House of Lords Appointments Commission

Lord Cromwell Excerpts

Wednesday 6th December 2023 Lords Chamber

[Baroness Neville-Rolfe (Con)]

One further statistic is that the Conservatives won 56% of the seats at the last election and we still have only 34% of the seats in this House. As to the noble Baroness’s point about suitability, constitutionally and legally it is for the Prime Minister to make recommendations to the sovereign on new Peers. He is head of an elected Government, not a member of an arm’s-length body. Of course, he places great weight on the advice of HOLAC, but he remains of the view that it should remain focused on vetting for propriety. It is for him, and for future Prime Ministers, to think about suitability and bring the right mixture of Lords on to these Benches, so that the conduct of business, which is a mixture of public life and politics, continues well.

[Lord Cromwell (CB)]

My Lords, speaking for myself—although I suspect many other hereditaries would agree—I agree with the noble Lord, Lord Grocott, on this, at least: we have nothing to fear from a HOLAC vetting process and I think it entirely appropriate that we should all go through it.

[Baroness Neville-Rolfe (Con)]

Hereditaries are subject to a good deal of questioning during the by-election process, which is laid down by the Standing Orders of the House, and we have no plans to change the vetting of hereditary Peers. Of course, they play a very important part in this House, on the Front Benches and right across it, bringing different aspects to our work in the public interest.

Reinforced Autoclaved Aerated Concrete: Public Buildings

Lord Cromwell Excerpts

Wednesday 6th September 2023 Lords Chamber

[Baroness Neville-Rolfe (Con)]

The Government are investing and will continue to invest in public sector buildings. Take education: the Government have allocated £15 billion since 2015 to keep schools safe and operational. In this area, professional advice has evolved over time. Successive Governments since 1994 have managed the risk of RAAC and will continue to do so. I have explained the central advice given to help individual public sector bodies manage their responsibilities in the way that all building and property owners need to do.

[Lord Cromwell (CB)]

My Lords, it is my understanding that four out of five schools have asbestos in them, as do many public buildings, including this one. If the concrete part of a building is now degrading and exposing the asbestos, at which point its disturbance makes it extremely dangerous, what are the Government’s plans to budget and implement a way to deal with the asbestos and the concrete at the same time?

[Baroness Neville-Rolfe (Con)]

As the noble Lords knows, there is of course a legal framework for managing asbestos through the Control of Asbestos Regulations 2012 and I refer to the expert advice and involvement of independent building experts that have played a very important part in identifying RAAC in places such as hospitals and managing that in a responsible way.

Emergency Alert System: Fujitsu

Lord Cromwell Excerpts

Wednesday 19th April 2023 Lords Chamber

[Baroness Neville-Rolfe (Con)]

I do not have information on how many contracts Fujitsu plans to bid on, or indeed whether it will be successful in bidding for those contracts. All I can say is that we are pursuing the Post Office side of things extremely keenly, and I think we have moved from a very bad place into a better place with the plans for compensation. I note what has been said about Fujitsu, but I emphasise that the small contract we are talking about is very separate from the large and troublesome contract that we have all discussed on other occasions when we have been debating the awful circumstances of the postmasters, which, frankly, is probably the worst thing I have ever dealt with while I have been in government.

[Lord Cromwell (CB)]

The Minister prays in aid the process of procurement, and that is quite right; let us leave aside for a moment the moral cases that some people have made. Is it not a standard part of procurement processes to have regard to performance on previous contracts by bidders? Other contracts, for example with the NHS, have been mentioned earlier in the comments this afternoon. If that is not part of our procurement process, surely it should be. If it is part of our procurement process, what on earth must the other bidders have been like?

[Baroness Neville-Rolfe (Con)]

The noble Lord is right that we do not always get as many bidders as I would like in procurement, and one of the things we are trying to do in the procurement area is to broaden procurement so that we get more bidders. Having said that, of course he is right that those who are looking at contracts, both within departments and across government— because we have central assistance for procurement now—look at the track record of companies, but you have to do that in a fair way.

Peerages: Letters Patent

Lord Cromwell Excerpts

Thursday 17th November 2022 Lords Chamber

[Lord Cromwell (CB)]

If the Minister is unable to answer this question, could she at least reflect on it? Should a peerage be allocated to somebody who is a sitting MP and they subsequently blot their copybook, will the Government rescind their peerage, or ask the monarch to do so? Have we also completely now abandoned the process of two out, one in?

[Baroness Neville-Rolfe (Con)]

On the point of sitting MPs, as I said yesterday, the sort of reports that have led to this debate are rumour and speculation. However, we will of course reflect on the debates we have and have had here—yesterday, today and tomorrow.

Space Industry

Lord Cromwell Excerpts

Thursday 4th March 2021 Grand Committee

[Lord Cromwell (CB) [V]]

My Lords, we rightly celebrate the UK’s outstanding ability in the technical and scientific fields that are making science fiction into science fact, but we must also build on the UK’s ability in creating international law. Our maritime history is relevant here. Space is a new frontier governed by, frankly, a few pretty generic treaties that lack key signatories. We have made progress but much more needs to be done if space is not to become, as frontiers tend to do, a mass of short-term competing commercial and military interests. That may well be more difficult to achieve than the technology for the exploration and exploitation of space, but if we fail to regulate it properly, if we simply give rein to the human instincts that have so damaged this planet and if we make the heavens a hell, as with climate change, those who come after us will curse our lack of foresight and self-control. Will the Minister commit to engaging with this?

House of Lords (Hereditary Peers) (Abolition of By-Elections) Bill [HL]

Lord Cromwell Excerpts

Committee: 2nd sitting (Hansard): House of Lords
Friday 7th September 2018 Lords Chamber

[Lord Cromwell (CB)]

Whatever one’s view of the amendment, and of the view of the noble Lord, Lord Adonis, of an elected Chamber, I think he indicated in his opening remark that this is a frivolous amendment. Can we not just knock it on the head?

[Lord Grocott]

My Lords, I think I have a responsibility to respond, as this is an amendment to a Bill I introduced. I suppose I should be grateful to the noble Lord, Lord Adonis, for changing his mind so dramatically in the space of an hour; we are all entitled to change our minds. However, he gave us a little lecture an hour ago about the inadequacy of my Bill, saying it should be opposed because it was pointless and incremental, and he now puts down an amendment providing for the preservation of hereditary peerages, just elected by a different mechanism. I have to agree that it is not merely a frivolous amendment, as the noble Lord, Lord Adonis, himself has acknowledged; it is a silly amendment, and I hope the House will throw it out.

House of Lords Act 1999 (Amendment) Bill [HL]

Lord Cromwell Excerpts

Committee: 1st sitting (Hansard): House of Lords
Friday 9th December 2016 Lords Chamber

[The Earl of Caithness]

I certainly apologise to the House for not grouping the amendment. I put the amendment down yesterday, which was rather later than I should have put it down. It came to my mind as a result of the debate we had on Monday.

As I said, my noble friend Lord Cormack is not the only one to have changed his mind about this House. The noble Lord, Lord Steel, when he was leader of the Liberal Party, carried the Asquith banner for the abolition of the House of Lords. When he came here, he had the chance to fulfil that, and we all hoped he would. The next leader, Mr Clegg, scuppered the next attempt to reform the House almost single-handedly. It was a great shame.

I warned the Lord Speaker—he is no longer my noble friend because he is the Lord Speaker—that I would refer to him. He quite rightly suggested when he took his position that the House of Lords was a little large. He was in favour of an elected House in 1999. He said so in the debate. He also voted for and against the amendment in the same year. It was at different times: one was February or March of 1999 and the other was in November. My noble friend Lord Hailsham voted against the amendment in 1999—but he stood for election as a hereditary Peer, so he obviously thought it was quite a good idea.

As my noble friend Lord Strathclyde said, the debate on Monday has brought a sort of consensus that all these areas need to be looked at. I remain of the opinion that keeping the hereditaries here will bring about a speedier and more radical reform of the House of Lords, which I firmly believe is needed.

[Lord Cromwell (CB)]

My Lords, I am the beneficiary of one of these by-elections, and that has made me very shy about participating in our debate today—even more shy than I normally am. I was in two minds right up to this morning as to whether I should do so. I know that a good number of others in my position are not here, partly because they are too anxious of being branded reactionary, whatever their actual position on House of Lords reform may be. Some of the barracking we are hearing probably means they were right. On balance, I have decided that, as a beneficiary of such a system, I ought to be able to stand here and debate it. There are certainly some points I would like to make, and we may get to those, but beyond that I would like to emphasise one thing: I am going to be guided by what emerges in the debate. That is how we should do things. I am not here as a wrecker; I am here to participate in a debate, as I hope we all are.

European Union Subsidiarity Assessment: Electoral Law of the EU (EUC Report)

Lord Cromwell Excerpts

Thursday 4th February 2016 Lords Chamber

[Lord Judd (Lab)]

My Lords, I am a member of the sub-committee and I would like to put on record how good it is to serve on a committee chaired by my noble friend. She is a very effective chair and I think everybody on the committee recognises that and is rather inspired by her from time to time. It can be quite entertaining to watch her irresistible charm being put to the cruellest effect.

This report is very important. Of course, all of us who serve on committees that produce reports think that every report is important. But this is a particularly significant one because it touches on much wider issues, which are very close to the current negotiations led by our Prime Minister. I will touch on some of those wider issues.

History is a long process over many decades and centuries. It will examine the proposition that Europe might have had a more effective and powerful story had it gone for a confederal as distinct from a federal approach. Sometimes, what confederations produce has stronger meaning than top-down federal institutions. But that will be resolved in history. It just leaves me to say that I do not believe that the negotiations in which our Prime Minister is involved will be anything like the end of the story. This debate will go on for a long time. Indeed, in much of the evidence that we took this kept coming up as a reality.

I am totally convinced that strong parliaments come from struggle. If we look at our own Parliament, we see that a great number of struggles led to its evolution. We like to talk about it being the most successful parliamentary system in the world. We would do just as well to remember our forebears who struggled, and fought on occasion, to make that a possibility. There is an inevitable struggle going on within the history of the European Union. The struggle is for the kind of Parliament we want. That will go on. If the Parliament is to be effective and to mean anything, it will create awkward occasions. But that does not mean we have to succumb to everything it says. Its recommendations will always be stronger if they have been thoroughly tested. If they do not stand up and are rejected, in the long run that will be a good thing for the evolution of the Parliament itself. The distinguished chair of the EU Select Committee made the point—and I am very glad that he did—that we are not in a war but in a meaningful debate about strengthening institutions. So there our report is highly relevant and should be taken very seriously.

However, there is another issue. I do not know what the perfect description of democracy is and I always feel a bit concerned about people who think they do, because the whole concept of democracy is being tested all the time and going through evolution and change. But for democracy to be successful it must be about empowering citizens—empowering people to be part of the process of the formation of policy that affects their lives. That is what it is about, and that means accountability is very important. One of the fundamental weaknesses of the European Parliament is that it is too remote from people.

I therefore look at the proposition of the European Parliament itself and say that I do not think it is helpful. Should we not be looking instead at how we strengthen the indirect representation of parliaments at the European level? How can a hard-working Member of the European Parliament, many of whom work very hard and with great dedication—the noble Lord, Lord Inglewood, was no exception in this respect—on a whole range of issues at the European level with which they are confronted, be effectively part of the politics of the community in which they are living? The noble Lord, Lord Inglewood, was a very good exception because he was very much part of the politics of the community in which he lives—I know because I live adjacently to it. But it is asking a hell of a lot.

Similarly, how do you breed a sense of relationship to the big issues that are coming before Europe if national parliaments have no direct feeling of responsibility for Europe? They can have the luxury of being negative, rather than facing up to the responsibility of making a positive contribution. There is a lot to be thought through here. The European Parliament has been getting a bit ahead of the game on this one and may actually be kicking into its own goal—well, perhaps not its own goal as an institution, because it may have institutional ambitions, but in terms of what it is theoretically there to achieve.

I am very glad to have been part of this. It is always extremely challenging for somebody who is not a lawyer to sit on a committee on which there are so many effective lawyers arguing so well, but it is an extremely stimulating committee on which to serve, and our chairmanship is tremendous and has a great strength about it, and is all the time facilitating our work. I hope the House will take this report very seriously and endorse it.

[Lord Cromwell (CB)]

My Lords, I, too, have the honour of being a member of the sub-committee and I entirely agree with what the noble Lord, Lord Judd, said about our marvellous chair. I will spare her blushes and not repeat it—he put it far better than I would anyway.

As another non-lawyer on the committee, perhaps it is helpful for me simply to put succinctly what I believe this matter is about. A case for subsidiarity was not made. We are asking for one to be made. It is really that simple and if, rather to my surprise, this does test the mood of the House, I hope we will all support that proposition.

[Lord Cashman (Lab)]

My Lords, I speak on this subject for the very first time on behalf of the party. Having spent 15 years in the European Parliament, it is a great privilege. The European Union Committee is regarded very highly by the Parliament, the Commission and the Council. Therefore, I see absolutely no reason why a reasoned opinion should not be sent. It would certainly be welcomed by the Council and the Commission.

The noble Lord, Lord Inglewood, put his finger right on it. What we are dealing with is an own-initiative report of the Constitutional Affairs Committee. Like the Legal Affairs Committee and various other committees, when it is not taken too seriously it jumps ahead of itself and puts forward its wish list to the European Parliament. There are some excellent recommendations in the report and I urge your Lordships to read it, as well as the draft proposal, which is annexed. Interestingly, this wish list had to be deferred from going to plenary after it was voted on in committee because there was not enough widespread support for it to gain a majority. It therefore went to the Strasbourg plenary in November.

I congratulate my noble friend Lady Kennedy on her chairmanship of the committee and absolutely endorse her reference to the excellent work done by the staff of that committee and, indeed, by the staff who serve us throughout the House. I pay tribute to the noble Lord, Lord Boswell, for his chairmanship of the EU Select Committee. During my 15 years in the Parliament, whenever the European Union Committee visited, it was taken seriously by all Members across the political spectrum.

In this instance, we have an own-initiative report that was agreed at the plenary and was duly sent to the Commission, the Council and the President of the Parliament. There was reference earlier to whether a red card would apply after the Prime Minister’s completed negotiations. A red card operates now, not for the Parliament but indirectly because the Westminster Parliament can make its views known to the Minister and the Minister will then vote against or for in committee. This proposal, if it is to be amended, will have to be agreed unanimously. Interestingly, as I said, there are some good proposals and some that are perhaps indicative of the European Parliament jumping ahead of itself. One is to shift from unanimity to qualified majority voting.

I also advise your Lordships that under the leadership of Dame Glenis Wilmott, the Labour Member of the European Parliament voted against the report, for a number of reasons: ideas of transnational lists—not national or regional but pan-European; internet voting; pan-European party names and logos on the ballot papers; and issues over the single candidate for the EU Commission President. As my noble friend Lord Judd said, all parliaments—particularly the European Parliament and the European institutions, which are so defamed and misrepresented, certainly in the British media—need to make themselves less remote. Indeed, in the body of the report which goes to make up the amended Council decision, that is the stated intention.

Issues of gender equality were mentioned. But I should point out that the proposal calls for gender equality on the list and not in the make-up of Members going to the Parliament. That is to be decided by the voters, whether the lists are open or closed. It also calls for greater openness and transparency in how parties actually select their candidates. That is to be welcomed. It also recognises that as the Parliament, and indeed the Union, has grown in size, it needs to do more to connect with its citizens and the concept of European citizenship.

It is not my intention to detain your Lordships further but I want to make these closing points. As I said, it is an own-initiative report. The moment the clock starts ticking vis-à-vis consultation is when the Commission or the Council produces its draft and then sends it back to the European Parliament to be amended. Thus, the clock starts ticking on consultation and spreading the document further afield than the Commission, the Council and the Parliament.

I welcome the reasoned opinion. It is a good, proactive measure, again signalling the importance of this Parliament not just to subsidiarity and proportionality. Equally, it warns governments, including our own, about how we believe they should proceed when amending the Council decision on European elections. Therefore, I wholeheartedly endorse the work of the committees. I endorse both Motions before us and thank noble Lords for being so patient as I have rambled through my 15 years of experience. I hope I have put it to some good use.

Charities (Protection and Social Investment) Bill [HL]

Lord Cromwell Excerpts

Monday 20th July 2015 Lords Chamber

[Lord Bridges of Headley]

My Lords, it is to government amendments to Clause 13, relating to the definition of social investment, that I now turn. It is the dancing on the head of a pin that I promised to undertake, which was mentioned by the noble Baroness, Lady Barker, and follows our fruitful debate in Committee and my meeting with my noble friend Lord Hodgson and the noble Baroness.

Noble Lords will recall that I described the power of social investment as being deliberately drafted to be as wide as possible while retaining the distinctiveness of the “social” element, so that the power covers a spectrum from transactions that are mostly intended to further charitable purposes but involve some return of capital, to those that are primarily financial but have a small mission benefit.

There are two poles at the extremes of the spectrum. At one end there are social investments that look much like grants, with very little expected return of capital. At the other end, there are social investments that look very similar to traditional financial investments but have a small role in furthering charitable purpose—and one which is deliberately sought. Social investments must combine some aspect of each pole, but the nature of the combination is entirely flexible.

I also took the opportunity to make it clear that the Bill does intend to include mixed motive investment within the definition of social investment. That said, I have remained open to your Lordships’ suggestions that the Bill could be clearer on this point. This is of particular importance given the intent of this legislation to be expressly permissive and to encourage the uptake of social investment by charities. Thus I reiterate that in relation to the power of social investment: first; there is no minimum degree of mission benefit before the social investment power is engaged; secondly, it is the combination of the mission benefit and the financial return which may cause trustees to consider a social investment to be in the interests of a charity; and, thirdly, a charity’s purposes need not be advanced on an exclusive basis—there may be other unrelated outcomes that are features of the transaction as a whole but are not part of the charitable mission of the specific charity investor and are not part of their reason for investing.

For the record and for completeness, the Law Commission recommendation paper which forms the basis of Clause 13 states that,

“we consider that the definition should make clear that insofar as a social investment is justified by its expected mission benefit: (1) only the charity’s objects are relevant; other benefits which do not fall within the charity’s purposes are irrelevant (even if they may be charitable purposes for another charity); (2) for a charity with multiple purposes, a social investment need not further each one of those purposes; and (3) the charity’s social investment must be expected to cause the mission benefit that is relied on to justify the social investment. However, insofar as a social investment is justified by its expected financial return, it need not be used exclusively and directly to further the charity’s purposes”.

It may be worth me unpacking this further by way of an example. A charity might have the care of horses as its charitable purpose. It may wish to invest in a horse and donkey social enterprise, which provides joint facilities for both. The social enterprise may also expect to make a financial return, perhaps from charging visitors. It is entirely right that, having weighed the benefits to horses along with the expected risk-adjusted financial return, the horse charity is able to invest in the horse and donkey social enterprise. So long as the trustees have satisfied themselves that the combination of expected financial return and mission benefit in relation to horses is appropriate, this is covered under the social investment power. For the avoidance of doubt, this would also be the case for a horse and zebra charity investing in the horse and donkey social enterprise.

To put this in a more generic formulation, the social investment power will enable charities with wide charitable objects to invest in a wide range of social enterprises on an unrestricted basis, and by way of equity or debt or a combination of the two, or indeed through any other suitable financial instrument. With this in mind, and following discussions with the Law Commission and others, we have decided to amend the definition used by the Bill in a way that will make this even clearer, and to put it beyond any doubt in relation to matters of interpretation that could be raised some years hence. This explains Amendments 25 and 29.

I hope that this meets with the approval of the noble Lords who raised concerns in this area. I recognise that it may not go as far as some may like, but it is as far as we feel able to go without raising the spectre of private benefit. The Bill does not change the law on private benefit, which was deliberately excluded from the scope of the Law Commission review. However, for the record, the Law Commission recommendation paper states that,

“there was broad agreement that the law relating to private benefit does not generally prevent charities from making social investments … It does not seem to us that it is an obstacle, if properly understood, to social investment done with the aim of furthering a charity’s purposes”.

I trust that my laying out of the definition and the thinking behind it in some detail has served to make the case clear.

I thank the noble Lord, Lord Cromwell, for Amendments 30 and 31. It is, of course, important for charity trustees to be prudent and to think about the long-term management of their charity’s assets, whether they are making a social investment or engaged in any other activity. This month, the Charity Commission published its revised guidance, The Essential Trustee, (CC3), which says, for example, that trustees must,

“make balanced and adequately informed decisions, thinking about the long term as well as the short term”,

and that they,

“must act responsibly, reasonably and honestly. This is sometimes called the duty of prudence. Prudence is about exercising sound judgement”.

Trustees are therefore already subject to duties that cover the points made by the noble Lord’s amendment.

The purpose of Section 292C is to set out certain duties that apply specifically to social investment, not to codify the entirety of trustees’ duties when making social investments. In addition to these duties, trustees will of course also be subject to the duties imposed by the general law, including the law of prudence. The specific duties in 292C also modify the duties imposed by the Trustee Act so that they are tailored to social investment. Just as the Trustee Act does not include an express duty to consider prudence and the long-term management of a charity’s assets, nor should the social investment duties.

The Law Commission’s recommendation was that the trustees should be satisfied that a social investment is in the charity’s interests, having regard to the two limbs of the definition in Section 292A: namely, furthering purposes and the financial aim. The wording of the government amendment deliberately refers back to those two limbs of the definition; it does not need to do more than that.

Finally, the long-term management of a charity’s assets will not always be a relevant consideration when making a social investment. It would be relevant if a charity is using its investment assets to make a social investment, but this will not always be the case. A charity might use its disposable income to make a social investment. For example, if a charity’s endowment produces an income of £10,000 to be spent this year, the charity might decide to use £2,000 of that to make a social investment that is expected to further the charity’s purposes and might result in a payment of, say, £500. That might not be a prudent long-term management of that £2,000 as an asset, but it is an excellent use of the charity’s funds and the possibility of getting £500 back is better than simply giving £2,000 away. I fear that the wording of the noble Lord’s amendment might suggest, even if it is not intended to, that such a social investment is not permitted, and I hope that he will be content not to press it. I beg to move.

[Lord Cromwell (CB)]

My Lords, I shall speak to Amendments 30 and 31, which are amendments to government Amendment 29. In doing so, I remind the House of my involvement in the charity sector and in financial investing. I am grateful to the Minister for government Amendment 29, which I support. I sense that I may be swimming against the tide here, but I hope that he will feel able to reconsider his approach to the text by adding what we have suggested in the amendments tabled in my name and that of my noble and learned friend Lord Hope of Craighead.

The Minister’s amendment highlights the need for trustees to consider a social investment in respect of two factors: the charity’s purposes and the financial return. I am sure he is right in that. No financial return is not, in my definition at least, an investment. The missing element in our view is to consider how a social investment fits into the pattern of overall investments and the long-term plan for the charity’s assets as a whole, not just considering the investment in isolation, which I think Amendment 29 seems to imply.

Some might say that prudence and long-term planning are motherhood and apple pie because they are self-evident. However, the Bill is breaking new ground. It invites trustees to engage with a new type and class of investment. These are welcome additions to the investment universe, but they are different from and less regulated than mainstream financial investments. Furthermore, these investments are likely to be presented in different ways, separately, and by different people. I hope that the Minister will agree that, first, the wording we suggest does not place any barriers in the way of social investing, or certainly none that a worthwhile social investment could reasonably object to. Secondly, they provide a context to such investments, and given that this is a new area of investing, a reasonable sense check that trustees should observe when making or considering them.

[Lord Hope of Craighead (CB)]

My Lords, I am in the unusual position of having heard the Minister’s reply before we move our amendments, so I know what he is saying. Perhaps I may say in support of the amendment tabled by the noble Lord, Lord Cromwell, to which I have also put my name, that what we are trying to do is refine the exercise which the Minister is himself engaged upon. For myself, I very much welcome government Amendment 29.

The starting point for this is to look back to new Section 292C(2)(c), where the charity trustees are asked to,

“satisfy themselves that it is in the interests of the charity to make the social investment”.

It was because that in itself seemed rather bald that we suggested in Committee that the phraseology should be expanded upon to give further guidance to the charity trustees. The noble Lord has very properly expanded on that, but our point is that it does not go quite far enough. It tells the trustees that they should have regard to the benefit that they expect the social investment to achieve for the charity, stating,

“(by directly furthering the charity’s purposes and achieving a financial return)”.

That is a specific and immediate task; namely, looking at the information and the task before the charity trustees at the moment. The problem may be that if a step is taken today, it may undermine or at least put at risk the assets of the charity in the longer term. It is to try to balance these two things out—the way things seem today as against how they might seem in two or three years’ time—that we are making this additional suggestion.

The Minister has said that he is not persuaded, but I wonder whether he would be kind enough to at least think again about whether he might give some little step in our direction to balance out these two things. Long-term management of the assets is obviously essential to the charity if it is to remain alive, and it is to balance out the immediate task with the long-term future that we suggest the wording should be expanded further.

Charities (Protection and Social Investment) Bill [HL]

Lord Cromwell Excerpts

Wednesday 1st July 2015 Grand Committee

[Baroness Barker]

My Lords, after that foray into the wider realms of charity law and purposes, we come back to the anorak stuff of social investment. As the noble Lord, Lord Hodgson of Astley Abbots, alluded to earlier, new Section 292C(2) sets out the considerations which charities must make before they exercise a power to make social investment, and it refers specifically to advice that they should take.

As we discussed in relation to the earlier amendments, there are two different sets of considerations which trustees will have to make. One is a straight financial assessment. I know that it is argued that some social investments are almost akin to the making of grants—they are very few, I would imagine—so a great deal of what most people involved in making decisions about giving assets to social investments are concerned with is the business case for doing so and the likelihood of return. It is therefore quite right that the subsection should place a strong requirement on trustees to obtain advice on that. I think that most trustees making a social investment would seek the advice of people who had relevant experience in business.

On how charities make a judgment as to what is a correct social investment, which is particularly relevant given what the Minister said in his response to the previous amendments, we are talking not only about charities being able to make investments which are seen to be socially good but about such investments being both socially good and in pursuit of their charitable objects. That brings an important level of complexity to this matter because many charities would see making an investment in the sort of work which they do as not only being desirable but having the potential to get them out of some of the financial deficits which charities are getting into. They would say that that was quite a complex thing to do, whether or not it fell under this legislation.

I understand what the Government are trying to do by saying that before trustees risk money, they should take early advice. There was some debate on subsection (2)(a), which states that before making a social investment charity trustees must,

“consider whether in all the circumstances any advice about the proposed social investment ought to be obtained”.

There was a fear on the part of some people that that might give people carte blanche to go ahead and make investments without taking advice at all. Perhaps the Minister might make clear whether the Government envisage that there will be circumstances in which charities go ahead and make social investments without taking any advice.

I turn to the point of my amendment. If the investment concerned is truly to be a social investment, an interested party ought to be the beneficiaries of a charity. That is so for two reasons. First, they ought to be the people who can talk about the social value of the investment being made. Secondly, for different reasons, the beneficiaries of a charity have a direct interest in determining whether or not a social investment would be the best use of the assets of the charity from which they would otherwise benefit. It is therefore not unreasonable for there to be a discussion that includes both them and other relevant stakeholders. In a way, this is supposed to add a bit of belt and braces to the social aspect of social investment. I beg to move.

[Lord Cromwell (CB)]

We would all agree in principle that the beneficiaries of a charity should surely be involved as far as possible. My difficulty is where it is reasonable. Who decides, particularly if an investment goes wrong, whether or not it was reasonable to have consulted them?

I turn to Amendment 20, which is in my name and that of the noble and learned Lord, Lord Hope of Craighead, who cannot be with us today as he is required elsewhere: I am sure that the Committee, like me, will be happy to know that he was today confirmed as the new Convenor of the Cross Benches. I declare my interests: I have worked for and with a number of UK and international charities for much of my life. Latterly, in about the last eight years, I have moved much more into the investment world, where I look after some quite substantial investment portfolios for clients that include charities.

I am going to take a slightly different approach from some of the other speakers, which may or may not make me popular. I shall approach this amendment in three steps: first, what happens currently; secondly, what I think the Bill as it stands would mean for trustees; and, thirdly, why I think the amendment is needed. So what happens currently? Much of what is called social investment already probably happens in two ways. The first is that some charity investors seek to use various degrees of what we might call “ethical overlay” to their investment portfolios. At its simplest that is an ethical portfolio, and you can buy them off the shelf. It might involve avoiding certain companies or sectors, and tobacco and arms are obvious examples of that. These are available now; you can buy them online as a private investor if you wish to, or a charity could do the same. A common difficulty, of course, is the divergence of opinion about what is an ethical investment; I do not propose to dive into that today as I suspect we could spend most of the evening on it.

However, the provisions of the Bill go well beyond this type of investing. Moving perhaps closer to what the Bill envisages, some trustees invest in projects or activities where there is an expectation of some element of financial return beyond mission-related benefits. I agree about “mixed motive”; I prefer “mission-related”—it is a case of potayto/potahto. One might cite social enterprises, revolving credit funds, concessional lending to development projects or just models of work that require an element of repayment by the beneficiaries to recycle the money and ensure that they treat the money that they receive responsibly.

Last week I chaired a group in Birmingham for the Prince’s Trust, which advances modest sums to individuals seeking to start their own businesses. These loans are repayable to the trust to fund further such work, and that is made very clear to the beneficiaries when they receive these loans. My view, however, is that realistically these types of projects fall within the spending activities of that charity rather than being classed as investments, for reasons that I will come on to—the “two pockets” approach that the Minister referred to earlier. Nevertheless, the 2006 report of the noble Lord, Lord Hodgson, showed that there is anxiety among some trustees about how such activities fit within their responsibilities to invest charitable resources prudently. His report suggests specifically that a fear that social investments might not be within these rules is holding back and inhibiting investment into them and that it should be put into law that social investments are in line with trustees’ responsibilities—something that most of us have touched on already today. The Law Commission came to a very similar conclusion in its 2013 report and the wording of this section of the Bill follows very closely what it said. It comes as little surprise that the Minister told us that it had drafted this section. I am also glad to hear that better guidance, associated with that, is on its way, because my first instinct on reading the Bill was that this might be better dealt with through guidance than law. However, I bow to the far greater expertise that has been deployed on that matter than I have to offer.

So far, so good, but there are four other aspects of social investing that cause disquiet for trustees. Simply passing a Bill to say that they can make social investments does not sufficiently address those. First, social investing is poorly defined. It lies somewhere between charitable spending on worthwhile activities and investing for purely financial return. It is widely covered elsewhere, particularly in the Law Commission report, where one witness stated that it is,

“an unclear concept and capable of being used by a proponent to mean precisely what the proponent wants it to mean”.

The Bill seeks to define it; we have agreed to discuss that point separately, on the head of a pin, so I will not elaborate further today.

The second issue is that the returns on a social investment can be extremely difficult to quantify. The old cliché that two economists in a room will give you three opinions multiplies exponentially in this sort of area. Measuring and attributing a numerical value to social benefits, which trustees are going to have to compare between, can produce a very wide dispersion of arguably equal returns, depending on which criteria you use, how you weight them and—let us be candid—how keen you are to promote that particular investment to whoever is listening to you on the other side of the table. The prospect of asking trustees to leave the realms of quantifiable financial return, which they could then use for good works, and enter the world of social, environmental and other forms of accounting puts off as many as the worries about whether they are entering into something they should not be doing. The whole idea ends up, very quickly, in the “too difficult” box or, as I suggested earlier, allocated to the spending committee, a topic touched on widely in the Law Commission report.

Thirdly, if social investing takes off as a significant asset class—and it is already well on its way—it is, inevitably, going to attract an increasing number of purveyors and advisers who want to attract funds, recommend certain types of investments or manage funds within them. That is no bad thing in itself, but only if it is properly regulated. If it is not, whole new areas of mis-selling arise, where social investments could be knowingly or just irresponsibly hyped to investors and trustees. The danger in that is exacerbated by the difficulty in calculating, quantifying and comparing returns.

Finally, the Bill gives the power to make social investments, but it does not look at the possibility that some charities themselves may well want to use this as a fundraising opportunity and market them to other charities or the public. Add to this formula a situation where a trustee is involved both as a trustee of a charity marketing a social investment and as a trustee being invited to invest in it and you can see the complexities. I have not put forward a specific amendment on that point but I urge the Minister to think about whether we could address it at the next stage in terms of enabling charities to use social investments to raise much-needed funds, without the hideous cost of compliance which will probably come with it, but at the same time restrain them from being overexuberant in doing so.

That brings me to my underlying concern and the reason for the amendment: in pretty much every case, charities that have traditional investment portfolios have highly regulated individuals managing those portfolios. I believe the noble Lord worked with the FCA—FSA as was—so he will have background on this but an individual recommending investments has to be very specific on the expected returns, the level of risk, the previous track record of this type of investment and the previous track record of the person, object or company providing it. You have to be able to evidence that you know your customers in great detail and that what you are recommending to them is suitable. That may not be the case in the world of social investment. Social investments may be more risky, more volatile, more concentrated and certainly less liquid—an important consideration for charity trustees with bills to pay—than what I might call mainstream financial investments. You can sell a blue-chip investment at the press of a button but if you are putting money into a 10-year health project in a developing country, pulling your money out halfway through because you need the cash is not only technically but reputationally and morally a very difficult place to be.

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[Lord Hodgson of Astley Abbotts]

My Lords, perhaps it because it is the end of a long day or because I had a spat with the noble Lord, Lord Lea of Crondall, but I feel slightly scratchy about these two amendments and I feel bad about feeling scratchy about them because the noble Lord, Lord Cromwell, has sat patiently through a couple of days of our debates. But I do not find myself happy with what is being proposed.

If we take new Section 292C and what the trustees of a charity must do,

“before exercising a power to make a social investment”,

they must consider,

“whether in all the circumstances any advice … ought to be obtained”.

Having done that, they need to obtain and consider the advice they think ought to be obtained. Thirdly, they must satisfy themselves that it is in the interests of the charity to make the social investment. That seems to me to be about as simple, as dutiful and as clear as could be. If we are not careful, we will constrain trustees further and put them in a position where they say, “Ought we to be doing more?”. That absolutely lays it on the line: do you need to take advice? Have you taken the advice that you decided you needed to take, and does it all match up with your charity’s objectives?

I can live with Amendment 19, tabled by the noble Baroness, Lady Barker, but, as she said, any good charity would make sure that the beneficiaries were involved and it would take the stakeholder beneficiaries with it. Because I am a minimalist on these things, I do not think that it is necessary to put this into statute. Good charity trustees will do it anyway.

Amendment 20 is a different matter. I accept what the noble Lord, Lord Cromwell, has said about the social return on investment; there is a lot of work to be done on that. I accept what he says about suitability, knowing your customer and so on, but to suggest that social investment has to be undertaken in the same form as that undertaken in the regulated financial markets is actually to shoot the whole thing straight in the head. The whole purpose of social investment is that it is different: not better or worse, but different. To try to force social investment into the pattern of regulation that is available for financial investments is to hobble and cripple it.

[Lord Cromwell]

Will the noble Lord give way? I thank him for his patience because I could see that he was getting quite scratchy as I was speaking, so I am grateful to him for taking pity on me in that way, and for giving way. I think that we may have misunderstood each other. I am perfectly in support of, first, social investment, and secondly, social investment not necessarily being subject to the rigour of FCA supervision, as would be the case for financial investments. My proposition is that trustees, if they make such an investment, should be conscious that they are entering into an investment that is not so regulated. I hope that that closes the distance between us a little.

[Lord Hodgson of Astley Abbotts]

Of course it closes the distance between us, but what it does not do is make clear why we need paragraphs (a) to (c) of proposed new Section 292C. In my view those paragraphs cover all these things, so in my view adding more to them means that you are trying to force a regulatory system on to a new type of investment that does not fit with it at all well. On Monday next we shall be talking about the financial promotions regime and all that goes with it. Once an adviser says to the trustees, “How does this compare with regulated financial markets?”, they will say, “We need to be exceptionally careful”. You will find that the costs that apply to the regulated financial markets will be applied to social investments, most of which are quite small. We are still finding our way through, but there will be a very high fixed cost that will make it almost impossible for people to bring these ideas forward. If it is accepted, when trustees look at this amendment they will say, “Is it the same as an undertaking in the regulated financial markets?”. They will be scared off by their advisers. I hope very much that my noble friend will not accept the first part of the amendment.

I turn to the second part of the amendment, which states,

“consider whether there is a conflict between the investment vehicles”.

Every single investment decision has an option. There is never one thing you can buy. Are you going to buy BP or Shell? You have to think about how to deal with that. The way it is dealt with is by diversification—not putting all your eggs in one basket—and by a readiness to accept risk. That is the way to do it and it is the way that trustees should do it. They should not be forced through further hoops or jump over hurdles because of additional things being added to the Bill at this stage.

At the very least, the chilling effect of Amendment 20, if it were accepted, would be stupendous. I will give the Committee an example: when we were doing the review, we came across a case of a £100,000 investment going to a charity that was going to relieve third-world poverty. The charitable investment was to be made to enable local people to produce goods that could be sold. If it worked, the charity would get some money back because it would have proceeds from the sales. By the time the charity had gone through all the due diligence recommended by the serried ranks of investment advice, it was £40,000. The trustees said, “What on earth are we doing this for? Why do we not just give the money?”. And, as I shall say more vehemently still on Monday, we have got to a situation where I can give the noble Lord £100,000 for his charity but I cannot invest it because I might get some money back. That simply cannot be sensible. That I could get 5% or 10% back—a small return—must be encouraged, as opposed to giving it for ever.

I hope very much that my noble friend will not accept these amendments, not because I do not think that they are important points; indeed they are. There will be scandals and difficulties in this emerging market but we must trust trustees. They have the framework and they must take the decisions. That is what they do and should be encouraged to do. We should not be trying to guide them and say, “Don’t worry about this and look after that”. They must be given the self-confidence to take the decisions on their own account.

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[Lord Cromwell]

Perhaps I may have one more try at this. I hear what the noble Lord says but I have to say to him that I think that trustees should be careful. Batting this aside and saying, “Oh, there will be scandals and mis-selling” is not the approach that perhaps he meant. I could offer one further comment that may be helpful. The FCA currently offers guidance to investors on proportional investing—that is, the sort of recommended amount that it would say you should put into a particular type of investment, be it a private equity fund, a structured product or whatever. Perhaps here there is something about which the Minister could talk to the FCA. A social investment could be a very exciting but possibly, in risk management terms, relatively modest part of an investment portfolio. I still stick to my dictum that trustees are required to be careful. On the prospect of the noble Lord giving me £100,000, I would be very happy to discuss it with him afterwards.

[Lord Watson of Invergowrie]

My Lords, I was slightly taken aback by the response of the noble Lord, Lord Hodgson of Astley Abbotts, to Amendment 20. We believe that these amendments would enhance the Bill. In respect of the noble and learned Lord, Lord Hope of Craighead, who is a signatory to Amendment 20, perhaps I may further record my congratulations on his election as Convenor of the Cross-Bench Peers. New Section 292C(2) to (4) covers the scope of the duty applying to trustees. This will apply in relation to social investments made after this part of the Bill comes into force, whether or not these were made by the exercise of the new statutory power. The duty in the Bill will require charity trustees that have existing powers to make social investments to adapt their current processes in so far as they do not currently comply with the duties set out in the aforementioned sections.

The Bill is not clear as to how the duty in new Section 292C would apply where the trustees delegate their power. We believe that Amendment 19 offers clarification on this point. The section does not take into account that larger charities are more likely to want to set a social investment policy at board level and delegate to staff the responsibility for putting the policy into practice when implementing individual transactions.

Amendment 20 adds two further requirements that charity trustees must consider before exercising the power to make a social investment. I can only echo the comments made by the noble Lord, Lord Cromwell: surely it is important that care is taken and that trustees are absolutely clear that they are doing what is in their charity’s best interests. This amendment would require trustees to reflect on what type of investment they are making and the associated level of regulation, risk, concentration versus diversification and the type of qualified advice that was taken, all of which seems to be sound common sense. I cannot ascribe to the chilling effect that the noble Lord, Lord Hodgson of Astley Abbotts, suggested.