Conduct of charities: disposal of assets

Charities (Protection and Social Investment) Bill [Lords] – in a Public Bill Committee at 4:30 pm on 5 January 2016.

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

Photo of Rob Wilson Rob Wilson The Parliamentary Secretary, Cabinet Office

I wish you, Mrs Main, and all members of the Committee a happy and prosperous new year. I hope hon. Members did well from Father Christmas during the recess and that everyone has returned in good spirits.

After the conciliatory nature of the previous Committee sittings, it is a little sad to begin the new year on a slightly more divisive note. Clause 9 was an Opposition amendment inserted into the Bill in the other place. It was an undisguised attempt to undermine or even block the Government’s manifesto commitment to extend the right to buy to tenants of housing associations. At the very least it was to be a marker of concerns in the other place about that manifesto commitment. For several reasons, the Government believe that the clause is neither necessary nor desirable. It is now time to remove the provision from the Bill. It is important to note that the Charity Law Association agrees that the clause should be taken out.

Let me explain why the provision is not necessary. The clause was designed to attack and to frustrate the Government’s manifesto commitment to extend the right to buy to tenants of housing associations, most of which are charities. It was introduced into the Bill in the other place when there was concern about charitable housing associations being forced to implement the right to buy. Since then, however, we have reached a voluntary agreement with housing associations that renders the clause unnecessary, because there is no question of them being forced to dispose of their assets.

The Government believe that anyone who works hard and wants to get on the property ladder should have the chance to do so. The right to buy has already helped 2 million families to realise their dream of owning a home, but until now the discounts available under the right to buy have only been available to tenants in local authority properties and some former council properties. Extending the discounts to housing association tenants in England will end that unfairness and means that up to 1.3 million more families get a realistic chance to own their own home. At the same time, replacement of the housing stock will be ensured.

The National Housing Federation has worked with its housing association members to secure a voluntary deal that will give housing association tenants the opportunity to buy their home with an equivalent discount to the right to buy. The Government accepted the voluntary deal proposed by the housing associations, which will deliver the manifesto commitment to extend the benefits of the right to buy to 1.3 million tenants. Homes sold to tenants under the deal will be replaced one for one using the proceeds from the sale of the property. That will provide a significant increase to the overall supply of new housing.

So far, 93% of the total housing association stock is covered by those associations that have said yes to the deal. We want as many associations as possible to sign up to it, so that their tenants may access the same home ownership opportunities as other tenants, and the opportunity remains for more housing associations to do so. The deal includes examples of types of property that housing associations may decide that they do not want to sell to a tenant—for example, particular properties in supported housing, historic charity legacy stock or rural housing. In such circumstances, the tenant will be offered an alternative housing association property.

Housing associations are voluntary organisations and we strongly believe that they should continue to be independent of the Government. That belief is reflected in our decision to extend the right to buy to housing association tenants by accepting the voluntary offer from the sector, rather than implementing the policy through legislation. We have, however, included provisions in the Housing and Planning Bill to make the voluntary deal work, including financial powers to pay the housing associations for the cost of the discount and powers for the regulator to monitor and report on the terms of the deal.

Ahead of full implementation, a six-month pilot scheme is taking place with five housing associations, which will enable the new system and the voluntary deal to be road-tested properly in advance of full implementation. Tenants of those housing associations can already register their interest. This voluntary deal was achieved by working together with the housing association sector, resulting in a better outcome for landlords and tenants while delivering the Government’s manifesto commitment.

Of particular importance for the Committee today is that, under the voluntary deal agreed with housing associations, charities could not be compelled to dispose of their assets in a way that is incompatible with their charitable purposes. Under the deal, charities’ independence is preserved, and they continue to have their freedom to dispose of their assets in the way that they see fit and that is compatible with their charitable purpose. I would strongly argue, therefore, that the historic voluntary deal between housing associations and the Government renders clause 9 unnecessary.

I now turn to why clause 9 could have damaging unintended consequences for charities. When the clause was inserted into the Bill, it was argued that it effectively just stated the existing legal position. I disagree—it does not. Clause 9 is not a simple restatement of the existing law on the use and disposal of charitable assets.

As we have already said, charity law is a mixture of statute law and case law. Many of the rules that apply to charities’ investment in, and disposal of, assets derive from case law rather than statute law. Attempting to create a simple statutory provision for a large area of case law is fraught with danger. The problem is that a simple statutory provision will invariably fail to cover the many different circumstances and complexities that case law can provide for. It would be exceptionally difficult to find a satisfactory expression to properly cover the explanation and nuanced analysis that is often afforded in judgments in case law. As a result, there is a real danger that the clause will give rise to damaging unintended consequences, which I am sure all hon. Members would wish to avoid.

Charity Commission guidance on the disposal of land makes it clear that any disposal must be

“in the interests of the charity” rather than “consistent with charitable purposes”. Those concepts have different legal meanings, with the latter being much wider in its potential application.

Clause 9 casts doubt on the power of the courts to direct charities to dispose of property—for example, under compulsory purchase legislation. It could also prove problematic to the Charity Commission in the exercise of its powers—for example, its powers to direct charities to take specified action, or to direct the use of property, in the course of a statutory inquiry. The commission can currently routinely use those powers under the appropriate safeguards, but the clause may mean that it would be unable to do so, and its compliance work may be frustrated. I am sure that that is not something the clause was intended to do when it was added to the Bill in the other place.

There will be some circumstances where what is in the charity’s long-term interests does not align with the application or use of assets for a particular charitable purpose—for example, where a charity must pay a contractual debt that puts its solvency at risk or where the charity’s purposes can no longer be met.

Furthermore, the clause covers all charity assets, which includes property other than land, such as investments. That raises the separate issue of the duties that apply in that context. For example, the clause could mean that trustees would be able to make an investment only where that investment was consistent with the purposes of the charity. Although that is sometimes the case, trustees can, and often do, make investments solely for the purpose of obtaining the maximum financial return consistent with commercial prudence. In that scenario, the charity’s purposes are furthered by the way in which the income from the investment is subsequently applied. Clause 9 as it stands could hamper trustees’ discretion to make such investments.

The clause also gives the Charity Commission a new and wide-ranging role in policing the use and disposal of charity assets that is inconsistent with our aim of helping the commission to focus on its core regulatory responsibilities. Requiring the commission to ensure that charities are not required to use or dispose of assets would be more than just an unwelcome distraction for the regulator at a time of very limited resources.

There is also the preserved right to buy in relation to housing associations, which 630,000 tenants already enjoy, and the right to acquire, which 800,000 tenants currently have. Those rights, when exercised, would compel the charity to sell its assets. Those pre-existing rights, which are set out in legislation, could be undermined by clause 9.

I hope I have been able to make a compelling case to the Committee for why we should remove the clause. As my right hon. Friend the Minister for the Cabinet Office and Paymaster General said on Second Reading, it is regrettable that a Bill with widespread support was used

“in a narrow attempt by the other place to undermine the Government’s manifesto commitment to extend the right to buy”.—[Official Report, 3 December 2015; Vol. 603, c. 561.]

For that reason, and because of the damaging unintended consequences clause 9 would have for charities, we cannot allow it to stand, and oppose its inclusion in the Bill.

Photo of Anna Turley Anna Turley Shadow Minister (Cabinet Office)

It is a pleasure to serve under your chairmanship, Mrs Main. I would like to echo felicitations for a happy new year for everyone on the Committee. I would also like to thank everybody across the community and voluntary sector who spent time over Christmas and the new year, as we know they will have done, in their communities undertaking many hours of community and voluntary service, helping those who are most vulnerable and in need at what for most of us should be a happy time.

I appreciate the Minister’s words on clause 9, to which I listened with interest, particularly about the amendments to the Housing and Planning Bill. We believe the clause is extremely important and we will try to maintain it in the Bill.

I pay tribute to our noble Friends in the other place who added the clause to the Bill, where we believe it should remain. It simply and effectively states the existing legal position and supports trustees in their existing duties by ensuring that they are able to adhere to their charitable aims and objectives, and it protects them from being compelled to undertake an action that is at odds with their charitable purposes.

The clause is particularly relevant to housing, as the Minister mentioned, and aims to protect charities and housing associations when the Government later mandates them to sell their charitable property under the right-to-buy proposals. I will come back to his point about it being a voluntary proposal.

The debate in the other place saw Tories, Lib Dems and Cross Benchers line up to condemn the Government’s proposal. I am surprised they are persisting in trying to remove the clause. As the Minister knows, the Opposition are not against the right to buy. Indeed, we want those who desire to be homeowners to achieve that. While the number of homeowners has fallen under this Government by more than 200,000, under Labour from 1997 to 2010, the number of homeowners rose by more than 1 million. We support people’s aspiration to own their own home.

However, the problem is compulsion. We want to limit the power of the Government to direct a charity against its independent will, and contrary to its charitable purposes, to dispose of its assets according to the Government’s latest whim. That is an infringement of the independence of charity, community and voluntary sector organisations. For many housing associations, it will go against the grain of their aims and objectives.

The Minister mentioned the voluntary agreement, but it was not unanimous and many housing associations do not sign up to that principle. He also said that the amendments in the Housing and Planning Bill will protect charities’ right to dispose of assets as they wish. That may be the case for that individual policy in the Housing and Planning Bill, but the clause goes wider—it is about all assets, not just about housing and planning. We believe clause 9 is still required.

What after housing might be next on the Government’s list in requiring charities to purge themselves of their assets? The principle is broader than simply housing, although housing is the focus. Housing associations, most of which are charities, provide 2.5 million homes for 5 million people on affordable rents. They are rented privately and many enable vulnerable people, or those with disabilities or care needs, to live independently. Other properties are for shared ownership to help those on lower incomes buy their homes.

Housing associations build 45,000 homes a year and would ideally like to build 120,000, matching what private developers are able to do. That aim could be undermined if they are forced to sell off their stock.

At the same time as the Committee is sitting, the House will debate the Housing and Planning Bill on Report and Third Reading. We believe that the Bill will lead to a huge loss of affordable housing. The Office for Budget Responsibility confirmed in its November economic and fiscal outlook that Government policies since the election could lead to 34,000 fewer housing association homes being built over the next five years.

We believe that, at every opportunity, the Housing and Planning Bill restricts the ability and obligation of the public and private sectors to provide genuinely affordable homes, and that it will intensify the spiral of ever-higher housing costs. The right-to-buy proposals will contribute to that, which is why we seek to protect charities from being obliged or compelled to be part of that.

The Opposition have always said that the extension of the right to buy to housing associations through the Bill is unworkable and wrong. It will lead to a severe and irreversible loss of affordable homes at a time when they have never been more needed, because there is no genuine plan for a one-to-one, like-for-like replacement.

Moreover, the right-to-buy proposals are expected to cost a staggering £5 billion or even more. We know that civil servants have warned Ministers about the costs and the difficulties of replacing the homes sold, leading to a shortage of affordable homes. Shelter predicts that the right-to-buy proposals could lead to the loss of 180,000 affordable homes over the next five years, when we already have a well known crisis in our housing supply.

We know that, under the right to buy historically, only one in 10 homes sold have been replaced. The policy is a huge contributory factor to the housing crisis we find ourselves in now. There are currently 2 million people on waiting lists due to the dearth of homes at affordable rents for low earners. Removing the clause, which protects housing associations from being compelled to sell off homes, would reduce the supply of affordable homes further. Moreover, right to buy for housing associations is to be funded through the forced sale of council properties, which would further reduce the number of affordable homes. Expecting the sale of a council home to both fund its replacement and reimburse the housing association for the asset that it has been forced to sell sounds to me like poor accounting.

Furthermore, any diminution of housing stock can harm housing associations’ borrowing powers. As the National Housing Federation has said:

“With a nation in the throes of a housing crisis, it is key that housing associations are in full control of the assets against which they borrow to build homes”.

We know that housing associations often lever in private finance on the basis of assets they own in order to meet their wider charitable objectives and to manage their assets effectively. Right to buy will force housing associations to sell properties, will give them less control over these decisions and, importantly in terms of the Bill, will make it more difficult for them to meet their charitable purpose.

Crucially, there is widespread concern that such interference sets a dangerous precedent for Government intervention in independent charities. Right to buy could make it harder for housing associations to deliver their charitable objective, which is, of course, to provide housing for those in greatest need. We cannot support giving the Government a role that should be the preserve of the housing associations’ own charitable trustees.

The National Housing Federation and other sector representatives such as the National Council for Voluntary Organisations and the Association of Chief Executives of Voluntary Organisations worry that the compulsory sale of charity assets through right to buy sets a worrying precedent of Government interference in the running of independent charities. That is why the amendments in the Housing and Planning Bill are simply not enough. Removal of the clause would also contradict the existing rule that charities cannot dispose of assets other than in pursuit of their charitable objectives—in other words, they must use such assets for charitable rather than political or private benefit. The sector hence supports the preservation of the clause.

The unintended consequences of removing the clause and of the right-to-buy proposals could undermine charity law that goes back centuries, and would mean seizing assets of independent charities and even the bequests of individuals or philanthropists—for example, the Peabody Trust built and bequeathed housing to ameliorate the conditions of the poor and needy.

The National Housing Federation calculates that taxpayers’ money would be better targeted at ending the housing crisis. On its assumption, about 220,000 eligible tenants will be able to afford to take up the right to buy. The discount will be £11.6 billion for those people. That amount could provide 660,000 homes for shared ownership, giving three times as many people a foot on the ladder.

Housing associations already help people to buy their own homes, with some 250,000 now in shared ownership homes. As the Minister will know, trustees can sell their property only in a way that is compatible with their trust deed, in compliance with sections 117 to 121 of the Charities Act 2011 and with the standard of care set out in the Trustee Act 2000. Removal of the clause would leave a legal conundrum as to whether trustees would be expected to act contrary to any such requirement. Some charities’ governing documents might expressly prohibit trustees from selling. An order or scheme would probably be required to give them the power to sell.

Where a trustee holds designated land that is required by the terms of the gift to be used to carry out the charity’s purpose, and where such land cannot be replaced by other relevant property or land, will the charity be excused the demands of the right-to-buy provisions in the Housing and Planning Bill exemption? That might be the case where a charity holds a house once owned by a particular local figure or is associated with a former convent or almshouse. Such charities might need a scheme to change their objects, should they be compelled to relinquish the land because they can no longer carry out the purpose for which it is held. It is clear that trustees can sell the property only where it would be in the charity’s best interests.

Many charities consider that they play a broader role in a local place and its community, working in partnership with the local council and other bodies to design and manage public spaces. The removal of clause 9 will lead to further fragmentation of our local communities. For example, the Local Government Association has said that councils should be free to manage their housing assets and invest in new and existing homes to meet the needs of tenants and local conditions. The LGA has said that Government proposals should take into account the wider impact of housing reforms on councils’ responsibilities to meet housing needs. The same should apply to charities and housing associations and their independence.

The Minister spoke about more burdens on the Charity Commission. The Bill not only tries to streamline the focus of the Charity Commission but tries to make clear its role and scope. We had many discussions in our previous sessions about making sure that we are not burdensome on the Charity Commission. For me, however, defending the integrity of the sector is crucial. The Minister and the Government have been comfortable with the burden the Bill has put on the Charity Commission so far, including many new provisions on a range of subjects from terrorism to serious judgments about warnings and what kinds of duty and responsibilities people place. This new responsibility is not particularly burdensome but is in keeping with the Commission’s role in defending the independence of the charitable sector.

In conclusion, Labour supports helping families to own their own home. Too often, however, history has shown that right-to-buy homes are resold, especially as the subsidy often offers former tenants a big bonus to be realised. Many homes are rapidly rented out by private landlords at the full market rent, serving to drive up market prices and increase poverty through housing costs, as well as reducing the housing stock available for affordable rent.

That outcome would be in total contradiction to the aims and objectives of many charity and housing associations. We are concerned that the Government want to interfere with the duties of charity trustees to put their beneficiaries first and comply with the trust deed. Housing associations can already partake in the right-to-buy option for their tenants, where that accords with their charitable objectives. The problem arises where it conflicts with them, and trustees’ duties risk being overridden by the Government, which is not acceptable. Clause 9 seeks to prevent their being compelled to do something that is not in the charity’s best interests. I will therefore seek to divide the Committee, and urge my hon. Friends to support clause 9 stand part.

Photo of Wes Streeting Wes Streeting Labour, Ilford North 4:45, 5 January 2016

Happy new year to all members of the Committee. I support my hon. Friend the Member for Redcar in defending the inclusion of clause 9 in the Bill. In the Minister’s response to the inclusion of the clause and the debate in the House of Lords, he cited extensively the changes made to the Government’s approach to the disposal of housing association stock. That context is particularly important. Given the fact that the Government attempted an appalling land grab on housing association stock, to the extent of threatening housing association providers that did not comply with the objectives of public policy with taking their assets by force of statute, it is unsurprising that the Lords chose to include the clause, so that the assets of those housing associations could be protected. The Government’s approach may have changed—many housing associations have chosen to back down from confrontation with them—but the way in which housing associations were effectively press-ganged by the Government is totally unacceptable and not the way to do partnership.

I wonder whether as many housing associations would have rolled over if we were closer to the end of the Parliament than to the beginning, although I appreciate that many housing association trustees were placed in an invidious position. I might have wished them to take a stronger stance, but given the pressure they were put under by the Government perhaps it is unsurprising that they rolled over.

When I read the Lords’ debate on the clause, I was struck by the contribution from Lord Beecham, who said that although the clause appeared because of Government policy on housing associations, it could have wider application. For example, he cited charities running medical services and the National Trust. However, given that many parts of the voluntary sector are effectively involved either directly or indirectly in providing public services or picking up the slack when public services have been cut, it is not beyond the Government’s wit or imagination to find other areas where they might like to steamroller around and seize charitable assets.

At the heart of clause 9 there is an important principle that dates back to Elizabethan times: many people who give to charities make those gifts or bequests for specific charitable purposes. It should not be possible for the Government—not only this Government, but any Government—to direct charities to use those assets for different purposes, however well intended, desirable or, indeed, undesirable the Government’s objectives may be.

The clause is important because it provides protection not just in relation to housing associations—the Minister makes the case that that may be unnecessary given the change of approach—but more generally, so that if a Government, whatever their political leaning, want to use charitable assets for purposes for which they were not gifted or bequeathed, they will have to accept that those assets are protected. If not, they will have to amend legislation or provide a specific exemption, which would generate a very worthy debate in this House or in the Lords. For those reasons—and, as I have said, given the appalling way in which the Government conducted themselves immediately after the election—I strongly support the inclusion of clause 9 and support my hon. Friend the Member for Redcar in voting to keep it.

Photo of Rob Wilson Rob Wilson The Parliamentary Secretary, Cabinet Office

I will respond to a few of the points made by Opposition Members. On the issue that not all housing associations have signed up for the deal, as I said earlier, 93% of the total housing association stock is covered by those housing associations that have said yes to getting involved in this deal, which is voluntary. The message from the Opposition seems to be that the deal is not voluntary, but compulsory. It is quite the opposite; 93% of the housing stock in England has signed up for this deal.

Photo of Peter Kyle Peter Kyle Labour, Hove

The Minister cites the example of 93% of housing stock being covered by housing associations. Will he give the percentage of housing associations that are signing up to the Government’s plans?

Photo of Rob Wilson Rob Wilson The Parliamentary Secretary, Cabinet Office

I think it is somewhere in the region of 75% of housing associations, which is a substantial majority. We want as many housing associations as possible to sign up, and we want as many tenants as possible, throughout the country, to have the opportunity of homeownership.

Photo of Rob Wilson Rob Wilson The Parliamentary Secretary, Cabinet Office

I am glad to hear the hon. Gentleman say that he wants more homeowners in the country. One way to do that is to enable people to buy their own home in this way—1.3 million extra tenants will be able to have the advantage and security of owning their own home, which is a laudable ambition for any Government.

As for whether the right place to discuss the detail is here or on the Floor of the House, the Housing and Planning Bill is back before the House tonight and we are discussing a lot of things that relate more to housing matters and that Bill than to charitable matters. The right place to raise some of these issues would be later tonight on the Floor of the House.

On the Charity Commission’s powers, and in response to the point made by the hon. Member for Redcar, the Charity Commission did not ask for the responsibilities that have been inserted by this clause in the other place, but it did ask for many of the other responsibilities and powers that we are passing to it in the Bill.

The finances that will be released to housing associations through the sale of properties is substantial, as the hon. Member for Ilford North said. As it is a like-for-like replacement, the amount of affordable housing stock should increase substantially. We are undertaking a pilot with five housing associations. It is under way and should enable us to hone and inform the detail of the final scheme that we put in place.

I hope that that answers the main questions raised by Opposition Members. It is important to note that the Government have begun the process with the announcement yesterday of 13,000 new affordable houses, which we will build on Government land and contract directly rather than going through local authorities or housing associations. That is a big step forward to try to break the logjam that we have seen in affordable housing in the past couple of decades. By the end of the Parliament, we hope that we will have been able to deliver 200,000 new starter homes that are affordable homes for first-time buyers under the age of 40, which will give people with the ambition of owning their own home a first step on the housing ladder. That is a laudable aim for any Government to have.

Photo of Anna Turley Anna Turley Shadow Minister (Cabinet Office) 5:00, 5 January 2016

I would like to respond to the Minister’s last point. I was going to make an intervention, but I am afraid I missed him. I appreciate his ambitions, but the Government’s record on house building does not fill us with confidence. The number of under-35s who own a home has fallen by 20%.

Order. I have allowed a bit of latitude, but we are straying off somewhat by going on to house-building numbers.

Photo of Anna Turley Anna Turley Shadow Minister (Cabinet Office)

It is an important point in terms of ambition versus reality, but I appreciate your point, Mrs Main, and I will stick to the clause. I was interested to hear that about three quarters of housing associations have signed up, because the housing association in my area has not signed up and has strong views against it. I am also not convinced that the Minister has a plan for like-for-like replacement. The Government’s record on that is not strong.

Photo of Peter Kyle Peter Kyle Labour, Hove

Will my hon. Friend give way?

Before I call the hon. Gentleman, may I say that this is the Charities Bill and I hope that we will not go too far discussing housing numbers and so on?

Photo of Peter Kyle Peter Kyle Labour, Hove

I am grateful, Mrs Main, and I hope that I will not stretch the latitude you have given us. My hon. Friend is correct in expressing concerns from the charitable sector about like-for-like replacement, because that is about the sequestration of charitable assets for private use. Does she share my concern that in Brighton and Hove, which I represent, and other such cities, like-for-like replacements will almost certainly be built in areas very different from those in which the original properties are sold because of the constraints on the land in that area, so charitable assets that were deemed to be in one place will end up in other locations?

Photo of Anna Turley Anna Turley Shadow Minister (Cabinet Office)

My hon. Friend makes an extremely important point. The issue is the charitable ambitions of housing associations in supporting those who are most vulnerable and in need. The danger is that we are moving away from that.

Photo of Jo Churchill Jo Churchill Conservative, Bury St Edmunds

The hon. Lady makes a valid point. In the realms of a charity selling a high-price asset, it could in a broad sense outreach its charitable work. However, the clause does not allow them flexibility; it ties their hands and means that they are completely unable to disburse their assets as they wish.

Photo of Anna Turley Anna Turley Shadow Minister (Cabinet Office)

I disagree with the hon. Lady, because charities currently have the flexibility to do as they wish with their assets as long as that is in line with their charitable status. The removal of the clause is about trying to push charities towards selling off assets—selling off the family silver—but, whatever their charitable status may be, whether tackling poverty and inequality or sheltering the homeless, it is for them to decide how they use those assets.

I will not detain the Committee other than to comment on a point made by my hon. Friend the Member for Ilford North about Lord Beecham’s speech in the other place. That point is important and goes much wider than housing. Assets are a broad definition, so there is danger in not specifying in the Bill the fact that charities have an independent ability to dispose of their assets in a way they believe to be consistent with their charitable purposes. The clause is about giving broad protection to charities in the light of potential Government pressure to encourage, cajole or influence how they dispose of their assets. That is extremely important.

Finally, on the Charity Commission, I totally understand that it did not ask specifically for the clause, but the Bill was not drafted for the Charity Commission or by it. It was drafted in the best interests of the charitable sector to support its independence and to provide it with a secure regulatory framework in the future. There will be areas where the Charity Commission agrees with us and others where it does not, but we do not believe that the clause is burdensome for it. It is part of its role in defending the integrity of the charitable status.

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

The Committee divided:

Ayes 6, Noes 10.

Division number 1 Christmas Tree Industry — Conduct of charities: disposal of assets

Aye: 6 MPs

No: 10 MPs

Aye: A-Z by last name

No: A-Z by last name

Question accordingly negatived.

Clause 9 disagreed to.

Clause 10