Clause 17 - General interpretation

Small Charitable Donations Bill – in a Public Bill Committee at 2:00 pm on 30th October 2012.

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Photo of Gareth Thomas Gareth Thomas Shadow Minister (Cabinet Office), Party Chair, Co-operative Party 2:00 pm, 30th October 2012

I beg to move amendment 34, in clause 17, page 9, line 18, at end insert—

‘(e) industrial and provident societies that operate as charities.’.

To ensure that charities incorporated as industrial and provident societies are eligible under GASDS.

Amendment 34 would ensure that charities that are incorporated as industrial and provident societies are eligible under this scheme for the top-up payment of up to £1,250. Mr Robertson, you may be familiar with industrial and provident societies, given your considerable interest in the Co-op movement. I am lucky enough to be a Co-op MP and have long been familiar with industrial and provident societies.

Indeed, I am lucky enough to have a number of them based in my constituency. If you will indulge me, Mr Robertson, the Tithe Farm social club in Rayners Lane, which is home to the sadly less well known—it should be well known, but it is not yet—Rayners Lane football club, is one such industrial and provident society. You and other Committee members are extremely welcome to come to the Tithe Farm social club to take part in various social activities, of which dance and snooker are just two examples. There are other types of industrial and provident societies, including the famous Women’s Institute country markets, the excellent Lincoln retail co-operative society or, indeed, the renowned Co-operative Group, which is taking over Lloyds bank branches.

Industrial and provident societies have their roots in the self-help tradition of the Victorian era. Essentially, they break down into two types. The first is the more well-known co-op society, in which individuals come together, often pooling their purchasing power or their power as employees to get better results for themselves. I should make it clear that the amendment deals not with that type of industrial and provident society, but with the second category, which are those that carry on an activity for the benefit of the community, rather than for that of their members.

Such societies are known as community benefit societies, or bencoms. They include the many housing associations around the country, such as the Home Group, which has helped redevelop completely the Rayners Lane estate in my constituency, and is next to the Tithe Farm social club that I mentioned. Housing associations are the biggest group of community benefit societies, which  also include social clubs and, as you will know, Mr Robertson, the new football supporters trusts. One of those is the Pompey supporters trust, which I hope is in the process of taking over Portsmouth football club. That is a great football club, although not one that I support or intend to support. The supporters trust, using the community benefit society model, might be able to protect the heritage of that club and see it achieve greater fortune.

The amendment is essentially a probing one to explore whether, and to seek reassurance from the Minister that, charitable industrial and provident societies are covered by the Bill. As I have made clear, only community benefit societies—the second category—can qualify as charitable industrial and provident societies. Clause 17(1)(a) states that, to be covered by the Bill, a charity has to be within the meaning given in part 1 of schedule 6 of the Finance Act 2010. That means that it has to be established for charitable purposes only, to be subject to the jurisdiction of UK courts, to have complied with any requirement to be registered under section 29 of the Charities Act 2011 and to be managed by people who are regarded as fit and proper. I am keen to know whether a community benefit society that meets all the other requirements, but is not required to register under section 29 of the 2011 Act, will still be within the definition of a charity for the purpose of the Bill. I shall come back in a second to why I raised that issue.

A potential alternative route under the clause for a charitable industrial and provident society to be registered seems to be covered by subsection (1)(d), which states that a charity can be

“a registered club within the meaning of Chapter 9 of Part 13 of the Corporation Tax Act 2010 (community amateur sports club).”

The conditions for such registration under the Act are that the club must be located in the European Union; it has to provide all its facilities in one member state; it is required by its constitution to be open to the whole community; it has to be organised on an amateur basis and, as its main purpose, it has to provide facilities for and promote participation in one or more eligible sports. It also has to be managed by fit and proper people.

When a club registers with HMRC, after meeting all the requirements, it is within the definition of “charity” under the Bill and, under the Corporation Tax Act 2010, can claim and use the gift aid provisions. However, there is no explicit statutory definition of “club” in the 2010 Act, so I should welcome confirmation that those who advised me on the drafting of the amendment are correct, and sports clubs using the industrial and provident society form of incorporation would be covered under the Bill. It would be a tragedy if a rugby club, for example, that was set up as a charity, can claim gift aid, has made claims for gift aid in three of the past seven years, understands the 80 pages of guidance that the Minister will publish to explain how the scheme will work, is not affected by the community buildings, is not affected by the trustee provisions and still has the will to claim £1,250 cannot do so. The rugby club that is the industrial and provident society should still be able to benefit from the Bill in the same way as another rugby club with exactly the same capacity, having achieved exactly the same criteria in that it is a genuine club organising genuine charitable activities, would be covered  under the Bill. It would be wrong if the bencom rugby club would not be covered under the Bill because of a lack of tidy drafting. I look forward to the Minister’s assurance or explanation of such circumstances. If he cannot give me assurance today on subsection (1)(d) covering community benefit industrial and provident societies, perhaps he will look into the matter and return to us before the Bill is discussed on Report.

Only bencoms that are industrial and provident societies and have their constitutions specifically tailored to meet the conditions for charitable status could be charities under the general law. Industrial and provident societies have always been regarded as enjoying exempt status in respect of registration with the Charity Commission. I am raising the issue now because, since 2006, the policy has changed to ensure that all those that enjoy the benefits of charitable status either have to be registered with the Charity Commission or will be subject to regulation by another body. That other body will ensure that they comply with the equivalent requirements for charitable status—transparency, accounting and so on.

The Charity Commission allocated almost all the formerly exempt bodies to other regulators. As I have said, the alternative would have been direct regulation. Industrial and provident societies are among the few bodies that are left outside, in a general sense, and apparently no decision has yet been taken about who will regulate them. As recently as in July, a document on the Charity Commission website called “Starting Up: Exempt Charities” said, on page 11:

“No firm decision has been made on the future regulation of community benefit societies and friendly societies as charities. One possibility is that those which are registered as social housing providers may remain exempt, while others may lose their exemption if no suitable principal regulator is found.”

I might be wrong, but I suspect that a social housing provider or a large housing association would not necessarily want to seek advantage under the scheme by claiming potentially just £1,250. However, much smaller community benefit industrial and provident societies that are doing great things in our constituencies might want to benefit under the Bill, given the extent of the cuts in the funding for which charities may apply.

It would be useful to hear from the Minister whether he or his officials have had any conversations with the Charity Commission to try to resolve this potential lacuna around whether bencoms—community benefit societies—might be eligible for the scheme and, more generally, about how their charitable status will be policed—for want of a better word. I will be interested to hear from the Minister what might be done in this area.

Although I doubt that this is the case, some members of the Committee might think that industrial and provident societies are not terribly important in the great scheme of things. Such charities certainly have the lowest profile in terms of organisational form. People are often familiar with the notion of charitable status. Many are familiar with the idea of a charity organising itself as a limited company, and some will be familiar with the newer organisational form for those doing good in our constituencies: the community interest company. However, I suspect that very few will be aware of the model of the industrial and provident society model, including what that has meant in the past, and what we hope the model will bring to our constituencies in the future.

Photo of Jeremy Lefroy Jeremy Lefroy Conservative, Stafford 2:15 pm, 30th October 2012

I endorse what the hon. Gentleman says because an industrial and provident society is an extremely useful vehicle for a number of charitable purposes. I will be interested to hear what the Minister says about where that vehicle lies within the Bill. I have been involved in setting one up, so I know how it can be used for charitable activities to which other bodies do not necessarily lend themselves.

Photo of Gareth Thomas Gareth Thomas Shadow Minister (Cabinet Office), Party Chair, Co-operative Party

I am grateful for the hon. Gentleman’s intervention. At the start of the Committee’s consideration of the Bill, his contributions hinted that he had sympathy with many of the positions set out by Labour Members, but then he went quiet, so I welcome his return to sympathising with some of our positions.

Photo of Gareth Thomas Gareth Thomas Shadow Minister (Cabinet Office), Party Chair, Co-operative Party

Let us see; we should not rush to a conclusion.

It would surely be a tragedy if those charitable organisations that are community benefit societies were to miss out on eligibility for the scheme simply because of a minor drafting omission.

I was lucky enough to introduce a private Member’s Bill that became the Industrial and Provident Societies Act 2002. That Bill enjoyed the support of the hon. Member for Christchurch (Mr Chope), who is well known for his enthusiastic support of private Members’ Bills. It turned out that Christchurch Conservative club was an industrial and provident society, and I was told at the time that it served very good pies. When I drew that to the hon. Gentleman’s attention, it helped to convince him of the need to be sympathetic to such societies. I do not know whether the Christchurch Conservative club is a community benefit society, but I suspect not. It is certainly difficult to think that anything labelled “Conservative” could be regarded as charitable, notwithstanding the intervention made by the hon. Member for Stafford. Nevertheless, it would be useful to hear from the Minister what analysis he has made of how the Bill will affect community benefit societies.

Let me cite two real-life examples of community benefit societies that are registered charities. North Lynn Discovery Ltd, which is based in King’s Lynn in Norfolk, runs a series of activities to support those at risk of being excluded from school, and of offending and entering the criminal justice system. It tries to help those not in education, employment or training by providing support, mentoring advice and educational programmes that help people to develop key skills. I understand that it is a registered charity, although time has not allowed me to check whether it is registered for gift aid. However, let us assume that it is, and that it meets the “three years in seven” category. Surely such a charitable industrial and provident society should be allowed to benefit under the Bill, providing that it meets all the Minister’s criteria and is willing to read the 80 pages of guidance that he sets out.

The second example is the Lydney community centre in Gloucestershire, which has taken over a former primary school. I understand that the volunteers who run the centre have set themselves up as an industrial and provident society, and specifically as a community benefit society. Although it is not yet registered as a charity, it  could do so. In the longer term, it could benefit under the scheme, if charitable industrial and provident societies are covered. If they are not covered at the moment, that could be achieved by agreeing a suitable amendment on Report. Such organisations are doing the right thing in their communities, so surely they are well worth our support.

I would like to thank Ian Snaithe, a legal expert on industrial and provident society legislation, who drew my attention to this gap in the Bill. I am grateful for his work, expertise and guidance, and I look forward to hearing the Minister’s response.

Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury

I understand the intention behind amendment 34, but I ask the hon. Member for Harrow West to withdraw it, because it is not necessary. Clause 17 sets out definitions for several of the terms used in the Bill. Subsection (1) defines what is meant by a charity which, for the purposes of the Bill, includes a charity eligible for UK charity tax reliefs, and certain organisations that are not charities in law, but that benefit from gift aid. Those are community amateur sports clubs, as well as certain named organisations.

Amendment 34 would add a further type of organisation to the definition of a charity: industrial and provident societies that operate as charities. Industrial and provident societies are regulated by the Financial Services Authority, rather than the Charity Commission, but some of them are charities, as the hon. Gentleman said. Industrial and provident societies that are charities are entitled to claim UK charity tax reliefs, including gift aid, because they meet the definition of a charity as set out in subsection (1)(a). It follows that there is no need to specify that industrial and provident societies are a separate class of organisation to which the Bill will apply. When an industrial and provident society is not currently a charity, it is not eligible for the scheme. Those societies that are charities automatically qualify for the scheme, subject to their meeting the eligibility conditions.

Photo of Gareth Thomas Gareth Thomas Shadow Minister (Cabinet Office), Party Chair, Co-operative Party 2:30 pm, 30th October 2012

I am grateful that the Minister has put that clarification on record because it will clear up any doubts. However, who will regulate the charitable status of community benefit industrial and provident societies that are charities? The sector has been concerned about that for a while, so can he offer any further information?

Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury

The hon. Gentleman is right about putting things on the record, and to the extent that doing so helps industrial and provident societies understand the intentions of the Bill, that is good. The hon. Gentleman gave examples showing that many industrial and provident societies do excellent work and we want to ensure that, where they are charities, they can benefit from the scheme.

Regulation of industrial and provident societies is a matter for the Charity Commission and the Cabinet Office. Where a charity is not required by law to be regulated by a regulator, it can still qualify for UK charity tax reliefs, including the benefits of this scheme.

Photo of Gareth Thomas Gareth Thomas Shadow Minister (Cabinet Office), Party Chair, Co-operative Party

I understand that responsibility for the Charity Commission is not within the Minister’s immediate scope, and I am grateful for the assurance that he has  provided about the eligibility of charitable industrial and provident societies under the scheme. However, I also raised the wider concern about future regulation of the charitable status of industrial and provident societies. I appreciate that he cannot give me a direct answer now, because he does not have direct conversations with the Charity Commission, but will he use his good offices to give it the hurry-up to resolve this small issue, which is nevertheless important for this group of organisations?

Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury

I am happy to write to the Charity Commission on the hon. Gentleman’s behalf.

I ask the hon. Gentleman to withdraw his amendment.

Photo of Gareth Thomas Gareth Thomas Shadow Minister (Cabinet Office), Party Chair, Co-operative Party

The Minister has been helpful and given clarity to bencom societies that are charities, saying that they are covered under the Bill if they fulfil all the criteria that we have debated at some length. That will provide huge reassurance to those legal experts who advise industrial and provident societies, such as Mr Snaith, who is a distinguished former university lecturer and expert on the co-op and co-op law.

The Minister has also been helpful in agreeing to give the Charity Commission a gentle prod to resolve the more general issue, specific to these debates, of how charitable industrial and provident societies are regulated in future. I am grateful to him for that and I hope he will be willing to make his letter and the answer to it publicly available, or at least available to Members of the Committee. I will happily take an intervention from the Minister if he is willing to give us that assurance.

Sajid Javid indicated assent.

Photo of Gareth Thomas Gareth Thomas Shadow Minister (Cabinet Office), Party Chair, Co-operative Party

The Minister is nodding; I will take that as a yes. I am grateful for that, and as a result, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I beg to move amendment 33, in clause 17, page 9, line 23, leave out from ‘2011’ to end of line 26.

Sections 7 and 356 of the Charities Act 2011 already make the necessary provisions stated here. Accordingly, the reference to the law of Scotland (and incidentally to the law of Northern Ireland) in Clause 17 is supererogatory.

This issue was raised on Second Reading and again in the evidence session. The amendment would delete the following from clause 17:

“(reading the reference in section 2(1) to the law of England and Wales as including a reference to the law of Scotland and the law of Northern Ireland)”.

The reason for the amendment, again, is to probe the relationship between the definition in the Bill of charities in English legislation and the recognition that the law in Scotland is somewhat different. We heard this morning, and we heard in discussions on previous clauses, of potential difficulties arising from different interpretations. We need clarity and the Minister has been helpful in trying to get those definitions.

This issue was first flagged up on Second Reading as a result of evidence submitted by the Law Society of Scotland suggesting that, on this occasion—this may be helpful to the Minister—while the intention of the process is to ensure clarity across the UK, the provisions  which seek to import the English definition of “charitable purposes” from the Charities Act 2011, as that is the relevant definition for UK tax purposes, may be unnecessary. It has been suggested to us that the reference in clause 17(2)(a)

“to the law of England and Wales”

is unnecessary because section 7 of the 2011 Act, “Application of this Chapter in relation to Scotland” and section 356, on the “Extent” of the Act, already make the necessary provision, specifically limiting it by reference to section A1 of part 2 of schedule 5 to the Scotland Act 1998 to reserve matters of fiscal policy. I see the hon. Member for Congleton nodding sagely—she is, of course, an esteemed Member of the Scottish Affairs Committee and takes a very close interest in devolution issues.

I want some clarity from the Minister so that, in trying to do the right thing, we do not inadvertently cause difficulties. He has been at pains to say on a number of occasions that certain things are not required because other legislation already deals with the matter. Does existing legislation not cover this issue adequately, without the need for something which appears to be importing an English definition of “charitable purposes” into the Scottish definition?

Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury

Amendment 33 would remove the reference to Scotland and Northern Ireland from the definition of “charitable purpose” in clause 17. The hon. Lady has explained her belief that the text that the amendment would remove is unnecessary, but I regret to say that I cannot agree. The reference to Northern Ireland is necessary, and the reference to Scotland is there for legal certainty. Charity law is a devolved matter, and the definitions of “charitable purpose” in Scotland and Northern Ireland differ from one another and from those used in England and Wales. For UK tax purposes, however, we use the definition under the law of England and Wales, which is in section 2 of the Charities Act 2011, because it is important that national taxes be applied in the same way across the United Kingdom.

Section 7 of the 2011 Act applies the English definition to Scottish charities in relation to matters that fall within section A1 of part 2 of schedule 5 to the Scotland Act 1998: namely, reserved matters of fiscal, economic and monetary policy. The small donations scheme is a reserved matter, so I agree that for Scotland the reference to section 2 of the 2011 Act might have been enough. The clause also refers to the law of England and Wales and the law of Northern Ireland, however, because the devolution settlement in Northern Ireland is different from that in Scotland.

Section 8 of the 2011 Act applies the English definition of “charitable purpose” for enactments that fall within paragraph 9 of schedule 2 to the Northern Ireland Act 1998, which are excepted matters relating to taxes and duties. The small donations scheme is not a tax or a duty, so section 8 of the 2011 Act does not do the same job for Northern Ireland as section 7 does for Scotland.

Without the explicit reference to Northern Ireland in clause 17, the small donations scheme might work differently depending on where the charity is located. Under clause 3, charities can use small donations only  for charitable purposes. If the definition of “charitable purpose” were different in Northern Ireland, some charities would be able to spend money on things that other charities would not, depending on where they were located. That would not be right for a UK-wide scheme, so the reference to Northern Ireland in clause 17 is necessary.

The reference to the law of Scotland provides legal certainty. Confusion might result if clause 17 referred only to the laws of England and Wales and the law of Northern Ireland, because that might imply that the definition found in the 2011 Act did not apply for the purposes of Scottish law. Some people might take the lack of a reference to Scotland to mean that the Scottish definition should apply, which would be wrong.

I hope that that has helped to answer some of the good questions that the hon. Lady asked. The Government have drafted the clause correctly, and it is vital to have clarity. Now that I have explained why the reference to Northern Ireland in clause 17 is essential and that the reference to Scotland is there to give legal certainty, I ask the hon. Lady to withdraw amendment 33.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I appreciate the Minister’s detailed answer to that question and his concession that it might have been possible to word the clause without reference to the law of Scotland. He has, however, made it clear that he believes that the clause needs to refer to the law of Northern Ireland. I certainly have a good working relationship with our colleagues just across the water from my constituency and, bearing in mind the interests of my hon. Friend the Member for Foyle, would not want to do anything whatsoever to cause problems for any charitable organisations there. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 17 ordered to stand part of the Bill.