Taxation: Capital Gains Tax

Lord Bridges of Headley Excerpts

Tuesday 7th July 2015 Lords Chamber

[Lord Lee of Trafford]

To ask Her Majesty’s Government what is their estimate of how many taxpayers will pay capital gains tax in this financial year, and how much this will contribute to the public purse.

[The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con)]

My Lords, the latest published estimate of the number of taxpayers liable to capital gains tax is for 2012-13, when there were 169,000 such taxpayers. CGT receipts amounted to £5.6 billion in 2014-15, the latest year for which figures are available. Forecasts of receipts published by the Office for Budget Responsibility amount to £6.5 billion for 2015-16.

[Lord Lee of Trafford (LD)]

My Lords, in reply to the Oral Question yesterday from the noble Baroness, Lady Wheatcroft, the Minister said:

“The Government are considering what steps are appropriate to make further progress in shifting the culture of equity markets towards long-termism”.—[Official Report, 6/7/15; col. 5.]

May I suggest that one obvious step for a blue budget—or, indeed, a budget of any colour—would be to bring in a differential between short-term and long-term gains, taxing short-term gains at an individual’s top rate but with tapering rates for longer-term gains? Would not this approach, as supported by most genuine investors and the Quoted Companies Alliance, be more equitable, likely to deliver greater revenues for the Exchequer and, above all, in the national interest as well?

[Lord Bridges of Headley]

My Lords, I hear what the noble Lord is saying and I tread with some trepidation here as we are on the eve of the Budget. However, what I will say is that while previous CGT has had a taper or been indexed to favour long-term holdings, such an approach would lead to the reintroduction of significant administrative burdens for many CGT payers. It would bring significant complexity into the tax system and the wider economic impacts would have to be assessed.

[Lord Forsyth of Drumlean (Con)]

My Lords, given that when the coalition Government increased the rate of capital gains tax by 10%, the revenues went down, and when they cut the top rate of income tax by 5%, the revenues went up, what conclusions does my noble friend draw about opposition tax policy?

[Lord Bridges of Headley]

I draw a number of conclusions, my Lords. Overall, the Government believe that the current top rate of CGT at 28% is a good balance between raising revenue, reducing the incentives to substitute income for capital gains and retaining incentives to save and invest.

[Lord Foulkes of Cumnock (Lab)]

My Lords, further to the question of the noble Lord, Lord Forsyth, what are the Government doing to make sure that people liable for capital gains tax are paying it?

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[Lord Bridges of Headley]

My Lords, as your Lordships will know, during the last Parliament this Government took a number of steps to tackle avoidance and evasion. Indeed, they were relentless in their crackdown on tax avoidance. HMRC will have secured £100 billion in compliance yield. This includes more than £31 billion from big business and £1.2 billion extra from the UK’s richest people.

[Baroness Kramer (LD)]

May I press the Minister? If the Government are seeking to provide support to working people, will it not be appropriate to begin to align capital gains tax rates with income tax rates, especially for these large, short-term capital gains?

[Lord Bridges of Headley]

The noble Baroness makes an interesting point. As noble Lords know, this Government are intent on helping working people. Last year, we cut income tax for more than 26 million people, took more than 3 million out of income tax altogether and created more than 1,000 jobs every single day. This Government intend to do better still.

[Lord Flight (Con)]

My Lords, I recollect that, for an asset which has been held for a long time, the base value can be uprated to that which applied in, I think, 1983. However, inflation has made a nonsense of that. Will the Government look at changing the date at which long-held assets are rebased for cost purposes?

[Lord Bridges of Headley]

I hear what my noble friend is saying. However, I tread with extreme trepidation and say that decisions on that matter are for the Chancellor to announce at the Budget.

[Lord Davies of Oldham (Lab)]

My Lords, the House will have noted the Minister’s sensitivity about making comments on tomorrow’s Budget. That is not the kind of thing which inhibits the Chancellor, and therefore I am not inhibited either. I think he has made clear that he is not going to increase income tax or national insurance contributions. As the Minister said, it is unlikely that capital gains tax will be greatly affected, although he is not quite sure about that. Is it not quite clear that the Government’s strategy is in fact not to be fair about taxation but to be brutally unfair about welfare expenditure?

[Lord Bridges of Headley]

No, I reject that utterly, I am sorry to say, my Lords. As the noble Lord will know if he has read the Conservative Party manifesto, the Government are committed to cutting income tax for 30 million people, taking everyone who earns less than £12,500 out of income tax altogether. As I alluded to, we intend to surpass what we did in the previous Government and help businesses create more than 2 million new jobs. That is the best way to tackle poverty and disadvantage in this country.

[Lord Brabazon of Tara (Con)]

Does my noble friend recall that, when capital gains tax was first introduced many years ago, there was a rate for exactly one year that you had to pay on income tax rates and after that it became 30%, which is the sort of suggestion that the noble Lord, Lord Lee, was making. That was a disaster, actually, and resulted in significant distortions in the market. It would be a disaster to move back to that idea.

[Lord Bridges of Headley]

My Lords, the Government believe that the current structure of CGT balances the need for simplicity alongside fairness by having three effective rates, which provide a lower rate for basic-rate taxpayers and support for entrepreneurs, alongside the main rate. At that, I am going to stop.

[Lord Brooke of Sutton Mandeville (Con)]

My Lords, I declare an interest as somebody who paid capital gains tax last year, having already made it. I am prepared to volunteer through my noble friend to teach the noble Lord, Lord Foulkes, first, how to make a capital gain and, secondly, how he declares it for tax.

[Lord Bridges of Headley]

I look forward to that great contribution, my Lords.

[Lord Berkeley (Lab)]

My Lords, given my noble friend’s question on tax avoidance and the Minister’s answer, how can he link this with the fact that the Inland Revenue has just lost 20% of its staff?

[Lord Bridges of Headley]

My Lords, I know that my right honourable friend the Chancellor will continue to ensure that HMRC has the assets and resources at its disposal to do what is required.

Algorithmic Trading

Lord Bridges of Headley Excerpts

Monday 6th July 2015 Lords Chamber

[Baroness Wheatcroft]

To ask Her Majesty’s Government whether the effects of algorithmic trading are being monitored and sufficiently regulated.

[The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley)]

My Lords, regulators continue to watch carefully and act when required in this fast-growing area of activity in financial markets. Investment firms and trading venues using algorithmic trading in the UK are already regulated and supervised by the Financial Conduct Authority and the Prudential Regulation Authority. From 2017 they will need to abide by the rules on algorithmic trading in the EU Markets in Financial Instruments Directive II.

[Baroness Wheatcroft (Con)]

My Lords, I thank my noble friend for his reply and declare my interests as listed in the register. MiFID II will undoubtedly improve regulation, although I welcome my noble friend’s assurance that the regulators will have the resources to implement those rules. However, does he share my wider concern about algorithmic trading—that it operates to the detriment of ordinary investors and is the antithesis of the long-term investment we should be encouraging? What can he do to address this?

[Lord Bridges of Headley]

My noble friend speaks with a lot of experience on these matters. I would point her to the very interesting Foresight research carried out by the Government, which looked into this. As a result of that, we do not think that the long-term investment decision-making by companies is undermined by high-frequency traders, which should be differentiated from algorithmic trading in the round. That said, during the last Parliament, in response to the Kay review, the Government initiated a broad review of reforms to address long-standing concerns that short-termism on the part of investors has impeded the creation of sustainable value by British companies. The Government are considering what steps are appropriate to make further progress in shifting the culture of equity markets towards long-termism.

[Lord Campbell-Savours (Lab)]

My Lords, is it not true that many of those who ended up making a small fortune through algorithmic trading started off with a large one?

[Lord Bridges of Headley]

As so often, the noble Lord speaks with a great amount of insight and experience, I am sure, on this matter.

[Baroness Kramer (LD)]

I wonder if the Minister could answer the question from the noble Baroness, Lady Wheatcroft, on the impact on small investors. Would he not agree that ever higher speed high-frequency trading, together with dark pools, has in effect rigged the trade in financial instruments against small investors?

[Lord Bridges of Headley]

I reiterate that the PRA, and Andrew Bailey in a speech last month, drew attention to a lot of these issues. I hope the noble Baroness takes some consolation from that and from what I said about the FCA. On smaller investors, as I said, the Government are looking at this issue. I draw attention to the Foresight report which said,

“transaction costs have fallen for both retail and institutional traders”.

We therefore need to look at this in a balanced and proportionate way.

[Lord McFall of Alcluith (Lab)]

My Lords, this House received compelling evidence from the Economic Affairs Committee that through HFT, billions of pounds of shares were being traded every day with little or no public exposure. Technology is being used not to ensure that we introduce fairness and neutrality into the market, but to receive information ahead of the rest of the market. This was described as the battle of microseconds, whereby ordinary investors and others are screwed because they do not understand the concept. The Government and the regulators are on the outside looking in; full transparency of the market is essential. Government have a public duty, and there has been laxity so far; they really should put their skates on. Then, the next time there is a “flash crash” or a liquidity value, they cannot put their hands up and say that it is nothing to do with them. Full transparency and disclosure are essential and it is time that the Government acted.

[Lord Bridges of Headley]

My Lords, that was a high-frequency question as far as I can see. The noble Lord raised a number of points. Investment firms that operate what are often termed dark pools are subject to code of business rules that require them to treat their customers fairly. As I mentioned in my opening answer, MiFID II will further introduce strict volume caps on the amount of equities trading that can take place under waivers from transparency. That will significantly reduce such dark trading.

[Lord Reid of Cardowan (Lab)]

Given the centrality of the City of London to the British economy and the intention expressed more than a decade ago by some of those associated with Islamist jihadism to “bleed Britain to bankruptcy”, can the Minister tell us what measures have been taken to protect the City of London from hacking, particularly given that a vast number of essential economic investments are now being transacted in nanoseconds?

[Lord Bridges of Headley]

The noble Lord speaks with a lot of experience on these matters, which are worthy of consideration. If he will forgive me, I would like to write to him on that point as it requires a detailed answer.

[Lord Davies of Oldham (Lab)]

My Lords, I hope that the Minister is not indulging in that degree of complacency—saying, “It’s all under control”—which the senior management of significant banks indulged in, and then found themselves taken to the cleaners by the operations of relatively lowly placed staff. One thinks particularly of UBS losing £1.7 billion from someone trading in this manner. The noble Lord must know that the technology of increased speed is widening the spread between buying and selling, and therefore gives an incentive to people operating at that level to take advantage.

[Lord Bridges of Headley]

My Lords, I am certainly not complacent. The noble Lord raises a good point, and I reiterate that the Government take the matter of regulating financial markets in their entirety very seriously and closely follow developments in these markets. As I said, investment firms and trading venues should ensure that robust measures are in place to prevent automated trading creating a disorderly market and being used for abusive purposes. The new rules under MiFID II will ensure that such measures are in place.

[The Lord Bishop of Chester]

My Lords, I am a bear of little brain in relation to algo-whatever-it-is trading, and I speak as a fool. However, would this not all be solved if there was a rule that if you bought shares, you had to keep them for more than a few nanoseconds—maybe a few minutes?

[Lord Bridges of Headley]

The right reverend Prelate makes an interesting point. I refer him to the excellent Foresight report, which says that,

“liquidity, as measured by bid-ask spreads”—

I will test him on that later—

“and other metrics, has improved”.

Charities (Protection and Social Investment) Bill [HL]

Lord Bridges of Headley Excerpts

Monday 6th July 2015 Grand Committee

[Baroness Pitkeathley (Lab)]

My Lords, I support all these amendments because they encourage trustees to focus more attention on the progress of social investments and to review them regularly. I, too, think that “from time to time” is a bit vague, although I understand that it has a legal meaning.

There are two reasons why I support the amendments. The first is that I think they will make the position of trustees and their responsibilities clearer. Social investment is a fairly new concept and trustees on the whole are not very familiar with it. We are trying to encourage them to be more so, and I believe that these amendments would help in that. The second reason—and here I declare an interest as chair of the Big Society Trust—is that I agree with the noble Baroness, Lady Barker, that the financial return on these social investments is often not realised for some time, although the social return may be obvious at an earlier stage. To some extent, charities and trustees are learning as they go in this area, so any further guidance or direction we can give them would be of benefit.

[The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con)]

My Lords, I thank noble Lords for tabling these amendments, which raise interesting points, and I hope that I will be forgiven for going into a little detail on our thinking around them.

Once again, I think we agree on the need for transparency and accountability. It is important to ensure that charities take the opportunity to review all their actions from time to time with the intention of ascertaining how effective those actions have been. This should apply to their grant-making activities no less than their financial investments. It is also desirable for charities to be suitably transparent in reporting. Public-facing organisations should aim to explain how they operate, and I share your Lordships’ wish to encourage as much openness and information sharing as is practicable.

However, while I support these intentions, we must be careful not to overburden charities by mandating the collection and publication of information to an extent that could distract from their core activities. This must be the case in particular for the large number of charities that are small and may not have the requisite capacity or capability—the “little platoons” I referred to on Second Reading. Charity trustees have overall responsibility for the investment of their charity’s funds. They must make the strategic decisions about how to use a charity’s assets to achieve its aims.

In relation to financial investments, charity trustees are already under a legal duty to keep their investment portfolio under regular review. Those reviews must cover how their investments are performing, and if an investment manager is used, the service provided by that investment manager. Trustees should also monitor and review their internal arrangements for managing the charity’s investments. In terms of the regularity of the review, the trustees may decide to hold reviews at specific intervals or they may decide to hold a review in response to a specific event, for example if there was evidence of inadequate performance of an investment or if there was a sudden change in the economic outlook. This seems appropriate and allows charities to respond flexibly to circumstances rather than impose a rigid timetable.

The phrase “from time to time” is indeed understood among the legal profession and is explained in case law. The commission’s guidance on investments covers what it means. Given the existing requirements to review financial investments regularly, it would be beyond the scope of this Bill to impose duties to review social investments on the far wider range and greater number of investments in the general sense. Furthermore, in addition to requirements to review investments, there are also a number of disclosure requirements in relation to financial reporting by charities. Any charity with a gross income greater than £25,000 must submit its audited or independently examined accounts to the Charity Commission on an annual basis.

In addition, there is the charities SORP—a nice word—contained in Accounting and Reporting by Charities: Statement of Recommended Practice, which, as I am sure noble Lords know well, sets out the recommended practice for the purpose of preparing the trustees’ annual report and for preparing the accounts. The recommendations of SORP supplement accounting standards, thereby providing an even stronger basis for reporting. The statement of recommended practice deals expressly with the reporting of social investments. As social investments are different from financial investments, the reporting criteria should not and cannot be equated; they should instead be tailored.

While I am extremely keen to see charities taking greater steps towards impact assessment, thereby enabling them to think about their total impact in the round, imposing specific new rules via statute would seem too blunt an approach and potentially a highly burdensome one. It would seem to place a greater requirement for assessing the impact of social investments than currently exists for grants, spending or financial investments. This might have the unintended consequence of making charities less likely to make use of social investment—the opposite of what we are trying to achieve, particularly at this early stage of market development.

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[Lord Watson of Invergowrie]

Alchemy, the noble Lord says. I am not a chemist, but that still seems rather opaque to me.

To return to the rules, it may not be necessary for them to be compulsory further down the line, but if there are to be such rules, they should apply right from the start and to everybody if we want to ensure that social investment takes off smoothly. Further, how might any rules proposed by the Treasury be consulted on? It is an important aspect whether the sector would have an opportunity to feed in and have its views given appropriate weight.

We are largely in agreement with the amendment proposed by the noble Lord. Some of the clarification that he has provided is helpful. I look forward to the Minister’s response.

[Lord Bridges of Headley]

My Lords, I pay tribute to my noble friend Lord Hodgson for his determination, if not doggedness, on this issue and in seeing it being addressed. I should pay tribute also to his excellent eyesight for being able to read my brief and especially my handwriting, which is a first.

Before I go into the detail, let me take a step back and put this debate in a little context. We recognise that, increasingly, the public are looking to invest their money socially in a range of social investment sector organisations, including charities. This is a growing area of activity alongside areas that we are already familiar with, such as donations to charities, which of course remain significant.

In particular, we know that there is an increase in the number of members of the public making small, direct investments in charities and social enterprises. Specifically, we know that there has been an increase both in the value of investment offers—the market was worth £249 million in 2014, up 78% from 2013—and in the number of participants. More than 15,000 individuals invested in co-operatives, to which my noble friend referred, and community benefit societies in 2014—up 33% from 2013—so this is a growing market.

Such investments might take the form of shares in community enterprises, such as the more than 3,000 people who recently bought shares in Hastings Pier Charity, or they may take the form of bonds in charities. As my noble friend alludes to in his amendment, we know that for such investors the decision to make an investment in the charity or the social enterprise is often motivated by factors other than, or in addition to, the prospect of financial returns.

A recent study found that doing social or environmental good was an important factor in deciding to invest for 90% of investors in community shares, such as those in the Hastings pier project. I understand, however, that the effect of the financial promotion regime is an increasingly important issue for charities and social enterprises looking to raise funds from the public in this particular way. These financial promotion rules, which are designed to protect consumers, apply to many of these deals. Where they do not apply there are emerging voluntary regimes, such as the community shares mark, which was launched last week.

I understand that the aim of today’s amendment is prompted by concerns around the appropriateness of these rules for charities which want to raise investment funds from members of the public, just as they might ask for donations. These concerns indeed reflect reports from the social investment sector that issues around inconsistent treatment for the different types of social enterprises under these rules lead to disproportionate costs and unnecessary complexity. I also understand, as my noble friend said, that this is not the first time that these issues have been raised.

I want to assure noble Lords that the Government are indeed aware of these issues and, in response to interventions from your Lordships during the passage of the Financial Services Bill, the Government made very valuable changes to ensure that the FCA had the proper incentives to take into account the differing needs of different types of organisations that it regulates, including those of charities and social enterprises. Since then, the Government and the FCA have been working with the sector to consider evidence about the effectiveness of the regime, particularly in light of the report Marketing Social Investments—An Outline of the UK Financial Promotion Regime, which was published by the Social Investment Research Council last year. These discussions between the sector and the Treasury are live and ongoing, but I believe—indeed I am told—that real progress is being made in understanding the challenges faced by charities and social enterprises.

I also think that it is important that the issue of changes to the scope and substance of regulation raised today should be considered as part of those discussions between industry representatives, the FCA and the Treasury. I have, therefore, written to the Treasury to make it aware of the issues that have been raised to ensure that they are given full consideration. I will be meeting my right honourable friend the Economic Secretary to the Treasury to discuss them.

I am sorry to say that this is one of those issues that is a large hot potato—as the noble Baroness, Lady Barker, said—that sits both in the lap of the Cabinet Office and in the Treasury, but I am grasping my end of it with both hands and trying to ensure that action is taken. It is, of course, in all our interests that any regulation is proportionate, consistent and clear. Protection of consumers must be paramount, as the noble Lord, Lord Watson, said—a point with which I entirely agree. We also need to be careful that investors understand what they are investing in, as the noble Lord said, and that the reputation of the growing social investment market is protected. That is why the Treasury is engaging with key stakeholders and interested parties on these issues.

In addition to looking at suggestions, including in this amendment and what has been said in the debate, the Treasury will explore whether there are other non-legislative ways of mitigating burdens or costs to social investment offerings. Obviously there will need to be consultation on this point if further action needs to be taken. I warmly welcome my noble friend’s input to the Treasury on these points and, as I said, I am meeting my right honourable friend the Economic Secretary to the Treasury to discuss them. I invite my noble friend to withdraw his amendment.

[Lord Hodgson of Astley Abbotts]

I am grateful to my noble friend. Of course, I recognise that there has been progress. As I said earlier, the FCA has begun to move—the tectonic plates have begun to shift. I absolutely accept the strictures of the noble Lord, Lord Watson, about the need to protect consumers. I am sorry that I got so excited that I jumped up to interrupt him twice, for which I apologise. He is right that what we do not want to happen is too much weight being put on this new idea too early, where there is a scandal and it is all set back because obviously things that go wrong get more publicity than things that go right. I accept that.

I am grateful to my noble friend. I am happy to withdraw the amendment for the time being. I hope that we can perhaps have some further news from the Treasury side of the hot potato—do hot potatoes have sides?—or the other end of the hot potato before Report. This is an interesting issue and, to be honest and being candid with the Committee, it is only at times like this that we are able to push matters over the line. This is the moment. Once the Bill is gone the next opportunity to do this will be some way away. It would be a pity not to find something that we can coalesce around to make sure that the joint objectives that we have of a new social investment regime, proper consumer protection and a different type of regulation can be achieved. In the mean time I beg leave to withdraw the amendment.

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[Lord Hodgson of Astley Abbotts]

I am afraid that this is another of my long-standing quarrels. It is about the Charity Tribunal. Before the 2006 Act, the only appeal against the Charity Commission was to the High Court. That was expensive, slow and difficult to achieve. The then Labour Government, to their credit, introduced the Charity Tribunal in the 2006 Act. The plan was that it would improve access to justice: it would be quick, low-cost, user-friendly and non-adversarial. There was a subsidiary aspect to that, which I am not sure that the designers of the 2006 Act quite recognised, which was about helping more charity law precedents to emerge. Much of what charities are guided by now is quite old and backward-looking—we have discussed the tin-rattling regulations covering cash collections, which date from 1916. Re Resch, the big case about public benefit—an issue that we shall come to later this afternoon—concerning a private Australian hospital in the grounds of a state one dates from the 1920s. We were hoping that the Charity Tribunal would act to help bring charity law forward into the 20th and 21st centuries but the early experiences were a bit disappointing. As is too often the case, everybody reached for their lawyers—as they are entitled to do. I was not present at the end of the independent schools case that came before the tribunal, but I am told that nine QCs were present, which must have cost a bit of money.

However, although it has been slow, there has been progress. There has been more determination on the papers, which means that the tribunal does not require people to attend. More litigants have been appearing in person, which I think is also a good thing. During my review, a lot of evidence was received about the operations of the tribunal and ways they could be improved.

Some of these issues are being addressed by the Law Commission in its current consultation—which I think will be the escape hatch that my noble friend uses in a minute or two—but the Committee might like to be aware of a couple of extraordinary features. In order to appeal against the Charity Commission, a charity has to go to the commission to ask its permission as to whether the use of its funds to make the application is charitable. That seems to be entirely perverse. There is an inherent conflict of interest if the Charity Commission is on one side, the charity is on the other and the charity has to ask, “Is it fair to use this to attack you?”. That does not lead me to believe that there will be an even-handed decision. I hope that the Law Commission will move responsibility for this to the Charity Tribunal.

The second issue worth drawing to the Committee’s attention is that the Charity Commission cannot apply to the tribunal without the permission of the Attorney-General. It seems to me extraordinary that the top regulator in this sector does not have that freedom of action. It must be a threat to its independence if it has to go to a law officer of the Crown in order to be able to get determination of a case. I hope very much that the Law Commission will decide that the Charity Commission is free to act, even if it must of course still inform the Attorney-General. That would be a good way of bringing the law up to date.

There remains a major impediment to the effective working of the tribunal which the Law Commission has decided it cannot address, and that is the tribunal’s jurisdiction, which appears in Schedule 6 to the 2011 Act. There are 10 pages of it, with a series of headings about what the decision, direction or order is, who the applicants can be and what the tribunal’s powers are in response to a decision. That table was seen by the vast majority of contributors to my review as overly complicated and narrowly drawn. Even specialist charity lawyers complained of difficulty in understanding it. The list of cases brought before the tribunal also shows a large number being struck out for being outside the tribunal’s jurisdiction. That raises the question of whether its jurisdiction is sufficiently well defined to address the concerns people have about the commission’s work. Of course, with any forum there will always be cases that fall outside its jurisdiction, but in combination with the wider concerns about Schedule 6, the number of rejected cases raises questions.

The Schedule 6 table is focused on a specific range of formal legal decisions made by the commission. In some cases, but crucially not all of them, this includes the decision not to exercise a power, and the decision not to open a statutory inquiry into a charity is a frequently cited omission. Many of the decisions referred to in the schedule relate to the exercise of legal powers that the commission, as part of its more refined and focused approach to regulation, is choosing to make less frequent use of. Concern has therefore also been expressed that as the commission moves towards this lighter-touch regulatory regime, even more of its work will fall outside the scope of the tribunal’s jurisdiction.

Amendment 22B is designed to clarify the situation by providing a right of appeal against any legal decision of the Charity Commission and a right of review of any other decision by the commission. The new clause proposed in the amendment has two elements. The proposed changes to Section 319 of the 2011 Act deal with appeals and set out, very simply, who would be able to make the appeal: it can be any trustee or director of a charity or charitable company or,

“any other person who is the subject of the relevant decision”,

or is “significantly interested in” or “affected by” it. It lays out the powers the tribunal would have in responding to these appeals. The proposed changes to Section 321 deal with reviews. Finally, subsection (6) of the proposed new clause would delete the dreaded Schedule 6, which I hope will foreshorten and cut out the regulatory regime. This is not a complex issue. Access to the Charity Tribunal is unnecessarily complicated, particularly for smaller charities, and the charity world will appreciate and benefit from simplification. I beg to move.

[Lord Bridges of Headley]

My Lords, it is excellent to address another of my noble friend Lord Hodgson’s issues—I will not call it a bugbear. Obviously I am sympathetic to the aim of wanting to simplify the legislation because in many senses less is more. My noble friend advocated the approach taken in his amendment in his statutory report on the Charities Act 2006. I hope I will be forgiven for reminding noble Lords of the Government’s response:

“In principle the Government supports the rationalisation of the appeal rights in Schedule 6 to the Charities Act 2011, provided it can be done in a way that does not … expose the Charity Commission to challenges where it decides not to intervene in a charity in keeping with its risk and proportionality framework (this is already capable of Judicial Review); or … create any significant new appeal rights that would add to the jurisdiction’s case-load”.

I believe that this was a sensible position to take. We must remember that the Charity Commission has limited resources. We would not want to expose the commission to challenges where it decides not to intervene in a charity in keeping with its risk and proportionality framework. As I have said, this is already capable of judicial review. Providing a right of appeal to the tribunal could result in an unmanageable workload of cases for the Charity Commission, diverting its resources to defending proceedings in the tribunal, many of which may be spurious or vexatious. Appeal rights in the event of the commission not making a particular decision would in effect enable others to direct the use of commission powers and resources, rather than it being left to the good sense of the commission to decide such matters for itself within the scope of its objectives, functions, processes and duties.

We consider that the balance is about right under Schedule 6 as it currently stands. There is a right of appeal against the opening of a statutory inquiry but no right of appeal if the commission decides, for whatever reason, not to open one. We do not want to overburden the tribunal with significant new rights of appeal that are likely to generate a large number of cases where none had previously existed.

I am not sure that everyone shares my noble friend Lord Hodgson’s viewpoint on the difficulty of interpreting Schedule 6 to the Charities Act 2011. There are some who are attracted to the structure of Schedule 6 and find it easy to navigate. It allows one to look up a particular provision and quickly see who can appeal and what decisions are available to the tribunal. It is not something that has been raised with the Government as causing particular difficulty, other than by my noble friend.

Most of the Bill is about giving the Charity Commission the tools it needs to do its job, so I hope my noble friend will understand that, although I approve of his eye for simplification, I am very reluctant to consider anything that could divert its resources from its core functions. I hope that he will feel able to withdraw his amendment on that basis.

[Lord Hodgson of Astley Abbotts]

My Lords, I have not found many people who have said that Schedule 6 is easy to navigate. I did not get into too much of the detail but there is also the question of the timescales for making appeals. However, I can see that I am not going to make any progress with this.

I am disappointed that the Minister has fallen back on the issue of vexatious litigation. That suggests that the tribunal does not have the sense to strike out vexatious litigants by saying, “This isn’t a case”, and I do not find that that argument really holds water. What I think has happened is that small charities in particular are finding their legal position not as strong as it should be. I am sure that this will lead to additional casework for the Charity Commission but I do not mind about that: if the commission needs to be challenged, it needs to be challenged. If that happens unfairly then the Charity Tribunal will step in and say, “This is not a worthwhile case”, and strike it out. I understand that it has done so with other cases in the past. Still, that is as far as we are going to get today, so I beg leave to withdraw the amendment.

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[Baroness Jones of Whitchurch (Lab)]

My Lords, I feel that I could not have put the case for these two amendments better than the noble Lords, Lord Moynihan and Lord Wallace of Saltaire. I also echo the comments of my noble friend Lady Pitkeathley. Like them, we very much hope that the arguments will not fall on stony ground. Indeed, in a previous debate in this Room, the noble Lord, Lord Nash, agreed with our direction of travel, saying:

“It would be nice to see the independent and state sectors collaborating more”.—[Official Report, 27/11/14; col. 991.]

As we know, though, encouraging words are simply not enough in themselves. Despite being subsidised by the taxpayer to the tune of some £700 million over the course of a Parliament, only 3% of independent schools sponsor an academy, only 5% loan teaching staff to state schools and only one-third allow pupils to attend lessons on their premises. That is not sufficient to show that they are providing “public benefit”.

I agree with noble Lords that there are pockets of good practice but I also very much echo their view that it is not consistent. As Sir Michael Wilshaw, the head of Ofsted, has described it, it feels like public schools are offering the state sector only the “crumbs off your tables”. So independent schools with charitable status must do more to develop partnerships with state schools by sharing their resources and skills.

It is in all our interests, public and private, that every child has access to a first-class education with the skills to succeed in the global marketplace, and this is certainly one way of delivering that. We would envisage much deeper partnerships than has been the case in the past, not just by the sharing of sports, art and music facilities—important though they are, and an important case for that has been made in the debate—but also by the running of summer schools, mentoring schemes and giving access to networks for careers advice, work experience and internships. All these issues are equally important in a future partnership scheme.

It is important for independent schools to engage in these activities with the state sector as an equal partner rather than as a tokenistic gesture. I will give an example of this. I visited a school recently which on its website talked proudly of the relationship it had with the local public school. When I went to speak to the sixth form, I commented that the students must feel proud to have access to all the facilities in the school down the road, but I have to say that those students looked at me with completely blank faces. They did not know what I was talking about. An awful lot is said about this without it being acted upon on the ground in a way that young people feel is delivering for them. This is why we have called for a new schools partnership standard against which independent schools will be measured. Furthermore, we believe that the Local Government Act 1988 should be amended so that private schools’ business rate relief becomes conditional on passing that new standard.

Amendments 23A and 23B provide a start by identifying at least three areas, sports, drama and music, where facilities and expertise can be shared to the benefit of pupils from both sectors. I would say to the noble Lords, Lord Lexden and Lord Hodgson, that independent schools which are already involved in such initiatives have nothing to fear from these changes, while, quite frankly, those which have not kept up with the times will find it difficult to justify why they should continue to be subsidised on the pretence that they are providing a public benefit rather than a private benefit for just the few.

That brings me to the second part of the two amendments, where we totally concur with the view that the Charity Commission should be required to set out the minimum necessary for the public benefit test to be met. No other agency or individual is allowed to mark their own homework and decide for themselves what their standard is and whether they have met it. Without some kind of independent and transparent guidance, it is impossible for taxpayers or their representatives to review and test the standard, or to check that it has been met in each case. Even auditors cannot justify themselves that the requirement has been met since there is no standard against which they can benchmark any particular charity.

We have tolerated the corrosive effect of the divided school system for far too long. It cannot be right that public schools account for only 7% of all pupils in England yet provide more than 50% of our CEOs, Lords, barristers, judges, QCs, doctors and even journalists. We very much welcome the amendments and the analysis behind them as a first step towards a new model of accountability and partnership in education. It may well be that the wording does need to be finessed before Report, but I am sure that the proposers of the amendments will welcome any constructive suggestions in that regard. While I am sure that the Minister agrees with these sentiments, I hope he will also agree with our practical proposals, and I look forward to hearing his response.

[Lord Bridges of Headley]

My Lords, I should start by saying that I am very much on side with my noble friend Lord Moynihan and the noble Lord, Lord Wallace of Saltaire, in their intention to encourage more sharing of facilities and expertise between charitable independent schools and local communities, including state schools. Indeed, I pay tribute to my noble friend Lord Moynihan on all the excellent work that he has done on this, including during the Olympics. I have to say that I am not an accomplished sportsman myself—indeed, the words “accomplished sportsman” and “Bridges” do not go together. I try to pull myself around Battersea Park once a week, but that is as far as it goes, so I look with awe at what my noble friend has achieved in terms of encouraging more people to take part in sport.

As I said, I sympathise with the noble aim of these amendments. However, although we may agree on the aim, where I differ is on the way in which we achieve it. In direct response to what my noble friend has said, I would argue that the Charity Commission already has the tools to do this job and to do it consistently. Public benefit has long been a concept at the heart of the definition of charity, as all noble Lords know. It is not enough that charities have a charitable purpose; they must further their charitable purpose for the public benefit. However, how they do so is rightly a matter for a charity’s trustees—a point made eloquently and forcefully by my noble friend Lord Lexden?

The Charities Act 2006, now consolidated into the Charities Act 2011, gave the Charity Commission a statutory objective of promoting awareness and understanding of the operation of the public benefit requirement. It also required the commission to publish statutory guidance on the public benefit requirement, as noble Lords will know. The published guidance as it applied to charitable fee-charging independent schools was challenged in the Upper Tribunal and was found to be overprescriptive. I just want to remind your Lordships what the tribunal found.

The tribunal summarised the two strands to the public benefit test as follows: first, what is provided must be of benefit to the community; and, secondly, those who benefit must be sufficiently numerous and identified in such a manner as to constitute a “section of the public”. On the first point, the test was satisfied, in that the delivery of a standard curriculum to school-age children was for the benefit of the community. On the second point, providing that more than de minimis or token provision is made for the poor, there is a range of direct, indirect and identifiable wider benefits that schools provide to the community that can be taken into account. The test is to look at what a trustee, acting in the interests of the community as a whole, would do in all the circumstances of the particular school, and to ask what provision should be made, other than the provision of education to fee-paying students, over and beyond the de minimis or token threshold.

As with all charities, the trustees of charitable independent schools are required to report on their public benefit activities in their trustees’ annual report. It is worth pointing out that the Charity Commission provides guidance on how the public benefit requirement can be met by charities, including schools. As I am sure your Lordships know, this is set out in Public Benefit: The Public Benefit Requirement. I repeat that this matter should be left to the discretion of the charity’s trustees operating within the Charity Commission’s published guidance. In practice, charitable independent schools are likely to use a combination of ways of providing opportunities to benefit people who cannot afford the fees. Such schools have widely varying circumstances and assets which can affect what benefits, other than an education for pupils at the school, they choose to give.

As my noble friend Lord Moynihan alluded to, much is being done in terms of partnership. According to the Independent Schools Council, 93% of ISC schools are in mutually beneficial partnerships with state schools and local communities, sharing expertise, best practice and facilities to the benefit of children in all the schools involved. However, as the noble Lord, Lord Wallace, said, we need to encourage them to do more. The ISC states:

“The best partnerships develop between Heads or teachers really wanting to work together, out of genuine local relationships and enthusiasms, not dictated from the top”.

In addition to sharing expertise or facilities as set out in the noble Lord’s amendment, other examples might include allowing pupils from local state schools to attend certain lessons or other educational events; collaboration between independent schools and state schools, including academies—a point that has been referred to—an independent school working in partnership with a non-fee-charging school overseas to share knowledge; the formal secondment of teaching staff to other state schools or colleges—for example, in specialist subjects such as individual sciences or modern languages—and supporting state schools to help them prepare A-level students for entry to universities. Those are just a flavour of the different ways in which a charitable independent school can work with the wider community and the state education sector to further its charitable purposes for the public benefit.

However, I wish to return to my main point, which has been made before, which is that charities are independent and their trustees must be able to make decisions in the best interests of the charity, taking into account the needs of their beneficiaries and individual circumstances of their charity. We must be careful not to fetter their discretion with prescriptive requirements that will not be appropriate in all circumstances.

As my noble friend Lord Lexden eloquently argued, we need to avoid a one-size-fits-all approach. Therefore, I entirely share the sentiment behind this amendment and the view of my noble friend Lord Moynihan that we need to do more to raise standards in the teaching of sport and music in state schools while encouraging independent schools to do their bit.

The noble Baroness, Lady Jones, referred to Ofsted. Indeed, Ofsted has looked into this matter, as I am sure she knows. I remind your Lordships what was said in its report Going the Extra Mile, which was published in June last year. It states:

“Of course, many independent schools enjoy financial advantages not available to their state-funded cousins. As this report makes clear, it is not resource that is the key to independent school success but attitude. Children are expected to compete, train and practise secure in the knowledge that teachers will go the extra mile to help them. … As things stand, many state schools treat competitive sport as an optional extra or fail to offer it any meaningful way. They get on the bus but fail to turn up on the pitch”.

The report goes on to say:

“The time that PE staff, other teachers and coaches dedicate to organising sport before, during and after school and at weekends is one of”,

the “fundamental reasons” why some maintained schools and academies match what independent schools do.

An Ofsted music report said that, as regards the provision of music:

“The root of the problem lay in a lack of understanding, and low expectations in music, among the schools’ senior leaders and their consequent inability to challenge their own staff, and visiting teachers, to bring about improvement. More often than not, they evaluated the quality of music in their schools too optimistically”.

I am not for one instant saying that we should not encourage independent schools to do their bit and to do more. Clearly, we need to do that and clearly there is work to be done. I know that my noble friend Lord Moynihan is encouraging us to do a lot of work in the state sector, but there is a lot of work to be done on both fronts. However, while the activities covered in these amendments are worthy, there may be many others which have equal value or may be more appropriate in the particular circumstances of the school. Trustees will want to take into account the needs of their beneficiaries and be able to develop innovative responses to such needs. It would be wrong to restrict their discretion in the way proposed by the amendments. I look forward to meeting my noble friend Lord Moynihan before Report to discuss his proposals in more detail. However, on the basis of what I have said, I hope that he will feel able to withdraw the amendment.

--- Later in debate ---

[Lord Watson of Invergowrie]

My Lords, the Labour Party has no objection to Amendment 26, with the exception of the first six words. It does not seem appropriate to ask that the Chancellor become involved in a review such as this because it would seem unnecessarily to broaden the aegis of this part of the Bill relating to social investment, and we do not believe that it would be welcomed by charities.

I am aware that this amendment is supported by Social Enterprise UK and the Charity Finance Group, and I understand the rationale behind it, which is that the Treasury controls fiscal and regulatory levers with regard to investment and therefore should have a say in this area as well. However, at a stage in the process when some charities will remain sceptical of entering the field of social investment, the shadow of HM Treasury lurking in the background does not seem to us to create the kind of setting designed to assuage such concerns.

I wrote in my note of this speech that Amendment 27 is uncontentious, but I have just heard the noble Baroness, Lady Barker, outline why she has included it. She basically said that the amendment has been included to allow for the review of the activities of the Charity Commission. I do not think we necessarily disagree that that might be appropriate in some circumstances. I assume that behind the scenes it goes on anyway, but the amendment says,

“any other areas deemed relevant by the Minister”,

which leaves the door open for the Minister to say, as I imagine he might well do, “Well, I don’t deem it relevant for us to carry out a review of the Charity Commission—certainly not in this context”. By and large, we would not be unhappy with an open door in this situation. As the noble Baroness, Lady Barker, said, it is in many pieces of legislation that come before us.

That leaves only Amendment 29, which stands in my name and that of my noble friend Lady Hayter of Kentish Town. This is similar to Amendment 22ZA, in which we argued for the inclusion of an initial review of charities’ social investments after three years, with subsequent reviews at five-yearly intervals. The arguments in favour in Amendment 29 are similar too, mainly to the effect that, with a number of significant changes being introduced in this Bill, it will be important to review their effectiveness at an earlier stage to enable progress to be assessed and any difficulties encountered to be highlighted. Doing so will enable all charities to benefit from the experience of others, while the Cabinet Office might wish to seek to amend the Act in the light of experience. Each of the factors listed in paragraphs (1)(a) to (c) are easily measurable and will inform the reviews with the most up-to-date information available.

Publication of the reports of the reviews will also provide Parliament with an important opportunity to examine the impact of the Act at that point. A period of five years seems to us to be too long to await that kind of appraisal initially and for it to be laid before Parliament, and we believe that it would be in charities’ best interests to initiate the review after three years, with further reviews every five years.

[Lord Bridges of Headley]

My Lords, this has been an interesting contribution to the debate. Let me start by setting out the aim of the review provision in the Bill before commenting in detail on the amendments.

Clause 14 makes provision for the operation of the Act to be reviewed by the Minister at least every five years, in line with government policy on reviewing legislation that imposes a regulatory burden. I should add, on the point made by the noble Baroness, Lady Barker, about the Charity Commission per se, to which the noble Lord, Lord Watson, referred, that I am reminded that the Public Accounts Select Committee reviews the Charity Commission every year and the NAO will undertake a follow-up review of the Charity Commission’s progress. The review of this legislation will, by considering the operation of the Act, consider the Charity Commission’s use of powers, guidance, and so on.

The purpose of such a statutory review is to establish whether, and to what extent, the provisions in the Bill have achieved their original objectives. The review must also consider whether the objectives are still valid, whether the measures are still required and the best option for achieving those objectives—and if so, whether the provisions can be improved to reduce burdens on businesses, including charities. The review must address three related questions. First, are the policy objectives that led to the introduction of the measures still valid and relevant? Secondly, if the objectives are still valid and relevant, is regulation still the best way of achieving those objectives compared with the possible alternatives?

Thirdly, if regulation is still justified, can the existing measures be improved? Additionally in this Bill, the review must include consideration of how the Act affects public confidence in charities, the level of charitable donations and people’s willingness to volunteer. As I am sure noble Lords know, this follows on from similar requirements in the Charities Act 2006 but should not be considered limiting on the scope of any review. The standard period for such a review to take place is within five years of the legislation being enacted, a point I shall return to.

I turn to Amendments 26 and 27 in the names of the noble Baroness, Lady Barker, and the noble Lord, Lord Wallace of Saltaire. As the noble Baroness said, social investment is a relatively new field but it is growing very fast, and the UK is already a world leader in many respects. I do not believe that the review clause of the Bill is the right place to propose a wide-ranging review of the social investment market, public perceptions of social investment and any impact on grant-making. In relation to social investment, the Bill makes a modest contribution by clarifying the existing law for charities in a way that we hope will encourage more charities to consider whether making social investments is right for them. For many, as I have said, it will not be.

The Cabinet Office and the Treasury have worked closely together for several years on growing the social investment market, a point I made earlier—for example, on the social investment tax relief that was launched in April 2014, the first of its kind in the world, or on the establishment in 2012 of Big Society Capital, the Investment and Contract Readiness Fund and the Social Outcomes Fund. The then Government also published annual progress updates on growing the social investment market. These covered a broad range of policies, including those owned by the Cabinet Office and the Treasury, so a lot is being done here already. All this was done without a statutory requirement for a review. I do not believe that a statutory review requirement would achieve much that is not already being done more frequently and with much broader scope.

There is nothing in the review clause that would prevent the Minister from specifying other matters to be considered in or alongside those required in the statutory review, so I do not think that Amendment 27 is really needed. I would strongly argue that the scope of the review clause is right as it is, and that it would be wrong to start focusing it on matters beyond the direct scope of the Bill when these are already being considered and reported on regularly by the Government. I hope that I have been able to persuade the noble Baroness to withdraw her amendment.

On Amendment 29, in the name of the noble Lord, Lord Watson, I have some sympathy with his arguments about bringing forward the first review but should also point out some of the downsides to holding the review within three years rather than five. Once the Bill becomes law, the clock begins to count down towards the review, but the Commission will need to develop and consult on guidance in relation to its new powers as well as putting in place systems and processes, training and internal guidance for its staff. It is not unrealistic to expect this process to take at least six months. The review clause requires the review to be published within so many years of enactment, which means that the review itself will have to begin earlier—say, six months. So it is easy to see how in practical terms a “three-year” review would actually be a two-year review, losing six months to preparation and guidance at the beginning and six months to the review itself at the end.

Then there is the important point that the commission itself has said that it would expect to exercise some of the powers on only a very few occasions each year—for example, the power to direct the winding up of a charity, which the commission expects to use on only two occasions each year. Factor in the time that it takes for an appeal to be determined, and one can see that there would be a real risk that some of the powers in the Bill may have been exercised only a couple of times by the time of a three-year review. That is unlikely to provide a sufficiently useful sample on which to base an assessment of the powers’ efficacy.

The standard period for reviewing legislation is within five years. The provision in the Bill as it stands does not prevent the review from taking place earlier than five years after enactment. It is also worth pointing out that the Charity Commission publishes an annual report on its compliance work called Tackling Abuse and Mismanagement, which I referred to last week, to help explain its case work and to help trustees learn any important lessons. This annual report would represent a good opportunity for the commission to report on the use of its new powers as and when they are used.

Having said all that, the noble Lord, Lord Watson, has made some helpful points about the timing of a review and I would like to consider them in more detail. For now, however, I hope that he will feel able not to press his amendment.

--- Later in debate ---

Moved by

[Lord Bridges of Headley]

30: Clause 15, page 18, line 20, leave out “This Act comes” and insert—
“( ) This section and section 14 come into force on the day on which this Act is passed.
( ) The other provisions of this Act come”

[Lord Bridges of Headley]

My Lords, this is a minor and technical amendment to the commencement provision in Clause 15. At present, subsection (3) of the clause provides for the Bill to come into force on whatever day is specified in regulations made by the Minister. Subsection (4)(a) states that the regulations may specify,

“different days for different purposes”.

The amendment would amend subsection (3) so that Clauses 14 and 15 come into force on the day the Act is passed; that is, on Royal Assent. Clause 14 imposes a duty on the Minister to review the operation of the Act. This should apply to the Act regardless of when other provisions are brought into force, so there is no need to delay commencement following Royal Assent. Clause 15, “Short title, extent and commencement”, contains general provisions, and it is good practice for Acts to make it clear that such general provisions come into force on Royal Assent. The remainder of the Bill would, as now, come into force on the day specified in regulations made by the Minister. This allows for commencement of the substantive provisions of the Act at an appropriate time which, in accordance with the convention, will be at least two months after Royal Assent. I commend the amendment to the Committee and I beg to move.

[Baroness Hayter of Kentish Town (Lab)]

My Lords, the Minister may say that it is a minor amendment but I happen to have a very long speech here. However, he will be pleased to know that I rise only to thank him for introducing the amendment. When we started on day one, my noble friend Lord Watson wished him well in the Committee stage and promised that we would deal with him gently. I hope he agrees that we have done just that.

This is an opportunity for me to thank the Minister for his patience and thoughtfulness, although maybe not his flexibility, in responding to our amendments. Of course, that has enabled us to hear all the Government’s arguments against our changes, which I hope will fortify and sharpen our case as we bring some of them forward on Report on 20 July.

I also take advantage of this moment to thank, in particular, my noble friends Lady Jones and Lady Pitkeathley for their contributions at this stage. I also give particular thanks to my noble friend Lord Watson for the heavy lifting on many of the amendments. It is the first time that we have worked together in this capacity, but I hope it is not the last. For the moment, we are happy to support this very minor amendment.

[Lord Bridges of Headley]

I am very grateful that that was not the speech that the noble Baroness was about to give. For one moment my heart sank and I wondered what I might have missed at this late stage. She has been very kind and has indeed dealt with me very gently, as has the noble Lord, Lord Watson, for which I am very grateful. I also extend my thanks to everyone—the noble Baroness, Lady Barker, my noble friend Lord Hodgson and the many others who have made this debate extremely fruitful. I said at Second Reading that this would be a very good opportunity to kick the tyres of this policy—although I know that it has been kicked for quite a long time—and we have certainly done that. We have had some good debates on a range of topics, some in the Bill and some not, and those debates have been incredibly well informed.

I put on record that I have agreed to meet a number of noble Lords between now and Report in two weeks’ time. I look forward to meeting, for example, the noble Baroness, Lady Hayter, to discuss her proposal to extend automatic disqualification to sex offenders, something on which I am very sympathetic. I look forward to dancing on the head of a pin with the noble Baroness, Lady Barker, and my noble friend Lord Hodgson as we define social investment still further. A number of other points on the Bill were raised by the noble and learned Lord, Lord Hope of Craighead, which I will look forward to discussing, as I will the points raised by the noble Lord, Lord Bew, and the noble Baroness, Lady Deech, on unincorporated charities. As I said, I also intend to meet my noble friend Lord Moynihan to discuss his proposals on sport. So all in all it looks as though I have a very busy couple of weeks ahead of me.

Amendment 30 agreed.

Voting: UK Overseas Citizens

Lord Bridges of Headley Excerpts

Monday 6th July 2015 Lords Chamber

[Lord Lexden]

To ask Her Majesty’s Government whether they will fulfil their commitment to extend full voting rights to all United Kingdom citizens overseas before the referendum on United Kingdom membership of the European Union.

[The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con)]

My Lords, the Government are committed to making a permanent change to remove the 15-year time limit on the parliamentary voting rights of British citizens living overseas. The Government are currently considering the timetable for doing so and will set out more detail in due course. At this stage I am afraid that I can make no commitment that it will be possible to make this permanent change in time for the referendum, the date for which is yet to be set.

[Lord Lexden (Con)]

I have long supported the extension of voting rights to all our fellow countrymen and women living outside this realm. As it happens, I have also long supported my noble friend, whom I welcomed to the Conservative research department 23 years ago. This is my first opportunity to welcome him here. I thank him for his comments about the importance of this issue, which, as he knows, stirs very strong feelings indeed, not least among the estimated 2 million who live in other EU countries. Will he do all he can to expedite the Bill to give them votes for life, which was promised in the Conservative manifesto?

[Lord Bridges of Headley]

My Lords, my noble friend is quite right; he marked my work some 23 years ago. It was quite a daunting experience then, so I do not look forward to his marking of this answer. I cannot go much further than the Answer that I gave. All I will say is that I entirely share his sentiment that Britons abroad do, indeed, retain strong links with this country through family and friends. Many others remain fully up-to-date on British affairs thanks to today’s modern communications. I pay tribute to the work that my noble friend has done, along with many other noble Lords such as my noble friend Lord Norton and the noble Lord, Lord Tyler. The Government remain committed to fulfilling their commitment.

[Lord Roberts of Llandudno (LD)]

My Lords, if Greece can arrange a referendum within a week, why is it going to take us two years—and even then be uncertain whether the commitment can be fulfilled?

[Lord Bridges of Headley]

I thank my noble friend the Minister for his advice. As he just said, we will be awaiting the dates of the referendum in due course.

[Lord Tomlinson (Lab)]

Would the noble Lord accept that there is something particularly wrong when people serving this country overseas—particularly the many Britons who serve in European Union institutions and have developed their career there—are denied a vote? It is particularly obscene that they should be denied a vote in a referendum on our future membership of the European Union. Will he ensure that something is done as speedily as possible about that particular category?

[Lord Bridges of Headley]

My Lords, the franchise for the EU referendum is obviously based on the parliamentary franchise, and that is what we intend to stick to.

[Lord Kennedy of Southwark (Lab)]

My Lords, will the commitment to extend voting rights to UK citizens living overseas also include their right to make donations to political parties in the UK? Does the noble Lord think that it is right that, when an individual has been living overseas for 20, 25, 30, maybe even more than 40 years, donations can be made from income that has neither been earned in this country nor had UK tax paid on it?

[Lord Bridges of Headley]

My Lords, when we publish the Bill we will make all these matters clear.

[Lord Cormack (Con)]

My Lords, will my noble friend give further consideration to the desirability of compulsory registration? I apologise for making this point yet again, but if we are to have a referendum that gives an opportunity to all our citizens to vote, should we not place a certain obligation on them so to do?

[Lord Bridges of Headley]

My Lords, I believe that this is a matter that your Lordships and many others have discussed many times and will continue to do so, but, as I have said, we have set out our view on the European referendum. It will be based on the parliamentary franchise. However, I am sure that we will continue to have the debate that my noble friend wishes to have.

[Lord Wallace of Saltaire (LD)]

My Lords, do we have any idea how many British citizens there are overseas and how many of them are dual citizens of the United Kingdom and other countries? When I was in government I tried to find out figures on this and got estimates that varied between about 4.5 million and 6 million. Could the Government possibly aid us all by trying to get some accurate estimates, including of where they live and how many of them are dual citizens?

[Lord Bridges of Headley]

My Lords, I hardly dare say that my efforts will be greater than those of the noble Lord. What I will say, reading from my brief, which I am sure the noble Lord remembers, is that there are 5.2 million British-born migrants living overseas. I do not have a breakdown but I will certainly ask. I would stress that more than 105,000 British citizens resident overseas were registered to vote in the election—more than three times the previous highest number.

[Lord Reid of Cardowan (Lab)]

My Lords, I congratulate the Minister on his enthusiasm for ensuring that British citizens abroad get their rightful democratic part in the process. But before he gets to abroad, could he just consider at home, where 800,000 people born and bred in Scotland did not have a vote, though resident in the United Kingdom, in something that affected Scotland and the United Kingdom? Would he bear in mind, when he is looking at those abroad, that just as charity and various other things start at home, the franchise should start at home as well?

[Lord Bridges of Headley]

The noble Lord makes a very interesting and good point. I would draw his attention to the fact that important steps have already been taken to increase levels of voter registration. For example, over £14 million has been invested over the past two financial years to support the cost of activities aimed at increasing the levels of voter registration.

Charities (Protection and Social Investment) Bill [HL]

Lord Bridges of Headley Excerpts

Wednesday 1st July 2015 Grand Committee

[Lord Leigh of Hurley]

I thank the noble Lord. I also think that I may have misunderstood the noble Baroness, Lady Hayter, when she talked about some charities not solely campaigning. My experience is that some charities are solely campaigning ones; in fact, I had personal experience of that only two weeks ago when a raven bird got stuck in my basement. In a moment of panic, and prompted by my young children, I was too frightened to address the issue myself so I rang the RSPB, thinking that that was a logical solution. The RSPB informed me that under no circumstances does it actually go out to assist birds in distress or in danger of damage; no, it is a lobbying charity. I was to either ring another charity or do it myself. In the event, I passed the buck to my wife.

My point is that there are charities that have evolved—some quite rightly, but some perhaps worryingly—into pure campaigning. The charities with which I am involved found the transparency of lobbying Bill helpful, in that it was clear that during the election we had to keep on the straight and narrow. On the boards of the charities with which I am involved sat a broad-array spectrum of political opinions, and it helped to ensure that we all abided by the Act and did not engage in political advocacy during the election.

I am particularly heartened by the comments from my noble friend Lord Hodgson of Astley Abbotts that he is taking further evidence on this issue. I rather hope that this can still be discussed at a later stage with that evidence, and I ask for the Minister’s comments on that.

[The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con)]

My Lords, I very much welcome this debate. It is exactly the kind of debate that we need to have on these issues. I am grateful for all the contributions made by a number of your Lordships, especially the noble Lord, Lord Judd, who made a very eloquent contribution.

I make it categorically clear that the Government support charities’ right to campaign within the law. Many charities use campaigning and advocacy effectively and legitimately to support their charitable purposes and beneficiaries. This role is important to charities’ independence and is certainly of value to society. Campaigning for changes to the law or policy that would support a charity’s purposes is a legitimate activity for charities, and one in which charities in this country have a long and proud tradition, as we have heard from the noble Lord, Lord Judd, and the noble Baroness, Lady Pitkeathley. The position that they occupy is largely derived from case law, and the Charity Commission’s CC9 guidance is clear on what charities can and cannot do. Its view of case law is clear: political activity by charities is an acceptable means of supporting their charitable purposes but it cannot be the sole and continuing activity of the charity, as that would indicate a political rather than a charitable purpose. So charities can undertake political campaigning or political activity that seeks to support the delivery of their charitable purposes where trustees consider it an effective use of their charity’s resources, but charities must never engage in political activity or support for a political party or candidate.

In response to the point made by the noble Lord, Lord Judd, about neutrality, I say that a charity can campaign strongly on an issue linked to its purpose, as long as it is not endorsing or supporting a particular party. As I said, political campaigning or activity cannot be the sole and continuing activity of a charity, and charity trustees need to ensure that political activity remains a means to an end and does not become the reason for that charity’s existence. Charities must, when undertaking political activity, seek to retain their independence from political parties. As the Charity Commission’s guidance makes clear, in the political arena, a charity must stress its independence and ensure that any involvement it has with political parties on the particular views of the parties is balanced. Trustees also need to ensure that any political activity is an effective use of the charity’s resources. In response to the question of the noble Lord, Lord Lea, about gauleiters, I am sorry, but I am not going to get into individual cases and words used in particular literature. It would be wrong for me to offer a view on whether a charity is on the right or the wrong side of the rules. That is rightly a question for the Charity Commission on the basis of the evidence it receives.

I turn to the amendment. Attempting to put into statute law a provision of case law risks changing the boundaries of what is permitted. Even if the boundaries of the law were not shifted by a statutory definition, one would still expect legal challenges to test the “new” boundaries of the law. Further, putting it in the Bill risks politicising charities’ right to campaign. Cabinet Office Ministers are responsible for charity law and would be responsible for this provision. That would leave it open to political interference over time—not that I am suggesting that any such interference would take place, but the risk would be there. I would argue that instead it is much better to have a case-law provision firmly in the realm of the independent regulator and courts.

One might question whether Amendment 14 permitted charities to support political parties—for example, by allowing charities to undertake political campaigning—without defining exactly what that means. The Charity Commission’s CC9 guidance runs to 31 pages. Trying to condense the legal underpinning into a short statutory provision that is five lines long, while attractive from the point of view of simplicity, would not properly reflect the current case-law position and could have unintended consequences.

In recent years, there has been a similar debate about whether the meaning of “public debate” could be distilled into a statutory definition. This is another area where the Government believe that we are better served by a long-standing case-law position supported by clear guidance than by attempting to define a solution in statute.

There has been discussion of the transparency of lobbying et cetera Act. It was not the Government’s intention that the changes to the rules for third parties campaigning at elections made by the Act should prevent charities and campaigning groups from supporting, engaging or influencing public policy. The Act is designed to ensure that campaigning by third parties to influence an electoral outcome is properly regulated, and there are few circumstances in which legitimate charity campaigning on policy would be caught. Very few charities registered with the Electoral Commission for the 2015 general election. It is worth noting that the test for “controlled expenditure” provided for in the Act is the same as was in operation for the 2005 and 2010 general elections: namely, only expenditure which,

“can reasonably be regarded as intended to promote or procure electoral success of a party or candidates”.

The Electoral Commission published guidance for third parties and engaged with a range of third parties in formulating this guidance. As my noble friend Lord Hodgson of Astley Abbotts said, he is currently undertaking a statutory review of the rules for third-party campaigners at elections. He is taking evidence, and I certainly encourage all your Lordships who are interested in this matter to respond to and engage with him. We look forward to his recommendations later in the year.

I turn briefly to the Charity Commission guidance. The commission has also monitored charities’ political activity and observance of its guidance during the election campaign, and is considering the findings from that monitoring and other issues relating to its current guidance. The commission will, I am sure, study the findings of my noble friend’s statutory review; I know that it has been engaging throughout. As I said at Second Reading, the Charity Commission has said that it keeps all its guidance under review to ensure that it remains relevant and up to date. If the commission considers that revisions need to be made to its CC9 guidance later, it has committed to saying so publicly and to consulting widely.

As has been said, there have been cases where charities have overstepped the mark of what is allowed under charity law or have failed to protect their independence by undertaking political activity that gives or risks the impression of being party political. In general, the numbers of cases that the commission takes on that are related to campaigning and political activity are low—in 2013-14, there was only one inquiry and a handful of operational compliance cases. However, where they occur they are often high profile and have significant impact. In the run-up to the election, for example, there were some clear cases where charities overstepped the line. For example, some charities signed a letter in support of Conservative policy and another painted a political slogan on its roof. These are clear cases of a breach in the law and the commission’s guidance. People with concerns about political activity are able to question whether or not a charity has stuck to the rules on campaigning and political activity, and an independent regulator in the Charity Commission can look at the facts and will reach a judgment in each case on the basis of the evidence provided. That is absolutely right and proper.

To conclude, the Charity Commission’s guidance CC9 makes it clear that charity law recognises that campaigning can be a legitimate activity for charities and sets out the general principles. Charities can campaign to raise awareness and understanding of an issue or to secure or oppose a change in the law or government policy or decisions, as long as the campaigning relates directly to a charity’s purposes and beneficiaries. Charities must retain independence and political neutrality, must never engage in any form of party-political activity and must avoid adverse perceptions of their independence and political neutrality. In addition, they must not embark on campaigning to such an extent that it compromises their legal status as a charity. I firmly believe that the existing case law and guidance serve us well and that there are major risks in attempting a statutory provision. I therefore invite the noble Baroness to withdraw her amendment.

[Baroness Hayter of Kentish Town]

My Lords, I thank my noble friend and other noble Lords who have spoken in this debate. The Minister is right that this is an important issue to discuss. I disagree only with his conclusion, as it seems to me that he has endorsed the amendment—he agrees with every word in it and his only argument against it seems to be that it should be not in law but in 31 pages of Charity Commission guidelines. That is exactly the problem for trustees. However well written 31 pages of guidance are, it is not a great comfort blanket to trustees. I take a different view, which is that a clear statement that trustees can read is a much better way of ensuring that they know the law.

The Minister and I are as one on the content; the law as it stands is fine and we are both content with it. The issue is that the transparency Act reads differently and is constraining. The Minister was not quite right to say that the position was the same in the previous election, because in that election only printed documents were covered and it is easy to see whether they support a particular party. The range of activities now covered includes meetings, press conferences and possibly hustings. Indeed, the church raised the issue of hustings with the Minister at the time, as a number of churches had traditionally had hustings. It is interesting to note how many fewer hustings there were this year, owing to the fact that the definition of the sort of activities that would be covered was expanded so much. The Minister has not quite got the descriptor right in saying that the position was the same as before. I was also sorry that the Minister did not give us a slightly more thoughtful response to the point made by my noble friend Lord Lea. Perhaps he will consult the Charity Commission because clearly some important issues were raised and I hope he will follow them up.

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[Baroness Hayter of Kentish Town]

My Lords, I will not add to the case that has been made, but I would like to make a tiny point referred to by my noble friend about making complaints about the Charity Commission, which is quite hard to find on the website. The complaints procedure finally ends up with the Parliamentary and Health Service Ombudsman, which we welcome because that is an excellent ombudsman. From another part of the Government—although I think that it will be the Minister who will deal with this in due course—is an extremely welcome provision to bring about a merger of the Parliamentary and Health Service Ombudsman with the Local Government Ombudsman. That is something we will welcome when it comes here. However, perhaps the Minister can outline how that will facilitate complaints about any decisions made by the Charity Commission—not necessarily appeals because not every trustee will be able to raise the case, as we have just heard.

[Lord Bridges of Headley]

My Lords, I thank the noble Lord, Lord Lea, for the explanation behind his amendment. I shall pick up on the final point made by the noble Baroness, Lady Hayter. I will need to write to her as regards the complaints procedures and the changes to be made in respect of the Parliamentary and Health Service Ombudsman.

Perhaps I may begin by focusing on the actual words used by the noble Lord, Lord Lea, in his amendment,

“a proportionate, accountable, consistent, transparent and targeted manner”,

and whether the annual report of the Charity Commission should refer to these. I draw the attention of noble Lords to the annual reports of the Charity Commission headed Tackling Abuse and Mismanagement in Charities, and the stand-alone case reports in which it applies the principles of best practice. However, I should add that the commission tends to frame this in terms of proportionality. The Charity Commission’s annual report for 2014-15 was published just yesterday—I am sure that noble Lords took it to bed with them last night to read. In the section on promoting compliance, the commission explains its approach:

“We use our powers proportionately according to the nature of the issue, the level of risk, and the potential of impact. However, even where we have regulatory concerns, it may not, in some instances, be proportionate for us to formally investigate a charity”.

The commission’s annual report also includes a paragraph specifically focused on how it is supporting the Government’s commitment to better regulation. There is furthermore an extensive section on enabling, which sets out not only the commission’s permissions casework—making schemes and so on—but also the work it has undertaken to prevent problems arising in the first place by making trustees aware of their duties and responsibilities, which is a key principle of proportionate regulation.

I turn now to the Tackling Abuse and Mismanagement in Charities reports. In these the commission is at pains to include some cases which show that it does not always have to make significant regulatory interventions, especially when the trustees who co-operate are either able to put the problems right themselves or can demonstrate that the initial concerns cannot be substantiated. For example, last year’s report set out the commission’s proportionate approach, stating that:

“As an independent, non-ministerial government department with quasi-judicial powers, we operate within a clear legal framework and follow published policies and procedures to ensure that we are proportional in our approach to tackling abuse and mismanagement”.

Finally, the commission’s published framework explains how it approaches all its work and helps to ensure that it continues to be proportionate, accountable, consistent, transparent and targeted. It sets out three questions that the commission answers before taking any action: first, does the commission need to be involved; secondly, if it decides that it does need to be involved, what is the nature and level of risk; and thirdly, what is the most effective way of responding? The commission prioritises issues that fall within three areas of strategic risk affecting charities: fraud, financial crime and abuse; safeguarding issues; and concerns about the terrorist abuse of charities. I hope that I have addressed the substance of the amendment, and furthermore these words are set out under Section 16 of the 2011 Act. The commission needs to abide by them in all it does.

Lastly, I want to address the specific case that may have given rise to the point made by the noble Lord, Lord Lea. As I hope he will understand, I am not able to go into the details of this case as it is an operational matter for the independent regulator, the Charity Commission. However, as the noble Lord said, he has been in correspondence with the commission and I understand that the chairman has replied and offered to meet him to discuss the case. I hope that the noble Lord will accept that offer. With regard to the specific questions that the noble Lord asked me directly, I will need to write to him in response.

I draw the Committee’s attention to the wider issue of registrations of charities. I point out that we know the number of registrations applied for and the numbers rejected. This year’s report sets it out in detail on, I think, page 41: last year there were 7,192 applications to register, 4,648 registration applications were approved, 2,248 charitable incorporated organisations were registered and 34 registration applications were formally refused.

I am concerned that the amendment that we are considering is not necessary. The commission already explains in its annual report how it is enacted in line with the principles of best regulatory practice. I therefore hope that I have been able to reassure the noble Lord, Lord Lea, somewhat, and that he will feel able to withdraw his amendment.

[Lord Lea of Crondall]

My Lords, I totally expected that the Minister would be unable to reply to my questions today; that is why I said, and he has confirmed, that he should write to me about the questions that I have raised—before Report, I think he said—and no doubt put a copy in the Library. I am slightly surprised that in the circumstances, since he is aware of the broad outlines of the case, he has had nothing to say about the special circumstances of a short-term trust. Is this a lacuna in the procedures of the Charity Commission, as I suspect?

I stretched the limits of the procedure in the time that I took when I made my opening speech, so I will leave it there at the moment and study the Minister’s reply. Incidentally, with no discourtesy to Mr William Shawcross, no, I have no wish to meet him, given the nature of the reply that he eventually gave to my letter. I beg leave to withdraw the amendment for the moment.

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[Lord Watson of Invergowrie (Lab)]

My Lords, we support the amendment in the name of the noble Lord, Lord Bew. Change is needed because, as we have heard, many people who have suffered in a manner that would allow them to seek at least adequate redress against an unincorporated charity are currently in effect unable to achieve that. There are a lot of unincorporated charities. The Charity Commission has around 125,000 of them on its register, which gives some idea of the scope of those that may be covered by this amendment.

Surely there is a need for parity, because where a tort has been committed in the course of a charity’s activities, the remedy should not be different simply because of the charity’s status. An example of an unincorporated charity being able to escape the consequences of its actions arose a few years ago, and I had personal contact with it. Noble Lords may recall that a number of charities became involved in fundraising to assist countries in sub-Saharan Africa. Huge amounts of clothing, toys and other portable goods which had been donated by the public in the UK were transported by road to people in need in those countries. I had a friend who was involved in delivering those goods as part of one of the convoys. Sadly, during the journey his convoy met with an accident in which he suffered a serious leg injury. He is now unable to drive and has lost his job, because driving was an essential part of it. However, the charity was unincorporated so he had no effective means of redress in the form of compensation. He did receive some, but not nearly as much as he would have done had he been able to take action against an incorporated charity.

I do not think that there is any point in repeating the comments made by noble Lords in this debate. I simply wish to say that the amendment is a sensible one and I hope that the Minister will agree to bring forward an amendment on Report that incorporates its aims.

[Lord Bridges of Headley]

My Lords, I thank the noble Lord, Lord Bew, and the noble Baroness, Lady Deech, for their explanation of the amendment. This has indeed been an illuminating debate and I thank them for it. As has been alluded to, an amendment along these lines was first proposed by the Henry Jackson Society in its submission to the Joint Committee on the Bill, and the submission was published in the committee’s report on the evidence it received. It is worth pointing out that the Joint Committee did not recommend changing the law as proposed in that submission.

Perhaps I may briefly summarise our view around this point. As noble Lords will know, “charity” is a status rather than a legal structure. Organisations can choose from a range of different legal structures when establishing a charity. An unincorporated structure, as has been said, has no separate legal identity of its own, and so the trustees must hold the charity’s property and enter into contracts for the charity, where this is required, in a personal capacity. Unincorporated structures are usually simpler, and have fewer and less demanding reporting obligations than corporate structures, as the noble Baroness, Lady Barker, pointed out. The downside is that a trustee’s personal assets are at risk if the charity is sued and its assets cannot pay the debt. This personal liability is often a reason that many charities choose to adopt a corporate structure. Even so, many smaller organisations opt for an unincorporated form, such as a trust or unincorporated association, as the noble Lord just said.

In a corporate structure, the charity itself has a legal identity enabling it to hold property and enter into contracts in its own name. As directors, the trustees act as agents of the charity. If they act properly, they and the charity’s other members have the benefit of limited liability, protecting their assets from being available to creditors in the event that the charity’s assets are exhausted. However, the accounting, reporting and insolvency requirements that apply to corporate structures are usually more demanding. Many charities choose the structure of a company limited by guarantee, and an increasing number of small and medium-sized charities are opting to incorporate as charitable incorporated organisations—a structure designed specifically for charities and implemented in 2012.

If an individual or entity commences litigation against an unincorporated charity, usually all the trustees of that charity would be named as parties. This is because an unincorporated charity has no separate legal identity. This would include proceedings for tortious liability against a charity trustee in his capacity as a trustee of that charity or an employee in the course of his employment. The trustees of an unincorporated charity are jointly and severally liable for their actions, where taken on behalf of an unincorporated charity. If damages were awarded against the trustees, they ordinarily would be entitled, if they have acted properly and reasonably, to indemnify themselves from the assets of the unincorporated charity under the charity’s governing document. They could, however, be jointly and severally liable for any shortfall where the charity’s assets are insufficient to meet the level of damages awarded.

As an employer, the trustees of an unincorporated charity would be vicariously liable for the actions of an employee if they were acting on behalf of the charity and the same principles would apply, enabling a claim to be paid out of the charity’s assets. Indeed, a person suing the trustees of an unincorporated charity could seek redress from the assets of the charity and the personal assets of the trustees. For an incorporated charity, in the absence of any charity assets, there is limited redress against the directors and members. If a third party reasonably believes a trustee is acting on behalf of a charity, it may sue all the charity’s trustees. Ordinarily, the trustees would be entitled to an indemnity from the funds of the charity under the charity’s governing document. However, a trustee in breach of trust or duty would be unlikely to be able to rely on this indemnity, so would remain personally liable. In either case of a trustee or employee acting on behalf of a charity, liability is not likely to be, nor should be, automatic, as the amendment seems to propose; it would still need to be established by the court where the liability should lie, based on the facts of the case.

In our view, the current legal position already supports the provisions within the amendment that damages may be recoverable from the assets of the charity, whether it is incorporated or unincorporated. Apportionment of liability between the trustees of an unincorporated charity is already possible under the Civil Liability (Contribution) Act 1978 if a claim is not brought against all of the trustees. The amendment would also run counter to the long-established principle that unincorporated associations do not have legal personality. I would be delighted to meet the noble Lord, Lord Bew, and the noble Baroness, Lady Deech, to discuss all this further, but, in the mean time, I invite the noble Lord, Lord Bew, to withdraw his amendment.

[Lord Bew]

I am very grateful to the Minister for his very full reply. My noble friend Lady Deech and I would be glad to take up the opportunity of further discussion with him on this subject. I beg leave to withdraw the amendment.

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[Lord Bridges of Headley]

My Lords, I welcome this debate, prompted by the amendment of the noble Baroness, Lady Pitkeathley, who, as the noble Baroness, Lady Hayter, has just said, has extensive experience of this sector. I also welcome, as did my noble friend Lord Hodgson, the chance to climb on my horse and canter around this terrain once again. It is important that we debate these issues and I can see that there are a number of them here. On the one hand there is the independence of the commission but on the other, much more fundamentally, there is the question of its funding.

Before I turn to the future, I shall talk first about the present and where we are today. It is important that we put the debate on funding in the context of recent history. As the Committee knows all too well, in its critical 2013 report on the Charity Commission the National Audit Office found that the commission had,

“no coherent strategy for delivering clearly defined priorities within its broad remit”,

and:

“The Commission does not know how much its activities cost and has not focused its resources on its priorities”.

Those are pretty damning words, as I am sure the Committee will agree. Under the leadership of William Shawcross and Paula Sussex, the Charity Commission is making good progress in addressing these weaknesses. I pay tribute to their leadership and that of the commission’s board. Equally important, I also recognise the commitment and hard work of the staff at the Charity Commission who strive, day in and day out, to ensure that charities are properly regulated and get the service they require.

The National Audit Office undertook a follow-up report on the Charity Commission which came out in January 2015. The report found that the commission has made good early progress in addressing all of the recommendations made by the NAO and the Public Accounts Committee and has put in place a credible programme for change. That said, it also pointed out that there is still some way to go.

The Charity Commission’s 2014-15 annual report, which was laid before your Lordships’ House yesterday, demonstrates some of the progress it has made in its compliance work, for example, and in a number of other areas. It reports that in 2014-15 the commission opened 103 new investigations and used its enforcement powers 1,060 times—up from 64 and 790 respectively in 2013-14. Equally as important, the commission also continues its enabling work through permissions casework, providing online services to charities, and through guidance and engagement to support trustees in fulfilling their legal duties when managing their charities. In the commission’s first contact alone, it dealt with over 57,000 calls, 55,000 emails and granted over 2,500 permissions last year. It continues to refine this work with an aim to provide an “efficient, fuss-free service to charities”. So we are seeing good and positive progress from the commission in becoming a more effective and efficient regulator.

However, as has been discussed, the question of funding is a valid one and I share the noble Baroness’s wish to ensure that the regulator is properly and sustainably funded. I am sorry to disappoint the noble Baroness but I am not able to shake a money tree and magic up a large cheque for the Charity Commission. This is because the Government remain committed to dealing with the record deficit and all parts of government need to contribute to efficiency, including the Charity Commission.

That said, the Government recognise the need for targeted additional resources for the Charity Commission. In October last year, my right honourable friend the Prime Minister announced an £8 million capital investment for the Charity Commission through to March 2017. On top of that, it also received an extra £1 million in funding for 2015-16. This £8 million capital investment will help the commission to refocus its regulatory activity on monitoring and enforcement in the highest risk areas—for example, the abuse of charities for terrorist and other criminal purposes such as tax avoidance and fraud. The commission has said that this significant investment will be spent on technology and frontline operations, allowing it to streamline lower risk work and deploy its resources more effectively to priority work.

So that is where we are. Looking to the future, the Charity Commission’s strategic plan for 2015-18, which was also published yesterday, sets out its four strategic priorities. These are, first, protecting charities from abuse or mismanagement; secondly, enabling trustees to run their charities effectively; thirdly, encouraging transparency and accountability; and, fourthly—this is the matter that concerns the Committee—operating as an efficient and expert regulator with sustainable funding. Under the heading of that fourth strategic priority, the commission has committed to consulting on proposals for alternative funding options, including an annual charge for registered charities.

The strategic plan also makes it clear that the Charity Commission cannot devote the same level of resource to each of its statutory objectives as it previously could. It accepts that means changing the way it operates, allocating resources by relative priority and risk, and working with partners. The commission is looking at various options. However, I should stress that there are no plans in place yet. The commission’s chairman, William Shawcross, has been meeting the chief executives of a number of charities to raise the idea with them and listen to their thoughts. Of course there are those who have concerns. The commission is listening to them and will consult more widely as its plans develop.

As the noble Baroness, Lady Hayter, has illustrated, there is a wide range of views on this subject already. The Populus research that she cited found that the majority of the public—69%, as noble Baroness said—believe that charity regulation should be partly or fully funded by charities themselves. A significant minority of charities—23%—agree with this, while the majority of charities believe that charity regulation should be funded entirely through general taxation. Clearly, therefore, discussions must continue with the sector to see where there is shared ground. Of course, Parliament would want and needs to be involved in any debate, and I know that some of your Lordships have already fed in your thoughts and have expressed them today. Section 19 of the Charities Act 2011 would enable charging to be brought in through secondary legislation, but importantly and crucially, it provides for parliamentary scrutiny of any charging proposals and requires the affirmative resolution procedure.

The issue of independence was raised and whether, if charities are to pay for their regulation, we can ensure that the Charity Commission is independent of government. This again raises questions about the commission’s independence. Its chairman, Mr Shawcross, explored the issue of sustainable funding for the regulator in a speech on 10 June, saying:

“There are indeed very real questions to answer—including how the Commission’s independence, which is so vital, would be protected under such an arrangement”.

We must ensure that the Charity Commission remains independent of government and the sector it regulates, however it is funded in the future.

The funding of the commission is just one strand of ensuring that it is able to be the modern, effective regulator that the public and we all expect. The powers in this Bill are another strand of that. I hope that my response begins to reassure the noble Baroness that we and the commission are committed to ensuring that the regulator has a sustainable funding solution to enable it to regulate charities effectively and efficiently, and that work is already under way to consider the options. With that, I hope that she will feel able to withdraw her amendment.

[Baroness Pitkeathley]

I thank the Minister for his thoughtful response and other noble Lords for their similarly valuable contributions to this short debate. I said that my amendment was controversial; it has also been illustrated that there are many complex issues within it. The debate about how the Charity Commission is funded did not start here and certainly will not finish here. It will be the subject of ongoing relationships. It seems to me that the relationship between the Charity Commission and the sector that it regulates is vital.

I have raised the issue—and the Minister has addressed it—of independence. My noble friend referred to consumer involvement and protection. Those issues will not go away as we look to the future of funding for the Charity Commission, but, for the moment, I am happy to withdraw the amendment.

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[Lord Watson of Invergowrie]

My Lords, I am in favour of these amendments. It is important to ensure that the Bill is drafted as clearly and concisely as possible to enable charities to make the most of social investment in furthering their purposes.

In 2012, the noble Lord, Lord Hodgson of Astley Abbotts—who has, as ever, provided us with an insight into some of the work that led to the Bill before us today—said in his review of the Charities Act 2006 that while charity law did not actively prohibit social investment, it was,

“certainly not set up to support it”.

He went on to advocate a statutory power for charity trustees to engage in social investment and statutory clarification of just what social investment is and involves. That makes it all the more puzzling why the previous Government chose not to include the social investment aspects in the draft Bill that was the subject of pre-legislative scrutiny by a Joint Committee of both Houses. If social investment is suitable for inclusion in this Bill, why was it not suitable for the draft Bill? Is there an answer? Of course, it is not a new idea but we are where we are and it is certainly to be welcomed that we now have this clause in the Bill.

In preparing for this part of the Bill, I tried to answer the question: what is social investment? I am not alone in that. The term is often confusing to many, and a lack of transparency could undermine its potential. As I understand it, this is the first time that social investment has been defined in statute, although neither the Bill nor its Explanatory Notes are particularly helpful in their attempts to define it. Am I the only one to have read the Explanatory Notes on Clause 13, paragraph 80 in particular, and found myself little more aware of what social investment really is and how it might operate as a result?

According to the Big Society Capital website, social investment is,

“the use of repayable finance to achieve a social as well as a financial return”,

which certainly has the benefit of being both clear and concise. Big Society Capital was the first ever social institution of its kind, established by the coalition Government in 2012 as an independent organisation with an investment fund of some £600 million. However, the concept actually emerged under the Labour Government of 2005 to 2010, who established the Commission on Unclaimed Assets to examine how funds released from dormant bank accounts could be used to generate the maximum public benefit. The creation of a social investment bank was a key recommendation of the commission and, following a consultation, the Labour Government proposed naming it the Social Investment Wholesale Bank. Fast-forward to the arrival of the coalition Government, for whom the title was perhaps a tad too left-sounding, hence the incorporation of what I regard as the largely meaningless big society name—whatever became of that concept, I wonder?

Whether Big Society Capital is now succeeding in supporting the third sector in the way it was intended to do is open to question and there are arguments both for and against within the sector. Certainly, Big Society Capital should have a positive impact on the social investment market by facilitating the provision of funding capital to the third sector. It is also charged with increasing awareness of and confidence in social investment by promoting best practice and sharing information; improving links between the social investment and mainstream financial markets; and working with other investors to embed social impact assessment into the investment decision-making process.

A new social investment market is emerging, developing ways to connect socially motivated investors with social sector organisations that need capital so that they can grow and make a greater impact on society. All this is to be welcomed, and the fact that every organisation that has sent noble Lords a briefing has welcomed the addition of social investment to the Bill demonstrates that it is an idea whose time has come, certainly in the third sector. The key is to make sure that it is as effective as possible in enabling charities to further their stated purposes while achieving a financial return for them.

Clause 13 is, by consensus, necessary. Noble Lords have already referred to the Law Commission consultation, which highlighted that there are differences of opinion regarding the ability of charities to make social investment based on their existing charitable powers. Clause 13 removes any such doubts and will enable charities to undertake social investment more easily and without the need for legal advice, at least as to the principle of the investment.

It is self-evident that social investments should be made only after careful consideration of the risks of the investment and evaluation of the benefit that will accrue as a result of it. Trustees should also be clear as to how they will evaluate the social investment and how regularly the investment will be reviewed. Such reviews should consider the effect that the social investment may have on the rest their overall investment portfolio and other activities, such as grant-making. Social investments are not made in isolation and it is surely sensible for trustees to take this into account when making a decision.

We support the amendments in this group. As has been stated, there is a need for clarity on what social investment is and how it will operate. The noble Lord, Lord Hodgson of Astley Abbotts, made the important point that the current wording of new Sections 292A and 292C does not reflect adequately the suggestions made by the Law Commission in its report. It is important for the Bill to be as clear as possible and I hope the Minister will be open-minded on this broad point and that he will not dismiss the amendments but will undertake to look at them in the way they have been brought forward. I hope he will give an undertaking to bring forward his own rewording to improve this section on Report. We have a singular aim: to make this section of the Bill as effective as possible. It would be in the interests of everybody, not least the charities themselves, for the wording to be tightened up.

[Lord Bridges of Headley]

My Lords, I am grateful to the noble Baroness, Lady Barker, and my noble Friend, Lord Hodgson, for tabling these amendments. I entirely share the sentiments of many noble Lords that we need to examine the definitions in detail, although this might get very technical. This is clearly the first time that we have attempted to define social investment and set it out in statute. It is entirely right and proper that we take time to debate and define to make sure that what we are doing is fit for purpose.

I will pick up on what has been said about the definition of social investments. Traditionally, as your Lordships know, those charities that have money to invest have taken a two-pocket approach to pursuing their goal. On one side, they seek to maximise financial returns from their investments. On the other side, they distribute those returns to further their mission. Sometimes, but not always, they try to measure the impact they are having. I would argue that social investment is different, because it sits between these two pockets. It involves investments that further the charitable mission but also expect to generate a financial return. This means the capital can be recycled again and again, contributing to a sustainable model and reducing dependency on grants and donations. In the right conditions, it can enable a greater impact than the traditional model, and further benefits from the focus on measuring and reporting on the outcomes that have been generated.

Turning to the amendments, it may first be worth recognising that Clause 13 has been prepared by the Law Commission, as the noble Baroness, Lady Barker, said, in order to implement its recommendation for the creation of a new power, and associated duties, when making social investments. The Bill is not the Government’s interpretation of what the Law Commission recommended; rather, it is drafted by the Law Commission to reflect its own recommendations. In this way, the definition of social investment used for the purpose of this Bill has been deliberately drafted to be as wide as possible while retaining the distinctiveness of the “social” element. It covers a spectrum, from investments that are mostly intended to further charitable purposes but involve some return of capital, through to those that are primarily financial but have a small mission benefit. I think of these as the two poles at the extremes of the spectrum. At one end are social investments that look much like grants, with a very limited expected return of capital. At the other are social investments that look very similar to traditional financial investments, but have a small role in furthering a charitable purpose. Social investment must combine some aspect of each pole, but the nature of the combination is entirely flexible.

Neither the furtherance of the charity’s purposes nor the financial return should be required to take precedence. To hold one above the other would potentially restrict the breadth of investments that fall under the power, thereby making it less likely to be used. In order to maintain as wide a scope as possible for the power’s use, so that the power may have the largest possible impact, I hope the noble Baroness will withdraw her amendment.

On the other hand, the definition of social investment used here seeks to ensure that there is a direct relationship between the social investment and the charity’s purposes; in other words, there should be a clear causal connection between the act done by the charity and the charitable service ultimately provided. Allowing for indirect furthering of the charitable mission would mean that the power of social investment applied to investments that were purely financial but where the returns were used for charitable purposes. I thank my noble friend Lord Hodgson for raising this important consideration with me, but in order that the clear causal connection should be maintained I hope that he will be content to not move his amendment.

Turning to Amendments 16A, 18B and 20A, I thank my noble friend Lord Hodgson for the work that he has done and continues to do in this area. His input is of great help and has been of real benefit to the charity sector. My understanding is that these amendments are intended to ensure that the definition of social investment is wide and can cover all potential situations, even those where the furtherance of the charity’s mission is slight or occurs piecemeal. In particular, I understand that the intention is to make explicit that mixed-motive investments, as described in Charity Commission guidance note CC14, are covered by the definition.

I take this opportunity to state explicitly that the Bill has been drafted by the Law Commission to include MMI as one aspect of social investment. Furthermore, officials have been in continued dialogue with the Law Commission on this and other points, and the commission is satisfied that the drafting properly reflects the intent. So long as some direct furthering of the charity’s purposes is intended, no matter how small or partial, along with some anticipated return of capital, no matter how minimal, the investment is covered by the definition. Mixed-motive investment clearly falls within this. It partly furthers charitable purposes and partly achieves a financial return. I hope that this provides assurance to my noble friend and that he will feel comfortable not moving the amendment. I know that we seek a similar destination here, and I hope I have shown that the vessel that we are embarking in stands good for the journey.

[Lord Hodgson of Astley Abbotts]

We are on to angels on the head of a pin, to be honest; this is very technical. When we have had a chance to go through what the Law Commission has said and what the Minister has said today, if the Charity Law Association still thinks that there is an issue to be thrashed out here, it would be helpful if we could have an understanding today that we could come to see him to talk about this and sort it out. We are going to get no further today because this is a very narrow point, but people feel strongly about it.

[Lord Bridges of Headley]

My noble friend takes words out of my mouth. I was about to invite him and the noble Baroness, Lady Barker, to meet so that we can discuss this point and dance on the head of a pin together. I understand that we need to get this right.

I confirm that the relevant guidance from the Charity Commission—CC14—will be revised following the passage of the Bill. The commission will take steps to make sure that charities that want to make social investments are clear about the scope of the power and what it would mean for them, as well as how the commission can and will monitor for abuse of the power. The commission will update its relevant guidance for trustees’ duties where needed. It will also consult stakeholders—a mix of legal advisers, investment bodies and charities—to ensure that any guidance produced is of practical use and widespread application. Any such guidance would be produced in time for the implementation of the power. I hope that that begins to address some of the Committee’s points but, as I said, I would be happy to meet my noble friend and the noble Baroness.

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[Baroness Hayter of Kentish Town]

My Lords, I want to add little to what my noble friend Lord Lea has said, but it is a question that needs a serious answer. It does not take much imagination to see how such investment could be used by certain facilities to further enhance the advantages they already have, and therefore a serious response is needed. We look forward to hearing it.

[Lord Bridges of Headley]

My Lords, I will certainly give this amendment a serious response, and I thank the noble Lord for the interest he has shown in the Bill. It is of course appropriate that we should consider the range of organisations to which social investment will apply, and I recognise that that range is huge and complex. Many different types of charitable organisations will apply for and use this power, but for many of them it may not be relevant. I should take this opportunity to point out that this was known from inception and that the drafting of the power has been undertaken with the intention of placing the minimum possible burden on those charities by which, at least in the first instance, it is unlikely to be used.

However, I want to set out the case for including as wide a diversity of charitable organisations as possible within the scope of the power. The power of social investment is a permissive one which is intended to encourage trustees who can see the potential of social investment but have lacked the confidence to take it further. By providing a framework in law, the power of social investment will give confidence to charity trustees to add social investment to their existing armoury. The Government intend the power to be available to the full spectrum of charities, subject to some technical exclusions around those established by legislation or royal charter. It is important to make the power as widely available as possible in order to encourage its use and the benefits that will flow from it.

Charitable independent schools fall within this spectrum of charities, and in their charitable activities they seek to further educational purposes for the public benefit in a wide range of ways. Many of them are providing significant support to their local communities across a range of actions. It would therefore be inconsistent to deny them the use of this social investment power. Indeed, to answer the point put by the noble Lord, Lord Lea, I think it would be wrong to do so. I see no valid argument for why charitable independent schools should be arbitrarily singled out for exclusion from this power, and that is even more the case given their valuable existing contribution, as I have said, and their potential to do even more. It simply does not make sense to deny them the use of this permissive power to stimulate social investments. Indeed, it is encapsulated by the debate on this point so far. On the one hand there are those who appear to be doubting charitable status for private schools overall as they do not do enough, while on the other hand there are some who are imploring private schools with charitable status to do more.

I would argue that the social investment power would enable them to do more. Therefore it is entirely justified that they should be able to use it. We should give charitable independent schools every opportunity to increase their contribution to public benefit, and using the power of social investment represents such an opportunity.

That is my serious contribution to this debate and, on that basis, I hope the noble Lord will be willing to withdraw his amendment.

[Baroness Hayter of Kentish Town]

Can the Minister outline the checks that will be made to ensure that the social investment that, say, Eton makes will be for the wider public benefit of local schools in the area, rather than being used only for even more educational buildings for its existing pupils? What will be the checks on that?

[Lord Bridges of Headley]

The noble Baroness makes a good point. The overarching check will be that it meets the twin ends of the social investment to make some financial return and ensures that—the noble Baroness mentioned Eton—its charitable mission is fulfilled. We will have to make sure that it does.

[Lord Lea of Crondall]

My Lords, it would be going a bit far for me to say that I do not believe a word of this and that I have got the t-shirt—but not very far.

To caricature—although not a lot—the purpose of the Charity Commission is to do with tax relief. The bigger the tax rate, the bigger the tax relief. That is why it is good for public schools and good for the socioeconomic distribution of income and wealth in favour of the rich. It is not only me saying this: every study that has been carried out for the OECD, through to Milburn and so on proves that. The Minister may wish to caricature me as or put me in the category of a dinosaur from an earlier age—that is entirely his privilege. However, I am talking about what the analysis is today—and that is the analysis of today.

We have a growing problem in Britain in this regard and I would like to think how to move this issue forward before Report. We are obviously miles apart on the analysis—not the politics—of what these kinds of investment would do to the socioeconomic distribution. The answer is regressive. That is the analysis on which 99% of economists would agree.

There have to be safeguards. Things need to be said about this which have not been said so far. I see the noble Lord, Lord Hodgson, wants to say something useful on this.

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[Lord Watson of Invergowrie]

Of course I accept that advice would be taken; advice has been taken with normal investments up to this point. However, we are going into new areas here and, at least at the start, there needs to be caution and careful consideration by charity trustees. I do not think that because something is in the Bill it will have a chilling effect. If, as the noble Lord, Lord Hodgson, says, it is being done anyway, I do not see a problem. However, some charities might not be as circumspect as others and I would like to see that measure in the Bill as a back-up.

The amendment would require trustees, in deciding whether a social investment would be in the interests of the charity, to consider how far they think a social investment would further one or more of the charity’s purposes and to consider the financial return. The trustees would have to be comfortable with the social investment.

As I say, I was rather taken aback by the noble Lord’s response. I defer to his vast experience in this field, and in many other aspects of the Bill I have agreed with most of what he has said; that is why I was rather surprised. However, it is perhaps important to ask the Minister what consultations he has had or intends to have—I hope he has had them—with the charity sector on this point. Equally, we should consider the point made by the noble Lord, Lord Cromwell, about meeting with the FCA in future.

We have now completed three days in Committee on the Bill and, unless I have missed them, there have not been any concessions by the Minister, which is quite unusual. The wording of the Bill is not beyond improvement and I invite the Minister to bear that in mind—hopefully, in relation to these amendments—when we return on Monday. The point of the Committee is to seek to improve the Bill. We are not dealing with different political agendas on the vast majority of the amendments, and I hope that the Minister will take these comments in the spirit that I have made them.

[Lord Bridges of Headley]

I thank the noble Baroness, Lady Barker, and the noble Lords, Lord Cromwell and Lord Watson, for their contributions. As to what the noble Lord, Lord Watson, has just said, I have said that I will consider a number of amendments. Obviously I am always looking for ways in which we can improve the Bill. Before I turn to the amendments, I too would like to put on the record my congratulations to the noble and learned Lord, Lord Hope, on his election as Convenor of the Cross Benches.

I thank the noble Baroness, Lady Barker, for drawing attention in Amendment 19 to the important role of a charity’s beneficiaries, as well as its wider stakeholders, in the process of good governance. Trustees would be well advised to maintain close contact with their stakeholders and to make sure that they understand the full range of views that such a broad group is likely to represent.

As to social investment, there is a clear duty on trustees to consider all the circumstances relating to the proposed transaction before deciding whether to take advice and from whom. The scope is deliberately wide and inclusive, such that if it is determined that beneficiaries or other stakeholders should be asked for advice, there is no impediment to this course of action. However, the breadth encompassed by the duty does not benefit from an enumeration of the range of possible advisers to whom trustees might turn. It might also lead to practical difficulties relating to identifying the relevant stakeholders, as well as ambiguity as to what is represented here by the term “reasonable”, a point made by my noble friend Lord Hodgson. I hope that the noble Baroness will be content that the aspiration and intent are there in the Bill and will feel able to withdraw the amendment based on this existing breadth.

With regard to Amendment 20, I thank the noble Lord, Lord Cromwell, for his extremely thoughtful and thorough speech, which I will read with care in Hansard. My understanding is that the amendment’s intention is to strengthen the duties of trustees relating to the financial characteristics of social investments, and in particular that they should make a comparison with any similar investments that are subject to a stronger regulatory regime and satisfy themselves that the proposed social investment is suitable. The intention, I understand, is to prevent any potential regulatory arbitrage whereby minimal mission benefits might be used as a pretext for making, in effect, financial investments that would not pass muster if they were pure financial investments.

I am in full agreement with the intention here: to ensure that where social investments are made, they are undertaken for the right reasons and with proper analysis of both the mission benefits and financial returns. It would clearly be of detriment to the nascent market in social investments if the social aspect were to be used as a fig leaf to pass off financial investments that would otherwise be unsuitable. So I thank the noble Lord for raising this issue. However, I do not believe that that would be the effect of the Bill.

Under the current law, when making a financial investment the trustees of a charitable trust must comply with three principal investment duties under the Trustee Act 2000: first, to consider the standard investment criteria—namely, the suitability of an investment and diversification of investments in a portfolio; secondly, to take advice unless it is reasonable not to do so; and, thirdly, to review the trust’s investments from time to time.

Sometimes, but not always, a social investment will be an “investment” under the Trustee Act 2000 and the three investment duties will apply to the social investment. The Law Commission reported:

“There was general agreement amongst consultees that the duty under the Trustee Act 2000 to consider the standard investment criteria (suitability and diversification of investments) created difficulties for trustees making social investments and should be removed, or at least tailored to suit social investment, but that the duties to review investments and to consider obtaining advice were appropriate”.

In relation to the first duty, the Law Commission said:

“A particular problem is the duty to consider diversification of investments, as part of the standard investment criteria. A social investment is unlikely to play a part in a diversified portfolio, because it is selected not with a view just to financial return but also for the mission benefit that it will produce. When compared with a mainstream financial investment, a social investment may carry a particularly high risk or it may be unjustifiably large within a charity’s investment portfolio (or conversely, unjustifiably small and disproportionate to the fixed transaction costs), and all the more so where the expected financial return is modest”.

The Law Commission concluded that the second and third duties were, with some modification, appropriate for social investment. The commission therefore recommended tailored duties which are set out in the Bill. It said:

“The new duties, being tailored to social investment, should apply in place of the duties imposed on trustees by the Trustee Act 2000”.

For completeness, I should say that in so far as there are any other duties on charity trustees in respect of financial investments, the Bill does not change them, so classifying a financial investment as a social investment would not change those duties. All the Bill does is exclude the Trustee Act investment duties if they would otherwise apply. It may be that the Trustee Act investment duties would not have applied to a social investment in any event. For example, if the charity takes the form of a company rather than a trust, the Trustee Act investment duties will not apply.

I return to the question of whether there would be any regulatory arbitrage; whether a social investment could be used as a fig leaf to pass off financial investments which would otherwise be unsuitable. The new duties are not less stringent for social investment; rather, they are tailored to social investment. The Bill has been drafted such that both sets of duties would generally produce the same result.

Tailoring the duties means that trustees do not have to try to shoe-horn a social investment into the Trustee Act regime for financial investments. The Law Commission reported that this approach,

“creates consistency between the duties that apply to financial investment under the Trustee Act 2000 and social investment, whilst properly catering for their differences”.

While in theory unscrupulous trustees might try to justify an inappropriate financial investment under the guise of a social investment, I do not think that they would succeed in this endeavour; the tailored duties should still produce a sensible result that showed the transaction to be inappropriate. Furthermore, the Charity Commission and the courts would be astute to shams; they would look at the substance of a transaction and if it is a financial investment, the trustees will be expected to comply with the financial investment duties. Taken as a whole, I believe that the Bill already contains sufficient safeguards in respect of financial regulation. In response to the good point made by the noble Lord, Lord Watson, about the FCA, I am happy to talk to the authority and to other financial advisers about this new power. I hope that the noble Lord, Lord Cromwell, feels comfortable about not pressing the amendment.

[Baroness Barker]

That was a useful go-round. This is a very complex subject and it is extremely helpful to get the Minister’s words on the record, not least because I am sure there will be court cases and legal challenges to the investment decisions that trustees make. Some of those investments will turn out to be losers, so it is important that we have on record as much as possible the steps that we believe it is right to expect trustees to take. As the noble Lord, Lord Hodgson of Astley Abbotts, said, this is different from straightforward financial investment. We cannot take a direct read-across from the work of organisations such as the FCA and put it into this Bill. None the less, it is important. I am glad to have established in the form of a statement from the Minister that one would reasonably expect trustees to have consulted with stakeholders and beneficiaries before putting some of their assets into this form of investment. I take his words at this stage and beg leave to withdraw the amendment.

Chilcot Inquiry

Lord Bridges of Headley Excerpts

Wednesday 1st July 2015 Lords Chamber

[Lord Morris of Aberavon]

To ask Her Majesty’s Government what progress is being made regarding the publication of the Chilcot Report.

[The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con)]

My Lords, in his letter of 15 June to the Prime Minister, Sir John Chilcot indicated that he would only be in a position to provide a realistic timetable for publication once the inquiry had received and evaluated the remaining responses from those individuals who had been given the opportunity to respond to the inquiry’s provisional criticism. In his reply, my right honourable friend the Prime Minister said,

“I … had hoped for publication of your report by now and we are fast losing patience”.

He also asked for an update from Sir John once the Maxwellisation process had been concluded.

[Lord Morris of Aberavon (Lab)]

My Lords, the Chancellor of the Exchequer also said that people were running out of patience with the inquiry. This must be particularly true of the families who lost lives. Will the Minister recall that, on 4 February 2015, Sir John Chilcot told a Commons Select Committee that there was,

“a settled body of evidence that may be added to, but it will not be subject to revision”.

Is it not deplorable that there was a 13-month argument with the former Cabinet Secretary about the disclosure of notes between Mr Bush and Mr Blair which proved unsustainable? Since Parliament is the ultimate guardian of the independence of any inquiry, and since this one seems incapable of reporting, should not the Prime Minister pull the plug, discharge the committee and, on the basis of the evidence already gathered, come to Parliament for its advice as to a way forward?

[Lord Bridges of Headley]

I start by saying that I entirely share the noble and learned Lord’s frustration, as I am sure do those who served and those who lost loved ones in Iraq. The general gist of his question—in fact, there were several questions rolled into one—was that we should scrap the inquiry. I cannot agree with the noble and learned Lord on that. First, the inquiry is independent of government and, most importantly of all, it has taken a long time to get this far—on that we agree—but it needs to be able to complete its work as quickly as possible so we can learn the lessons. Removing its members from office or stopping the inquiry now is not in the best interests of this work. However, I am sure that those involved in the inquiry will heed the views of your Lordships, especially those of the noble and learned Lord, on how long this is all taking.

[Baroness Williams of Crosby (LD)]

My Lords, it is now more than 12 years since the invasion of Iraq. Does the Minister agree that, increasingly, the impression being given is that people do not want crucial facts to be subjected to public transparency, where they can be discussed and debated? Does he also accept that, as the noble and learned Lord, Lord Morris of Aberavon, said, this situation is particularly unfair to those such as my late and very outstanding friend, Charles Kennedy, who said that, in engaging with the issue of whether we should have invaded Iraq, he found that, regarding possibly one of the most distinguished commissions that has been appointed by this House and the other Chamber, we have no way of knowing what its conclusions are, no way of knowing what it believes to be the sources of the Iraq war and no way of knowing what it believes the consequences of that war were. It is profoundly unjust and unfair to allow this situation to continue. May we ask the Prime Minister to insist that, at the very least, there should now be a report, even though some parts of it may be kept secret for security reasons?

[Lord Bridges of Headley]

I repeat that I obviously share, as does my right honourable friend the Prime Minister, the frustration that clearly many in this House feel about the length of time this is taking. I draw your Lordships’ attention to the letter that the Prime Minister sent to Sir John, in which he asked the Cabinet Secretary to meet Sir John “as soon as possible” to discuss progress on the completion of the report, and said that the Civil Service would continue to assist the inquiry in the “urgent completion” of its work.

[Lord King of Bridgwater (Con)]

My Lords, does the noble Lord recognise that there is across, I think, all corners of this House total impatience with the present situation? We recognise the difficult position the Prime Minister is in, but while it is right to allow those who may be criticised in the report to have the opportunity to make representations and for those to be considered, in any consideration now and in any future arrangements for a commission of this kind there must be a limit on the amount of time that people are allowed to hold up publication of a report. This report is meant to provide an opportunity for lessons to be learned from what happened over Iraq. No lessons have been learned, a lot of years have gone by and further mistakes have been made.

[Lord Bridges of Headley]

My Lords, on the first point, I draw my noble friend’s attention to what Sir John Chilcot told the Foreign Affairs Select Committee in the other place. He said he had seen,

“no evidence … that anyone is trying to delay the publication of the report by holding out from responding or entering into argument about the Maxwellisation process”.

As regards the lessons we need to draw from this process, I am sure there will be very many indeed, but I humbly suggest that we do so once the report is completed.

[Lord Richard (Lab)]

My Lords, is not the real problem here that, under the present rules for inquiries, the Maxwellisation process is mandatory? It is not discretionary or left to the chairman of the inquiry to decide who ought to be given the opportunity to respond; it is mandatory and it takes an awfully long time. A committee of this House recently considered the operation of the Inquiries Act and one of its main recommendations was that a Maxwellisation process should cease to be mandatory and should be left to the discretion of the chairman. So far, the Government have refused to take that on board. In the light of what we now know about Chilcot, will the Minister undertake that the Government will look again at whether the rules of procedure for inquiries are up to it and, indeed, whether or not the Maxwellisation process should cease to be mandatory?

[Lord Bridges of Headley]

I am sorry to disappoint the noble Lord, but I have to refer him to the answer I have just given, which is that we will need to take account of this process and the lessons we might learn once the inquiry concludes. I note that he shakes his head, but this inquiry is independent and it needs to remain independent.

[Lord Trimble (Con)]

My Lords, the underlying problem here is the fact that this inquiry was not constituted under the Inquiries Act 2005. If it had been set up under the Act, as it should have been, the inquiry would have been conducted more efficiently, the Minister setting it up would have had a power to call for it to be concluded and handed over to him, and this problem would not have arisen. Lessons should be learned, and they are contained in the report that the noble Lord referred to. The Government should review their response to that report.

--- Later in debate ---

[Lord Bridges of Headley]

My Lords, once again I have to say that we will have to learn these lessons. My noble friend makes a very valid point, but the inquiry is independent and it is following the process that it has set out.

[Lord Dykes (LD)]

My Lords—

Charities (Protection and Social Investment) Bill [HL]

Lord Bridges of Headley Excerpts

Monday 29th June 2015 Grand Committee

[Lord Watson of Invergowrie (Lab)]

My Lords, as one who was a member of the Joint Committee under the excellent chairmanship of the noble and learned Lord, Lord Hope, I share his puzzlement as to why this change has been made to the draft Bill. I have no wish to repeat the words of the noble and learned Lord, but those of us in opposition do not fully understand why such a change should have been made and we invite the Minister to explain that if he can, and to say why, after the Joint Committee recommended acceptance of the draft proposal, and given that, as we have heard, the Charity Commission wants this change, the original wording of the draft Bill should not be reinstated. There is little more to say than that. I look forward to the Minister’s response.

[The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con)]

My Lords, I, too, will keep my remarks relatively brief, by reason of the conclusion that I have come to as a result of what the noble and learned Lord and the noble Lord have said.

The provision corresponding to Clause 8 in the Bill made reference to “unable” in the manner proposed by this amendment. The Charity Commission asked for the change following several cases where financial institutions holding charity property were contractually unable to transfer it to secure its proper charitable application but would have been willing to do so. As the noble and learned Lord said, the Joint Committee which considered the draft Bill supported the provision.

However, as is noted in the report, the Charity Law Association, while it did not oppose the change, questioned whether the meaning of the word “unable” was sufficiently clear and whether banks in such situations were really unable to transfer charity property, or simply unable to breach a contract to do so. Therefore the Joint Committee recommended that the Government consider the inclusion of some form of statutory protection for a financial institution in cases where compliance with a Charity Commission direction in these circumstances might constitute a breach of its contract with a charity. The Government therefore followed this recommendation and amended Clause 8 to provide for such statutory protection. Since the clause was aimed at dealing with financial institutions which are contractually unable to transfer property, this statutory protection was considered sufficient and the reference to “unable” was omitted.

The amendment tabled by the noble and learned Lord, Lord Hope, proposes to reinstate the reference to “unable”, as we have heard, and further examples have been provided as to when this would be needed beyond the contractual liabilities of banks. I also note what the noble and learned Lord said about his conversations with the Charity Commission. In light of this, I am happy to give further consideration to the amendment and to return to this on Report.

[Lord Hope of Craighead]

My Lords, I am grateful to the noble Lord for his remarks. It is worth adding that the wording of Clause 85(1) is quite general—it refers to,

“a person or persons in possession or control of any property”.

It does not confine the provision to banks alone. Although they may be the main aim of the provision, it is more widely cast, so whatever the banks may think is not the end of the story.

I hope that the noble Lord will bring forward something on Report without my finding it necessary to table another amendment to keep the matter alive. For the time being, however, in light of what the Minister has said, which I very much welcome, I beg leave to withdraw the amendment.

--- Later in debate ---

[Baroness Hayter of Kentish Town (Lab)]

My Lords, it is a sobering day even to discuss something with the word “terrorism” in it. I note that the House of Commons had a moment of silence at 3.30 pm, which maybe is a lesson for all of us.

On the amendment before us, the Committee will know that we have always been a bit jumpy about Henry VIII powers. However, it is very important to have this provision in the Bill because I did not move Amendment 7, which we dealt with on the first day of Committee last week, when we dealt with our attempt to include people on the sex offenders register on the list of those who are precluded—which, frankly, I take more seriously than someone who has got into a bit of debt and has an IVA. The Minister did not think that that was appropriate, and I hope very much that he is right and that we will not have a trustee who is on the sexual offenders register and then abuses someone, which would show that I was right and he was wrong. I do not want to be in that position, for fairly obvious reasons. However, if we find that the evidence is that we should have added those on the sex offenders register to those who are precluded from being a trustee, unless there is a waiver, this provision would allow the Minister, at that stage, to put right—unless we win the vote on Report—what would be an omission from the Bill.

There is always a problem with retrospective legislation, which would be the same now for people convicted for other things. Therefore, it will be important that the implementation date of any regulation is in good time to notify people so that they do not suddenly find themselves acting as a trustee and putting a charity at risk because of some new provision that then comes in. However, if it was something such as someone being on the sex offenders register, that is a known register and they would be able to be notified pretty easily that they could no longer act as a trustee. As a failsafe, albeit that any new measure should be by the affirmative procedure, we are content to see this power in the Bill.

[Lord Bridges of Headley]

My Lords, I am grateful to the noble Baroness, Lady Barker, for her explanation of this amendment, which was typically reasonable and eloquent. Subsection (4) of new Section 178A, inserted by Clause 9, would enable the Minister by affirmative procedure to make regulations to amend the list of criteria for automatic disqualification by adding or removing an offence.

The Joint Committee that undertook pre-legislative scrutiny of the draft Bill recommended that there be a requirement for any such regulations to be consulted on. The Government agreed and made provision, in subsection (21) of Clause 9, for there to be a requirement to consult on draft regulations where they add an offence.

The Delegated Powers and Regulatory Reform Committee’s first report of this Session stated that the committee was satisfied with the delegation and level of scrutiny in relation to this power when it had advised the Joint Committee on the Draft Protection of Charities Bill. It recognised that the Cabinet Office may in future need to take urgent steps to specify offences that should result in automatic disqualification, and considered that the affirmative resolution procedure would provide an appropriate safeguard.

The DPRRC, however, has raised a question about the commencement of new Section 178A and any regulations made under it. The last Government’s response to the Joint Committee’s report on the draft protection of charities Bill stated that we,

“commit to ensuring that sufficient time would be allowed before the commencement of such provisions”.

I will, therefore, happily provide a commitment to your Lordships that a disqualification would not take place under new Section 178A in relation to a person previously convicted of a specified offence until at least two months after enactment of the section and, in all but exceptional circumstances, until at least two months after the date that any regulations are made under subsection (4). We would want to ensure there was sufficient time to notify charities of the new offences.

When the Bill becomes law, we will publish an implementation plan that will set out when the different provisions of the Bill will be commenced. This will include the timetable for commencement of the automatic disqualification provisions under new Section 178A. The Charity Commission has said that it is planning a wide-ranging communications strategy in order to give those affected by automatic disqualification a fair opportunity to learn of the relevant changes before they come into force. Where we undertake any consultation, we will ensure that it is compliant with the compact.

I know that the Lords Constitution Committee has also considered the power to add offences. Its second report of this current Session states that this power to add new offences is not explicitly constrained in its scope, so perhaps I can provide some assurances to your Lordships on how the power would be used, and address a number of the points made.

First, while it may be considered unnecessary, I should nevertheless point out that there are no plans to exercise the power. Its purpose is to enable Ministers in future to amend the list of offences as new criminal offences are created which may be identified as appropriate for automatic disqualification, or criminal offences currently listed may no longer be appropriate, meaning the list needs to be updated. The prospect of a power to amend the list of offences was raised in consultation last year and was generally well supported by respondents, provided the power is subject to the affirmative procedure.

It should go without saying that, in considering any new offence to add to the list, there would need to be a clear rationale for adding that particular offence. The offence would have to be relevant to a person’s fitness to act as a trustee. We would set that out in consulting on the addition of any new offence. That consultation is a statutory requirement. Of course, the safeguards of the public consultation and the affirmative resolution procedure in Parliament—a point my noble friend Lord Hodgson of Astley Abbotts raised—should also provide a significant measure of assurance.

I hope that I have been able to give sufficient assurances to your Lordships on how this power would be used, and invite the noble Baroness to withdraw her amendment.

[Baroness Barker]

My Lords, I thank the Minister for that characteristically considered answer. It was helpful to have this fleshed out and to have statements on the record from the Dispatch Box.

As I tried to indicate in my opening remarks, and as the noble and learned Lord, Lord Hope of Craighead, indicated on behalf of the committee, there is a widespread understanding in the sector that this is necessary. There is not such a widespread understanding, but perhaps some relief, that some charities may be able to use the provisions of this clause to deter unsuitable people from becoming trustees. That may well be a good thing. It is simply that, within the current climate and context of the debate about the nature of terrorism legislation and its ever-widening grip on our lives, those of us in opposition are beholden to pressure the Government on these matters to make sure that we are not being unduly punitive towards individuals for all the wrong reasons.

I therefore take the Minister’s explanations and I listened to what he said about the extent to which there will be public consultation. With that in mind, I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Bridges of Headley]

My Lords, this debate is clearly overshadowed by the horrific and terrible events in Tunisia, France and Kuwait last week. I, too, express my condolences to those who lost loved ones. I would certainly not wish to imply that anyone who raises the issues that we have been discussing is in any way soft on terrorists.

Rather than rehearse all the arguments about this clause, let me address directly the point about the so-called chilling effect that some have spoken of. I recognise fully that this is a concern for some charities operating in some of the most difficult parts of the world. I will come on to explain why I disagree with the need for carve-outs. My belief is that we need to develop a clear understanding of NGOs’ concerns and see examples of where difficulties occur. We also need to avoid seeing the Bill as a means to tamper with or revise counterterrorist legislation itself—not that any of your Lordships have suggested that, but it is worth bearing in mind.

The noble Lord, Lord Watson, asked what I have been doing about this since Second Reading. I assure him that I have not been totally idle. I have been turning over the stones and seeing what is going on, and it is clear that there is a considerable amount of activity within government. I will not bore the noble Lord with a long laundry list but several government departments and other bodies, including the Home Office, the Treasury, DfID, the Charity Commission and the Cabinet Office, have been engaging with NGOs to understand their concerns and to ensure wherever possible that their concerns are properly covered by and in guidance. In 2014-15, for example, the commission engaged with more than 100 charities that operate internationally, and it regularly meets the Disasters Emergency Committee.

In many cases, there is already detailed guidance dealing with the points that have been raised, although I fully accept it may well be the case that better signposting, better explanation and more discussion are needed. The Charity Commission has produced and published a range of specific guidance for charities on managing the risks of operating overseas and on the abuse of charities for terrorist purposes. This includes the risks of links to or association with terrorist activity or abuse. This guidance is published on the commission’s website and includes the requirements for charities under UK counterterrorism legislation and charity law.

What I am taking from this debate is that we need to have more communication with these charities in a more targeted way. The Government’s assessment is that neither existing terrorism legislation nor other legislation prevents organisations, including charities and NGOs, operating in the UK or overseas. The legislative framework is deliberately drawn widely to capture the ever-diversifying nature of the terrorist threat faced. The chances of prosecution of an individual for a terrorism-related offence as a result of their involvement in legitimate humanitarian efforts are considered to be low, as was referred to a moment ago, although this can be determined only on a case-by-case basis and on the particular circumstances of each case.

It is not possible to provide assurances to the charitable sector or to those engaged in humanitarian efforts about possible prosecutions, as doing so might obviously fetter the discretion of the Crown Prosecution Service. Equally, doing so could create a loophole that could be exploited by the unscrupulous. In the interests of fairness, every case must be treated on an individual basis by the independent prosecution authorities, subject to the evidence available and their judgment on whether it is in the public interest to proceed with a case.

There has been one recent case involving a charity and connected individuals being investigated on suspicion of breaching UK counterterrorism legislation. The alleged offence related to the charity’s humanitarian efforts in Somalia. The normal police and prosecution decision-making processes were followed, and the Attorney-General accepted the CPS’s recommendation that prosecution in this instance was not in the public interest. Therefore it did not proceed. Furthermore, the Government do not consider it necessary for there to be a carve-out or exemption for charities because there is no evidence of a significant number of prosecutions against them, which suggests that the protections already in place are adequate. For example, the public interest test, as set out in the Code for Crown Prosecutors, sets out the factors considered when prosecution is appropriate.

Some have argued that the disqualification provision should not apply to people designated under terrorist asset-freezing legislation, as this is not a criminal offence and is not subject to the same standard of proof. I disagree. The Terrorist Asset-Freezing etc. Act provides the Treasury with powers to freeze the funds and economic resources of those suspected of, or believed to be involved in, terrorist activities and restricts the making available of funds, financial services and economic resources to or for the benefit of such persons. These are highly targeted measures. The latest consolidated list of those designated under the UK’s terrorist asset-freezing legislation contains 23 individuals. Furthermore, if the case is serious enough to designate an individual under this legislation, it is impossible to see how such a person could be considered fit to serve as a charity trustee or manager. It would be an absurd position for an individual to have their own funds frozen but to be in a position to fundraise for a charity or to control a charity’s funds or activities. Nevertheless, as a safeguard, a person who was disqualified by virtue of designation would be entitled to apply to the Charity Commission for a waiver from disqualification, and the commission’s decision would be appealable to the Charity Tribunal.

Clause 9 agreed.

--- Later in debate ---

[Baroness Warwick of Undercliffe]

My Lords, I support my noble friend Lady Hayter in her amendment to reaffirm the independence of charities and of charity trustees. I declare an interest, in addition to others I have previously declared, as the chair-designate of the National Housing Federation.

The purpose of the Bill is to strengthen public trust and confidence in charities. The public will have that confidence only if charities are well run, live their values, fulfil their stated aims, deliver what they were set up to do and achieve value for the money entrusted to them to deliver services. Charity trustees have an obligation to act in accordance with their trust deed or governing document and to deliver their charitable outcomes for the benefit of the public. They are independent bodies, set up under a range of legal arrangements: they might be trusts, as we have learnt, companies limited by guarantee, incorporated by royal charter, or charitable incorporated organisations, all of which have different legal personalities.

Like my noble friend, I am concerned about one group of charities, housing associations, whose governance requirements might fall into any of the categories I just mentioned. However, they have one characteristic in common: all of them are independent of government at either local or national level, but they will be affected by a government policy, the right to buy, which could make them unable to deliver their stated aims, because they will be constrained in their freedom to make independent decisions about the use of their assets. As I have said, trustees have a fiduciary duty to use their charitable funds and assets reasonably and only in furtherance of the charity’s objects. They must avoid activities that might place the charity’s endowment, funds, assets or reputation at undue risk. However, the right to buy will ride roughshod over trustees’ responsibilities to take strategic responsibility for the disposal of their property assets.

I will not repeat the points I made in the debate about affordable housing on Thursday or the statistics highlighted so strongly by my noble friend, but I do want to emphasise the wide range of tenants and communities with which these housing associations work: those paying social and affordable rents, private renters, those with disabilities, those who need care and those in properties for shared ownership or outright sale. Housing associations are extremely flexible in response to tenants’ needs and, as has been said, are hugely ambitious to build more homes. It is clear that they will be critical to delivering the national response to the current housing crisis, yet they may be hobbled in trying to do so.

Trustees have to balance their charitable goals of building homes for those in greatest need with delivering homes right across the market. They have become extraordinarily adept at leveraging in private finance because finance companies have confidence in the trustees’ effective management of assets. If trustees’ control over their assets were to be undermined, that would make investors nervous and therefore less inclined to invest. Housing associations’ ability to build enough houses to meet national need will then be undermined.

To add to that downturn, there are nearly 2 million people on housing waiting lists and there is a real shortage of homes at affordable and social rent. While replacing homes sold, housing associations will have less capacity to build the new affordable homes needed. Meanwhile, local councils will be selling their high-value homes to fund the process and ostensibly replacing them one for one. But this has proved a challenging target in the past and there is every expectation it will be so in the future.

The charities Bill is not the place to sort out these policy problems, nor is it the place to decide whether historic charity law in all its variety might need to be tested. But it is the place to reaffirm the centuries-old principle of the independence of charities and the overarching duty of trustees to act only to fulfil the charity’s purpose. I urge the Minister to let that ring out loud and clear by agreeing to include the proposed new clause in the Bill.

[Lord Bridges of Headley]

My Lords, I thank all noble Lords for their contributions, which were clearly eloquent and heartfelt. I note your Lordships’ concerns and will ensure that they are brought to the attention of my honourable friend the Minister for Housing. I say that because the extension of the right to buy is being taken forward, as the noble Baroness just said, in another Bill, which is yet to be presented to the House. That Bill is the right place to have the debate on these issues. My noble friend Lady Williams of Trafford, the Parliamentary Under-Secretary of State for Communities and Local Government, explained to the House that our honourable friend in the other place—the Minister, Brandon Lewis—is already leading the engagement with the sector on our housing commitments as set out in our manifesto and is happy to meet Members of this House and others.

I turn specifically to the noble Baroness’s amendment. Under charity law, charities are already required to obtain the best price available when an asset is sold in most cases and the proceeds of the sale must be used to further the charity’s purposes. Amendment 12 seeks to prevent charities from using or disposing of assets in a way that is inconsistent with their charitable purposes. That would cause problems. Many charities hold property investments that are not directly used to further the charity’s purposes, some of which may not be consistent with the charity’s purpose. Instead, the investments are used to generate an income which is then used to further the charity’s purposes. What is relevant in this context is the income the charity can obtain, not whether its property is being used in a manner consistent with the charity’s purposes. Of course, many charities can and do use property assets directly or indirectly to further their purposes—but the point is that there are many that do not and which instead view property solely as a financial investment.

There is another problem with the noble Baroness’s amendment: it seeks to prevent charities being compelled to dispose of assets. There are already circumstances where charities can be compelled to sell an asset. They can be subject to compulsory purchase orders like any property owner. The Charity Commission and courts have powers to require charities to dispose of assets in certain circumstances and for the proceeds to be applied for the same or similar charitable purposes, although not necessarily in the same charity.

As the noble Baroness mentioned, there is also the preserved right to buy in relation to housing associations, which 630,000 tenants enjoy, and the right to acquire, which 800,000 tenants already have and which, when exercised, would compel the charity to sell assets. These existing rights would be undermined by the noble Baroness’s amendment.

I am sure that it was not the noble Baroness’s intention to frustrate with this amendment the existing right to buy, planning laws, or the powers of the court or the Charity Commission. I hope that she will accept that the proper time and place to debate the right-to-buy policy will be when the legislation on that subject is brought before the House.

[Lord Campbell-Savours]

On that matter, the Minister invited Members of this House and others to meet the Ministers involved in this whole debate regarding housing associations. Could he give us an assurance that he will approach the noble Baroness, Lady Williams of Trafford, to ask her to invite representatives of the community land trust network nationally to discuss this matter? All we need is an assurance that they will be invited to the department to meet Ministers before that Bill reaches the Commons.

[Lord Bridges of Headley]

My Lords, I am happy to give the noble Lord an assurance that I will raise this matter with the noble Baroness, Lady Williams of Trafford, and will draw her attention to his clearly heartfelt views. I repeat that I will pass on to my honourable friend the Housing Minister all the points that have been made to ensure that he considers them when developing the policy further.

--- Later in debate ---

[Baroness Barker]

My Lords, I agree to a certain extent with what the noble Lord, Lord Hodgson, said. He has wrestled with this particular issue for the best part of six years now and he bears some of the scars accordingly. There is no doubt that the voluntary and charitable sector is acutely aware that this particular case has raised this matter to a point where it can no longer be ignored or shunted around between different bodies. Some noble Lords were present at a national event held by the NCVO two weeks ago, at which Sir Stuart Etherington stated in terms to the great and the good of the voluntary sector there assembled that they cannot dodge this issue anymore and that the voluntary sector has to come up with some strong self-regulation. If it does not, it will find itself on the receiving end of regulation from government.

It really is quite tough for the voluntary sector to do that, not least because the noble Lord, Lord Hodgson, is right: there are completely different types of organisations doing different things in different ways, which are all subsumed under the catch-all of “fundraising”. It is sometimes the bigger organisations—the multimillion pound organisations—that have the resources with which to emulate practice in the private sector, which is sometimes pressurised but which actually works. That is the problem: emotional appeals and pressure work.

Equally, very small charities that work locally and in a face-to-face way, raising small amounts, quite often have a higher level of ethical practice because they have to: they work in communities where, if they work even remotely unethically, they do not raise money. There are then those charities that operate in the middle, which sometimes are some of the most innovative organisations of all but which would be the ones that would fall foul of regulatory requirements, just because they do not have vast teams of people overseeing their compliance.

A fundamental problem for charities is that when they are open and transparent about their fundraising costs, they put themselves in the firing line for all sorts of comment. It makes them incredibly reluctant to do that—not because they want to deceive anybody but because the very same people who have taken it upon themselves, quite rightly, to criticise in cases such as this take the charities to task for doing that. You cannot run a compliant, ethical and effective fundraising operation on thin air. You cannot do it.

The noble Baroness is right to do her bit to up the temperature on the voluntary sector at this moment, but I am not sure she is absolutely right with the amendment that she has put forward. I believe that the voluntary sector should be allowed one last chance in the last chance saloon to put itself right. The noble Lord, Lord Hodgson, is also right that there are too many different bodies all hovering around the same thing, clogging up the decision-making, and there needs to be a rationalisation of that. I would suggest that there should be a time limit, say of a year. If the voluntary sector does not come forward with a new code of conduct within that year, the Government would be absolutely right to step in at that point and exercise their powers.

[Lord Bridges of Headley]

My Lords, we are all understandably concerned about the reports of the fundraising activities used by a small number of charities. There is certainly no complacency on behalf of the Government on this issue; the debate and the possible disagreement are over what should be done. I hope, as the noble Baroness, Lady Barker, just said, that the self-regulatory bodies note the fact that everyone wants action to be taken and to be taken soon.

Last week my honourable friend from the other place, the Minister for Civil Society, Rob Wilson, addressed fundraisers and made it clear that the clock is ticking for them to get a grip on self-regulation. He said:

“I am giving self­regulation an opportunity to demonstrate it can work effectively and make the short term and long term reforms necessary. I urge you to take that window of opportunity seriously as the window may not remain open for much longer … Change is essential. You should embrace it and lead it, rather than wait and allow others to do it for you”.

The noble Baroness, Lady Hayter, cited a report in the Daily Telegraph. The Daily Telegraph is obviously a fantastic newspaper but I would not believe everything that I read in it. I am not sure where that particular date has come from, but I should stress that, as I have said, self-regulatory bodies have a relatively short opportunity to demonstrate that they are getting to grips with self-regulation.

It has been less than two months since poor fundraising practices were thrust into the media spotlight following the sad and tragic death of Olive Cooke. The extent to which she was influenced by poor fundraising practices is not entirely clear, but the issue, as the noble Baroness so rightly said, has clearly struck a chord with the public. Since then there has been a steady stream of media reports about unacceptable fundraising practices—whether direct mail, telephone fundraising or door-to-door fundraising.

As I said, I think almost everyone agrees that there needs to be change. The question is what change and who should lead it. It strikes me that there are three questions that need answering: first, whether the standards fundraisers have set themselves are high enough; secondly, whether the structures for self-regulation are the right ones; and thirdly, whether fundraisers and the charity trustees who oversee them accept the need for change to ensure that donors are treated with honesty, respect and decency.

On the first question, whether the standards for fundraisers are high enough, the answer is a clear no in relation to some fundraising practices. That is why the Minister for Civil Society met the regulators at the beginning of June and set them a challenge to improve standards in a number of areas. This work is continuing but it must bear fruit.

I welcome the announcement by the Institute of Fundraising, on 24 June, that it is strengthening its code of fundraising practice by requiring door-to-door fundraisers not to knock on doors that have a “no cold calling” sticker. However, that is something it should have done proactively some time ago. I know that several review groups have been established and are looking at various issues, including options for opt-in and opt-out, frequency of contact, and whether there can be a one-stop shop for people who want to come off all fundraising contact lists.

Constitution: Gracious Speech

Lord Bridges of Headley Excerpts

Thursday 25th June 2015 Lords Chamber

[The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con)]

My Lords, what a fantastic debate this has been, and I congratulate the noble Lord, Lord Wills, on securing it. He is quite right, I did read history at Oxford, but sadly, I clearly was somewhere else—maybe somewhere involving alcohol and thinking about things. It is another sign of my misspent youth; for example, when they were trying to teach us about Aristotle, I missed it.

When I was told there was to be a short debate on the constitution I looked at my officials in bemusement and asked whether this was not a contradiction in terms or actually a physical impossibility. This debate has been excellent; we have covered a lot of ground. I feel as if I have just been hit by the noble Lord, Lord Hunt, with a tidal wave of questions about the constitution.

I remind your Lordships that Walter Bagehot began his seminal work on the constitution by quoting John Stuart Mill, who said that,

“on all great subjects, there still remain many things to be said”.

Of no subject is this more true than the British constitution. Much more remains to be said but I thank all noble Lords for their contributions, creating what the noble Lord, Lord Rennard, described as a constitutional cornucopia, from which I shall try to pluck some of the fruits.

Trying to sum up is a little daunting. I feel like I am facing one of those test papers in that great source of insight into the British constitution, which I am sure noble Lords know well—1066 and All That—where students face questions such as:

“Examine the state of mind of (1) Charles I, half an hour after his head was cut off (2) Charles II, half a moment after first sighting Nell Gwyn”.

As the noble Lord, Lord Norton, said, the exam question before us today, and for me to try to answer, is to note the implications of the constitutional changes proposed in the gracious Speech.

Let me start by rehearsing the intention behind those measures. As has been said, including by the noble Lord, Lord Butler, the Government intend to govern in the interests of one nation. This was a clear theme of the gracious Speech. What does that mean? In practice it means ensuring that our constitution, the institutions and the democratic processes that underpin our nation create a stable polity. Let me try to address my noble friend Lord Norton’s excellent exam question: this means that we need a constitutional settlement in which Parliament is sovereign and which is characterised by the principles of giving power to the people—a point that the noble Lord, Lord Butler, made so well. It is also a fair settlement and one that has a pragmatic recognition—two words that I emphasise—of the unique nature and characteristics of the different parts of our union. I am unsure that that answers my noble friend Lord Norton’s question, but I would be happy to debate with him further on it.

What does this mean in practice? We have rehearsed a number of these points today. It means that we will meet our commitment to deliver further powers to Scotland, Wales and Northern Ireland. It means—a critical point here on giving power to the people—a referendum on this country’s continued membership of the EU. It means, in the interests of fairness, that we will address the English question through the introduction of English votes, a point that I will return to. Further, it means that we will introduce a Bill of Rights, which will uphold fundamental human rights while protecting against the abuses of the Human Rights Act, a point that I will also return to. To answer my noble friend Lord Norton’s question about the machinery of government, clearly my right honourable friend the Prime Minister has oversight of all government policy, while my right honourable friend the Chancellor of the Duchy of Lancaster co-ordinates the constitutional reform programme.

I turn to the constitutional convention, or convocation, or however others might like it. I applaud the speech on this by the noble Lord, Lord Purvis of Tweed. He spoke eloquently, as always. I shall answer this not by being coy, as the noble Lord, Lord Steel, suggested; I shall address it head on. The Government do not plan to establish a constitutional convention. Instead, our focus must be on delivering the commitments that we made to the people of the United Kingdom. The Government were elected with a mandate to deliver the commitments that I have listed and that should not be delayed, as the noble Lord, Lord Butler, said in his powerful contribution.

There is nothing to suggest that the public want a constitutional convention. Instead, I point out that they were offered one at the last election by the Labour Party. It was one of the policies that was rejected and no doubt went the same way as the “Ed stone”. Instead, I argue that the British people want the Government to get on with the job they were elected to do. It might seem odd to quote Elvis Presley in this context, but I kept thinking of his song, “A Little Less Conversation”—a little more action. That is what I think the British people want on this point.

I know that the noble Lord, Lord Wills, has been keen on such a convention for some time. Indeed, I read his pamphlet back in 2006. He proposed that a convention might consist of 300 members who would be elected at a general election. They would look at everything: from devolution to an issue that I know matters to your Lordships—age restrictions on Peers—the whole gamut. Their contributions would be put to the public in a referendum. I should add that the noble Lord suggested that no one who ever stood for election would be able to serve on this convention, so that includes himself and a number of your Lordships.

I mention this not to put in lights the noble Lord’s contribution to the debate, but really to make the point that every person who wants an official convention has their own particular view as to who should be on it and what it should do. To get any agreement, I suspect that we would need a convention on a convention. Furthermore, international experience shows the challenges that lie in dealing with the outcomes of such conventions and then securing public and political legitimacy for their conclusions. In Ireland, of the 18 recommendations made by its constitutional conventions, just two were put to a referendum. In British Columbia and in Ontario the public rejected the outcomes.

Rather than go down this route, I argue that we must press ahead with the package of reforms that we have set out and scrutinise them vigorously, as a number of noble Lords have said. If others wish to look at these issues in a broader context, either here in Parliament or elsewhere, or even to set up their own convention, they are more than welcome to do so. Let a thousand flowers bloom, I say; knowing that your Lordships are not shrinking violets, I am sure they will. As the noble Baroness, Lady Kennedy, implored, your Lordships should do this as we are the best placed to do the job. What we cannot afford is an expensive talking shop that would delay, rather than deliver, reform. If we are really to listen to the people, kicking this issue into the long grass is not the answer. Those are not my words, but those of Margaret Hodge. For once, I entirely agree with her.

I turn to the reforms. Through the measures that we are introducing in this Parliament, the Government will deliver some of the most powerful devolved Parliaments in the world. I dispute with those noble Lords who contend that there is not a programme here. It is important that those increased decision-making powers be accompanied by enhanced accountability to ensure that the devolved Administrations are responsible to the people who elect them.

On Scotland, I dispute what some of your Lordships have said: that the approach the Government are adopting is partisan. The Scotland Bill delivers the Smith commission agreement, on which there was cross-party agreement, in full. We are providing extensive new powers and more control over tax and spending. As set out in the St David’s Day agreement, we will devolve additional powers to Wales over areas such as transport, energy and the environment, and empower the Assembly to manage its own affairs. For Northern Ireland, the Stormont House agreement offers the prospect of a more prosperous, stable and secure future. I can tell the noble Lord, Lord Hunt, that my right honourable friend the Secretary of State is meeting the parties again today, having held a series of bilaterals with all parties over the last week.

[Lord Purvis of Tweed]

The Minister referred to the Smith commission, which was established by the Prime Minister and chaired so well by the noble Lord, Lord Smith of Kelvin. Perhaps that indicates that commissions —which can be cross-party, consensual and result in clear conclusions that the Government then honour a commitment to deliver—need not be “long grass” and need not necessarily be in a party manifesto.

[Lord Bridges of Headley]

I argue instead that that commission was drawn up in response to a very specific point. It was brought about by the consequences of the referendum. What we have here is a much broader set of issues; as I argued, we do not have agreement on what a convention would do, its terms of reference or those who would sit on it. Furthermore, we have a mandate and a clear plan of action that we need to deliver. No doubt we will return to this in due course. I very much look forward to doing so.

Meanwhile, we are devolving more powers to cities and to communities. The local government Bill that is currently before your Lordships puts in place the legal framework enabling us to decentralise powers to cities and counties across the country. I thank the noble Lord, Lord Soley, for his support on that point. In response to the noble Lord, Lord Rennard, it would be for people to elect their local decision-makers and to hold them to account. I dispute the concept that they would be one-party states.

All this reflects the fact that the Government recognise that a one-size-fits-all approach to constitutional change will not work. The individual devolution settlements reflect the distinct histories and circumstances of the different parts of the United Kingdom. To make sure that those settlements function effectively, we must ensure that the Governments of the different nations of the United Kingdom work together. As such, all four of our Governments are working together to review the formal and informal processes that govern our relationships, and we will collectively agree the best way forward. As part of this, we will explore the recommendations of the House of Lords Constitution Committee’s report on intergovernmental relations.

I turn to English votes, another issue that a number of noble Lords have spoken about. Just as devolution has strengthened the voices of Scotland, Wales and Northern Ireland within our union, the Government’s proposals for English votes will create fairer procedures to ensure that decisions affecting England, or England and Wales, can be taken only with the consent of the majority of Members of Parliament representing constituencies in those parts of United Kingdom.

Once again, I refute the argument made by a number of noble Lords that this approach is partisan. As the noble Lord, Lord Butler, said, this issue and proposal is addressing something that was created by devolution. The West Lothian question is almost as old as I am. It sits there in the triptych of those other constitutional questions: the Schleswig-Holstein question and the Irish question. It deserves to be answered, as the noble Lord, Lord Soley, said.

What we need is a balanced and fair settlement which gives MPs from across the House a role in making legislation but ensures that English matters are approved by English MPs, just as Members of the Scottish Parliament have the final say on devolved matters. Importantly, every MP from every part of the UK will still be able to debate and vote on every piece of legislation in the Commons. English votes for English laws will therefore help safeguard the union by embedding fairness into Parliament’s law-making processes.

Several noble Lords referred to the Bill of Rights. As the noble Lord, Lord Wills, mentioned, this is obviously something a number of your Lordships have scrutinised in depth. This Government were elected with a clear mandate to reform and modernise the UK human rights framework. As such, we will bring forward proposals, as was set out, for a Bill of Rights to replace the Human Rights Act.

The Government are currently developing proposals on which we will consult fully in due course. The noble Lord, Lord Wills, and others argued that the Bill of Rights could undermine human rights. Once again, I disagree. Our Bill of Rights will protect fundamental human rights but also prevent their abuse and restore common sense to the system. We want to remain part of the European Convention on Human Rights but the system must be reformed to ensure that British judges decide how to interpret the law. Our Bill of Rights will therefore be based on convention rights but will take into account our common law tradition and make clear where the balance should lie between Strasbourg and the British courts—a point I think the noble and learned Lord, Lord Brown, referred to. We believe that we can make progress as part of the ECHR. However, to repeat what has been said before, we do not rule out leaving it if that proves impossible.

We will of course reflect on the devolution implications of a Bill of Rights as we develop our proposals, and we will engage the devolved Administrations in that process and make the case for reform. I know that this matter, like all the topics we are covering today, is of keen interest to your Lordships. Therefore, I reassure noble Lords, especially the noble and learned Lord, Lord Brown, that there will be significantly more consultation on and scrutiny of the Bill of Rights than there was for the Human Rights Act, which was introduced without formal consultation and within just six months.

The boundary review is, once again, an issue of fairness in order to give votes more equal value. Individual electoral registration policy has cross-party support and has been consulted upon widely and debated extensively in Parliament. The new online application service has made registration easier and more accessible than ever before, and it now takes as little as three minutes to submit an application. Indeed, there were more voters on the register at the general election than when the new IER was introduced a year before. As the noble Lord, Lord Hunt, said, last week the Electoral Commission published its analysis of the registers used to administer the general election in May 2015. I can confirm that the Government will indeed respond to that report in due course.

Our constitutional history is one of change, some sudden, some gradual. Once again, Sir Walter Bagehot put this very well when he referred to,

“an ancient and ever-altering constitution”,

full of “hidden inner change”.

Our programme for this Session, as set out in the humble Address, aims to create a fair and balanced settlement which empowers people across the United Kingdom. As we proceed, obviously the proposals must be debated and scrutinised. I am sure that those points that have been raised today which I have failed to address will be debated further in full, but here the role of this House will be invaluable. John Stuart Mill was quite right, though: much remains to be said. I look forward to hearing more in the weeks and months ahead.

Charities (Protection and Social Investment) Bill [HL]

Lord Bridges of Headley Excerpts

Tuesday 23rd June 2015 Grand Committee

[Lord Scott of Foscote (CB)]

My Lords, noble Lords need to bear in mind that each of the three words “how”, “when” and “where” is a preposition, and each word has a slightly different meaning. Since the intention of this part of Clause 1 is plainly to give as wide a discretion to the commission as is practicable, I respectfully suggest that all three words should be included, each meaning something slightly different. If the words were “how, when and where”, all would be covered.

[The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con)]

My Lords, before I address the amendment moved by the noble Baroness, I should repeat my declaration of interest as a trustee of the Foundation Years Trust.

The noble Baroness began by suggesting that she might be seen as pedantic, and I think the other word she used was “fussy”. I would not dream of accusing the noble Baroness of being either. Indeed, the whole purpose of this Committee is to kick the tyres of this policy and to do precisely what we are doing, which is to examine every word, even thin little words such as “how”.

The noble Baroness began by making an excellent overarching point which I endorse wholeheartedly. We need to ensure that this Bill and all the measures within it are balanced. We are mindful of proportionality. We must also ensure that proper safeguards govern the measures and all the new powers in the Bill. I very much welcome the debate that we are going to have. I would also like once again to put on record my thanks to all noble Lords who spent so much time in the pre-legislative scrutiny committee shaping the Bill before us today.

Taking a step back, the Charity Commission asked for these powers following criticism from the NAO and PAC about its regulatory approach. These powers were a specific recommendation of the NAO in its December 2013 report. Further calls for tougher powers for the commission came from the extremism task force in December 2013 and from the Home Affairs Select Committee.

We consider the Bill is a “must have” because it forms just one part of a multistrand approach to addressing criticisms of the Charity Commission by ensuring that it has the tools it needs to do the job that we and the public expect of it. One of these powers is the power to issue an official warning. As my honourable friend the Minister for Civil Society said to the Joint Committee in pre-legislative scrutiny, this is one of the most important new powers in the Bill. An official warning could be issued to a charity trustee or to the charity itself where the Charity Commission considers there has been a breach of trust or duty or other misconduct or mismanagement. The power would enable the Charity Commission to publish a warning, as we have been discussing. The Charity Commission has said that it would not publish all warnings, which is an important point to note. The decision to publish would be in line with its current policy on publishing the announcement of statutory inquiries, which are considered on a case-by-case basis. The Charity Commission would not publish an official warning if it considered that it would not be in the public interest to do so.

Let me give the Committee two brief examples of when the Charity Commission might consider issuing an official warning. Fist, a charity is consistently a little late in submitting its accounts. An official warning would remind the trustees of the seriousness of their non-compliance. Secondly, a charity makes unauthorised payments to a connected company or one that benefits a trustee. The size of the sums involved means that it would be disproportionate for the commission to take firmer action, but it could issue an official warning on future conduct.

As the Committee would expect, and as I mentioned, the power is accompanied by a number of safeguards; I know these were discussed in the committee, and others have been added since then. The first is as follows: the Charity Commission must give notice of its intention to issue a warning to the charity and its trustees. The notice must specify a number of matters, including the grounds for issuing the warning and any action that the commission considers should be taken by the charity to rectify the breach that has given rise to the warning. The notice must specify a period for representations to be made about the proposed warning, and the commission must take account of any representations before it issues any warning. An official warning could also highlight the likely consequences of any further non-compliance, which would be likely to require a more significant intervention by the regulator.

This is the one new regulatory power in the Bill that we and the Charity Commission expect may impact on more charities than the other proposed powers. Most of the powers in the Bill are targeted at serious, deliberate abuse of charity. The official warning power would be used more frequently by the commission as a more reasonable and proportionate way of dealing with breaches where the risks and impact on charitable assets and services are lower.

The Charity Commission’s current policy is to consider publishing reports of its non-inquiry work where, first, there is significant public interest in the issues involved and the outcome and, secondly, there are lessons that other charities can learn from them. The commission has explained its proposals for publishing official warnings in evidence to the Joint Committee on the draft protection of charities Bill. In its written evidence, it said:

“We do not intend to publish all warnings. Whether or not we do so will, in line with our current policy on publishing the announcement of statutory inquiries, depend on whether it is in the public interest. We would not publish an official warning if we consider that it would not be in the public interest to do so”.

It went on to say that it would follow its existing practice of inviting comments on factual inaccuracies, which it would take into account, and would publish guidance on the criteria that it would use in deciding whether or not to publish an official warning.

The requirement for certain information to be specified in the notice of an official warning was added in response, as I said, to a recommendation from the Joint Committee on the draft protection of charities Bill. In terms of where the official warning would be published, the Charity Commission already publishes around 25 non-inquiry regulatory case reports on its pages on www.gov.uk. Details can also be published alongside the charity’s register entry. It also summarises its regulatory casework and, in particular, identifies each year wider lessons that charities can draw from it in an annual report. To pick up the noble Baroness’s point about publication, only in certain cases might the commission consider issuing a press release, and this is always shown to the charity in advance. The commission will also share with the charities where it is to be published.

As to when the commission would publish the official warning, this would always be after the period of representations, and a period for the commission to consider any representations made by the charity. There may be some cases where the commission needs to have further engagement with the charity before it can publish an official warning, based on the representations that it receives from the charity. So it is not possible for the commission to specify exactly when it would publish an official warning at the point at which it issues a notice of intention. However, it would tell the charity before publication. If the charity needed to have such discussions and needed to have an extra time period, I am sure that the commission would listen carefully and respond accordingly. The commission already has in place a procedure and published policy that works which announces the opening of inquiries, and it has had no complaints from charities about the process. The commission would engage with the charity and would not publish without letting them know but, as I have said, it would not be possible to do this in the original notice of intention.

Any published details of warnings would have to be removed by the commission after a period of time. Its current practice in relation to inquiry and case reports is to archive them after a period of two years. The commission will set this out in its guidance on official warnings, which will be published before the power is commenced. As the noble and learned Lord, Lord Hope, suggests, the amendment might well narrow the requirement if it were brought into effect.

I am sympathetic to the intention behind, and I agree with the spirit of, the noble Baroness’s amendment to provide further clarity around the publication of an official warning. I think that we agree in principle and I hope that I have been able to offer some reassurances about the way that the process would work. As I have stated, the criteria would be published and the commission would engage with the charity throughout. However, logistics and the nature of the response from the charity to the notice would mean that it would not be able to say when it would be published at such an early stage. On that basis, I hope that the noble Baroness will be able to withdraw the amendment.

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[Lord Hope of Craighead]

My Lords, I will resume what I was attempting to say. Before we broke for the vote, I drew attention to the width of the expression “a sexual offence”, which is a cause of some concern. There are a number of points to be made as far as the sex offendering register is concerned. First, it applies to people who have been sentenced to 30 months or more of imprisonment or detention. Secondly, subject to an order that came into force in 2012 and gives a certain power to the chief officer of police, the entry on the register is indefinite, without limit of time.

The case that I was about to mention came before the Supreme Court in 2010 and led eventually to the making of the Sexual Offences Act 2003 (Remedial) Order 2012. It was a case where a child aged 11 was convicted of an offence. It caused real grounds for concern in that the crime he committed meant that he would have had a permanent position on the register. One has to wonder whether somebody who committed an offence of that kind when a teenager and who reached the age of 60, let us say, should really be subject to the automatic disqualification which would flow from this amendment if it were to stand as it is.

I appreciate that the chief officer of police has the power to remove people from the register but I do not know how often that power has actually been exercised. It may be that the Minister can find out from other sources as to the efficacy of the order, but it is a ground for concern that placing on the register has such a powerful effect on the individual. We heard evidence from a body called Unlock. It made the point that there are some people for whom rehabilitation is so important. Contributing to public life by participating in charities, years after an event which happened at a much earlier stage in their life, is something that they would greatly value. There are real grounds for concern about the width of the amendment and its suitability, and whether it really falls into the nature of offences that would justify automatic disqualification.

I raise these issues as a note of caution. I would not go to the point of voting against the amendment if it were pressed to a vote—which, of course, it cannot be in Grand Committee—but these points suggest that the question requires careful consideration before the noble Lord would accept the amendment.

[Lord Bridges of Headley]

My Lords, let me start by echoing what my noble friend Lord Hodgson of Astley Abbotts said. We all agree that we must do all we can to ensure that the vulnerable—be they young or old or, as the noble Baroness, Lady Barker, said, those with dementia—are protected within charities. The question we are grappling with is how best to do so.

The Charity Commission takes safeguarding issues very seriously. Its statement of regulatory approach makes it clear that the abuse of vulnerable beneficiaries is a matter to which the commission will pay particular attention, alongside terrorist abuse of charities and fraud. The Charity Commission’s director of investigations, monitoring and enforcement has said:

“The public relies on trustees to have robust procedures in place so that people working in a charity with access to beneficiaries are suitable to hold those roles”.

Trustees must,

“ensure their charity has appropriate and robust policies and procedures in place to safeguard the charity’s beneficiaries, including a process for recording incidents, concerns and referrals”.

The Charity Commission publishes detailed guidance for charities on their safeguarding responsibilities. It explains the legal requirements for charities working with children and vulnerable groups and how they must safeguard them from harm. It covers what safeguarding involves, what child protection policies and processes should include, and explains the Charity Commission’s role in ensuring that charities follow the law.

The Protection of Freedoms Act 2012 established, as your Lordships know, the Disclosure and Barring Service or DBS, which processes criminal records checks and manages the lists of unsuitable people who should not work in regulated activities with children or adults. The DBS decides who is unsuitable to work or volunteer with vulnerable groups. There are two points to stress: it is an offence first, for a barred person to apply for such work, paid or voluntary; and secondly, it is an offence for a charity to employ a barred person in such work. Furthermore, Sections 35 and 36 of the Safeguarding Vulnerable Groups Act 2006 imposed a duty on regulated activity providers and personnel suppliers to provide the DPS with information where there is a risk of harm to a child or vulnerable adult. There is an established policy of reporting abuse directly to the DBS.

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[Lord Scott of Foscote (CB)]

My Lords, I think I had an invitation to speak on this from my noble and learned friend Lord Hope. I have puzzled a little bit over the object of Amendment 11. There is a reference in it to where there is,

“sufficient reason to believe there is a collective failure of all trustees to ensure the safety and protection of children who are direct beneficiaries of the charity”.

The children may be the objects of the charity in the sense that the charitable money is meant to go to them. However, if all that is intended in the charitable trust in question is that charitable money be applied for the benefit of the children, it is a little difficult to see how the safety and protection of the children comes into it. Any misuse of the funds of the charity would be a breach of trust. You do not need a provision in the Act to say so. That could be remedied at any time by any of the trustees.

I find it difficult to quite understand what is meant by a,

“failure of all trustees to ensure the safety and protection of children”.

If the children are the objects of the charity in the sense that the funds must be used for their benefit, it is not the duty of the trustees to ensure their safety and protection. Their safety and protection may be put at risk by any number of different means that have nothing whatever to do with the objects of the charity. I am little puzzled by the intention behind that as it stands.

[Lord Bridges of Headley]

My Lords, following what the noble Baroness, Lady Hayter, said in response to the last amendment, I will just put on record that I would certainly not wish to give the impression that I am complacent about these issues. I completely understand that we need to debate and discuss them. As I said right at the start, we need to kick the tyres here. I just wanted to make that perfectly clear.

Let me start by dealing, first, with the proposed new clause on serious incident reporting. It might help if I explain briefly the position as it currently stands. The Charity Commission already requires serious incident reporting from charities with an income of over £25,000 as part of annual return requirements and encourages all charities to report serious incidents immediately as a matter of good practice. The Charity Commission’s annual return regulations require charity trustees to sign a declaration each year that there have been no serious incidents in the charity in the year or to give reference to any serious incident reports already made to the regulator and also report serious incidents that have not previously been reported.

On the lists that have been referred to in the debate, I do not think that the order of the listing suggests how serious the Charity Commission thinks those issues are. However, I can tell the noble Baroness, Lady Hayter, that the Charity Commission will look again at the issues it defines as serious.

There are various other legal requirements on charity trustees to report certain matters immediately. For example, there is a duty under terrorism legislation to disclose information about certain possible terrorist financing based offences to the police. Specifically on safeguarding, the Safeguarding Vulnerable Groups Act 2006 places a requirement or legal duty on employers and volunteer managers of people working with children or vulnerable adults to make a referral to the DBS in certain circumstances where a person has been dismissed or removed from working with children or vulnerable adults. That is in addition to any referral to a body such as a local authority safeguarding team.

As regards charities themselves, charity trustees are ultimately responsible for safeguarding within their charity. The Charity Commission’s role in safeguarding is to ensure that charity trustees take steps to protect and safeguard their beneficiaries. This means that charities working with vulnerable beneficiaries must have in place appropriate safeguarding policies and procedures, and must monitor them on an ongoing basis to ensure they are effectively implemented. The Charity Commission can and does take action against charities and trustees where they fail to do so but it is not the role of the Charity Commission to investigate suspected abuse. If there are allegations of abuse of vulnerable beneficiaries, the Charity Commission expects trustees to handle them properly and, where appropriate, report allegations to the police, social services or other agencies. Where the commission itself has serious concerns, it can and does refer them to the police or other agencies.

As I said at Second Reading, the Bill is about striking the right balance. While on the face of it there are many attractions to imposing a new serious incident reporting duty on charities, we have to acknowledge that it would be a new reporting requirement that would affect tens of thousands of small charities. Furthermore, and this is an important point, there is also the concern that the charities that would meet their obligations under a duty to immediately report serious incidents are those charities that would do so as a matter of good practice, and have already taken appropriate action to address the issue. Charities bent on abusing their position of trust would be unlikely to report the matter to their regulator. The danger would be that we would simply create a lot of red tape for the vast majority of honest charities, while those poorly managed or involved in abuse would ignore the requirement.

Under the amendment, diligent trustees might consider it necessary to report to the Charity Commission every time there was a risk to beneficiaries or the charity’s reputation. It is not hard to see how the commission could be inundated with queries and unnecessary reports. There is also the question about whether the commission would be able to cope, and what it would do with such a volume of reports.

The Government are committed to minimising regulatory burdens for charities, particularly small charities. We do not want to impose new burdens, particularly when the implications for the commission and the impact on charities have not been fully considered.

I do not want to appear overly negative towards this amendment as I believe there is much to be said for it, but I hope that the noble Baroness will also accept that there are downsides and that we do not want to tie up small charities with red tape. I hope that on that basis she will feel able to withdraw her amendment.

[Lord Hodgson of Astley Abbotts]

I have a question, which does not have to be answered today. The Minister refers to the fact that the Charity Commission generally refers matters to the police. Are we satisfied that police forces around the country always refer matters to the commission? I wonder sometimes if the commission is not up here while the police forces down there are looking into things. Is the information flow sufficiently strong? I am not asking for a response today; this is something that we can pick up later. However, it is an issue that has come up from time to time in the discussions that we have been having.

--- Later in debate ---

[Lord Bridges of Headley]

My noble friend makes a very good point about the information exchange between agencies across government, and I am more than happy to pick that up with him in writing or at a later stage.

I turn to the noble Baroness’s Amendment 11. This amendment seeks to empower the Charity Commission to disqualify an entire trustee board where it collectively fails to ensure adequate protections for children who are the charity’s beneficiaries. Later on we will come to debate Clause 10, which will confer the power for the commission to disqualify on a case-by-case basis; suffice it to say that it is one of the most important powers in the Bill. That clause is relevant to this amendment so it may help the Committee if I give a short overview of it now before going on to consider the noble Baroness’s amendment.

Most unfit individuals will be caught by the existing—and, under the Bill, extended—automatic disqualification criteria, but the Charity Commission needs a power to act in cases where individuals are not excluded by automatic disqualification. The whole point of this power is to give the commission the ability to disqualify an individual whose conduct clearly makes them unfit to be a charity trustee, where, if the commission were not to act, there would be a real risk, or at least a reputational risk, to charities.

We carefully considered the report of the Joint Committee on the draft protection of charities Bill, and made improvements to this provision as a result. More detail about the operation of the provision has been included in the Bill, and it is now a three-limbed test: first, one of the conditions A to F must be satisfied; secondly, the commission must consider that the person’s conduct makes them unfit to be a charity trustee, and draft guidance has been published on that; and, thirdly, the commission must consider that exercising the power is in the public interest, to protect public trust and confidence in charities. While the power may be relatively broad, its use would be targeted. The commission has said that it expects to use this power on a relatively low number of occasions each year.

The commission already has the power to act, and has done so, in cases where there has been a collective failure of trustees in relation to systemic governance issues. The powers to remove trustees in Sections 79 and 80 of the Charities Act 2011 do not explicitly or implicitly contain any restriction on removing trustees where that leaves one or none in place. Neither does the proposed disqualification power in Clause 10. There is, therefore, no reason why the commission would not remove all trustees on the ground of ensuring the safety and protection of children, where this was appropriate, proportionate and in accordance with best regulatory principles.

In circumstances where there is an impact on the beneficiaries of the charity, the commission has tended to appoint an interim manager, under Section 76 of the Charities Act 2011, to ensure the continued operation of the charity and to get it back on track before new trustees can be appointed and take over. However, there has been a case—and I will not name the particular charity concerned—where the commission has removed all 10 trustees on the board for collective governance failings.

The noble Baroness, Lady Barker, made a point about trustees having joint liability. The Charity Commission is required to act proportionately and so, in most cases, would target regulatory action on those most culpable or responsible for misconduct or mismanagement.

The noble Baroness’s amendment deals specifically with collective trustee failure relating to safeguarding. We would not want to cast any doubt on the commission’s existing liability to take action relating to collective trustee failures, or limit that by making specific provision. On the basis that the commission can, and does, already act to address collective trustee failures where it is proportionate to do so, I hope the noble Baroness will feel able to withdraw her amendment.

[Baroness Hayter of Kentish Town]

I thank the Minister, particularly on that second point. The reassurance that action for collective failure can be taken answers the point we were seeking to make.

On reporting, I have greater concerns. In answer to the noble and learned Lord, Lord Scott, we know of schools where abuse that was taking place was not being reported. Clearly, the recommendations and guidelines for reporting are not being followed. This is the problem. You have an educational establishment where abuse is going on and it is not being reported. It is that failure to report which gives rise to concern.

The noble Lord, Lord Hodgson said that we expect trustees to behave responsibly. Of course—but this issue is where they do not. I have now heard the phrase “red tape” used twice and I jib slightly every time I hear “red tape bandwagon”. It is not red tape. We are talking about protecting vulnerable people.

--- Later in debate ---

[Lord Bridges of Headley]

I want to make this one point to the noble Baroness. I asked the commission what its communication to the sector would be when the relevant changes on automatic disqualification come in. I completely agree that we need to ensure that not only are these new measures properly communicated, but we take the opportunity to remind all charities of their existing responsibilities, not just on this, but on other issues, although I would suggest especially on this. I will not bore the Committee with the six bullet points that I have been given about e-newsletters, press releases et cetera, but I can assure the noble Baroness that I have asked the Charity Commission to do this. It has given me its assurances, which I am happy to pass on.

[Baroness Hayter of Kentish Town]

That is helpful. Having been reassured about the ability to take action where there is a collective failure, we probably will not pursue that. We may, however, want to come back on the bar on reporting.

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[Lord Watson of Invergowrie]

My Lords, I start by saying that the Opposition support these amendments as well. One of the issues arising among a number of organisations in response to the Bill is that it lacks clarity in various ways. If one of the more straightforward means of overcoming some of that lack of clarity is changing the wording as suggested here, then we should all welcome that.

The noble and learned Lord, Lord Hope, mentioned the recommendation of the Joint Committee and that the wording “aware of” was suggested. In response to the committee’s recommendations, the Government stated in their report of March this year:

“The Government will explore implementing the Committee’s recommendation to replace ‘privy to’ with ‘aware of’ with Parliamentary Counsel. The term ‘privy to’ is already widely used in the existing legislation and we want to carefully consider the implications of any change before committing to a change of wording”.

Following that consideration, the Bill was not changed and, of course, “privy to” remains in it.

The noble and learned Lord, Lord Hope, told us why he came back with amended wording. My only thought on the matter is that a former Law Lord’s understanding of the law would be something to which I would give weighty consideration—to put it mildly. Can the Minister say why, and indeed whether, Parliamentary Counsel continues to believe that that wording is right? This is a fairly straightforward change that should be made to the Bill.

[Lord Bridges of Headley]

My Lords, I stand with some trepidation to debate with the noble and learned Lord, Lord Hope, on this matter. Mention has been made of my right honourable friend the Justice Secretary and his remarks yesterday. I have been very careful in this debate not to use “impact” as a verb. I am also very intrigued by this area. This debate over the word “privy” makes me wonder whether it needs to be modernised in terms of the Privy Council, but I do not want to get into that right now.

It strikes me that what we are debating is what the layman understands versus what is legally accurate and watertight. The Joint Committee that considered the draft Bill, chaired by the noble and learned Lord, recommended, as the noble and learned Lord just said, that the term “privy to” be removed and replaced with “aware of”, so that the Bill referred to a person who was aware of an action that constituted misconduct.

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[Lord Watson of Invergowrie]

My Lords, we think this clause in its generality provides an important addition to the powers of the commission. It is appropriate that a person’s activity outwith their work with or for a charity should be taken into consideration. That is not to say that we are uncritical of the wording of the two paragraphs referred to in these amendments in the name of the noble Baroness, Lady Barker.

One reason it is a useful addition is that it would only apply after a statutory inquiry had begun. That would be a sign that the Charity Commission already believed that there was evidence of misconduct or mismanagement. That is clear from the last two lines of page 2 of the Bill. Of course, there are concerns—some of which noble Lords have referred to in the Joint Committee’s report. It is again a question of provisions being drawn too widely and lacking clarity.

The Government’s response to the Joint Committee’s report stated that they would,

“look to revise the draft Bill to make this clearer”.

Unfortunately that has not been done. I invite the Minister to say why the Government eventually proved unable or unwilling to do so. It is regrettable, although I do not think it constitutes a reason to remove the wording completely from the Bill. I do not think that is appropriate. We agree with comments that have been made about the need to refine the wording, and perhaps some attention might be given to the report published yesterday by your Lordships’ Select Committee on the Constitution on this and two other Bills. Paragraph 41 of the Select Committee’s report was critical of new Section 76A to be inserted by the Bill. I am sure the Minister has already read that report and taken it on board. It is important that that should be considered further before Report.

The final paragraph of that report states:

“The concerns identified by the JCHR from a human-rights perspective are mirrored by corresponding constitutional concerns on the grounds of legal certainty. We draw these concerns to the attention of the House”.

That simply adds to the arguments we have already heard in relation to these amendments.

An important suggestion of the Select Committee’s report is that conduct should be qualified in terms of its seriousness. It must be recalled that this activity does not need to lead to a charge or a conviction. On these amendments, and I think in a previous amendment, the noble Baroness, Lady Barker, mentioned that things that you do at one stage in your life these days follow you around through social media. It is very possible that a person a lot younger than me and a lot more able on social media might well do something that seems relatively trivial but that could come back to haunt them in later years. That has to be borne in mind.

The noble and learned Lord, Lord Hope, referred to evidence that the Joint Committee received about political causes. That is a concern. It could be that somebody who was publicly critical of government policy or of the Charity Commission might find that coming back to them. I do not mean that as a trivial point. The point is that we do not know what would be regarded as something that could effectively add to charges already assembled by the Charity Commission in targeting an individual. It is a question of uncertainty. We have heard this point several times this afternoon. In light of what the Minister has heard, I hope he will reconsider this matter, possibly with a view even to bringing forward a government amendment on Report. Given those remarks and the report of the Select Committee on the Constitution, I hope we may be able to look forward to that when we consider this matter again.

[Lord Bridges of Headley]

My Lords, this has been a very stimulating debate and I pay tribute to the noble Baroness, Lady Barker, for provoking it. I shall first address Amendment 5 about the proposed powers of the commission to take into consideration the conduct of a person outside a charity. I recognise that these are broad powers in that they allow the commission to take into account any outside conduct. However, these powers are necessary to enable the commission to address conduct which could seriously damage public trust and confidence in charities and need to be viewed in the context of the other criteria that apply to their use, along with the various safeguards in place.

Just as we have to place a large degree of trust in charity trustees to exercise their discretion properly in running their charities, we need to trust the Charity Commission to regulate independently and in the public interest. Of course, there is a range of safeguards, not least the independent judicial oversight provided by the Charity Tribunal, which has shown since it started work in 2008 that it is not afraid to criticise the Charity Commission in the few cases where it considers that the commission has overstepped the mark and acted disproportionately.

As I and others said on Second Reading, the Bill seeks to achieve a balance. The powers that it would confer on the Charity Commission need to be broad enough to make them useful. If they are too narrow they would be impractical and go unused—a point that my noble friend Lord Hodgson made. But charities need to know the circumstances when the powers may be used and I believe that the Bill achieves that balance.

The purpose of the noble Baroness’s first amendment would be, as we have discussed, to limit the other conduct that the Charity Commission could take into account when considering the exercise of its compliance powers. It is important that we retain this part of the clause as it prevents the undermining of public trust and confidence in charities, as all relevant—I stress “relevant”—conduct ought to be taken into consideration before the commission determines how to act accordingly. The commission could not take account of any irrelevant conduct. Indeed, I argue that the commission could be criticised for failing to act, or for taking only weak regulatory action, if it were unable to take into account relevant evidence of misconduct of an individual outside of a charity.

I shall illustrate this with an example. The Charity Commission opens an inquiry into charity A regarding concerns of financial mismanagement. It establishes misconduct and mismanagement against trustee X, an accountant, as large payments have been taken out and not accounted for. Blank cheques have also been signed by trustee X. The commission then approaches other relevant regulators which provide them with information that trustee X has had two cases of professional misconduct for accountancy irregularities in previous employment. Under Clause 3 as proposed, the commission would be able to take this other evidence into account before deciding what action it would be proportionate to take in the circumstances. If the amendment were to be accepted, the commission would be able to give no weight to this other, potentially compelling, evidence.

I emphasise that safeguards would be in place to ensure that any conduct outside of a charity would be only that which was relevant to the decision being considered by the commission. I shall illustrate those safeguards. First, there must be a statutory inquiry open and the Charity Commission must be satisfied that there is misconduct or mismanagement linked to the individual in the charity under inquiry before it can rely on any conduct from outside the charity as a makeweight in its decision-making.

Secondly, the commission, when exercising its powers, must provide a statement of reasons under Section 86 of the Charities Act 2011, which would set out the evidence it relied on in making the decision. This would include any evidence it relied on from outside the charity. No amendment to the Bill is needed to ensure that that is the case; we can amend the Explanatory Notes to make that clear.

Thirdly, as with all the Charity Commission’s compliance powers, the commission would have to be satisfied that the exercise of the power would be in line with the principles of best regulatory practice, including that it is proportionate, accountable, consistent, transparent and targeted only at cases where action is needed, as set out in Section 16 of the Charities Act 2011.

Finally, there is, of course, a right of appeal to the Charity Tribunal in relation to the exercise of the commission’s compliance and remedial powers, ensuring judicial oversight of the exercise of the relevant power.

The noble Baroness’s second amendment would remove the condition that enables the Charity Commission to consider disqualification on the basis of conduct likely to damage public trust and confidence in charities. The power to disqualify from charity trusteeship and senior management positions is indeed a significant power. As such it is important that the process is rigorous but fair, and, once again, balanced.

I shall explain what that will mean in practice. First, the individual must have met tougher new criteria to become a trustee and not be automatically disqualified in the first place. Secondly, before the commission can decide to disqualify an individual, three new conditions need to be met, as set out in the guidance issued by the Charity Commission. First, one of criteria A to F is met; secondly, the individual is considered to be unfit to be a charity trustee, defined by that guidance; and, thirdly, the commission considers it,

“desirable in the public interest in order to protect public trust and confidence”,

in charities.

The commission then has to give notice of its intention to disqualify and give a period for representations to be made before any decision is made. If a decision is made to disqualify, the disqualification could take effect only after a period of time has elapsed in which the individual can lodge an appeal with the tribunal—that is, 42 days. If the decision is appealed to the tribunal, obviously the tribunal would be able to confirm or overturn the disqualification. In making a decision, the tribunal would consider the case entirely afresh on the basis of all the evidence before it; it would not simply review the Charity Commission’s original decision. Lastly, all the commission’s actions in this process would have to abide by Section 16 of the Charities Act 2011.

As was said just a moment ago, the Joint Committee that undertook pre-legislative scrutiny agreed that there was a,

“need for a broad power to disqualify an individual in certain instances, not all of which can be specifically identified and encapsulated in legislation”.

The noble Baroness, Lady Barker, referred to one scenario and asked whether a person could be disqualified on the basis of an overseas conviction in a country where homosexuality is illegal. An overseas conviction is not enough on its own. As I have said, the commission must also be satisfied that a person is unfit to be a charity trustee and that disqualification is in the public interest to protect public trust and confidence in charity. Furthermore, the conviction must concern a charity; on its own, it would not trigger disqualification. I draw the noble Baroness’s attention to that point in the little box on page 3 of the guidance, where it talks about a,

“conviction abroad for bribery or terrorist financing in connection with a charity or similar body”,

and says that such a conviction,

“would take account of any concerns raised about any court or other legal processes, their compliance with right to a fair trial … and whether the standards of evidence and justice would not be accepted in a UK or European court”.

I think that that is all pretty relevant with regard to her scenario.

[Baroness Barker]

Before the Minister moves on, the point that I made about Russia is that it is entirely possible that someone could be prosecuted there under its new, draconian laws about NGOs. That is not far-fetched; it could well arise that someone comes to this country from Russia having been found guilty of an offence under those laws against a charity, and that person then wants to serve as a trustee of a British charity. Believe me, organisations such as Stonewall are regularly subject to challenge as to whether their activities comply with all sorts of things, which they do. So it is not a far-fetched scenario.

[Lord Bridges of Headley]

I thank the noble Baroness for that point. The power would be discretionary and on a case-by-case basis. I refer her to test 3, which says that a,

“disqualification must be desirable in the public interest in order to protect public trust and confidence”.

It goes on to say that that the,

“test will, for example, allow the commission the flexibility to take account of circumstances in which the risk of (further) damage to charity is minimal and it would not be in the public interest to act against the individual”.

I am happy to write to the noble Baroness and illustrate this issue further, as she makes a good point.

As I was saying, condition F is a comparatively broad criterion, but we consider it necessary to enable the Charity Commission to address conduct that could seriously damage public trust and confidence in charities but which would not be caught by one of the other criteria. The condition needs to be considered in context of the other limbs of the exercise of the disqualification power—those that I have just described: fitness, and that disqualification is desirable in the public interest to protect public trust and confidence in charities—and the safeguards relating to the operation of the power, including the right of appeal to the Charity Tribunal.

Regulation of Political Opinion Polling Bill [HL]

Lord Bridges of Headley Excerpts

Friday 19th June 2015 Lords Chamber

[The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con)]

My Lords, I, too, congratulate the noble Lord, Lord Foulkes of Cumnock, on securing this debate. A lot has been said about the bet I made, so let me start by offering the noble Lord a cup of coffee, or something stronger, paid for by my bet, and we can toast the pollsters together.

When I first read of this Bill, my initial reaction was that it might possibly be a case of sour grapes that the noble Lord’s party did not win the general election, but then I realised I was being extremely unkind to the noble Lord. He has been talking about this for many years—I think it goes back to the 1980s—and, more to the point, he has a history of wanting to regulate and perhaps even ban things, starting with Space Invaders in the 1980s, so this is part of that.

I agree with what the noble Baroness, Lady Hayter, said about the Bill. It provokes an interesting debate, and we had a very interesting debate yesterday. I shall start by asking your Lordships a question: is this Bill good for democracy? My answer is, firmly, no. As a number of noble Lords said, the Bill is built on an assumption that the electorate should not be told what they themselves are thinking during a general election campaign, or at least during parts of it. Call me old fashioned, but I trust the people. I believe in giving them the information, however painful it might be for one party or another—and believe me, having worked in Downing Street in the 1990s, I know how painful it can be.

Let us consider the Scottish referendum. The noble Lord said that the YouGov poll set the campaign alight, and indeed it did. He called it a rogue poll. I respectfully point out that it was the first of three polls in quick succession showing that yes and no were neck and neck. The following day, TNS reported 50:50 and on 12 September, ICM reported 49:51—so three companies, all of which had reported big no leads weeks earlier, showed 50:50, plus or minus 1. Putting that key point aside, is the noble Lord saying that the public cannot be trusted with this information and that they cannot be told something that helps them weigh up how to vote in the critical weeks running up to the day they cast their vote?

Let me now ask your Lordships another question. Is the polling industry badly regulated at the moment? My answer is no. Pollsters know that the fortunes of their business rely on the credibility of their research. Unsurprisingly, therefore, the leading companies in the sector observe and abide by the code of practice that the twin regulators, the MRS and the BPC, have set out. I believe that we should leave them to regulate the sector, but I am sure the regulators will heed the words of the noble Lord, Lord Lipsey, who speaks with such authority and experience in this sector, and the fact that we are having this debate today, and will look at their regulations.

The need to abide by these regulations explains why the industry is so concerned about its failure to forecast the result of the election in May. The terms of reference of this inquiry, which holds its first evidence meeting this afternoon, are broad and far reaching. It is,

“empowered … to make recommendations about the future practice of polling”,

and to investigate,

“whether the findings and conduct of the polls were adequately communicated to the general public”.

That relates to the point the noble Baroness, Lady Hayter, made about reporting.

Let me turn to the opinion polling during the last general election. The noble Lord’s argument seems to be that thanks to the polls the Labour Party lost the election. So he wants to shoot the messenger. We do not know that this is the case; that is the point of the inquiry. Was there a sudden switch? Were people not being straight with the pollsters when asked for whom they would vote? Were the sample sizes wrong? Was the methodology at all to blame, and for how long were the pollsters getting it wrong—might this problem have distorted their findings for months? We do not know the answers to these questions, and that is the purpose of the inquiry. However, let me summarise what we do know.

In 1992 the pollsters also got it wrong, predicting a Labour majority. They changed their ways, and as my noble friend Lord Cooper and the noble Lord, Lord Lipsey, outlined, their methodology has changed. However, as the noble Lord, Lord Lipsey, said, it can always be improved. It seemed that it had been improved, because, as we saw in the 2005 general election, the polls were the most accurate predictions ever made of the outcome of a general election. This was without a regulator being set up after 1992, which demonstrates that it is possible to improve without regulation of that kind. In 2010, all but one of the nine pollsters came within 2% of the Conservative share, and five were within 1%. If opinion polls have become the sat-nav of the British constitution, it is quite clear that in May the sat-nav went squiffy, predicting that the British would turn leftish. Instead, the electorate ignored that and turned right.

Therefore, I humbly suggest that we leave it to the experts to find out what has gone wrong with the systems, but the noble Lord appears to disagree. He already knows enough to tell us to legislate. I humbly argue that this would be a good case of legislating in haste, and we have seen this kind of thing happen before. I, for one, do not want to see a Dangerous Pollsters Act—and the pitfalls of entering into this terrain are highlighted by the Bill itself, which has, if your Lordships will forgive me, a strange whiff of George Orwell mixed with Inspector Clouseau about it.

First: Orwell. The opinion police—for that is what these regulators would be—would have unlimited powers; the Bill simply lists those presumably deemed important. It would specify “approved sampling methods”. Consider online polling, now conducted by many pollsters. Back in the 2008 London mayoral elections, all the telephone polls showed Ken Livingstone was ahead. After YouGov published two online polls showing that he was trailing Boris Johnson, Mr Livingstone attacked the polling methodology. His office said:

“YouGov’s polls are misleading the public and we have therefore decided to make a formal complaint”.

Had the noble Lord’s idea of approved methods been applied by the opinion police, would they have permitted any online polls, or would they have banned them in favour of traditional polls, which got the outcome of that mayoral race so wrong? Here the speech by the noble Lord, Lord Lipsey, shows the immense debate around methodology. What evidence is there that such a debate could be resolved satisfactorily by a regulator?

Next, the Bill would provide guidance on the wording of questions—no doubt emanating from Room 101. The noble Lord raised that in an intervention. However, as my noble friend Lord Cooper said, trying to seek such agreement on wording is like chasing a will-o’-the-wisp. On the wording of questions, where is freedom of speech and debate if an unelected body is guiding pollsters on what they can and cannot ask the public? On top of that, the opinion police will have the power to ban the publication of polls “in such a period” as they consider “appropriate” before an election or referendum. What is appropriate? Might that be a week, a month, or several months before an election, and how and when is this decision to be made?

So much for Orwell. What of Clouseau? The inspector of the opinion police would have his work cut out. Consider what happened in his own country of France. As many of your Lordships may know, there had long been a ban on the reporting of opinion polls in the week before French elections. In the 1997 legislative elections some newspapers broke this regulation. One got round the ban by putting the findings of an opinion poll on its website, which was linked to a Swiss newspaper. The result: the French ban has been reduced to 24 hours. So, we can hear the hapless inspector crying, “Zut alors!”, as he realises that this law, which he is meant to enforce, was designed for an analogue age.

The Bill before us stipulates that “a person” who breaks the rules may be fined. In the digital age, what if that person, sitting in some far-flung country, sets up an online poll? What is to stop a foreign newspaper conducting a poll and publishing its results online? What is to stop a website with its servers based in another country publishing a poll? Will Inspector Clouseau chase after them? Then there is the definition of opinion polling. It is,

“intentions with regard to voting”—

that is, intentions as to how people would vote. In the jargon, this is the “top line”—the raw percentage that each party might secure.

It would appear that, even if these polls were restricted, it would be perfectly possible to publish polls related to a party’s or a politician’s competence, credibility, affability, whether they are in touch or out of touch—the list is endless. A poll giving rise to the headline “Labour not trusted to run the economy” would presumably be allowed. So, too, for that matter might be “Public alarmed by SNP/Labour pact”. All this would be permitted by the opinion police—a loophole so large that even Clouseau might be able to get through it.

That brings me to my third question: whom would the Bill benefit? Not the British public, that’s for sure. Instead, it would benefit two groups: first, private companies, especially in finance, which have deep pockets and want to get the inside track on what the public are thinking so that they can take positions on currencies and stocks before an election; and, secondly, the polling companies themselves, which would be able to charge a fortune for these private polls. Therefore, if this House wishes to give the banks and the hedge funds insider information on the democratic process, this Bill would certainly do the trick—and make pollsters rich in the process. However, something makes me think that the noble Lord, Lord Foulkes, is not in the hedge fund fan club.

To conclude, the noble Lord has done us a great service by highlighting the enormous pitfalls of going down the route of regulation. The Bill is unnecessary. Its measures would not work, and it would dent our democracy and curb our freedom of speech. We should be free to express our opinions and to know what others think. Unsurprisingly, therefore, this Government have strong reservations about the Bill.