Charities (Protection and Social Investment) Bill [HL]

Lord Borwick Excerpts

Wednesday 10th June 2015 Lords Chamber

[Lord Borwick (Con)]

My Lords, I declare an interest in that I am active in five charities—the British Lung Foundation, the Royal Brompton and Harefield Hospitals Charity, the Ewing Foundation, the Federated Foundation and the Science Museum Foundation. I am also on the campaign board of Historic Royal Palaces. All of them are well-run charities, but this Bill is about badly run charities and bad trustees, and I very much support it.

We saw this weekend what happens when charities focus on aggressive fundraising rather than on their objectives. Many have outsourced these functions, and they now give the impression that they are badly run charities. The Mail on Sunday videos showed cynical attempts to get every last penny from donors. Oxfam is one of the charities that outsourced fundraising in such a way. It aims to tackle poverty, but the company that it authorised to raise money clearly was not concerned about the financial situation of the 98 year- old pensioner whom they talked about getting money from in the video. If there was an equally aggressive focus on achieving the charity’s objectives, more might be done to actually alleviate poverty.

Charities such as Oxfam do not help themselves when they talk about things that do not seem to be in their remit. Oxfam, among others, produced lots of content during the last Parliament about austerity, including a mocked-up film poster of “The Perfect Storm”, featuring a list of coalition policies. The Charity Commission found that this,

“could be misconstrued as party political campaigning”.

We must also emphasise the number of great charities and good trustees. There are great things being done in smaller charities, and they are coming up with innovative ways to achieve their objectives and finance their activity. These things are usually being done voluntarily. Volunteers do what they do because they back the cause. They are paid only in pride, in thanks and in the satisfaction of a job well done. Every one of them is let down by bad apples, so such a scandal might tempt a volunteer to despair.

Bad faith in the charity sector is even more heinous for its effect on others, but can we do more than this? If it is pride that motivates the great volunteers, how can we increase the level of pride and the level of dedication that drives people to stand in the cold on street corners to sell poppies for remembrance? Recognition may be a good way. Two hundred and ninety-two people were given a British Empire Medal in the new year honours list, and they were largely people who undertake charity or community work. The great work done by honours committees to identify and locate these people should be applauded. The attention of the press may be on knighthoods for footballers, but a lot of valuable work is done much more quietly. As well as the main national awards, there are local ones, with mayors giving awards to people in their communities pulling our fractured society together with encouragement and faith that even more can be accomplished. I know that most volunteers are not doing their work for recognition, but all are encouraged by it.

At present there is no equivalent of a label such as “plc” for charities: no simple badge that they are registered and doing their job properly. I suggest that charities could put the letters “RC” after their name, standing for “registered charity”. There should, of course, be penalties for misuse of such a badge, and I do not know if “RC” is the right acronym. It certainly could be wrong for an Anglican Church charity. Others may have better ideas. Such a label would show the country that they are in the good category.

I do not want to stop government giving money to charities, as I feel that that kind of expenditure can often be better than other government expenditure. Indeed, there are very sensible arguments for the Government to ask a charity to deliver certain public services. It will often do it more efficiently and with more knowledge and compassion than state employees.

There is one group of particularly problematic charities: the “sock puppets”. These are organisations that receive a large proportion of their budget from government and use that money to lobby for even more money. A report from the Institute of Economic Affairs found that 27,000 charities are now dependent on government for more than 75% of their income. The report also found that the voluntary sector receives more money from the state than it receives in voluntary donations. That is astonishing. It creates huge problems because many of these charities lobby for more state intervention, higher taxes and more regulation. Perhaps most perniciously of all, many of these charities use taxpayers’ money to call for even more of it for themselves, so it was right that the previous Government took some action on this.

Back in February, Sir Eric Pickles MP announced that the Department for Communities and Local Government was to become the first government department to insert an anti-sock puppet clause in grant agreements. It is important that further steps are taken to tackle the sock puppets. There is a suspicion that Governments of all parties have form in encouraging some charities to lobby for particular policies. We all know the argument: politicians want to implement a policy, but there appears to be no demand for it from the public—but the politicians know that it is the right thing to do and believe that there must be a hidden demand for it, so they make that demand apparent by encouraging charities to lobby for the policy.

There is a host of differences between a well-funded charity, funded by the Government, and an individual helping people themselves. Should this difference be made clear by refusing the right of government-funded charities to be called an RC or registered charity, as I suggested earlier? I propose that government-funded charities should use, if they want, an acronym such as “GFC”, but be refused the right to be called registered charities. How could we define GFCs? Perhaps as charities that have 50% or more of their income coming from government. After all, fundraising from government is different from fundraising from individuals, and it has significant implications for integrity and accountability. Just as companies must understand and react to the needs of their customers, GFCs surely become creatures of government—perhaps even unconsciously. This should be apparent to all but sometimes is not so. Therefore, a GFC acronym would be an idea with merit. Does the Minister agree?

I am concerned that Clause 13, which adds a new Clause 292A, is too focused on defining the financial return element of social investments. It does not clearly enough explain or define the social impact element of social investments. That section of the Bill is devoted to explaining what is meant by “financial return”, which is only one side of the coin. It is perhaps even more important to define what kind of social impact the section has in mind when it comes to social investments. The only text on this issue at the moment is set out in new Clause 292A(2)(a), which talks about,

“directly furthering the charity’s purposes”.

That seems to cover programme-related investment, where an investment is exclusively an advancement of a charity’s purposes. I thought that this area of the law was reasonably settled.

I argue that what is needed is a statutory power that enables charities to engage in what the Charity Commission described as mixed-motive investments. There are investments that are justified on the basis of expected financial return and the extent to which an investment is expected to advance one or more charitable purposes of a charity in whole or in part. It is this form of investment that needs a clear statutory basis. That was clear from the Law Commission’s report on the issues. Would the Minister consider again whether the wording would permit the flexibility to make mixed-motive investments?

Lastly, I ask the Minister whether there is room in the Bill to deal with the problem of charities and community interest companies being treated differently from co-operatives and community benefit societies in the financial promotion regulations when raising social finance. A change to the legislation would enable charities to raise social investment capital from local communities.