the interest on that capital, but not to spend the capital itself. I realise that nowadays large sums might be involved in some people’s donations to charities that they would expect to be spent, but equally, in the past, people who gave large sums would have expected the charity to benefit from the income rather than spend the capital and deprive future generations of the benefit of that capital. That is the point about which I have the greatest concern.

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

I understand what the hon. Gentleman is trying to achieve by questioning the clause. However, he is representing a view of charity that is slightly outdated. It is valuable for some charities to rely on their endowments to generate income and for that to be the foundation of their finances, but there is a model that is increasingly used which suggests that endowment is not always the most efficient way to use money. A much better return on investment—using commercial language—can be achieved by spending that money on fundraising.

If £100,000 is given as an endowment, that is in effect being subjected to the risk of the vagaries of the stock market, and I have worked in charities where that has not always paid off. As a result of changes in investment income, income can sharply drop. That can lead to staff redundancy and something of a crisis for the charity. If that £100,000 had been spent on fundraising through some of the popular methods that we shall probably discuss in this Committee, such as direct marketing, that might in a few years’ time have generated an income five times the amount that had been spent. Historically, it would have been a much better way to spend that money. Therefore, we need to allow even small charities the flexibility to make that type of decision for themselves.

Photo of Peter Bottomley Peter Bottomley Conservative, Worthing West

One thing has passed me by—are the equivalent provisions to be found for an incorporated charity? Would the Minister tell us whether they exist in one of the schedules, or in other legislation, or in the 1993 Act?

I am not sure to what extent I agree with my hon. Friend the Member for Isle of Wight. He has raised an interesting issue. One should not necessarily look on land as being particularly different from other assets that the charity may own. I am a trustee of a large number of charities, some of which are associated in a group, others not. In some cases we have been following the trustees of the past 300 or 400 years and the original intentions of the benefactor were clear, but the way they have been carried through has necessarily had to change. In the old days—300 years ago, for example—people may have only been able to leave land because most building on land did not last. Building leases were expected to fall in or the house was supposed to fall down within 100 years. Therefore, the land was the permanent property. Nowadays that is not the case.

It does not strike me as sensible to have a particular restriction on a particular part of the assets of a charity, whether it is incorporated or not. The question whether it is appropriate for trustees of an incorporated or unincorporated charity to decide to use an endowment for the purposes of the charity and end up with no endowment, is a matter that should be closely supervised by the Charity Commission; and the larger the amounts of money involved, the more important it is that that happens. For the smaller charities, where administrative costs are significant, trustees ought to have the option of either merging to create a larger charity—where the costs of administration will be less disproportionate or become lower—or spending the endowment and going out of business.

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

I have not set out—perhaps I should have done in relation to the other amendment—some of the safeguards that may reassure the hon. Member for Isle of Wight. The key to understanding this rather long clause lies in clause 75A(2). It states:

“But this section does not apply to a fund if section 75A below (power of larger charities to spend capital given for particular purpose) applies to it.”

The financial conditions of that subsection to which my hon. Friend the Member for Bishop Auckland referred are set out under proposed section 75A(2). That provision requires contact with the Charity Commission. Some interaction has to take place, so there are safeguards.

The clause is interesting. It highlights the dilemma of striking the right balance between central direction from Westminster and the Charity Commission and how charities conduct their affairs. We need safeguards and minimum standards, but we also need to ensure proper flexibility for charities, which has been an echoing theme of the Committee. The hon. Member for Cheltenham spoke very well about the problems faced by small charities, in particular, when they are sitting on significant amounts of capital but find that they cannot use them for one reason or another. I hope that the clause strikes the right balance and that it can stand part of the Bill.

The hon. Member for Isle of Wight was quoting me, something that he is fond of doing, when he said that charity was a one-way street. Even when using the powers under clause 43, it is most important to realise that the resources freed up as a result will continue to be used for the purposes of the charity. They will not somehow be used for other purposes, so charity remains a one-way street even under the clause because of the way that the resources will be used. In response to the hon. Member for Worthing, West, I must say that incorporated charities do not hold capital except as a trustee, as a result of which the provisions will apply.

Photo of Peter Bottomley Peter Bottomley Conservative, Worthing West

Will the Minister write to the Committee explaining in slightly more detail why that is so?

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

It would require rather more than a letter, I fear, but I shall add it to the list.

Question put and agreed to.

Clause 43 ordered to stand part of the Bill.