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New Clause 3 - Complementary Gift Aid for small donations to small charities

Small Charitable Donations Bill – in a Public Bill Committee at 4:30 pm on 30th October 2012.

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‘(1) Smaller charities, community amateur sports clubs or recently established charities, which do not meet the eligibility criteria in section (1) shall be eligible to apply to HM Revenue and Customs for complementary Gift Aid for small donations.

(2) “Small donations” for the purposes of complementary Gift Aid shall be as provided for in section 3 and the Schedule.

(3) The maximum donations limit for complementary Gift Aid shall be £5,000.

(4) The “connected charities” conditions in sections 4 and 5 shall also apply for charities making claims for complementary Gift Aid for small donations.

(a) HM Revenue and Customs may stipulate the supporting verification it may require from relevant agencies or authorities or designated persons in respect of any claims for complementary Gift Aid for small donations to small charities;

(b) such agencies, authorities or designated persons may include Charity Commissions, local government officers, police or police and crime commissioners or others designated by devolved administrations in agreement with HM Revenue and Customs for these purposes.

(5) This section shall come into force on 5 April 2014.’. —(Mark Durkan.)

This would provide for a separate scheme of supporting payments from HM Revenue and Customs, in the spirit of Gift Aid, to smaller or newer charities including those formed in response to a particular event.

Brought up, and read the First time.

Photo of Mark Durkan Mark Durkan Shadow SDLP Spokesperson (International Development), Shadow SDLP Spokesperson (Work and Pensions), Shadow SDLP Spokesperson (Foreign and Commonwealth Affairs), Shadow SDLP Spokesperson (Home Affairs), Shadow SDLP Spokesperson (Justice), Shadow SDLP Spokesperson (Treasury)

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

Before I speak directly about the new clause, given that we have ample time—until 8 pm—I want to pay tribute to the contribution to the overall working of the Committee by Members on both Front Benches. The Minister rightly acknowledged the contribution of Opposition Front Benchers and others. I have been impressed by the spirit of the contributions of all hon. Members in terms of practical questions and ideas about the content of the Bill and some of the amendments. I have detected in the discussions that many Members, not just Opposition Members, would like to see the scheme, which will be good and offer benefits to many charities, made a bit more effective, a bit more accessible—if not now, at least in the future.

When the Government first promised the measure, many people’s emphasis was on the small charities that would be able to get the equivalent of gift aid on small donations without having to go through all the gift aid forms. We were told that it was going to be a great reward for the tin shakers and everybody else who goes out and does good things in the context of the big society. However, without going into broad details, the Bill as drafted gives us much narrower grounds for anticipating who will benefit.

The hon. Member for Harrow West made the point that the NCVO and others have expressed concern that nothing like the broad sweep of charities that we all hoped would benefit from this change will be able to do so.

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

I should perhaps in my comments have highlighted the written evidence from Camphill Scotland and from other small charities worried about the complexity of the Bill and fearing that they will not benefit in the way the hon. Gentleman describes.

Photo of Mark Durkan Mark Durkan Shadow SDLP Spokesperson (International Development), Shadow SDLP Spokesperson (Work and Pensions), Shadow SDLP Spokesperson (Foreign and Commonwealth Affairs), Shadow SDLP Spokesperson (Home Affairs), Shadow SDLP Spokesperson (Justice), Shadow SDLP Spokesperson (Treasury)

I thank the hon. Gentleman for that point. The Committee received written as well as oral evidence that reflects that many small charities do not  qualify for this scheme, may not qualify in its first year or two, and may find it testing to qualify at a later date. I will go into the reasons why some charities might find it harder to go down the gift aid route as a way of qualifying for the top-up benefits.

Earlier in our discussions, I said that the Government had produced a scheme for supplementary gift aid for those charities that use or will use the gift aid system. What I am trying to do with new clause 3 is effectively offer a complementary gift aid scheme that could be available to small charities that do not meet the eligibility criteria for the Government’s supplementary gift aid scheme. That would ensure that smaller charities can get the same benefits from the complementary gift aid scheme as larger charities using the gift aid scheme. It would also help some newer charities, not least charities that are formed in response to particular events, such as natural disasters, tragedies or the impact of serious crime on a community. We all know of many charities that are formed in those circumstances. It seems odd that we as parliamentarians should determine that such charities be excluded from a fairly modest top-up payment scheme with a maximum of £1,250 to complement £5,000 of donations.

I have posited before in Committee that, as well as the Government’s route 1 option, as provided for in the Bill, we may need to develop a route 2 option through which smaller charities not working gift aid qualify. That is essentially what I am trying to do with new clause 3. I know that it will take time for such a scheme to be worked up and that is why the new clause provides for a later commencement date. The complementary scheme for donations to smaller charities would not come in until 2014, because HMRC would want to be protected against fraud or abuse if it were to make payments of this nature to smaller charities that did not fulfil the gift aid criteria, for the reasons that the Minister emphasised. That is why new clause 3 indicates that, in developing such a scheme, HMRC could

“stipulate the supporting verification it may require from relevant agencies or authorities or designated persons in respect of any claims for complementary Gift Aid”.

We have referred from time to time to the fact that there are different charity regulators in different parts of the UK and the new clause refers to them. Given that many charities collect money on the basis of licences issued by the police, the police could indicate verification by saying, “Yes, we licensed that collection for this small local charity. We can confirm that that was the money that was collected.” It might be a role for the police and crime commissioners that are to be elected. I am not sure what they are going to do, looking on from Northern Ireland, but they might provide a useful point of liaison between the function of police licences and something that is then being administered on behalf of central Government. They could certify that the collections had taken place.

Often, when charities are set up in response to particular dramatic events in a community, local authority figures, whether the mayor or the chief executive, are used as trustees so that people are more widely reassured. Those are the sort of people who could be used as validators or verifiers for HMRC. Under the new clause, HMRC would also have the power to indicate that certain professional classes, for example, accountants, might be able to verify. The Committee’s attention was drawn to  the fact that there is the defunct self-assessment giving scheme, and some of the logic and rubrics of that could well be used in this situation.

If the Government have conceived a scheme that is effectively a lean-to on the gift aid system and are absolutely minded to use it as their route 1 for most charities and for supporting giving by getting some money back from the taxman, because they want to ensure that they can build on the intelligence, understanding and rapport that HMRC has with charities on gift aid and because they do not want to set up a completely separate scheme from that which those charities would be using, it should not be beyond their ken to develop a route 2 option.

I do not pretend that all the details that I have—and certainly not the details that I do not have—on new clause 3 make this the perfect scheme by any means, and I have no doubt that a schedule and so on would be needed to go with it. I know that some Government Members are concerned that perhaps more charities should be included and eligible in future, and I hope that they will accept that there is merit in at least keeping open the option that there should also be a route 2.

I have ensured that the terms on which I have offered the new clause do not include any conflict with connected charities issues. Although I have reservations about the clauses on connected charities, I would not want any jiggery-pokery to enable people to apply under one scheme as a way of getting round the connected charities provisions that are stipulated elsewhere.

Equally, the new clause makes it clear that the amount of money involved would be the same as the small donations limit, which is currently £20. It would be the same for my scheme and, similarly, for the overall cap of £5,000, so £1,250 would be the maximum sum given.

There would be no conflict, and it would be a way of extending the logic and the benefit of the measure to other charities. The later commencement date would provide time for the inevitable work on the detail. That would include consultation with the devolved authorities, the charity regulators, perhaps some relevant Departments in the devolved Administrations, and other agents.

I do not repeat the problem of the matching principle, because there are some problems we would certainly not want to extend, but I took great heart from the Minister’s indication that that is one area that he is most minded to consider revising. The new clause would be free of some of the complications because the charities involved would not necessarily be caught up in all the difficulties that arise with community buildings.

Many hon. Members believe that this is a good scheme, so why would a few charities, in a few years, want to use a route 1 or route 2 way to obtain complementary gift aid, as opposed to every charity taking the gift aid route and then the top-up that the Government offer in the Bill? Many charities are convinced from experience and anecdote from others that the gift aid scheme is hard and not worth while, and will resist opting into the scheme as a way of trying to get the top-ups. If they have not used gift aid so far for what it can offer them, the suggestion that they would use it just as a way of getting top-ups is not convincing.

Some charities with a particular profile, or that fundraise in a particular way, such as those that rely on involving young people and schoolchildren and people going out and shaking tins or doing street collections, will not be particularly interested in asking people to fill in gift aid forms and to make the necessary declarations. The way in which some charities do their business is a reason why some of them do not do gift aid.

Some charities want to leave room for others, and to respect their different ambits. Many charities in my constituency are clear about going out and raising the money they need without intruding on the space or interests of other charities that may be more developed and established, and have a strong gift aid dimension to their fundraising. Charities can avoid apparent competition with one another and can complement one another by having different fundraising profiles, which are then reflected in whether it is feasible for them to rely heavily on gift aid.

In addition, as we heard in evidence sessions, some people are very resistant to making gift aid declarations, not least when it comes to smaller donations, because they feel a bit embarrassed about filling in a declaration for what might appear to someone else to be a small amount of money. Other people are reluctant to fill in gift aid declarations, because they suspect that that will be used by charities to target them with all sorts of postal requests, lots of books of raffle tickets and so on or that their details will be passed on to other charities. Many people have their own aversion to making gift aid declarations. Charities will have their own reasons for perhaps not wanting to invest a lot in the gift aid route. It may be that individuals are comfortable with giving donations and not having to make gift aid declarations, and that that is part of their relationship with particular charities. I think that that should be accommodated in the future. This is meant to be a Bill about the big society. It is a Bill on the principle of small donations, but it should extend to small charities as well.

I know that the hon. Member for Banbury cannot be with us this afternoon, but he has reminded us several times during our proceedings that the Church of England is very content with what the Bill does for it. I have no doubt that the Catholic Church, because of some of the particular issues that have been sorted out, not least in relation to community buildings and so on, will be very pleased about what the Bill does for it as well. However, I am sure that both those Churches, as part of their pastoral outlook, would have some concern or regard for the many other charities that their members participate in and support, and that other people who are not members of any Church might support very actively as well. There are many other smaller charities that are left out.

It is not enough for us to pick our charity or charitable interest and say that it is okay with the Bill. That is like what the old Tennent’s advert used to say: “I’m okay. I’ve got mine.” Yes, many Churches are okay; they have got theirs. Some of the bigger charities qualify immediately—from day one—for this scheme. That is no big effort for them. I think that we should try to see how, learning from this scheme and without doing injury to the scheme that the Government have carefully put together, we can open up the Bill to other charities. The Minister has resisted many Opposition amendments because he thinks they would open up all sorts of fraud issues or abuses, but this new clause offers a different  way from the previous Opposition amendments of opening up the logic and benefits of the Bill to other charities. I therefore ask the Minister and other Government Members to consider it.

I know that the Minister will not be able to agree to the proposal today. Before any Government Members become concerned, I assure them that I am simply speaking to the merits of this new clause today. I will not be pressing it to a vote. I would not subject hon. Members to the difficulty of voting against a measure that I think many of them in their hearts support, and that I hope we can all look forward to supporting in the future. If that is not possible in the course of our proceedings, perhaps it can be part of the first review that the Minister has promised us.

Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury 4:45 pm, 30th October 2012

I am grateful to the hon. Member for Foyle for tabling the new clause for debate. Throughout this debate and the others we have had, he has made excellent, thoughtful and very well intentioned contributions. The new clause is another creative attempt at an alternative way for certain charities to become eligible for this scheme, as I will go on to explain. In fact, it would create a new scheme altogether—a separate scheme for those charities not using gift aid and therefore not eligible for the small donations scheme. There are a number of problems with the hon. Gentleman’s proposal. First, I shall remind hon. Members why the link to gift aid exists. As we have said from the outset, this scheme complements the current gift aid system. It is a top-up system, as opposed to a tax relief system. As we have discussed a number of times, because the gift aid system requires declarations and information from people making donations, there is an audit trail that can be followed if HMRC needs to, so it comes with added protections—the fit and proper person test and so on. Under the Bill, we have a cash-based system. There are a lot of reasons for doing that, which we all agree on, but unfortunately they would open the scheme up to fraud if we did not have adequate safeguards. I will not run through all the safeguards that the link with gift aid provides again, but we have discussed why they are important. It is safe to say that without the safeguards, the level of risk to the public purse would be simply unacceptable.

The new clause suggests that for small or new charities, HMRC could gather information from other agencies to check that they are honest. That suggests a significant administrative burden on HMRC to verify each and every charity that applied through this route. Without strict eligibility criteria, HMRC would be required to make very subjective judgments about whether a charity is in or out of the scheme. It would mean that the Department would be constantly at the risk of legal challenge to the decisions it made.

Let us think about the case of a new charity starting up. It is small, and so is not required to register with the Charity Commission for England and Wales. It has just been set up so, until it has raised some money it cannot spend any, so there will be no record of its spending money for charitable purposes—or not, for that matter. How is HMRC supposed to be able to tell whether it is honest or not? What documentation could it rely on to tell it that the people behind the charity could administer a cash-based scheme correctly? That is why we have made a link to gift aid that helps HMRC to see how the charity operates and gives it a good guide to the charity’s likely compliance with the scheme.

That brings me to my next concern, which is about the boundaries regarding which charities are in or out of the new scheme. The hon. Gentleman has not specified what the definition of “smaller” or “newly established” charities would actually be. That prompts the question of how charities are going to know which scheme they are supposed to be using. It would require more subjective judgment by HMRC to decide who was in and who was out, and that creates more of a risk of legal challenge.

I appreciate that the new clause is well intentioned and encourages us to have a useful debate. I understand the hon. Gentleman’s concerns about charities that will not immediately be eligible for the small donation scheme, because they do not have a track record of gift aid claims. However, it is in charities’ interests to start using gift aid where they can, and we should be trying our best to encourage them to do so. It is not capped for each charity in the same way as this scheme, so charities can claim tax relief on all donations they get from gift aid declaration. For straightforward donations of money with no benefits attached, gift aid is a simple scheme to operate, and with the new IT system coming in next year it will be even easier for charities to claim.

I thank the hon. Gentleman for his new clause and the debate he has encouraged, but I kindly ask him to withdraw it.

Photo of Mark Durkan Mark Durkan Shadow SDLP Spokesperson (International Development), Shadow SDLP Spokesperson (Work and Pensions), Shadow SDLP Spokesperson (Foreign and Commonwealth Affairs), Shadow SDLP Spokesperson (Home Affairs), Shadow SDLP Spokesperson (Justice), Shadow SDLP Spokesperson (Treasury) 5:00 pm, 30th October 2012

I thank the Minister for his complimentary observations. I have indicated that I do not regard the new clause as complete and perfectly formed, even for the purposes for which I am offering it, so I will of course withdraw it. I said earlier that I would not want hon. Members to vote against the spirit of something that many would probably like to see at some point.

The new clause would allow HMRC to stipulate the verification it needs, and essentially to draw up the scheme. It would answer our many questions about the practicality of the scheme and the associated regulations and guidance. If the Minister can resort to similar measures to deal with some of the vexed questions he has faced, I would like to do the same thing.

New clause 3 would allow HMRC to sift through the details it considered necessary. It could determine the definition of recently established charities and devise an eligibility test. I gave examples of recently established charities that often use people who are in local government as part of their set-up and assurance. HMRC would be able to decide how to satisfy itself of the bona fides of a charity; it would not simply have to take the charity’s word for it. HMRC could ensure that the verification arrangements were sufficiently testing to safeguard against possible abuse.

I am not saying that the scheme should be drawn up lightly or frivolously. HMRC must be satisfied that it will not be making payments to people who will not use them for the due purposes. New clause 3 does not offer an easy get-around, but it is an attempt to offer charities a genuine route to a benefit that many of them expected to get. The consultation exercise showed that many charities were disappointed because the Bill was not what they expected it to be. When the Government first announced the legislation, Members from all parts of the House welcomed it as a good idea and thought that  it would really help small charities, because it would not rely on the red tape of gift aid. It was going to offer something beyond that, but, lo and behold, that is now what we have.

The Chancellor announced a worthy measure and a good initiative, but it is as though there is some sort of strange predictive text programme in the Treasury that takes a good idea and turns it into the gobbledegook that we see in certain aspects of the Bill, which pre-empt all sorts of possible wheezes and abuses that people might get up to. As far as the primary scheme in the Bill is concerned, I understand why the Minister has been wedded to such measures. I believe, however, that there should be a secondary scheme in the same spirit, under which HMRC can satisfy itself of the bona fides of a charity and the people who run it.

I do not accept everything that the Minister has said in opposition to new clause 3, although I could have offered some practical criticisms of it and the wrinkles it might create. I hope this debate shows that many of us in Parliament want to keep alive the option of admitting more charities to the scheme, and that we are not content to leave it at that, just because some of the Churches are content with their treatment. More should be offered to other charities, and I hope that after the oft-promised review, at least, an idea such as this will be allowed to grow legs. With that, I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

Question proposed, That the Chair do report the Bill, as amended, to the House.

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

On a point of order, Mr Robertson. May I first take this opportunity to thank you and your co-Chair, Mr Turner, for the way in which you have chaired proceedings? In both the evidence sessions and the scrutiny sittings, you have between you ensured that we made good progress and kept us on point when we were in danger of straying too far from it. I thank my hon. Friend the Member for Chelsea and Fulham and the hon. Member for Clwyd South, who have developed what I would call a good working relationship on the Bill through the usual channels.

I thank the Committee Clerks and the Hansard reporters, who had to make sense of our speeches over the past few days. My thanks to the doorkeepers and the police, whom we have not troubled too many times with Divisions—just once, I think. That leads me to thank the hon. Members for Kilmarnock and Loudoun and for Harrow West for their support for the Bill and for leading the Opposition’s scrutiny of it. I think they will agree that we have had a good, constructive debate. I also thank my hon. Friends for their contributions.

We have had an excellent debate on the things we have focused on—the key issues at the heart of the legislation. We have also discussed Kafka and the relative merits of Harrow and Eton. I cannot speak for other Members, but I certainly learned some new things during our debates. I very much enjoyed hearing from my hon. Friend the Member for Banbury about his enthusiastic support for his constituency’s branch of the Sea Cadets, but it was news to me that his Oxfordshire constituency is by the sea. I learned from the hon. Member for Foyle that he finds that HMRC officials have no social skills—for the record, that has not been my finding.

Lastly, I thank the Bill team and parliamentary counsel for doing an excellent job in putting together the legislation. Thank you, Mr Robertson.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

Further to that point of order, Mr Robertson. I, too, would like to add my thanks to everyone who has participated in the Committee and in getting us to a fairly speedy conclusion, given that we could have spent a great deal more time deliberating on the detail of certain clauses. It has been the Minister’s first opportunity to take a Bill through Committee, but I understand that he is about to move on to the next one, when he and I will face each other across the Committee Room yet again, discussing something else in the not too distant future.

Mr Robertson, I thank you and Mr Turner for some excellent chairing. You allowed us, as the Minister said, to explore the wide range of issues that needed to be explored; none the less, you kept us to task when we were in danger of drifting slightly too far from the clauses.

I add my thanks to the Committee Clerks and to the Hansard reporters, in particular when they had to make sense of some hastily scribbled notes or even of no notes at all. I thank the doorkeepers and police, whom, as the Minister correctly said, we did not give too much to do. I also thank everyone who has worked behind the scenes on the Bill to ensure that the Minister had inspiration when necessary and could bring forward information when we needed it.

I wanted to make special mention of the parliamentary draftsmen and women. I think I made a few references to them during the discussion, but I would not want them to think that that was intended as any personal criticism. I understand what a difficult and complex job it is to ensure that we have a Bill drafted in a form that allows us to take things forward.

Again as the Minister alluded to—I am beginning to worry that I am agreeing with him too much, and that we seem to be thinking along similar lines—the Bill has led us to discussions about not only Kafka but, in the early stages, Alice in Wonderland, which worried me slightly. I was relieved when we moved on to Eton and the 2nd Bromsgrove Scout Group, which seemed to become the focus of things in the real world rather than in our imaginations.

I thank the groups and individuals who gave evidence and provided briefings and real-life examples of why we needed to work to improve the Bill. The same applies to Members in all parts of the House. I thank the members of the Committee, not least my hon. Friend the Member for Harrow West, who gave us a record 17,000 words on a particularly complex part of the Bill—a feat that I was not able to match in any shape or form.

We have had an excellent series of sittings. The opportunity to consider all the issues relating to the devolved Administrations has also been important, and it has been useful to have Committee members who understood that. On that note, the Committee has shown that when we work together, we are better together.

Question put and agreed to.

Bill, as amended, accordingly to be reported.

Committee rose.