John Low, Caron Bradshaw and Peter Lewis gave evidence.

Q 76

We will now hear evidence from representatives of the Charities Aid Foundation, the Charity Finance Group and the Institute of Fundraising. Welcome to our Committee. Please will you introduce yourselves?

John Low: I am John Low, the chief executive of the Charities Aid Foundation.

Caron Bradshaw: I am Caron Bradshaw, and I am the chief executive of the Charity Finance Group.

Peter Lewis: I am Peter Lewis, chief executive of the Institute of Fundraising, a professional body that brings over 5,300 fundraisers together.

Q 77

Is it a perfect Bill, as drafted, or do you want some changes to it?

John Low: It is an interesting Bill, but it is not perfect, and yes, we would want to see changes. It is clear that the stated policy objective is a good one, and one that we would support, but frankly, that policy objective has since been caveated. The Bill now requires charities accessing the scheme to have been claiming gift aid for three years, and has a matching element. It is unlikely  that very small organisations will be able to benefit to the degree that the policy originally anticipated. They might struggle to claim sufficient gift aid in a year, yet it was because they struggle to claim gift aid that this policy was put in place, and this objective was established. Frankly, for large charities, £1,250 of additional tax recovery is not material, so this is clearly intended to benefit small organisations. It was never intended, as originally described, to be a top-up payment—in other words, gift aid plus this. It was always a way of allowing organisations that had difficulty accessing gift aid to access it.

There has been huge emphasis on fraud in the way this has been constructed, which has led to disproportionate requirements on charities. It is, in many ways, disappointing that we have got to this place. Clearly, the objective is welcome, but it could be implemented much better.

Caron Bradshaw: I echo very much what John has said. Given that the starting point was an intended reduction in the administrative burden and boosting income for small groups that rely on bucket donations, the Bill is far from perfect, though the intentions are absolutely welcomed by the sector. Similarly, we are concerned about the matching requirements. We are worried about the complexity in respect of community buildings; the eligibility criteria will rule out the very charities that I think this was intended to reach out to in the first place—those very small, local groups that currently do not comply with, or make use of, the gift aid scheme.

Peter Lewis: I totally echo that: £1,250 can be absolutely transformational for a small organisation, unrestricted money that it can then reinvest in other activities. We also thought that this was designed to be a pathway into gift aid for organisations that were not currently claiming it. The way that it has been drafted makes it far more difficult than gift aid itself. We echo John’s points. We do not think that the matching requirement is necessary. We think that the three-year rule is far too restrictive and should just be removed. There is enough of a guarantee against fraud through registering with HMRC to claim gift aid. You have to pass the fit and proper person test to get to that stage. The further requirements are unnecessary.

Having listened to some of the discussions in the previous session, I think the points about non-cash donations are very important. The world is moving on. If you donate via JustTextGiving, for example, the charity will not get your mobile number so it cannot go back to you to ask for a gift-aid statement. Those are all small donations of under £20 so we think that future-proofing the Bill to enable non-cash donations—organisations are in discussion with Transport for London around using an Oyster card for donations because they do not particularly want people with buckets in their stations. So if people can donate by putting their card reader on a simple machine they would facilitate that. It would be easier not just for the charity but for TFL. It is very good in principle and so is the idea behind it, but it is flawed in the way that it is currently drafted.

Q 78

But the three of you would say that, wouldn’t you, given the jobs you hold? Part of the Government’s desire is, perfectly reasonably, to protect against fraud. Why are you saying that there are not other ways to protect against fraud?

Peter Lewis: The example that comes to mind for me is this. When I ran small charities we were lucky enough to apply successfully for Awards for All, the National Lottery scheme. Awards for All is up to £10,000 per organisation and there are far lower fraud risks in relation to Awards for All than there are in relation to this scheme. There are very simple criteria about being an established organisation and having two signatories on an account. That has a fraud risk of under 1% they reckon. We have to be proportionate. John’s words about proportionality are absolutely crucial here. This small amount of money can be transformational for small charities, which it is designed to help, yet the Bill as it is drafted will preclude them from getting involved and benefiting from the scheme.

John Low: It is fair to say that this is not tax relief. This is public spending. We should not automatically subject this scheme to the same HMRC requirements as tax that is being reclaimed through the gift aid scheme. That is to miss the point on this piece of legislation. It is much more comparable, as Peter says, with grant programmes such as that Big Lottery one. Even the Treasury and HMRC’s response to the public reading stage which was published yesterday reinforces that concern about fraud on the basis that it is tax relief. It is not tax relief. This is a heavily constrained public spending grant-type initiative. It should be seen in that perspective. It should not be seen as protecting against fraud in the normal recovery of tax. There are so many restrictions already in place. It has a cap. It is not a very large amount of money in tax terms. To get up to large-scale fraud, you would have to have multiple charities. You would have to find a way of passing the fit and proper persons test. You would have to find a way round the connected persons and the connected charities arrangements. Frankly, it feels like HMRC and the Treasury do not trust the Charity Commission to regulate charities sufficiently strongly and feel they have a need to impose their own measures on something that is not tax relief, but is public spending.

Caron Bradshaw: You said, “You would say that, wouldn’t you?” Well, as an organisation, Charity Finance Group has the larger charities in membership. It is the very small ones that we are particularly worried about. Our smallest organisation is 100,000. Our biggest organisation is the Wellcome Trust. In answer to that direct point, no we would not. The second point I would like to make, in relation to fraud, is that, as organisations, we are taking the lead in ensuring that fraud, and the risk of fraud, are tackled. Fraud is not something that the charity sector benefits from. It is a double loser in this case, as it loses reputationally and it loses the money going into its pocket, so none of us on this panel would want to see more fraud happening, or money being diverted away from the sector.

Peter Lewis: I think that is right. On the reputational risk, fundraisers, more than anyone else, know that you need to keep the public’s trust and confidence, and the last thing we want is a scheme that would be open to fraud and give the sector a bad name.

Q 79

I want to pursue the point that Mr Low was getting at. On Second Reading, we heard Ministers say that, in essence, this is not tax relief. Does  that mean that there could be a better system for getting the amount of money that the Treasury believes could be claimed through this scheme into the sector, other than using HMRC as the vehicle?

John Low: There is a principle embedded in the policy objective, which is that it allows gift aid-style payments to be made available, mainly to small charities and community sports clubs. There is nothing wrong with using the gift aid system, and you do get the additional protections that we spoke about earlier: the fit and proper persons regime and protection against connected persons creating a scheme where you can have multiple claims. I do not think that that is unreasonable. It is just unnecessary to put in the additional safeguards—the three years. Requiring a charity that has never claimed gift aid—there is an implied incentive to improve gift aid take-up—to register, raise enough that is gift aid-claimable and then claim for three years, before this kicks in is out of proportion in terms of the risks. Teaching charities and building up the structure to enable people to access this scheme is good and something we would welcome.

Caron Bradshaw: May I add to the last point that John made? In relation to the paperwork burden for small organisations, the level of audit trail that you will have to keep to show that you have met at the right place, at the right time and with the right activities, will mean that, frankly, they will not do it. I cannot imagine a small, local pre-school going through that pain barrier for the benefit of £1,250.

Peter Lewis: On the scale of it, my understanding is that, at the moment, there are 65,000 organisations that claim gift aid out of a possible 300,000 that are eligible. We thought that, in part, this scheme was designed to get organisations used to the gift aid system so that, as they move on, they can claim gift aid. At a time when, whichever political party is in control, public spending will be going down, charities are—[Interruption.]

Order. The sitting is now suspended for 15 minutes. If there is a second, consecutive Division, we will resume in 30 minutes.

Sitting suspended for a Division in the House.

On resuming—

Q 80

Mr Lewis, I believe you were speaking.

Peter Lewis: I think I was explaining that 65,000 organisations at the moment claim gift aid out of a potential 300,000, if you include the exempt and eligible organisations. We saw this scheme as a way of introducing organisations to gift aid, so it is similar to gift aid but not gift aid itself. We are beginning to notice—this is a very good sign—that organisations are diversifying their income streams. Evidence is beginning to show that organisations that were previously heavily reliant on statutory funding—especially local authority funding for small organisations—are looking for other sources of income, including public collections and by engaging their communities. We thought that this would be a great way of encouraging them to do more of that and engage with their local communities. The ability to  claim an extra £1,250 on top of the £5,000 could really get organisations into fundraising in a new way so they can do more in their local communities. Putting up barriers at a time when organisations are trying to diversify their incomes is something that worries us.

Q 81

May I ask in particular about clause 5, which talks about the connected charities and connected persons? There was some concern raised about that on Second Reading and the Government have tried to alleviate some of those concerns through amendments. Do you think that all the concerns have been addressed? Would the amendments make it better—would they make a difference—or are there other changes that you would like to see, particularly in relation to connected charities and connected persons?

John Low: I would suggest that many of the concerns have been addressed, although there is a residual fear left in the system. The use of the Income Tax Act 2007 and the Corporation Tax Act 2010 for definitions of connected persons is not particularly helpful. It creates unintended, complex interconnections which are quite difficult for small local organisations, in particular, to cope with; they are difficult for anyone to cope with. There is no doubt that provisions like the one that says that purposes and activities have to be the “same or substantially similar” for the connection to be validated, and the Government amendment yesterday which clarified the point on the number of trustees required to create an overlap, are good things. However, placing the duty on trustees to identify personal connections or else end up effectively in breach of regulation adds another level of concern, particularly for small charity trustees who are already worried about liability and risk. In a number of cases—it is hard to predict how many—the scheme will simply be unused out of fear of getting it wrong. I would urge much simpler definitions, particularly at implementation, although it may be possible to do it in the Bill. We need to be very clear what those connections are, rather than expecting trustees to work out through other references to complex legislation what the connections would be. We need a simple, clear statement of what is required for this to be practical on the ground, if we are aiming at small and community organisations.

Caron Bradshaw: I would echo an awful lot of that. I can understand what the purpose of the amendments is and I welcome some of the relaxation, or the attempt to clarify the connections. However, the reality is that for large organisations with advisers who can work their way through this, it will not be a problem. If you are a tiny local organisation it will be very difficult. The reality on the ground is that, particularly in small local communities, there will be trustees of multiple different organisations, many of which have similar or the same objectives. They may have other trustees who are also on that board and therefore will be caught in some way. Without wanting to sound like the person you stop in the street to ask for directions who says, “I wouldn’t start from here”, which does not sound very helpful, I think that we have made life a bit difficult for ourselves by trying to resolve issues that may not have been present if we had been much simpler in the way that we approached the Bill in the first place.

Peter Lewis: I would also echo that. Another example that HMRC might want to look at is the big lottery fund criteria, which talk about independent  organisations—organisations that have their own governing document, produce their own annual accounts and have their own building society account—which is a far simpler way of saying, “Is this organisation independent or not?” than the complexities that are currently in the Bill.

May I clarify, if possible, from the three of you that what you are saying is in effect that charities with professional staff are much more likely than other smaller community and voluntary organisations to be able to deal with this, simply because they will know how to get through the hoops? I am thinking of something we mentioned earlier today—a small charity that potentially did not have £625 in gift aid per year. Perhaps an organisation with a professional fundraiser, or something like that, might look at this and say, “Well, hold on”. If it has, say, a church collection coming in, will it go back to the church and say, “Hang on, take back your cheque for £500 which you have kindly given us and let’s have individual members give it so that we can get round the regulations”? There are ways round this, but it will not necessarily be the sort of bother that will appeal and there will not necessarily be the know-how for some smaller organisations to deal with it—is that what you are effectively saying?

Peter Lewis: From our perspective, the people who are doing this are charities or organisations that are set up for the public benefit. That is what the people care about: delivering public benefit. At a very grass-roots level, £1,250 extra could be a hugely important sum. What you want to do is to make it as easy as possible for people to do that. For some of the smallest organisations, perhaps if they do not have professional people on their trustee board, the whole idea of having to register for gift aid, with all the complexities of that in the first place, would be a disincentive. That is the fear. The idea behind the scheme—to reach those small organisations at a grass-roots level, to encourage them to engage with their communities and to collect more money and get a nice top-up payment at the end of it—is being subverted by the tightness of the drafting of the Bill and is disproportionate for the amounts of money concerned.

Q 82

So if each of you could change the Bill in any two ways, what would you pick?

Caron Bradshaw: I would suggest that the eligibility criteria would be a good place to start, if you were particularly looking at transitioning in smaller organisations. I would get rid of the matching requirement, particularly because it does not add anything extra for fraud protection and, if it does add any fraud protection, it is disproportionate to the risk that is being experienced and it pushes the risk on to the smaller organisations, which—going back to your initial question—will not be set up to keep the audit trail and the level of payment work.

Wherever you draw the line, there will be winners and losers. We acknowledge that, but those with professional staff and those with systems and processes already there and which are already taking advantage of the gift aid scheme as it exists will benefit disproportionately against those small charities that will not. I thought it might be interesting to throw in a fraud fact here, which is that the Fraud Advisory Panel, a small charity set up specifically to report on fraud, did a survey in 2009,  which ironically showed that larger charities, with a large staff and more distant connections with their staff, are more vulnerable to fraud than the smaller organisations that we have here. We are putting the balance in the wrong place at the present time.

John Low: I would just get rid of the whole question of three-year claims and matching donations. They are unnecessary in terms of protection. It is more than enough to be registered and to pass the connected charities and the fit and proper persons tests. I would sweep those away, because they are unnecessary. Your question about the £650 is unnecessary and should not be there. Community buildings need sorting out. Maybe we will come to that in a moment, but the issue is not satisfactory the way it is.

Peter Lewis: I would echo that. The three-year rule and the matching rule should just be removed. I make a plea for the scheme to come into line with the gift aid scheme, which allows for non-cash donations. If you have a chance to make amendments to allow that to happen, that would be welcome. It would be welcome if you could ensure that it is future proof and that organisations that are trying to use technology, such as text donations, are able to claim the top-up payment on those amounts.

Q 83

Mr Low mentioned community buildings and it will be no surprise that we have an interest in that, given that there has been a lot of concern raised about those clauses. The Government have put forward some amendments to clarify that, but we have heard that there are some potential unintended consequences of that. Could you explain to us how you would like to see those provisions clarified or changed? Does it have to be changed in the Bill or can it be sorted through guidance?

John Low: I believe that it has to be through changes to the Bill. Fundraising is a separate activity from the provision of services, and the definition in the proposed rules will make it difficult or impossible for a number of valid organisations that are at the heart of the policy. They will be excluded. The obvious one is hospices. There are 260 hospices, which are major organisations in the country and deliver services. Are we seriously suggesting that we go round the beds of people who are in hospices, collecting money from the beneficiaries, and that that is the only way to make this provision work? I am sorry, that is just not good. Donors and beneficiaries are distinct communities; they may sometimes be the same, but they are usually distinct. Frankly, it is inappropriate in many cases to solicit donations from beneficiaries, the very people you are seeking to support.

Unfortunately, the Government amendment that was tabled yesterday does not help. It effectively requires the donors also to be beneficiaries—I do not understand it and it does not make sense. There is an HMRC principle, which is fairly well understood, that donors should not normally benefit from the donation that they have given if tax relief has been recovered. Perhaps this is some kind of subliminal attempt to say that this is not tax relief, it is actually public spending, but I think that that is just going too far.

I think that, other than for churches, it is going to be hard for many charities to satisfy the requirement for donations to be collected during the course of charitable activities. I think that for many of the organisations  that have these federated, branch-type structures that use community buildings, other than churches, these provisions will just exclude them from participating in the scheme. It needs to change.

Caron Bradshaw: I would start with a positive thing, which is that we welcome the intentions behind two of the tabled amendments in trying to knock the commercial and residential elements out. However, we are resolving one problem by sticking another one on, and we are ending up with a very layered, complex system, which, in common with a number of the other points that we have made already, would disadvantage the very people we are trying to seek.

I would also echo John’s point on tainted donations. We have just gone through a huge amount of hassle in the sector, trying to put across this notion of tainted donations, where you do not benefit from the gift that you give. You will see that particularly around the substantial donations—I am struggling for the right word; I was going to say debacle, but I think that that is far too strong. You will see that in the situation around the substantial donors legislation, where we found a lot of organisations, particularly in windfall situations, being penalised because they had a connection with the beneficiary. So I think that the starting point is wrong, and certainly the part of the amendment that alarmed me most was that making a very explicit link to the beneficiary being in the donor group.

Peter Lewis: I would just echo what both John and Caron said. I cannot add anything to that.

Caron Bradshaw: The other point that I wanted to make, if I may, is that you can never make good law by just making up for inadequacies in guidance. It is important, particularly for small organisations, that the face of the Bill is easy to understand.

Q 84

Caron, I think you used the phrase, “You have to draw the line somewhere.” Presumably, part of the thinking behind some of the complexity in the Bill is to try to stop an unlimited amount of money being spent through this scheme—I think the Government have said that they expect about £60 million to be spent in the first instance. If that is the amount of money that is available, and the maximum amount that you want to give out is £1,250, would there be a better way of allowing small charities to claim access to that sort of sum?

Caron Bradshaw: I guess it is similar to the point that John was making earlier, which is that there is a link to the gift aid scheme, and I do not think that we would object in principle to that being where the link is made. Again, I do not want to say I would not start from here, but I think that by adding in a number of areas around connected parties and community buildings, rather than just making a simple link to the gift aid scheme, with a transitional entry point, we are not actually putting in any additional methods of preventing fraud. We are certainly not adding ones that would make up for the burden, the disadvantages and the barriers that are being created by phrasing it in this way.

Peter Lewis: I would echo that. When the Bill was first announced, we thought that it was a great idea that would introduce people—organisations that are currently intimidated by gift aid, or perhaps do not get a significant amount of donations from the general public—to gift aid and get them interested. They might begin to fundraise  in a different way and to engage with individual supporters in a different way and move on to claim gift aid. It is a good thing from our point of view that charities are using the tax system to benefit their beneficiaries. However, you get to a stage where you think the legislation has been so tightly drafted that it is not going to achieve its aim, and there are obviously other ways. If the Government wanted to give away £60 million or £100 million to small organisations, you would not start where you are, which is what all three of us have said, but there is value in making a link to the gift aid scheme if you can make it simple enough to encourage new organisations to sign up and to enable new organisations and organisations that are diversifying their income streams to use it in a very easy and simple way.

John Low: I would suggest that the stated policy objective is a good one. Allowing charities and community or amateur sports clubs to claim a gift-aid-style payment is a good thing. The difficulties of bucket collections and cash donations are well recognised. I take Peter’s point about text donations and Oyster-type donations, but setting that aside for one moment—he has made that point clearly—cash is important for many charities. We are addicted to giving by cash in this country. It still remains a very significant proportion of the giving. The proposal will go only a very small way towards tackling that huge pot of cash donations. It is entirely right that it should be focused on smaller organisations and allowing gift-aid tax-type recovery into the community is a good thing to do at this point in time. Those sums of money will be very significant for those organisations. It is good that such organisations can get recovery having actually raised funds, worked hard in the community, and been supported by the public. Otherwise, it becomes very much public spending chosen by the Government of the day to meet its priorities, whereas this is linked into the activities of the charities. I am quite content with the methodology behind it, although the implementation and the restrictions just seem heavy-handed.

If hon. Members have no further questions for this set of witnesses, that brings us to the end of this part of the evidence session and I thank our witnesses very much for coming.

Sitting suspended.