New Clause 7

Charities Bill [Lords] – in a Public Bill Committee at 2:30 pm on 13 July 2006.

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Loss of charitable status

‘Where charitable status is withdrawn from any organisation or institution the assets of that charity must be deployed or protected for the charitable purpose for which they were originally constituted with regard to—

(a) the continuity of that purpose;

(b) the need to maintain public confidence in that purpose; and

(c) the interests of beneficiaries.’.—[Martin Horwood.]

Brought up, and read the First time.

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

I beg to move, That the clause be read a Second time.

The purpose behind the new clause is to deal with what might be a slight gap in charity law—[Interruption.] The Minister is already nodding his head vigorously. Sorry, I meant that he is shaking his head vigorously. The new clause was the result of discussions with a learned and noble Friend who had debated the Charity Bill at length in another place. When discussing the public benefit test, he had realised the possible implications of the loss of charitable status. The assumption of many people would be that an institution that lost its charitable status for whatever reason would simply carry on in a non-charitable form. However, that would not be the case because the assets that it had employed as a charity were given for a charitable purpose and must in law be applied to a charitable purpose. They would not be available to the non-charitable institution. In the case of fixed assets, such as a significant building, that would be a major issue.

The purpose behind the amendment is to clarify what is already the intent—and is certainly the commission’s intent—to avoid the loss of charitable status, that continuity and the interests of the beneficiary were ideal and that every step should be taken to avoid this happening.

In the event of loss of charitable status happening, the clause makes clear that the desirable outcome is not the collapse of the institution and the redeployment of its assets to another charitable purpose, whether cy-prÃ(c)s or not, but the continuity of the institution—its name, public reputation and the interests of its beneficiaries.

Those responsible for the charitable assets would have a duty to try and recreate the charity within the terms of charity law and passing whatever public benefit test or whatever other reason it was that they had failed in their charitable status in the first place. My noble and learned Friend was convinced that this is a gap in charity law. However, if the Minister can reassure me, I would happily withdraw the new clause.

Photo of Peter Bottomley Peter Bottomley Conservative, Worthing West

If I understand the new clause and the explanation that the hon. Gentleman has given—he has made a fair speech—I do not agree with his intent. If an organisation has been a charity and has been held to have a charitable purpose, because of this change of law—which frankly, I do not think is necessary; I prefer to assume that both education and religion are charitable, but that is not the situation that we are in—it is perfectly possible that an organisation that has  operated as a charity with excepted charitable purposes for decades or even hundreds of years may find itself ruled not to be charitable.

One circumstance, which the new clause is aimed at, is for the trustees to accept it as a modern charity. The alternative is to say that is not why we exist, we want to go on doing what we have been doing for decades or centuries, even though we are now to be modernised and told we are not a charity. In those circumstances, it is not right that all their assets—their name, property and endowments—should be taken from them and given to something that is still excepted as a charity.

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

I hesitate to intervene on the hon. Gentleman and ask him about something about which he may be wrong. Once the assets have been given for a charitable purpose, they must be applied to that charitable purpose. If that institution ceases to be charitable, it cannot use them under any circumstances.

Photo of Peter Bottomley Peter Bottomley Conservative, Worthing West

That is one of the reasons whyI might do a disservice; I know that I have a communication problem. I need to go on and attempt to perfect what I am trying to say.

Let us suppose that donor Bottomley in the 1660s had said, “I want my money to establish an institution for purposes that are acceptably charitable in the 17th, 18th, 19th and 20th centuries.” There is a tradition of what the purpose is and it is accepted. Yet because of this change of law—we are changing the law and potentially redrawing the boundaries of what is charitable—Bottomley’s donation should be allowed to continue for the purpose for which it is given. The fact that it is charitable is a secondary factor. I argue that, in those circumstances, it should be allowed for the present trustees to meet the purpose for which the trust was established. That is the problem. I contend that it contradicts what the hon. Member has put forward in his new clause. At some stage it would be useful to hear other people’s views on that.

If I can make my point more clearly, I do not want to get involved in the independent school issue. I do not want to try to imagine the circumstances in which the Chancellor might so take against an Oxford college, which is going to have some kind of regulation or is part of the exemption that we have dealt with already—so I should not go into that too far—that he wants to say, “I am going to try to get the Charity Commission to say that the charitable purpose is not sufficient”. If there were then a review, and it decided that the public benefit was not great enough, and so the college’s charitable status was lost, what would happen to it?

Would the college be told that all the fellows who are the society, who are the trustees, are going to be displaced and the Chancellor’s friends from some other university are going to be brought in? Or would there be an advertisement and a public appointments commission, with head-hunters being brought in, to decide, once a society had been created, who should be the research fellows and what tenure each of them should have—all because the charitable purpose has been redefined? It strikes me that the hon. Gentleman needs a bit of help on this.

Photo of Martin Horwood Martin Horwood Shadow Minister (Environment, Food and Rural Affairs) 2:45, 13 July 2006

I am grateful to the hon. Gentleman. I may have underestimated the power and intellect behind his argument, because he is right. The weakness in my new clause is that it says that where charitable status is withdrawn from any organisation or institution

“assets...must be deployed or protected for the charitable purpose”,

but it does not specify whether those assets are charitable under the new law. If they are considered to be charitable—if they were given for an obviously beneficial, philanthropic purpose that qualifies as charitable even under the new public benefit test—what I was saying does apply and those assets would have to be deployed for a charitable purpose and could not be carried forward to the new, now non-charitable organisation. However, if those assets had been charitable, but are not now charitable because, as the hon. Gentleman said, they were given for a purpose that was deemed to be charitable in the 17th century but is not deemed to be so under the new 21st century law, there is a problem, which he has correctly identified, and I share his sentiment.

Photo of Peter Bottomley Peter Bottomley Conservative, Worthing West

Perhaps there is a better way of putting it. Will the Minister reflect in the next few months on whether, in the rare circumstances in which a charity cannot maintain its charitable status, which will not be common unless a coach and horses is driven through independent education, and when it is clear what the donor—the person who settled the trust—intended and there is a conflict between that intention and the new circumstances that have come about because of this legislation, there can be some way of settling whether the purposes must be changed to remain charitable, or whether the purposes can be maintained and the assets used? If the Minister is adamant, Report is going to be rather more interesting than it would otherwise be. What I am really trying to say is that I do not support the hon. Gentleman’s new clause, assuming that I have properly understood it.

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

I thank the whole Committee for this interesting debate. Let me start with the legal base, which is really the subject of the amendment, although it clearly goes much wider than that. I can provide the whole Committee with an explanation by quoting from the little-known Charity Commission document, “Maintenance of an Accurate Register of Charities”. At paragraph 31, it says:

“In law, assets held on a charitable trust are irrevocably dedicated to charitable purposes. So, if trustees are unable or unwilling themselves to arrange for changes to their charity’s objects so that these are exclusively charitable, then they must apply to us to make a cy-près scheme directing that the assets held on trust are used for other charitable purposes as near as possible to the original purposes of the institution. We can help trustees in making such an application.”

The basis for that is in common law.

It is worth pointing out that it is wrong to say that charitable status is “withdrawn” from an organisation. That is the word that the hon. Gentleman uses in his amendment. It is a bit of a logic-chopping point, but charitable status is not like a licence that can be granted and withdrawn. An organisation is either inherently a charity or not, depending on whether the purposes for  which it exists are charitable and whether it is for the public benefit. In registering a charity, the commission is not granting charitable status to an organisation, but recognising that it is inherently charitable, having legally assessed its purposes and the public benefit.

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

I am grateful to the Minister. I agree with his interpretation; perhaps the use of the word “withdrawn” was unwise drafting. Nevertheless, as the hon. Member for Worthing, West has observed, we are in the process of changing the law, and it is possible that an institution that was charitable may no longer be so. It might be that charitable status is lost, rather than withdrawn. None the less, charitable status could be held to have been lost—the change is possible.

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

It is difficult to understand, but loss of charitable status is already possible—the public benefit test exists now. That takes me on to something that I was going to say about what happens when an organisation is deemed not to be compliant with the charitable purpose and public benefit requirements, which addresses the point made by the hon. Member for Worthing, West. In that case, action must be taken to get the institution back into charitable status, and that is possible in most cases. It is not usually inherently impossible for the institution to move back into charitable status. In the few cases in which that cannot be done, the assets must be dealt with by some form of cy-près variation of the charitable purposes, but that is the already the situation now.

The hon. Gentleman asked was why it is not possible for the institution simply to carry on, not as a charity, but essentially pursuing the same purposes. There are two problems with that. First, it is not fair to the people who gave money, property or whatever to the charity in the first place, who did it on the basis that the institution was a charity that met charitable purposes and provided public benefit. Secondly, loss of charitable status removes not only some tax privileges, but a degree of regulation so that the assets of the charity could then quite easily be disbursed for private profit, because charity law would no longer apply and there would be no regulator for the institution. The wording of the new clause proposed by the hon. Member for Cheltenham is admirable, as are the underlying sentiments, but no organisation would exist to regulate the institution, because the institution would no longer be covered by charity law.

I agree with the hon. Member for Worthing, West that the issue is tricky. The reassurance that I offer to him is that the Charity Commission will in all circumstances endeavour to enable institutions to move back to charitable status if public benefit is no longer met. That must be the Charity Commission’s priority. Only in the most extreme cases in which, dare I say, there is stubbornness or refusal to co-operate would other, more drastic measures be considered.

Photo of Peter Bottomley Peter Bottomley Conservative, Worthing West

I know that the Minister’s words are intended to be helpful. It is clear that there should not be an easy way for charity trustees to turn their charity into something non-compliant and non-recognised, otherwise they would be able to just walk away with the assets. That is easily accepted. I suspect that the examples that I have in mind would be rare and  difficult to achieve, and I am sure that trustees would in most cases wish to remain compliant. I am sure that if there were a question mark over recognition they would do their best.

Let me cite an odd example, which is not intended to be taken too seriously. The former Member of Parliament for Cambridge University, Henry Lucas, established two trusts. One was a hospital for the elderly in Berkshire, of which I was once a trustee. The other, of which I was not a trustee, established the Lucasian chair of mathematics in Cambridge, which has been held by Isaac Barrow and Isaac Newton and is now held by Stephen Hawking. Were it to be judged that higher mathematics had no public benefit—this is where the exaggeration comes in—it would be perfectly possible for the trustees to be told by the Charity Commission, “You are in danger of ceasing to be recognised so you should switch to something else such as nursing, so that the Lucasian chair of mathematics becomes the Lucasian chair of nursing.” The trustees would respond, “Henry Lucas said that he wanted mathematics. There is a tradition of mathematics and a chair of mathematics it should remain.” I know that that is improbable, but it is the sort of issue that I have in mind. I hope that the Minister will think about that and accept that there is something in what I am saying: that there would need to be an adjudicating authority. It is not easy, but I think that there is a serious problem.

Photo of Roger Gale Roger Gale Conservative, North Thanet

The hon. Gentleman is in danger of winning the award for the longest intervention in any Committee.

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

In the hon. Gentleman’s defence, I think that he presumed that I had finished.

The hon. Gentleman’s point is interesting. The answer is that one cannot possibly imagine the circumstances in which the Charity Commission would say that an organisation established for a chair of mathematics should change to a chair of nursing. As earlier discussions showed, the whole point about cy-près is that if the old purposes are either not for the public benefit or cannot be carried out, the new purposes must be as close as possible to the original intent of the gift. I do not think that anyone can suggest that the gift in that case was intended for a chair of nursing.

I am happy for that discussion to continue outside the Committee. Hon. Members must admit that I have been very flexible so far, but on that matter I am inclined to be inflexible. The Committee holds the nature of charity law in trust and I am being invited down a dangerous road whereby an organisation that did not meet the public benefit test could simply say, “Well, in that case we will go outside charity law.” I know that that is not what the hon. Member for Cheltenham was suggesting, but that would betray the history of the organisation and the nature of charitable law. So I am going to be intransigent, but as always we shall listen to representations.

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

I am disappointed that the Minister is inclined to move from generosity to intransigence at this stage in the Committee’s deliberations.

May I offer an alternative example to the one offered by the hon. Member for Worthing, West? The Joseph Rowntree trusts were established for a number of purposes, some of which were specifically charitable and designed to fall within the charitable remit. However, one of them—I cannot remember which one because the names are very similar—was designed specifically to fall outside charity law, yet under the new heads of charity, it might well qualify as charitable. It is equally possible that under a different Administration the law will change again, causing it to lose that charitable status. As we change legislation, it is eminently possible that organisations that were charitable—[Interruption.] The Minister is shaking his head. Perhaps he could explain the error in my argument.

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

This will be a legal one-way street. The hon. Gentleman is right that an organisation that was not set up for charitable purposes could become charitable if conventions of the time change. However, once an organisation starts to benefit from charitable status, it should not be able to take those benefits outside charity law. That is why it is a one-way street.

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

That was not really the point that I was making. An institution’s charitable status might change, by virtue not of its changing its activities, but of a change in the law. I was simply supporting the point made by the hon. Member for Worthing, West.

The Minister was right in describing the ideal process, which is that the loss of charitable status should be the last resort and that everything should be done by the Charity Commission to avoid that happening. It would require a succession of intransigent trustees to make it happen. However, it will be possible, as it is now, to lose charitable status. As we change the basis of charitable status, that is slightly more possible than it has been in the past.

The question is what happens to the assets of the charity in that event. The Minister talked about assets falling outside charity law. My new clause does not address that. It specifically states that

“the assets...must be deployed or protected for the charitable purpose for which they were originally constituted”,

so I am addressing what happens to charitable assets that must still be applied for charitable purposes. I have tried to frame a new clause that would explicitly direct those responsible away from the cy-près route towards the reconstitution of the charitable institution or the charitable purposes as originally constituted.

The hon. Member for Worthing, West has identified a parallel and equal problem with assets that might have been given first for the purpose of the institution and only secondly as charitable assets and therefore might well be considered not charitable under a change in the law. There is also a lack of clarity about what might happen to those assets, as the Minister, too, has shown.

Photo of Peter Bottomley Peter Bottomley Conservative, Worthing West 3:00, 13 July 2006

First, just to fill a gap, I should say that it was the Joseph Rowntree Reform Trust that the hon. Gentleman referred to. Secondly, does he believe  that the Minister should reflect on the fact that it would be open to the Government to change the law, whether through Parliament or under one of the provisions that we discussed earlier, so that various bodies that were not charities—this is a separate point from the one that I made before—could have charitable status? There would be a responsibility on the trustees to apply for it and then, if the Government changed the law again or the Charity Commission changed the way in which it thought of things, they would be caught and stuck.

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

The hon. Gentleman makes more elegantly the point that I was struggling to make that charitable status can change and what happens to assets in the event of loss of charitable status is a serious issue. The hon. Gentleman and the Minister have pointed out technical problems with the drafting of my new clause, so I am content to withdraw the motion, but I hope that the debate has shown that there is a serious issue that the Minister might care to reflect on further. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

Photo of Roger Gale Roger Gale Conservative, North Thanet

Order. Given that the Committee is making admirable progress, this is an appropriate moment to remind the Committee that in its programme motion of Tuesday 4 July it said that the proceedings shall, so far as not previously concluded, be brought to a conclusion at 4 pm on Thursday 13 July. I am trying to hold the Committee to its own admonition. That will be achieved only if speeches are relatively brief.