Representation of the People (England and Wales) (Amendment) Regulations 2018

Lord Hodgson of Astley Abbotts Excerpts

Tuesday 27th February 2018 Grand Committee

[Baroness Seccombe (Con)]

My Lords, I welcome these regulations. I understand the fear of somebody who has been a victim of harassment and domestic violence, and not wanting to see their name and address appear on a public document. For people who have been subjected to that sort of treatment, anonymous registration is an excellent idea. The point I want to make is that the men—we must remember that one in three victims of domestic violence is a man—are very often the good guys, who want to leave the family in the domestic home and move on to get somewhere where they can be away from the family. It is very important that that offer is open to men and is known to be open, because all the blurb refers to women, women’s refuges and so on. In this year of 100 years of women having the vote, we must not forget that families are made of male and female. Long may it be so.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I too support these regulations, but I will probe my noble friend Lord Young on them and their position in the reform of electoral law that we are proposing to undertake, or have been talking about for some time.

First, on the change to the anonymous registration scheme, I of course absolutely support the widening of this gate. The fear of being bullied, threatened or attacked is very real. Therefore, people should be provided with the appropriate anonymity to protect their democratic right. But, of course, there is a balance to be struck because the transparency of the electoral roll is a very important part of our democratic system. Therefore, we need to bear in mind the extent to which the gate is being widened and the appropriateness of it being widened.

As my noble friend explained, the attestation procedure has now been widened quite a lot. While I absolutely understand about the police and the reduction of the rank to inspector, where it is quite an impersonal relationship, the other two categories move to a much more difficult and much closer relationship in the sense that a registered healthcare professional, as listed in the regulations, will be under a lot of moral pressure, come what may, to look after their patient. They will perhaps find it difficult to make a completely dispassionate judgment about whether anonymity should be granted in a particular case. That is referred to in paragraph 7.7 of the Explanatory Memorandum.

Paragraph 7.8 concerns refuge managers. That is an even wider category of individuals. It is clear from reading the Explanatory Memorandum that the Electoral Commission was concerned about this. Paragraph 8.2 says that it was concerned about,

“how widely the definition of a refuge manager may apply”.

The Government’s response is that its concerns were addressed,

“through a tightening of this definition”.

It would be helpful if my noble friend could give us a little bit of information about what took place in that regard. The problem is that it is not really clear how controlled that category may be. Obviously, refuge managers have a particular position and role to play, but we need to know that they are being properly watched over. There is a mention in paragraph 7.8 of the register of refuge managers. It says:

“The Electoral Registration Officer can then confirm that the refuge is registered on the ‘Routes to Support’ directory, a UK-wide online database”.


Do they have to be on that database to be permissible or is it at the discretion of the local electoral returning officers? My concern is that the gate is being widened. I understand why—my noble friend Lord Young made a powerful case for it, which I understand—but I hope that the Government will perhaps take a look at the situation in a couple of years and see to what extent it is being used properly in achieving the balance between this very proper area and the need to have a properly transparent electoral roll.

Turning to the changes to the wider registration system, I understand the need to simplify it and tighten it up against misrepresentation and fraudulent behaviour. It was not entirely clear to me why individuals should not be allowed to be told. This relates to paragraph 7.16: the Government have decided that they should not be told whether they are to be included on or excluded from the register, and that paragraph says:

“There is no added benefit to the elector of this letter”.


It seems to me that people should be told whether they have been successful or unsuccessful, as opposed to just finding out from examining the electoral roll themselves. There are some issues about how the local returning officer and the Electoral Commission work together.

Before I conclude, I want to draw my noble friend’s attention to two further points. I do not ask him to respond to them today but, as he pointed out in his opening remarks, we are all agreed that we need to maximise voter registration and participation. There is a strange anomaly where if you seek to register to vote in person, you can use a pretty wide range of identity documents, such as your passport or driving licence. But if you choose to register online, you have to use your national insurance number and no other document will do. I do not know about other noble Lords but my knowledge of my national insurance number and my accessibility to it is a great deal less than for my driving licence, which is probably in my wallet, or my passport, which will be to hand. So I wonder why we have that strange anomaly where online registration, which we are trying to encourage people to use, can be done only if you have your national insurance number to hand. I suspect that many people do not have it to hand and have some difficulty finding it out. As I say, I am not asking my noble friend to reply to that today but perhaps he could write to the Members of the Committee about it.

My very last point relates to where this fits into the situation for the reform of our electoral law. These are some welcome and important bits of sticking plaster but there is a large Law Commission Bill on electoral law, which it says is shovel-ready. You have only to consider the headings of the chapters in that important document to see how it goes to the heart of our electoral system. Those headings include: “Management and Oversight”, “The Registration of Electors”, “Manner of Voting”, “Absent Voting”, “Notice of Election and Nominations”, “The Polling Process”, “The Count and Declaration of the Result”, “Electoral Offences”—that includes the important issue about bribery and treating which we debated in this Room not so long ago, and where we are working from a Victorian statute which is now not really fit for purpose—and “Regulation of Campaign Expenditure”. Those are some serious issues, raised by an apolitical body which has a chance to bring our system up to date and in line with modern practice. At a time when people have concerns about the way our system is working, we should make every effort to make it as clear, transparent and modern as possible.

My noble friend will forgive me if I refer to an Answer he gave to a Question I tabled just before Christmas on whether the Government planned to introduce any Bills in the current Session using the Law Commission procedure. On 8 January, he very kindly responded, saying that the Government work closely with the Law Commission and support its work to improve the statute book, and that the introduction of new Bills would be announced “in the usual manner”. I am sure my noble friend will forgive me if I say that I do not find that an entirely satisfactory Answer.

[Lord Rennard (LD)]

My Lords, in our various debates on electoral registration issues our usual mantra is about the accuracy and completeness of the electoral register. The measures before us may be of some marginal help in improving the completeness of the register and its accuracy, but in very small ways. They may mean that some of the victims of domestic abuse, or people who are vulnerable as a result of other serious criminal activity, will now register to vote when they may not be able to do so otherwise. There is certainly evidence that some of these people may have feared the consequences of registering and this may have deterred them from complying with their obligation to co-operate with the electoral registration process. We need to safeguard the interests of such people and guarantee their democratic rights.

My only concern about the new rules for anonymous registration is that some people may feel that they have to pay a charge to a GP as part of the process. If someone is a victim of domestic violence, or under any threat of violence which means that they should be registered to vote without publication of their address, I cannot think that it would be right for them to be charged by anyone in return for certifying their status and enabling them to register anonymously. It would effectively be a charge to register to vote.

Of course, GPs are very hard pressed and there may be better routes for people to secure a statement confirming that anonymous registration is necessary. I cannot believe that many GPs would feel it necessary to make a charge for confirming the status of a victim of domestic violence, or of someone living in fear of violence, if their address can be identified from the electoral register. The evidence submitted by the Cabinet Office suggests that 90% of GPs will not make a charge, but that of the 10% who might, their charges might range from £30 to £63. It seems potentially misleading for that evidence to suggest, therefore, that the average charge may be around £4, based, I assume, on the estimate that 90% of GPs will not make such a charge and the charges made by 10% of GPs is averaged out across all of them. It would be equally true to say that of those GPs who might make a charge, the average could be over £45.

There are, of course, many other health professionals, refuge managers or police inspectors able to attest to the need for anonymous registration without someone going to their GP. However, going to a GP to secure anonymous electoral registration may also help identify significant health issues that need to be addressed, so there could therefore be many benefits in going to the GP to discuss these issues. The suggestion that such vulnerable people might be expected to pay to secure anonymous registration via a GP seems utterly wrong to me. Therefore, I hope that the Minister will comment on this issue and say what guidance may be issued to GPs on informing some of their patients that anonymous registration may be necessary for them, and on how the GP can attest to their status, if appropriate, without such people being expected to pay for it.

Other issues that have been set out may be considered relatively minor, in my view. Explaining on registration forms who may not be entitled to vote if they are not qualifying Commonwealth citizens, citizens of the Irish Republic, citizens of the UK, et cetera, is not something with which one can argue, but the need to explain this highlights the complexity of the franchise issues. As we prepare to extend the franchise to people who have moved abroad for longer than 15 years, it is high time that we looked again at the franchise issues, including extending the franchise to those who are legally entitled to live and work here permanently. I believe that that should include many of the 3 million EU citizens who currently enjoy the right to live and work here. Does the Minister agree that there should at least be a debate about such issues?

European Union (Withdrawal) Bill

Lord Hodgson of Astley Abbotts Excerpts

Tuesday 30th January 2018 Lords Chamber

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I share the views expressed by many other noble Lords that this is at root an enabling Bill—albeit one with serious and complex constitutional and societal implications, as the noble Lord, Lord Lisvane, reminded us in his excellent speech a few minutes ago. However, its overarching purpose is to give effect to the wish of the British people to leave the European Union as expressed in the referendum, and it therefore has my support. I come to this debate as what can best be described as a “mild Brexiteer”. I am afraid that I cannot support the more extravagant claims of triumph or disaster espoused by many who have more convinced and settled views. Indeed, I wonder about what lies ahead with artificial intelligence and robotics and their impact on this country and our whole way of life. That impact may be so great that the effect of Brexit may pale by comparison.

My approach to the “European project”, as I understand people like to call it, has changed over the years, from an initial great enthusiasm at the time of this country’s entry into what was then called the European Economic Community. These views were based on personal experiences, and mine were based on the fact that I was born during the war. By the time I was born my father was already in khaki, on a troop-ship bound for the Far East. He returned unharmed, and I first met him when I was about four and a half years old. I am sure that my mother was concerned and worried—although she kept this from me—and I had friends whose fathers had been killed or wounded. So I need no lectures from noble Lords about the death and destruction that Europe has wrought upon itself twice in the last century. However, I have a growing sense that the project has lost touch with the views, hopes, fears and aspirations of a great many of those it sought to represent.

The Explanatory Notes, on page 6, summarise the four main functions of the Bill. I will focus my remarks on the third of these: the power to make secondary legislation—delegated powers. That is not because the other functions are not extremely important and do not require intensive scrutiny—they certainly do, as many speakers referred to earlier—but because to me, the sharp end is where mission creep may occur, and where the temptation of a power grab may prove irresistible. I do so against the background of the experience I gained as a member for some years of your Lordships’ Secondary Legislation Scrutiny Committee, under the able chairmanship of my noble friend Lord Trefgarne.

Focusing on Clause 7 and its associated sections, one has to recognise on the one hand the complexity and magnitude of the task that will be undertaken, and on the other the extraordinarily wide powers that are sought. So there is a balance to be struck, which was very well illuminated in the speech of my noble friend Lord Bridges of Headley. In her excellent opening speech earlier today, my noble friend the Leader of the House explained some of the steps in the development of the Government’s thinking as to how we will tackle the challenge of this balance. We are to have a scrutiny committee—although its membership has yet to be determined. I am also not yet clear whether it will address issues surrounding tertiary as well as secondary legislation—and if it does not, what body will? Further, is its purpose solely to decide which legislative route a particular regulation will follow—negative, affirmative or whatever—or will it undertake the scrutiny as well?

As to the make-up of the committee, I have no doubt from my time as a member of my noble friend Lord Trefgarne’s committee that the quality of examination we were able to give a particular regulation was greatly enhanced by the presence on the committee of people with direct experience of that particular policy area. For example, knowing something about trade and industry I could contribute on that, but when dealing with social security I needed other members of the committee to bring their particular expertise to bear. So I hope that, as the Government’s thinking develops, consideration will be given to establishing a series of scrutiny or standing committees. One alone will surely not be able to do a serious job on the volume of legislation that lies ahead of us. Each of these would focus on defined policy areas and would contain some members with relevant experience of those subjects.

One of the major weaknesses of the whole procedure for scrutinising secondary legislation is that such legislation is unamendable. Your Lordships’ House is therefore always faced with what can best be described as a nuclear option—and, given that fact, has unsurprisingly proved reluctant to press the button. We face exceptional circumstances in this Bill. Is there not a case for establishing a special one-off procedure to deal with them? I note that in paragraph 57 of its report last September, and indeed in the report it published yesterday, the Constitution Committee of your Lordships’ House hints at the desirability of such a development.

Finally, in order to clarify what has been proposed and focus our discussions appropriately in Committee, would it be possible to produce some sort of flow chart showing how, when and by whom decisions are made, as well as the checks and balances built into the procedure, and fit that in to a parliamentary timetable? Maybe such a chart exists—but I have not seen it and it would be most helpful to have one before Committee.

To conclude, this important Bill has my support, but we have to work to do to examine it in detail. I hope that filibusterers on either side of the argument will stay at home—this House’s reputation is at stake and this Bill is too important for the playing of games.

Criminal Justice (European Investigation Order) Regulations 2017

Lord Hodgson of Astley Abbotts Excerpts

Wednesday 6th December 2017 Grand Committee

I beg to move.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I do not propose to deal with the post-Brexit situation; that is a land from whose bourn no traveller returns unscathed. I will, however, raise with my noble friend a couple of questions around the situation as proposed in the EIO.

I need to declare two interests. First, I am a trustee of a charity called Fair Trials International. As the name implies, we are concerned with the operation of justice. I do not speak for the organisation. As far as I know it has no objections to the EIO in principle. I support the idea that we have an opportunity to execute judicial arrangements swiftly, clearly and fairly. I hope, therefore, to get reassurance—I am sure that I will get it—from my noble friend about how things operate on the ground in real life as opposed to the calm deliberations at a quarter to seven on a Wednesday evening in the Moses Room. Secondly, I was a member of the Secondary Legislation Scrutiny Committee, and I am afraid that I was the person responsible for raising the “temporary” issue. I left the committee half way through this matter, so I have form where this is concerned.

It is obvious that for a state to hand over a citizen to another state is a fundamental decision. One of the primary reasons for the existence of individual states is the protection of their citizens as individuals. I hope that the Minister and the Committee will forgive me if I go through a practical example for a couple of minutes and get the Minister to explain to me how the real-life situation works. I note from paragraph 3.1 of the Explanatory Memorandum that so far only nine countries have signed up to the regulation. There is a larger list in Schedule 2 on page 40 of the SI, so I presume that all will eventually become signatories and abide by the convention.

My real-life example is not of concern to noble Lords: we all know where to press the hot buttons to protect our position. There are, however, many people who are less able to defend themselves. Let us assume that I am a football fan and I am going to Bucharest in Romania to watch a European football match. That country is on the Schedule 2 list, not on the list in paragraph 3.1 of the Explanatory Memorandum. Let us assume that it has signed up to this. I am going to see my team play Dinamo Bucharest, a good, quality European team. I go to the match and it is fine. After the match I go into a bar with some friends. We have some drinks and a good time is being had by all, but a fight breaks out in the street outside, somebody is stabbed, and people spill into the bar to try to get away from the violence. Understandably, the police are called. Of course they either anticipate trouble—or sometimes welcome it, as a chance to have a bit of a go at the football fans, whom they do not necessarily regard very highly. I am sitting there with my friends and am required to give my passport number and details, which I am happy to do, and then I go home.

A couple of months later, the man who was stabbed outside has died, and I am served with an EIO to come and give a witness statement about what I saw and what happened to me that night. This is where I would like the Minister to take me through the process. I assume that the EIO is then served, like the European arrest warrant, through a magistrate, probably through Westminster which is where the EAWs go, but I would like to be certain about that. The magistrate can dismiss the application, but if he grants it, as I read this regulation, various options are open to him. He can make a deposition under oath, arrange a telephone conference call, arrange for an interview by closed-circuit television, or he can arrange for my physical transfer. As I understand it, I have to consent to transfer, although I would like the Minister to confirm that.

If I am transferred, that places a considerable burden on me for reasons which I shall explain in a minute. How can I be certain that the magistrate, or whoever is the investigating authority, is certain that the transfer is the last resort? It may be that the police and the investigating authorities in Bucharest would much rather have me present, saying, “We really would like to get Hodgson here because he’s a serious witness, and we don’t think it’ll work well with closed-circuit TV”. How do we make sure that that is the last resort? After that, who is it who actually lets me go? The noble Lord, Lord Faulkner of Worcester, asked in the Secondary Legislation Scrutiny Committee,

“whether it will be the Home Secretary personally who will be authorising the prisoners to be sent abroad under these orders or some designated official and if it is an official, what sort of official will it be?”.

Mr Hurd, a Member of Parliament, replied that it will be “the Minister”. Does that mean every single EIO goes across the Home Secretary’s desk? I will be delighted to be told that that is the case. The idea of the EAW is that it is a much faster and slicker arrangement than that. I would therefore like to be certain that the answer—which I am sure was given in good faith—is accurate.

On arrival, when I have been transferred to Bucharest, I give my evidence. However, there is a question about the availability of translation services—that need not concern us because it is not part of this regulation—not only of whether the questions are being adequately translated, but also of whether I understand their significance. The questions asked in different jurisdictions may have different weight attached to them, but that is another question. How do I know when I will be free to return? There is a suggestion here that the authorising person, the Minister, will say that it will be so many days or weeks. Will it happen and how is my judicial representative able to say, “That’s not fair. It’s too long”. Alternatively, is it just ex cathedra with, “Sorry, you’re going for 10 days”, or a fortnight, or whatever? When I am there, and the police are certain that they have got me bang to rights, innocent though I am, they say, “Thank you for your evidence, that’s great”, but they say to themselves, “The case isn’t quite ready yet, but it’ll be ready in two or three days. Since Hodgson’s clearly guilty, let’s hang on to him”. “Two or three days” becomes a week, becomes two weeks, three weeks and so on. We need be clear about what “temporary” means and how it works. Nick Hurd makes it perfectly clear in a letter to the committee that a prisoner “must be returned”, but he does not say actually when. I am a football fan. A month without any pay may interfere with my ability to pay my rent or mortgage, put food on the table for my family and, above all, if I do not know when I am going to come back, to make alternative arrangements to deal with my developing domestic circumstances.

I repeat that I do not oppose the measure as it is a useful adjunct to inter-judicial co-operation between us and other countries, making sure that people who have committed crimes are dealt with and sorted out quickly, but I am worried about the potential gap between the perfectly drafted legal system laid out in the papers before us and what actually happens to a person who is not terribly sophisticated, does not always know their rights and may or may not have access to first-class legal advice. He or she surely needs to have real protections before we transfer them to a state elsewhere—any state. It is a matter of principle that we look after our citizens. We need to make sure that if we send them abroad, we do so with the proper protections and provisions to ensure that their interests as citizens of the United Kingdom are safeguarded.

[Baroness Ludford (LD)]

My Lords, I welcome this short debate. The European investigation order is a valuable instrument. Therefore, I am pleased that the Government are implementing it. I was involved with it when I was a Member of the European Parliament. I was the lead MEP for the liberal group and involved in all the co-decision negotiations with the Council in finalising it. It has been a source of regret to me and, I think, to my political colleagues in the European Parliament that successive British Governments have not fully taken part in the fair trial rights side of the EU programme alongside enforcement measures such as the European arrest warrant and the European investigation order—that partly relates to what has just been said.

I am a patron of Fair Trials International and a huge admirer of its work. The EIO is a sort of European arrest warrant for evidence. A fair criticism of the European arrest warrant is that it was occasionally used as a fishing expedition. It was meant to be used only from the perspective of charge and prosecution.

[Lord Hodgson of Astley Abbotts]

“Trial-ready” is the word.

[Baroness Ludford]

I do not think that that is in the EAW framework decision, but it was much discussed in the Julian Assange case with Sweden. Certainly, you had to be on the brink of those further stages of charge and prosecution—not when you just wanted to interview someone and were trying to collect evidence. I hope that the EIO will take the weight off the European arrest warrant and stop it being misused. That is all good. The EIO is for evidence; the search is for interception. It is much more efficient for police and prosecutors than relying on the rather clunky EU mutual legal assistance convention of 2000, which has never really worked. As the committee points out, it would be a very retrograde step to fall back on the MLA convention, just as having to fall back on bilateral extradition agreements under the aegis of the Council of Europe will be an alarmingly backward step if the UK is unable to stay in the European arrest warrant if we Brexit. So, like the noble Lord, Lord Rosser, I echo the question put by the committee about what concrete arrangements the Government propose to continue the efficiency and effectiveness that the EIO will deliver, as the European arrest warrant already does. In one of the committee’s reports, the Minister apparently said that,

“he hoped that close cooperation between Member States on security matters would continue, but the precise nature of future relations would be the subject of negotiation”.

Many of us are really quite eager to know how the Government propose to continue this essential cross-border police and prosecution co-operation.

--- Later in debate ---

[Lord Young of Cookham]

I do not have the answer at my fingertips. Clearly, it would have to go through the judicial process. As I indicated, we have transferred only one prisoner in the past five years and in that case there was not a problem with the prisoner being returned. In these circumstances the European convention offers similar protections to those in the charter but, unlike the EAW, which I think was mentioned by the noble Baroness, no detention or transfer can take place without consent under an EIO. I am advised that an urgent procedure is available if the person is in custody. That seems only fair. But I take the point that the noble Lord and the noble Baroness would like more information on this. I am also advised that effective dispute resolution mechanisms and protections for UK and EU citizens will be agreed as part of the negotiation on our future relationship with the EU.

That brings me to the final point raised. The fact that both noble Lords raised this indicates that when we do negotiate post Brexit, these particular issues need to be tied down to avoid any problems of delay in resolution. The question was: what contingency plans are in place in case no deal is reached with the EU and, indeed, what are we planning to do as part of an agreement? As the Prime Minister made clear in her Florence speech, we are unconditionally committed to maintaining Europe’s security now and after we leave the EU. What we must do now is agree the mechanisms to support ongoing co-operation. It is in no one’s interests that either the UK or Europe suffers a loss of operational capability as a result of the UK’s exit.

We have proposed a bold new strategic partnership with the EU, including a comprehensive agreement on security, law enforcement and criminal justice co-operation. That was set out in a paper on those subjects, which I think was debated earlier this year. We are seeking an overarching treaty with the EU that provides for practical operational co-operation, facilitates data-driven law enforcement, and allows multilateral co-operation through EU agencies. It is too early to say what future co-operation we may have in relation to individual measures, such as the EIO. In leaving the EU, we will end the direct jurisdiction of the Court of Justice of the EU. But there is significant precedent for the EU to have co-operation with third countries, including co-operation closely aligned to areas of EU law, but there is no precedent for a third country to submit to the jurisdiction of the CJEU. Effective mechanisms will be necessary to ensure that obligations that are agreed will be enforced after negotiations on the treaty.

I was asked what contingency plans are in place in case no deal is reached with the EU. We are confident that continued practical co-operation between the UK and EU on law enforcement and security is in the interests of both sides. The EU 27 made it clear in their Article 50 negotiating guidelines, published in April, that:

“The EU stands ready to establish partnerships in areas unrelated to trade, in particular the fight against terrorism and international crime, as well as security, defence and foreign policy”.


So we approach these negotiations anticipating that an agreement in this area can be reached. We do not want or expect a no-deal outcome. But a responsible Government should prepare for all potential outcomes, including the unlikely scenario in which no mutually satisfactory agreement can be reached. That is exactly what we are doing across the whole of government.

I hope I have addressed the specific issues raised.

[Lord Hodgson of Astley Abbotts]

As I understood it—and the noble Baroness, Lady Ludford, referred to this—one of the weaknesses of the EAW was that it was being used for fishing expeditions, which tended to undermine it, and that the EIO was to fill that gap; in other words, you could ask questions which did not require an EAW, which had been brought into disrepute in some senses. But that is not the case, is it? You have to be a prisoner before you can have an EIO, so we are back to fishing expeditions again. There is no way that an EIO could be served on the ordinary person in the street because they are not a prisoner. Our concern about fishing expedition continues, I think.

[Lord Young of Cookham]

It goes back to what the EIO aims to do. Basically, it is a judicial co-operation mechanism for providing assistance in investigating and prosecuting criminal offences and it replaces the existing scheme; that is, the existing EU and Council of Europe mutual legal assistance measures. It does this through introducing mutual recognition of other member states’ judicial decisions. As my noble friend said, it standardises the process for making requests by using a template form rather than a letter of request, and it specifies time limits for responding. All the evidence shows that it is already working quite well. A number of requests have been made and processed, and it is proving to be a much more efficient system than the one it replaces. As more member states sign up to the EIO, we believe that it will be an improvement on the previous mutual legal assistance scheme.

I am not sure that I have fully understood the point made by my noble friend, in which case I shall read it again in Hansard. I will drop him a line and hope to give him and the noble Baroness an assurance. As I have just said, the EIO is a mutual legal assistance measure. An individual can give a voluntary statement under an EIO or could be compelled to come to court in the UK in the same way as in domestic proceedings. I hope that that gives my noble friend the answer he was seeking.

Neighbourhood Planning Bill

Lord Hodgson of Astley Abbotts Excerpts

Committee: 4th sitting (Hansard): House of Lords
Wednesday 8th February 2017 Grand Committee

[Lord Horam (Con)]

My Lords, if my noble friend has ever studied the history of the most successful political party in Britain, as I am sure he has—I refer, of course, to the Conservative Party—he will know very well that for many periods in its long history it was supported financially by the brewers. The brewing industry played a very large part in supporting the Conservative Party in times gone by. They obtained some recompense for that support. My noble friend will recall that there was a period in history when the peerage was known as the “Beerage” because of the amount of compensation received by individuals who had supported the Conservative Party. Those people would turn in their grave if they thought that the Conservative Party of modern times was in any way against public houses which, as has been said eloquently by many noble Lords and noble Baronesses, perform an important role in not only our urban but our rural life.

I am familiar with a pub in the West End of London off the Edgware Road which dedicated itself to members of the Royal Air Force during the war and had pictures of all the great names from The Few, and so forth. The chap who ran the pub had a handlebar moustache; the pub was an object of great interest to tourists and others and was a great business. However, that pub has gone because the value of the property as a residential building was much greater than it was as a pub. Frankly, that is a tragedy for the tourist industry and for London. The closure of pubs affects the personality of our country not only in London but also in rural areas. I plead with my noble friend as a Conservative Peer to look at this issue most sympathetically. I hope that he will do so when it comes back on Report.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I have not participated in proceedings on the Bill before, so I apologise to the Committee for coming late in the day. In the light of what I am going to say, I also owe an apology to the noble Lord, Lord Kennedy, the noble Baroness, Lady Deech, and other noble Lords who have put their names to the amendments in this group as I am going to urge my noble friend to resist them. They are perfectly well meaning, but they are the statutory equivalent of trying to make water flow uphill. They can only inhibit, or slow, pub closures. The brutal truth is that there are too many pubs for modern Britain, too often they are in the wrong place and the whole sector is insufficiently profitable. In cases on the margin, where they could, perhaps, be profitable under other ownership, the opportunity to list as an ACV exists, as several noble Lords have said. Pubs are perfectly adequately protected.

This is an issue which arouses strong emotions. Until February 2014—more than three years ago, and therefore outside the time during which I have to declare a past interest—I was a non-executive director of a major integrated brewery and pub operator. It had five breweries from Cockermouth in Cumbria down to Ringwood in Hampshire and operated more than 2,000 pubs. Some were managed—there was an employee running the pub—and some had tenants and were tied, as was the case in those days. It is often overlooked, but that is a very easy way for people to set up their own business because you have a business offered to you, which you can operate, and you can begin straightaway without having to put up much, if any, capital. While under the old system, you had to buy your beer and soft drinks from the owner, food was down to you. I declare that interest because it is important as this is an issue which arouses strong emotions. The last time we got into this discussion, which was last summer, I managed to obtain a starring role in Private Eye as a result of CAMRA’s intervention. My speech was described as “the high point in an otherwise undistinguished political career”, which I thought was fair dues. So are you listening, Private Eye, as I want to get that on the record?

Why does this issue arouse such strong emotions? The noble Lord, Lord Cameron, touched on it. It is because of how people view a community. A community has three aspects that people think are important. They think there should be a shop or post office, some place of worship—a church—and a pub. They do not necessarily want to use them a lot. They will go to the shop or the post office when they have forgotten to buy bread and milk at Tesco. They will not go to church very often. They will go at Christmas and Easter, if they are Christians. They may want to get married there, they may want to have their children christened there and to be buried there—hatches, matches and dispatches—but they will not go much apart from that. They will go to the pub occasionally, but not regularly. The reality is that if you do not use it, you lose it. Most of the pubs that are under pressure are not attracting sufficient custom to be a profitable operation, but because of what is in people’s view of a community, if any of those three pillars is going to close down, people will get exceptionally excited about it and believe that somehow, something must be done—hence the emergence of the ACV procedures.

The second reason people feel so strongly about it is the belief which CAMRA has assiduously fostered—I pay tribute to its campaigning capability because it has been the most enormously successful pressure group—that somewhere in this operation there is a pot of money, that someone is making a lot of money somewhere, and if only it got down to the pub and the pub owner all would be right and the pubs would be happy and we would be in the sunlit uplands once again. The reality is that the sector is under enormous economic and societal pressures. There is not a lot of money in the sector and the idea that somehow pub owners or brewers are making huge profits at the expense of landlords does not tie in with reality. The reality is very different. It is a sector under stupendous strain—and I shall give the Committee three or four quick reasons for that. First, there is exceptionally cheap supermarket alcohol. If noble Lords go to a supermarket on the weekend before a bank holiday weekend, when things are on offer, they can probably buy lager for 60p or 70p a pint. If they go to a pub, they will pay £3 for it. So a lot of people are increasingly buying alcohol in the supermarket and drinking it at home.

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[Lord Scriven (LD)]

My Lords, I also support the amendments in the names of the noble Lord, Lord Kennedy of Southwark, and my noble friend Lord Shipley. I declare my interest in the register as a member of Sheffield City Council.

I listened particularly to the comments of the noble Lord, Lord Hodgson of Astley Abbotts. I think he needs to understand that nobody is talking about trying to make it more difficult or easier for pubs to stay open. This is about a sense of fairness in the planning process. A pub, like any other commercial organisation, before it decides to change use for whatever reason, whether it is failing, or as my noble friend Lord Tope said, to make a profit from land, has to go through the planning process and the community has a say. The decision will be made on planning criteria about whether it is right to convert and change the use of a pub.

[Lord Hodgson of Astley Abbotts]

Is the noble Lord therefore intending to apply this to every restaurant, every Starbucks and every community activity, or is he picking out pubs and making them the one group to which he wishes to apply these restrictions?

[Lord Scriven]

As the noble Lord, Lord Kennedy, said at the start, most businesses do not have this automatic permitted right. There is something particular about a pub, especially with regard to its community value. As a leader of a council, I can tell noble Lords that communities do not usually come out to fight if there is a change in a supermarket or garage. There are two commercial organisations that people fight to protect because of their uniqueness in binding the community together: one is the post office and the other is the pub. Because of a pub’s social asset—not just its commercial asset, to which the noble Lord referred—and the way in which it binds people together and has a significance beyond the commercial element, it is really important that this is looked at by the planning process. It is fair for the community and the planning process to decide whether it is right to change the use of a particular pub.

In my city of Sheffield—noble Lords are welcome to come and have a tipple because the New York Times recently defined it as the “beer capital of Britain”—we have lost 68 pubs since 2011. There is one, the Plough in Crookes, which I think typifies why we need to have a change and why these amendments are important. The pub is at the heart of the community. Sheffield is not just an urban mass; it is made up of communities within an urban setting. That is what most cities and towns are like. The pub in Crookes is the glue that binds and yet, without any reference to the community or any understanding of whether it was viable or not, the pub chain decided to change its use and turn it into a supermarket. The community had no voice; it had no say and had to go through the asset of community value process.

It is interesting that the asset of community value was accepted by the council and now the pub is going through the planning process. However, the issue is that the community should not have to fight to be able to have a say about whether a pub changes; it should be automatically within the planning process. That is all the amendments seek to achieve. They ask for a sense of fairness and for the community to have a voice. Then the normal and natural planning process will take place and a decision will be made on planning grounds about whether it is right or wrong to change the use of that pub.

These amendments are about fairness and communities having a voice, and making sure that good decisions are made on planning grounds. Planning is not just about the commercial use; it is about what binds and makes good communities. Commercial organisations should not have an automatic right to change a community asset when they consider it viable and profitable because changing it into flats or a supermarket would make them more money.

Civil Society and Lobbying

Lord Hodgson of Astley Abbotts Excerpts

Thursday 8th September 2016 Lords Chamber

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I begin by thanking the noble Baroness for having given us the chance to debate this important topic. As some Members of your Lordships’ House will know, I have prepared a number of reviews of the sector. The work that I have done and the people I have met lead me to associate myself entirely with the noble Baroness’s remarks about the contribution that the charitable and voluntary sector has made to our society, especially as regards social cohesion.

However, there is an important cautionary word, which was raised by the noble Baroness, Lady Scott of Needham Market, who is not in her place, and it is that charitable status is not of itself a guarantee of good behaviour. I fear that there have been too many cases where governance, procedures and approach have fallen short. No matter that the vast and overwhelming majority of charities are doing the splendid job to which the noble Baroness referred; the sector needs to remember that its reputation with the public is as good as the weakest link in the chain. I am confident that the committee of the noble Baroness, Lady Pitkeathley, will investigate that, to find ways of making sure that the good stories are not driven out entirely by the bad.

I turn to my review of Part 2 of the transparency of lobbying Act. I am encouraged by the fact that a number of speakers so far have seemed to agree with my conclusion that we should aim for the maximum transparency on the issue of how and by whom the general public are influenced at the time of a general election. That must surely be the only way to maintain public trust and confidence in our electoral system. Elections must not be capable of being bought by third parties of whatever colour or persuasion operating behind a green baize door. At the same time, we need to make sure that the system does not constrain vigorous public debate, and that is the difficult balance that we have to strike.

Within the 100 pages of the review—I take this opportunity to thank everybody in the country who contributed by attending meetings and sending in evidence to the debate; I also thank the Cabinet Office team led by Cathryn Hannah and David Rowland, who helped prepare the report—there are perhaps two really critical matters. The first is: what needs to be regulated? I defined that as electoral campaigning— that is,

“activity focused on influencing the choice of the voting public at an election”.

I do not think that that regulation should cover advocacy of an issue that an organisation may carry out on a day-to-day basis—what I describe in the review as “business as usual”. Nor should it cover political campaigning which third parties carry out in talking directly to government, Members of your Lordships’ House or Members of the other place. Frankly, if we and Members of the other place cannot “aim off” to take account of the blandishments of such people, we are less good than I think we should be.

If that broad approach is accepted—of course, these are not absolutely discrete silos; one washes into another—one can safely recommend a shortening of the regulated period. In my view, the general public in the saloon bar of the Dog and Duck become aware of an impending general election only about four months ahead of the date of the election. Therefore, I feel that we can safely reduce the regulated period and thus the associated paperwork to the four-month period, as was mentioned by the noble and right reverend Lord, Lord Harries.

The second issue is: what constitutes a member of an organisation and therefore someone who can be approached without falling to be included in the cost of any lobbying activity? Historically, membership has been pretty easily defined—you fill in a form or you send in a cheque, a postal order or some money. But nowadays, with social media, these certainties have been blown away. A tick in a box or an email sent to hundreds of thousands of people at very low cost can make you a member. It will be only a matter of time before the concept of a negative pledge is used—that is, if you do not tick the box, you will be considered a member.

In my view, this potentially offers a serious loophole to the whole practice and risks undermining the lobbying activity in a very important way. So I have proposed the concept of a constitutional member who can influence the organisation of which they are a member, and I have laid out a number of tests that should be followed to ensure that that is being met.

However, as other noble Lords have said, third-party campaigning does not itself lead to neat definitions and packages. The continuing rapid rate of change in social media means that there will be a continuing impact on the way that third-party campaigning practices take place. For example, I had an analysis carried out of the use of Twitter in the Bradford West constituency at the last general election. It was a particularly vicious and fiercely fought campaign. Of the 35,000 Twitter users who referred to candidates in Bradford West, only 330—fewer than 1%—marked Bradford as their home address, compared to 12,000, or about one-third, who marked London and 506 who marked Pakistan. So I believe that, increasingly, campaigning will no longer respect national boundaries, and this will represent a challenge to us all.

In March this year, I presented my review to the then Minister, John Penrose MP. The broad conclusions and approach were, I think, welcomed by the sector and by the Government—if I judge ministerial responses at Question Time right. But so far there has been no official response, and I am asked frequently by those who helped me with the review what happens next. We appear to be in a good place. The sector appears reasonably happy and the Government seem reasonably happy. I hope that they will not allow the good will that they have rightly earned to be dissipated by undue delay.

I hope that my noble friend will enlighten the House on progress during her closing remarks. If she is not able to do so, I fear that I may have to intervene to press her a little harder.

Charities (Protection and Social Investment) Bill [HL]

Lord Hodgson of Astley Abbotts Excerpts

Tuesday 2nd February 2016 Lords Chamber

On the matter of fundraising regulation, I wish the noble Lord, Lord Grade, well. He is about to live in very interesting times, as they say in the Chinese proverb. I say that not least because I went to an academic lecture last week about public perceptions of fundraising in charities, and the noble Lord will not be surprised at all to know that the great British public, as represented in focus groups, are all thoroughly in favour of charities having their fundraising activities absolutely and thoroughly regulated—but they do not want to see them paying any money for that, because they would like all their charitable donations to go direct to beneficiaries. So on the one hand I wish him well, but when the chips are down about who pays for the services of his inestimable organisation, he may well have an interesting time, as do all regulators. None the less, this is a right response to what happened last summer. It will need to be kept under review. I look forward to seeing the Charity Commission having the appropriate responses to deal with this and the fallout from Kids Company, as referred to in the committee’s report last week.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I should like to join others and pour a little more honey over my noble friend’s head and over the head of the Bill team, which has worked hard to bring the good ship into harbour. I shall focus on Amendment 6 and I congratulate the Government on that amendment and the fundraising aspects of it. I urge them to keep up the pressure and wish my noble friend Lord Grade every success in this difficult task.

It is important that we are trying to strike a balance here, which is quite rightly focused on the public not being unduly hassled and being asked in the right way. That is absolutely appropriate, but we must not lose sight of the charities’ right to be able to ask, because if they cannot do so, the effect on our charitable sector, which is vital to our civil society, will be quite extreme. When I carried out the review for the Government a few years ago, it was clear that that balance had not been reached appropriately, given the alphabet soup of regulatory bodies and the different types of fundraisers who blame each other for their bad reputation, along with the fact that the public were confused and wanted a single point of contact. In my report, which was sent to Ministers in July 2012 and accepted by Ministers, I suggested a six-month deadline. Three years later, last summer, as the noble Baroness, Lady Hayter of Kentish Town, pointed out, we had the flashpoint over fundraising, caused by the sad case of Olive Cooke. I congratulate Sir Stuart Etherington and the Members of your Lordships’ House who took part in that review. I think they have come up with some excellent proposals. But this is the last chance of the last chance of the last chance saloon; we have been around this now two or three times.

I am not in favour of statutory regulation against a rapidly changing scene. However, I have to say to my noble friend and to the Minister that in my conversations with the sector there remains a distressing tendency still to see this as somebody else’s problem—still to say, “We are a charity and our reputation is everything, therefore we wouldn’t do anything wrong and how can you possibly think that we are doing anything wrong?”. It is an issue that has still to be hammered home in certain parts of the charity sector to make sure that the message gets over. The reputation of the sector is as strong as the weakest link in the chain, and there remain too many weak links in the chain, which I hope that my noble friend and his colleagues will be able to tackle.

My noble friend has to keep fingering the trigger marked 64C. We have to see his knuckle tightening around the trigger to make the sector understand that this is really important because the distressing tendency to think it will all go away remains. Last week, one charity said to me, “We don’t need to worry about it because we’re good. We’re a charity and the Government don’t want to pull the trigger anyway”. My noble friend must be ready to pull that trigger and make it clear that he will do it. I want to see his trigger finger whitening over the next few months.

[Lord Bridges of Headley]

My Lords, I am extremely grateful for those incredibly kind words. The Bill has been through a long journey of consultation, pre-legislative scrutiny and parliamentary scrutiny and has emerged all the better for it. I thank a number of noble Lords for all they have done, not just in this parliamentary Session but well before it to make the Bill such a success. The Bill has seen this House at its very best. Where we have differed, we have managed to iron out our differences on the Floor of the House and off it. We have made concessions in the light of very good points that were made by a number of noble Lords. The Bill is all the stronger for it.

I will keep my remarks very brief, but I associate myself with a lot of what my noble friend Lord Hodgson said. I thank him in particular for what he has done to make the Bill what it is today. We can get into lots of clichés about having last orders in the last chance saloon with my finger on the trigger. I think we all agree that the charitable sector must heed the measures now before it. It must act and show that it is acting in short order. We will all be keeping our eye on what it does.

On that point, I thank my noble friend Lord Grade for his update. We are right behind him as well as alongside him. I urge him to make all the use he can of the expertise and good will on all sides of this House as he ventures out on his enterprise. There is a lot of wisdom to be drawn from this House and a lot of good will to make sure that his regulatory flourish produces the results we all want.

Before I finish, I will say a couple of words of thanks. I thank the Whip, my noble friend Lord Younger of Leckie, the noble Baronesses, Lady Hayter and Lady Barker, and the noble Lord, Lord Watson of Invergowrie, all of whom have helped me on this, my first Bill. I repeat my thanks to the noble and learned Lord, Lord Hope of Craighead, and my noble friend Lord Hodgson of Astley Abbotts. I thank again my noble friend Lord Leigh of Hurley, the noble Baroness, Lady Pitkeathley, and the noble Lord, Lord Wallace of Saltaire, who helped me a lot during the summer, enabling us to make fast progress on the fundraising front. I thank the Cabinet Office and Charity Commission officials in the Bill team for their work in supporting the passage of the Bill.

We will soon hand over the Act to be implemented by the Charity Commission. I know that noble Lords will be watching closely to ensure that the powers in the Act are used fairly and proportionately. I am sure that they will be, and I look forward to a positive report when the Act comes to be reviewed in three years’ time. Charities’ life-blood is public trust and confidence, which have been undermined by several regulatory failures. The Bill will do much to support the effective protection and regulation of charities and will help restore the public trust and confidence on which charities rely.

Charities (Protection and Social Investment) Bill [HL]

Lord Hodgson of Astley Abbotts Excerpts

Monday 20th July 2015 Lords Chamber

[Lord Lucas (Con)]

My Lords, I am loath to interrupt the noble Lord, except I think he is bringing matters to a conclusion. I want to express my congratulations to the previous Government on putting some steel into the Charity Commission in the process of recalling to independent schools what their charitable status means and what it takes to live up to the—in many cases—very clear opinions of their original benefactors. That process gathered considerable momentum, and many protests, under the previous Government, and I am delighted to see that it is continuing under this Government with cross-party support. It is enormously important that we find a way of reducing the exclusivity and divisions in our current system and that we find ways of reuniting it. On the side of this debate—I know it is not central to it—I very much hope that this Government will take seriously the proposals developed for the reintegration of independent schools and the state system. Some key schools, such as Westminster and St Paul’s, have expressed a willingness to engage. If we can get to a system where the independent schools have a role looking after foreigners and the thick sons of the rich, then we will have achieved a lot for this country.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, we had a long debate on this and I do not intend to detain the House long. This amendment is, at first sight, exceptionally attractive. Who can object to close engagement? The issue before us tonight is whether this is best achieved by the relative inflexibility of statute or the more flexible approach that can be achieved by guidance. My concern about this and the proceedings during our debate in Committee is that this is a Pandora’s box which, once opened, runs in all sorts of directions.

The issue of public benefit came centre stage because of the changes quite reasonably introduced by the previous Labour Government. The noble Lord, Lord Bassam of Brighton, sat through many hours as the Minister in charge. The decision on the way the public benefit test should be set was agreed as being the least worst option, being via the independent Charity Commission, and making sure that the Charity Commission was free from political interference was written into the Bill. Once you move away from that decision, you need to be very careful about where you end up. The debates we had in Committee on 6 July started with an amendment from my noble friend Lord Moynihan about sport. He was followed by the noble Lord, Lord Wallace of Saltaire, on music and arts. At the end of the debate the noble Baroness, Lady Jones, winding up for the Opposition, said:

“Amendments 23A and 23B provide a start by identifying at least three areas”.

She also said:

“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”.—[Official Report, 6/7/15; col. GC27.]

So we moved quite a long way in the course of one single debate. There is a perfectly respectable argument that nearly 10 years after the noble Lord, Lord Bassam, and I discussed this in the Moses Room there should be a review of what constitutes public benefit. However, as I have explained, this is a big topic with many implications and unforeseen and indeed unforeseeable consequences. In my view, it needs to be looked at thoroughly in the round, not tacked on to a Bill that is concerned with improving the regulation of the charity sector and enhancing the development of the social investment movement. As the noble Lord, Lord Wallace, referred to in his remarks, that is a view with which the NCVO agrees.

My review of the sector revealed gaps in the Charity Commission regulatory powers that the Bill will remedy. It is that on which we should be focusing, not trying to find other issues that may cause difficulties and unforeseen consequences. I very much hope that the mover of the amendment will not put it to a Division tonight.

[Lord Watson of Invergowrie]

My Lords, various noble Lords have mentioned in the debate today that there are good examples of private schools sharing their facilities with state schools and other community organisations.

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[Baroness Barker]

My Lords, we move on to the issue of social investment, one which we spent considerable time deliberating in Grand Committee. During those discussions, the Minister repeatedly used the phrase, “dancing on the head of a pin”. I am not much of a dancer, and I return to this not to rehearse the arguments that we had then but for what I think is a really important reason. As we said in Grand Committee, this is the first time that social investment has ever been defined in law. The extent to which trustees are acting properly if they make an investment on which they will not receive a financial return is a question on which, as we heard in Grand Committee, there are a number of different points of view. I simply want us once again to go around the question of the difference between financially motivated investment which happens to be in line with the charity’s social purpose and consciously, explicitly socially motivated investment. The reason for doing so is risk. There is a strong possibility, at least for the first few years of any such investment, that there will be, at best, no return and there may even be losses. It is crucial that we protect in law the trustees who are making such investments.

The noble Lord, Lord Hodgson, and I made the point in Grand Committee that the definition of social investment in the Bill does not reflect the definition given by the Law Commission. The Law Commission’s definition of social investment includes “avoiding financial liability at a future date”. It was, therefore, somewhat difficult for the noble Lord and I to learn during Grand Committee that the Law Commission had helped with the Bill’s drafting. The Law Commission’s definition does not require there to be a positive financial return. That is what it said in its initial report on social investment. However, the Bill includes financial return in the definition. At new Section 292A(5), it defines financial return as,

“if its outcome is better for the charity in financial terms than expending the whole of the funds or other property in question”.

The amendments in this group would add “equal to”. The amendments would allow trustees to make an investment on which there would be simply a social return. There may be a financial return—as opposed to a definite loss, which would be what a grant would amount to—but there may not be. We on these Benches think it important to make that distinction.

The definition in the Bill fails to differentiate between financially motivated investment and consciously, explicitly social investment. That is why we have tabled the amendments, which are slightly different from those which were tabled in Grand Committee. They would require trustees to be open in their investment policy about the fact that they were making social investments, not seeking to make a financial gain but directly trying to achieve a social purpose. As long as they did that and were not harming the capital assets of the charity by completely depleting them, we think that broad definition of social investment would get us to a point where trustees, who are very risk averse under existing law, could begin to develop the whole social investment market. That is what this Government, like the previous Government, have said that they wish to do, but which has so far been constrained by law. That is the reason behind Amendment 20 and all the other amendments in the group. I beg to move.

[Lord Hodgson of Astley Abbotts]

My Lords, I shall be exceptionally brief. I hope that my noble friend will be able to reassure us when we come to the next group that government amendments largely cover the points that the noble Baroness has made in her amendments, all of which are very worth while. We may be able to probe a bit further to ensure that we are getting where we think we are on that group, rather than at this point, but her amendments are interesting.

[Lord Watson of Invergowrie]

My Lords, given that this is the first time that social investment has been defined in statute, perhaps it was not surprising that considerable time was spent in Committee in pursuit of its meaning. I am not certain that we nailed it down effectively. Indeed, some, including Social Enterprise UK, continue to argue that the Bill fails to differentiate between financially motivated investment which also happens to be in line with the charity’s social purpose and consciously or explicitly socially motivated investment.

All investment has some kind of social impact and much financial investment produces positive social returns. In Committee, the Minister avoided giving a clear answer as to how social investment is to be differentiated from financially motivated investment; rather, he pointed to the Charity Commission and the courts making such judgments. Only time will tell whether that proves to be the case. For that reason, it is to be welcomed that the Bill will be reviewed after a period of three rather than five years. In the mean time, the amendments in this group offer some clarity in the Bill’s provisions on social investment and we are content to offer them our support.

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[Lord Hodgson of Astley Abbotts]

I rise briefly to thank my noble friend for the trouble that he has taken over this. The sector said to me: “These are the three things we’d like him to say”, and I am glad to say that he has nailed all three issues, so I thank him very much for that. It greatly reassures us and clarifies the situation, which was somewhat obscure when we left the Moses Room a couple of weeks ago.

One hesitates to take on a legal brain like that of the noble and learned Lord, Lord Hope of Craighead, or indeed, the noble Lord, Lord Cromwell, but new Section 292C(2)(c), where the trustees,

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

is good enough. If you go beyond that, you will put in an additional inhibition about making a social investment.

The trustees have a duty. They have responsibilities and obligations, and there will be legal consequences if they fail to follow them. I hope that the Minister will continue to resist that further inhibition, which does not add much and has the chilling effect of lawyers saying, “Either way you need to have particular regard, if you’re going to make social investments”. I think that that is a mistake as we are trying to slowly and carefully see the emergence of this new movement. I thank my noble friend for his three reassurances.

[Lord Watson of Invergowrie]

My Lords, on the first day of this month in Committee, I said:

“It is important for the Bill to be as clear as possible and I hope the Minister … will give an undertaking to bring forward his own re-wording 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”.—[Official Report, 1/7/15; col. GC 191.]

The section was on the meaning of social investment, so it is pleasing that the Minister has heeded my words and has indeed strengthened the Bill both in terms of the government amendments in this group and in the group that follows. I thank him for that.

We also believe that the two amendments in the names of the noble and learned Lord, Lord Hope of Craighead, and the noble Lord, Lord Cromwell, would enhance this clause, but the Minister has already set out his stall on these matters, so there is not much more that I can say on that.

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[Baroness Barker]

My Lords, the House might find it useful to hear from the noble Lord, Lord Bridges, on the Government’s Amendments 26, 27 and 28, which were not grouped with the previous group starting with Amendment 25. I would find that helpful.

[Lord Hodgson of Astley Abbotts]

My Lords, these amendments are about the royal charter charities, so they are very different. We had so far been dealing with social investments and the definition of that. This group is about the special position of royal charter charities. I am not sure that it will detain us very long, but nevertheless it is a different topic and they have been separated by the Bill team into two different groups.

[Lord Bridges of Headley]

My Lords, if I am right, I will address Amendments 26 and 28, which relate to very minor improvements to language, adding an active grammatical formulation and a specific rather than generic identifier respectively. I trust that they will not require further explanation.

The amendment to new Section 292B(4) improves the wording of the specification around the exclusion of charities established by legislation or by royal charter. They have been excluded from the social investment power because of the differences in governance structure. The amendments here simply offer an improved form of wording to reflect this.

The addition of new Section 292B(5) is needed to explain better the territorial extent of the subsection on charities established by legislation, as set out in new Section 292B(4). It clarifies that the exclusion relates specifically to charities established by, or whose functions are set out in, legislation or secondary legislation authorised by Acts of Parliament or measures of the Welsh Assembly. I expect that these measures will not trouble noble Lords unduly, being of a rather technical nature without policy implications.

--- Later in debate ---

Moved by

[Lord Hodgson of Astley Abbotts]

32: Clause 13, page 18, line 3, at end insert—
“292D Marketing of social investments
(1) Any financial promotion which is communicated by a charity shall not be subject to the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005.
(2) The Treasury may by regulations set out rules for the communication of financial promotions by charities.
(3) In making any such regulations, the Treasury shall have regard to—
(a) the desirability of creating rules which are proportionate to the nature, scale and capacity of different charities and which are easy to understand and follow;(b) the desirability of creating rules which support the growth, development and financing of charities and which are enabling and facilitative;(c) the desirability of facilitating, where appropriate, direct investment on the part of consumers into charities, including charities which operate locally to the consumer;(d) the desirability of consistency of approach in the regulatory treatment of communications made by different forms of charities;(e) the differing expectations that consumers may have in relation to different kinds of investment or other transaction and, in particular, the fact that many when investing in charities do so for a variety of non-financial reasons; and (f) the desirability, where appropriate, of the Financial Conduct Authority exercising its functions in a way that recognises differences in the nature of, and objectives of, charities as compared to other organisations which are subject to the requirements of the Financial Services and Markets Act 2000.”

[Lord Hodgson of Astley Abbotts]

My Lords, the horses are heading for the stables so I will be brief. I have retabled this amendment, which seeks to update the financial promotion rules to allow the emergence of a class of social investor comprising people who wish to support a particular cause dear to their hearts, or perhaps near to their home, but would like to invest—that is, they might/could get their money back as opposed to giving it irrevocably. My noble friend—and, indeed, the House—has heard me say too often that I consider it counterintuitive that I can give money to a scheme but cannot invest in exactly the same scheme.

Most social investments are quite small in size, suitable for private investment but not suitable for the full panoply of an offer to the public, and are not cost effective. Currently, the financial promotion rules make no distinction to cover the emerging social investment market.

I absolutely accept—I turn to the noble Lord, Lord Cromwell, at this point—the need for the new rules to be carefully drafted. Social investment, as we all agree, is a new and emerging activity. It must not overpromise and individuals need to understand the risks. However, the issue remains—as the noble Baroness, Lady Barker, said at col. 9 of Grand Committee Hansard of 6 July—a “hot potato” being passed between the Treasury and the Cabinet Office.

Those of us who have followed this issue for some time have experienced extreme frustration. Each time a statutory bus comes past, the conductor tells us, “This is not the right one for you, guv, wait for the next one”. We are still waiting at the bus stop. In replying to the debate in Committee, my noble friend said:

“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. … as I said, I am meeting my right honourable friend the Economic Secretary to the Treasury to discuss them”.—[Official Report, 6/7/15; col. GC 13.]

I accept that this Bill is focused on improving charity regulation and on social investment, but it is not the right place for an amendment to the financial promotion rules. However, in the light of his comments on 6 July, can my noble friend tell us when our bus might arrive?

--- Later in debate ---

[Lord Hodgson of Astley Abbotts]

I am grateful to my noble friend. I cannot say fairer than that, particularly at 8.48 pm. I thank him very much indeed and beg leave to withdraw the amendment. I look forward to hearing from my noble friend in due course.

Amendment 32 withdrawn.

Moved by

[Lord Hodgson of Astley Abbotts]

33: After Clause 13, insert the following new Clause—
“Appeals and applications to Charity Appeal Tribunal
(1) The Charities Act 2011 is amended as follows.
(2) For section 319 (appeals: general) substitute—
“319 Appeals: general
(1) Except in the case of a reviewable matter (see section 322) an appeal may be brought to the Tribunal against any decision, order or direction made by the Commission or any decision on the part of the Commission not to make any decision, order or direction.
(2) Such an appeal may be brought by the following—
(a) the Attorney General;(b) the charity trustees of the charity subject to the relevant decision, order or direction;(c) (if a body corporate) the charity subject to the relevant decision, order or direction;(d) any other person who is the subject of the relevant decision, order or direction or who is significantly interested in and affected by the relevant decision, order or direction.(3) The Commission is to be the respondent to such an appeal.
(4) In determining such an appeal the Tribunal—
(a) must consider afresh the legal decision, order, direction or decision not to act (as the case may be), and(b) may take into account evidence which is not available to the Commission.(5) The Tribunal may—
(a) dismiss the appeal; or(b) if it allows the appeal, exercise any of the following powers—(i) to quash (in whole or in part) the decision, order, direction and (if appropriate) remit the matter to the Commission;(ii) to substitute for the decision, order or direction any other decision, order or direction which could have been made or given by the Commission;(iii) to add to the decision, order or direction anything which could have been contained in a decision, order or direction of the Commission;(iv) to give such direction to the Commission as it considers appropriate; and(v) where appropriate, to make any decision, order or direction which the Commission could have made.”(3) For section 321(2) substitute—
“(2) Such an application may be brought by—
(a) the Attorney General;(b) the charity trustees of the charity subject to the relevant reviewable matter;(c) (if a body corporate) the charity subject to the relevant reviewable matter;(d) any other person who is the subject of the relevant reviewable matter or who is significantly interested in and affected by the relevant reviewable matter.” (4) For section 323 (remission of matters to Commission) substitute—
“323 Remission of matters to Commission
The reference in section 319(5)(i) to “remit a matter to the Commission” means the power to remit the matter—(a) generally, or(b) for determination in accordance with a finding made or direction given by the Tribunal.”(5) Omit section 324 (power to amend provisions relating to appeals and applications to Tribunal).
(6) Omit Schedule 6 (appeals and applications to Tribunal).”

[Lord Hodgson of Astley Abbotts]

My Lords, I am going for a third major prize now. I have retabled this amendment, which proposes a wholesale redrafting of Schedule 6 to the 2011 Act.

As I said before, this may sound a rather technical matter but, as I explained in Committee, it has a very important purpose: to improve access to justice for charities, especially smaller ones. The last Labour Government set up the Charity Tribunal in the 2006 Act, which was a very good development. Prior to that, only the High Court could provide a means of redress for small charities, which was expensive and slow. Charities, especially smaller charities, had no option but to submit to the directions and decisions of the Charity Commission. However, what was a good idea and gave with one hand took away with another. Schedule 6 is 10 pages long and complex in that it says what can be appealed against, who can bring the appeal and what the remedy is. It is difficult for charities and many charities’ lawyers to understand. The evidence to my review was that the sector found it complex and difficult to follow. My amendment is designed to sweep these complexities away.

In response to the amendment in Committee, my noble friend said:

“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”.—[Official Report, 6/7/15; col. GC 17.]

That stung me into action, and I decided that I was going to find out all about it. I have done some more research and discovered three things. First, there is a widely supported view that Schedule 6 is too complex and difficult to navigate. That supports my case for reform. Secondly, my amendment is too widely drafted as regards standing—that is, who may make an appeal. By way of example, many of the appeals that have been lodged to date in the tribunal in relation to schemes have been brought not by the charity trustees who had sought the proposed scheme themselves but by third parties objecting to the scheme, such as local residents objecting to a scheme in relation to parkland or parents at a school objecting to a scheme for the school. There have also been some politically motivated complaints. As a result, I have to accept the weakness of my amendment as drafted. Finally, and most importantly, my research revealed that my noble friend already has some powers to improve the operation of Schedule 6 without resort to primary legislation. Under Section 324 of the 2011 Act, entitled, “Power to amend provisions relating to appeals and applications to Tribunal”, my noble friend can act to improve the way the schedule operates.

If I accept that my amendment cannot do the business as presently drafted, all I am asking my noble friend to do tonight is to accept that there is a consensus among charity lawyers that Schedule 6 is absurdly complicated and not consistent in its principles and application and to say that he will initiate a review of the operation of Schedule 6 with the objectives of obtaining: first, a clear, generally applicable definition of a decision, including a non-decision; secondly, a clear principle of locus standi, which could and should include limitations based on remoteness from the decision’s effect; thirdly, recognition that the tribunal was intended to provide a straightforward basis of objective appeal against a regulator making decisions of direct impact, which justifies something beyond the judicial review principle; and fourthly, a logical staging through the Charity Commission’s internal review process to the tribunal as a next level. He can then use his Section 324 powers to introduce whatever interim improvements are possible until the next bus comes along to enable statutory improvements to be made.

It is easy to pass this off as a very technical matter, but access to justice is a very important principle and this undertaking to have a review would lead to improvements to that access for the charity sector. I beg to move.

[Lord Bridges of Headley]

My Lords, my noble friend Lord Hodgson has fought the corner of rationalising Charity Tribunal appeal rights for many years. Every time he gets knocked down, he gets straight back up and continues to fight from the blue corner. I applaud his persistence.

In principle, the Government have maintained a consistent position that they are not averse to rationalising the rights of appeal and review to the Charity Tribunal set out in Schedule 6, as my noble friend pointed out, but—it is an important “but”—we would not want to create new appeal rights where none currently exists that would add to the tribunal’s caseload. Neither would we want to expose the Charity Commission to challenge where it decides not to take action and where an appeal right does not currently exist. Creating rights of appeal where the Charity Commission decides not to take action could well result in an unmanageable workload of cases for the Charity Commission, diverting its resources. It would also effectively enable the tribunal to direct the use of the commission’s powers and resources. As I said before, we consider that the balance is about right under Schedule 6 as it stands in terms of what decisions can be appealed.

In terms of who can appeal, my noble friend Lord Hodgson made some fair points about legal standing to bring an appeal. For many appeal rights, the legal standing in relation to the Charity Tribunal is widely drawn, encompassing,

“any other person who is or may be affected by the decision”.

That is very wide compared to most other jurisdictions. However, it recognises that charities exist for the public benefit and that the regulator’s decisions about a charity can have a significant impact on people who would not normally be able to bring an appeal. I accept my noble friend’s point that some people find Schedule 6 clunky and difficult to use, but I am not sure how it could be condensed into a simple provision without inadvertently making the sorts of changes that we want to avoid.

The Government have agreed with many of my noble friend Lord Hodgson’s recommendations over the years. We find that he is usually right. I am sorry to say that this is a rare case where we will have to part company and agree to disagree on some of his points. I hope my noble friend will not be too disappointed to learn that I will not commit to any amendments on this subject. I am happy to reflect on the points that he raised—they were detailed points and I will not simply wave them away right now—and will listen if he thinks we can make improvements to Schedule 6 through the power to do so in secondary legislation. Again, I should be clear that I make no promises. As I already said, we do not want to introduce new appeal rights. I thank my noble friend for all he continues to contribute to this debate. While I cannot agree to his amendment, I very much hope that we can continue to have conversations about this matter.

[Lord Hodgson of Astley Abbotts]

I am grateful to my noble friend for his extensive response and kind remarks. I understand that my amendment is faulty. I have no wish to press it to a Division. That would be entirely wrong as it does not work. I just hope that at some point we can look at how Schedule 6 works and see whether there are ways that it can be made clearer, and if that can be done by secondary legislation. It would be wonderful if we could do that. If we have to come back to consider it another day then so be it. For tonight, I seek leave to withdraw the amendment.

Amendment 33 withdrawn.

Charities (Protection and Social Investment) Bill [HL]

Lord Hodgson of Astley Abbotts Excerpts

Monday 20th July 2015 Lords Chamber

[Lord Beecham (Lab)]

My Lords, I declare my local authority interests, one of which is to represent the ward in which the mother of the noble Lord, Lord Graham, used to live, in a rather—at that point—grim housing association block. It was part of the Sutton’s estate, which has been transformed over recent years. It now provides extremely good and very popular housing, and there are other housing associations in the same small ward in my local authority, Newcastle. Anchor in particular has two or three developments. It is worrying that the Government’s arrant intention to nationalise with a view to privatising, which is effectively what their policies on social housing amount to, will impact on that provision.

The amendment does not address the issue of housing only. Other charities might well be caught by other developments of the kind the Government propose to bring forward in relation to housing. For example, one could envisage charities running medical services—hospitals, perhaps—being required to put those on the market and dispose of them to other organisations. There will be other examples. The National Trust is one; it is an interesting thought that your Lordships’ House and others might be saved by acting towards them as is apparently intended towards housing associations—I suspect that that is unlikely to happen. But there is a principle here which is wider than the important and topical principle of social housing, and could apply across a range of functions carried out by charities. For that reason, it is important for this House to consider the amendment seriously.

Some of the questions raised by the noble and learned Lords, Lord Hope and Lord Mackay, and the noble Lord, Lord Cormack, are valid: the wording of the amendment is perhaps not ideal. But it is not enough simply to say that Hansard will be read by Ministers at the other end and that is all there is to it. An amendment passed by this House would require fuller consideration than simply a reading of Hansard would be likely to engender. In any event, in the House of Commons it is possible to refine and improve the amendment to meet the points that the noble and learned Lords raised about the precise wording.

While we may well have an opportunity, unfortunately, of returning to this subject in the event of a specific measure coming from the Commons in relation to housing, it would be a sensible course to take to pass the amendment, particularly in view of the great concern expressed by the social housing movement. I bear in mind particularly the reference of the noble Lord, Lord Palmer, to the financing of future development, given that housing associations borrow against the value of their stock. If that is to be diminished, as it would be over time, it would obviously weaken them. But, as I have said, it is not the only case which gives rise to concern. On that basis, I hope that, if my noble friend decides to test the opinion of the House, your Lordships will support her, and encourage and facilitate a review of the position by the Government and the Commons.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, the House should not lose sight of the central purpose of this Bill, which is to make more effective—to improve—the regulatory powers of the Charity Commission and to enable the development of the social investment movement. This is the first in a series of amendments—including Amendment 17, on the right to make representations, and Amendment 19, on public benefit—that are outwith that purpose. I have heard all parts of the House rail and criticise Governments for bringing forth what they call Christmas tree Bills. If we are not careful, we are in danger of creating such a Bill here, because we are making amendments to the purposes of the Bill and the responsibilities of the Charities Commission that are quite outwith the original idea. Indeed, they are outside the remit that the Joint Committee, led by the noble and learned Lord, Lord Hope of Craighead, undertook.

We need to focus on the central issue: we need to give the Charity Commission the additional powers that the sector believes it should have and that the Charity Law Association and others generally believe are needed. If we go down the slippery slope of trying to add more bells and whistles to the Bill at this stage, we will be making a big mistake. I hope that the movers of the amendment will not wish to test the opinion of the House, because that could land us in position we do not want to be in.

Charities (Protection and Social Investment) Bill [HL]

Lord Hodgson of Astley Abbotts Excerpts

Monday 6th July 2015 Grand Committee

Moved by

[Lord Hodgson of Astley Abbotts]

22A: Clause 13, page 17, line 38, at end insert—
“292D Marketing of social investments
(1) Any financial promotion which is communicated by a charity shall not be subject to the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005.
(2) The Treasury may by regulations set out rules for the communication of financial promotions by charities.
(3) In making any such regulations, the Treasury shall have regard to—
(a) the desirability of creating rules which are proportionate to the nature, scale and capacity of different charities and which are easy to understand and follow;(b) the desirability of creating rules which support the growth, development and financing of charities and which are enabling and facilitative;(c) the desirability of facilitating, where appropriate, direct investment on the part of consumers into charities, including charities which operate locally to the consumer;(d) the desirability of consistency of approach in the regulatory treatment of communications made by different forms of charities;(e) the differing expectations that consumers may have in relation to different kinds of investment or other transaction and, in particular, the fact that many when investing in charities do so for a variety of non-financial reasons; and(f) the desirability, where appropriate, of the Financial Conduct Authority exercising its functions in a way that recognises differences in the nature of, and objectives of, charities as compared to other organisations which are subject to the requirements of the Financial Services and Markets Act 2000.”

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, in our meeting last week, following on from the group headed by Amendment 16, which was moved by the noble Baroness, Lady Barker, we discussed the challenges of facilitating social investment by charities and the implications for trustees; indeed, that issue came up in the debate that we have just had. We went through the intricacies of programme-related investment and mixed-motive or, in my words, mixed-purpose investment. As I said then, I felt that my noble friend did not give us an entirely satisfactory answer. However, I am grateful for his agreement to have a meeting, if necessary. I also know that he has managed to fix up a meeting to let the lawyers argue it out—a mere mortal probably cannot contribute much to that debate.

This amendment is designed to move the discussion forward to a parallel, but important, development of a social investment market involving new people from among the public. I am sorry that the noble Lord, Lord Cromwell, is not here, as I am sure that he would be horrified by this. So far, we have been dealing only with committees, trustees or people who are well caught up in the charity world. What we must try to do is to find people who are interested in supporting charities but are not yet committed to doing so. As I said last week, and say again now, it must be counterintuitive to enable people only to give money but not invest it. However small the chances may be of getting your money back, no matter how meagre the rewards may be, it must be better, and people must be more likely to give money, if they have a chance of seeing a return on it.

After we finished our debate last Tuesday, by a happy coincidence I received a 61-page booklet, Developing A Global Financial Centre for Social Impact Investment, which contained some interesting research carried out by the City of London. I will not read out the 61 pages, but the booklet’s conclusion states:

“A number of major financial centres, largely national capitals, have been at the forefront of driving change so far, with London pre-eminent among them. Our research suggests that London has certain features that it must address—not least in relation to ensuring a supportive regulatory environment, accreditation, enabling greater retail investment, developing its skills base and technical assistance models—if it is to be a global financial centre for social impact investment”.

I wish to focus on enabling retail investment—one of the proposals that the City of London document suggests is important and which Amendment 22A addresses. What stands in the way of developing a wider retail base? It is essentially the financial promotion regime. The document further states:

“The Financial Promotion Regime is particularly relevant to the UK social investment market. Though 90% of lending to this market was in the form of secured loans in 2011/12, social enterprises are increasingly in need of unsecured debt capital. Projections by Boston Consulting Group suggest that by 2015, demand for investment into the market will reach £750m, 58% of which will be in the form of unsecured debt and 15% in equity-like capital. The role of the retail investor in helping to provide this capital is as yet untapped, although there is survey evidence of an appetite among retail investors to make social investments. The creation of a Social Investment Tax Relief (‘SITR’), as announced in the 2014 Budget, is also designed to encourage a wider individual social investor base in the UK”.

So all appears set fair, but what then are the problems? One of them is, of course, that the total amount being invested by investors is small. The document continues:

“The Financial Promotion Regime does not distinguish between large investments and small investments. Where small investments are being made”—

individually—

“the risk of loss will be less but this is not acknowledged. In the social investment market, most investments are likely to be relatively small in size. The total amount being raised as part of the offer is small: social enterprises typically seek to raise”,

sums,

“of less than £100k. Ordinary retail investors therefore provide a good ‘match’ for social investments in terms of the size of the investment opportunities available. However, the Financial Promotion Regime treats all investment raises beneath €5m in the same way and does not make it any easier for social enterprises to raise small amounts of money”.

Another issue is that the investor is investing with certain significant non-financial goals. Social investment may often be considered by investors as an alternative to philanthropic donations, as I have just explained. Although the Financial Services Act recognises that investors may invest with non-financial goals, the financial promotion regime does not yet expressly recognise this possibility. There are no exemptions or any lighter-touch regulatory requirements where investors are investing primarily with non-financial goals or with significant non-financial goals in mind, such as the desire to support the cause being furthered by a social enterprise. Finally, does the investor live locally in the community of the investee seeking the investment?

Those are some of the difficulties that are currently being faced. So what is the answer? We have gone a certain distance of the way, because the Financial Conduct Authority recognises an experienced investor. That is to say that, if someone has a certain knowledge and a certain amount of wealth, they do not have to go through all the hoops that one does if one wishes to offer it to the man on the street. That is quite right. We should be trying to promote a social investor—a social investor who has a different approach. That is what my amendment seeks to do.

This is a permissive amendment. The Treasury may, by regulations, set out rules. They must be proportionate and easy to understand and follow and they must be enabling and facilitative. They must also take particular regard of charities that operate locally to the consumer, the desirability of consistency of approach, the difference of expectation and, last but not least, the desirability where appropriate of the Financial Conduct Authority exercising its functions in a way that recognises differences in the nature and objectives of charities as compared to other organisations that are subject to the requirements of the Financial Services and Markets Act 2000. Regulators are always risk-averse; they are always terrified that they are going to end up with egg on their face. Therefore, if we do not find a way to make them understand that this is different, we will have a very long, difficult uphill road. I say to my noble friend—and, in his absence, to the noble Lord, Lord Cromwell, given what he has said before—that this is not a better or worse investor regulatory regime; it is a different one. It is trying to deal with different sorts of situations.

There is a final anomaly, which the Committee should be aware of. There is a loophole in the financial promotion regulations for industrial and provident societies such as co-ops and community benefit societies. Provided that they are offering non-transferable debt instruments or non-transferable shares, the financial promotions regime does not apply, only the general law—that is the point made by my noble friend Lord Borwick at Second Reading. Non-transferrable means illiquid; it means that, once bought, the purchaser is stuck with it for ever. Both the noble Lord, Lord Cromwell, and, I think, the noble Lord, Lord Watson of Invergowrie, expressed concerns in our earlier debate about general social investment for charities having unquantifiable risks and the need for diversification and liquidity. This is a real challenge. If we do not rebalance the regulatory regime to put social investment generally on the same footing, the investment market will gradually tilt itself towards IPSs, co-ops and community benefit societies. I have nothing against that form of organisation—I am sure that they do a very worthy job—but this does restrict the growth of a wider social investment market.

To conclude, I am sure that my noble friend will say—my X-ray eyes can see what is on his notes—that this is one for the Treasury. That is fair enough, but in 2012 a number of us in Committee bashed away at the passing of the Financial Services Act. His colleague on the Front Bench, the then Treasury Minister, the noble Lord, Lord Sassoon, said that this was very interesting but one for the Charity Commission. We are never quite in the right place at the right time. To be fair, I recognise the increased specialist attention being given by the FCA, but we need another incremental step forward to help the growth of retail investment and this amendment will provide it. I beg to move.

--- Later in debate ---

[Lord Watson of Invergowrie]

My Lords, this amendment would enable charities to market social investments to individual investors but exempt charities from the restrictions of the financial promotions regime. It would provide rules for the development of a regulatory regime for marketing by charities and allow the Treasury to set out rules for the communication of financial promotions by charities through regulations, if it chose to do so.

From our point of view, three of those sound quite reasonable, but I have to ask the noble Lord, Lord Hodgson, whether an exemption from the Financial Services and Markets Act 2000 and the 2005 order means less protection for consumers—by which of course I mean investors. Would the new rules specifically for social investments come into force at the same time as social investments were no longer required to meet the demands of the 2000 Act? In my view, the noble Lord, Lord Hodgson, did not spell out in sufficient detail why exemption from the Act is necessary. We believe there are potential difficulties in freeing up charities from those laws.

[Lord Hodgson of Astley Abbotts]

It is perfectly possible, although it is exceptionally expensive, to have a financial promotion involving an authorised offer of shares because it goes to everybody. Such an offer has to deal with people who are quite unsophisticated and therefore it must be done carefully: the process is lengthy and expensive, and hundreds of thousands of pounds have to be spent in preparing a prospectus that is fit for the general public. That is quite right and entirely appropriate—I am not complaining about that.

What we have here is people who might be interested in making a social investment and who would understand—I am sure the Treasury rules and regulations would make this clear—that the primary purpose was not to have a financial return and that they should act accordingly. This is designed to enable social companies such as charities to raise relatively small sums of money without the commensurately high costs that would be required if you were offering the promotion to the general public. This would be a new category of investor, and if the noble Lord were to ask whether that was better or worse, I would answer that it is different—not better or worse. This would be designed, or purpose made, for this particular area.

[Lord Watson of Invergowrie]

I thank the noble Lord for that clarification. However, again, are we to constrain the development of social investments on the grounds of cost? Obviously there is no maximum or upper limit as to what a charity will or will not be able to afford when trying to pursue the provisions of the Bill in relation to social investment, and that is part of the problem. I certainly do not want to see that restrained at all; I would like to see all charities, even smaller ones, feel that they can enter this field with confidence. I think that is what all noble Lords present in this debate would want to see.

However, we have some fears. It would not require too great a leap of the imagination to arrive at a situation where, for example, a charity working for older people might devise a product that offered attractive-sounding investment opportunities to the elderly, showing how they would do great good for the cause even if the return was not quite what other products might have produced. That could be fraught with potential pitfalls that could make telephone cold calling, which noble Lords will recall we discussed in Committee last week, seem quite innocuous, and I would want to make sure that such difficulties did not arise. It might also be possible for cold calling to be used to market those bonds or whatever the products on sale were to be termed. I do not want to overdramatise such possible scenarios, but we have to be aware that they could arise. Certainly in the early days of social investment for charities, it will not all be plain sailing.

I want to ask the noble Lord why the amendment states that the Treasury “may” set out rules for the communication of financial promotions by charities. Again, that seems a little loose. If it is thought that such rules are necessary, I would have thought that “may” should have been replaced by “must”. It might be thought that the need for such rules would be paramount at the start, when the whole area of social investment is introduced, with many charities being less than absolutely clear about what is required of them.

[Lord Hodgson of Astley Abbotts]

By some alchemy of draftsmanship, “may” equals “shall” in drafting legislation. Do not ask me how it comes about, but they mean the same. We have had this discussion many times in these Committees. “May” and “shall” are the same word for a parliamentary draftsman.

[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.

Amendment 22A withdrawn.

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Moved by

[Lord Hodgson of Astley Abbotts]

22B: After Clause 13, insert the following new Clause—
“Appeals and applications to Charity Appeal Tribunal
(1) The Charities Act 2011 is amended as follows.
(2) For section 319 (appeals: general) substitute—
“319 Appeals: general
(1) Except in the case of a reviewable matter (see section 322) an appeal may be brought to the Tribunal against any decision, order or direction made by the Commission or any decision on the part of the Commission not to make any decision, order or direction.
(2) Such an appeal may be brought by the following—
(a) the Attorney General;(b) the charity trustees of the charity subject to the relevant decision, order or direction;(c) (if a body corporate) the charity subject to the relevant decision, order or direction;(d) any other person who is the subject of the relevant decision, order or direction or who is significantly interested in and affected by the relevant decision, order or direction.(3) The Commission is to be the respondent to such an appeal.
(4) In determining such an appeal the Tribunal—
(a) must consider afresh the legal decision, order, direction or decision not to act (as the case may be), and(b) may take into account evidence which is not available to the Commission.(5) The Tribunal may—
(a) dismiss the appeal; or(b) if it allows the appeal, exercise any of the following powers—(i) to quash (in whole or in part) the decision, order or direction and (if appropriate) remit the matter to the Commission;(ii) to substitute for the decision, order or direction any other decision, order or direction which could have been made or given by the Commission;(iii) to add to the decision, order or direction anything which could have been contained in a decision, order or direction of the Commission;(iv) to give such direction to the Commission as it considers appropriate; and(v) where appropriate, to make any decision, order or direction which the Commission could have made.”(3) For section 321(2) substitute—
“(2) Such an application may be brought by—
(a) the Attorney General;(b) the charity trustees of the charity subject to the relevant reviewable matter;(c) (if a body corporate) the charity subject to the relevant reviewable matter; or(d) any other person who is the subject of the relevant reviewable matter or who is significantly interested in and affected by the relevant reviewable matter.”(4) For section 323 (remission of matters to Commission) substitute—
“323 Remission of matters to Commission
The reference in section 319(5)(b)(i) to “remit the matter to the Commission” means the power to remit the matter—(a) generally, or(b) for determination in accordance with a finding made or direction given by the Tribunal.”(5) Omit section 324 (power to amend provisions relating to appeals and applications to Tribunal).
(6) Omit Schedule 6 (appeals and applications to Tribunal).”

[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.

Amendment 22B withdrawn.

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[Viscount Bridgeman (Con)]

My Lords, while supporting the sentiments behind these two amendments, I have a small difficulty with the drafting. Surely in proposed new subsection (5) of both amendments, engaging fully implies aspirations towards an ideal. I feel that this does not lie easily with the word “minimum” in proposed subsection (6) of the two amendments. For example, a school that very reluctantly complies with the minimum requirements may be well aware that it is not engaging fully. The local community and, indeed, the Charity Commission, may feel the same way. Therefore, if these two amendments find favour with the Government, I suggest that they should be redrafted so that the two proposed subsections are absolutely compatible.

[Lord Hodgson of Astley Abbotts]

My Lords, these are well-meaning amendments. Who cannot be swayed by the brilliant call from my noble friend Lord Moynihan for consistency and for building on the memories of 2012, and, indeed, by the noble Lord, Lord Wallace of Saltaire, talking about the importance of music and the arts? However, my noble friend Lord Lexden has sounded a cautionary note. I fear that putting all this into statute may open a Pandora’s box. I am not against opening a Pandora’s box but, before doing so, let us be clear that that is what we are going to do and what may follow as a result.

Just to give some brief background, the Committee is aware that the roots of charity came from the dissolution of the monasteries. Before that, the church educated people, promoted religion and acted as, in modern terms, a social services department by looking after the sick, the destitute and the disabled. When that ceased to be done by the church, it was done by the private sector, if I may call it that. Those three purposes were presumed automatically to be charitable. There was a fourth category—such other activities as may be presumed to have a public benefit. That meant that for the vast majority of charities up to 2006 there was a presumption of public benefit. If one struck out every charity that had anything to do with education, religion and social services, a whole heap of charities would be removed and we would be left with a small number that depended on the definition of “public benefit”.

The public benefit test was introduced in 2006, when the Labour Government’s Bill removed presumption and made every charity show that it was providing a public benefit. I am not saying whether that was a good or a bad thing; it is just what happened. It meant that the public benefit test went from being concerned with a very small number of charities to being the keystone of the arch. Every single charity now had to live with that. That was a very big change and the question of how that public benefit test should be set and enforced occupied many hours of the debates on the Charities Bill, as it was in 2004 to 2005. I was a newcomer in the House at that time and I listened to lengthy speeches. The noble Lord, Lord Wedderburn, from the Labour Benches made a 45-minute speech on what is a religion, to the increasing worry of his Whip and his Minister, the noble Lord, Lord Bassam, who rightly thought that we were never going to leave that group of amendments. I promise that I shall not speak for 45 minutes this afternoon.

The conclusion reached was that there was no ideal solution and that the least worst option was to give responsibility to the Charity Commission and to keep charities as far as possible away from the political fray. Lord Phillips of Sudbury, who is no longer with us but who then led the charge on these things, was the Peer who introduced the amendment that now forms Section 13(4) of the 2011 Act, which reads:

“In the exercise of its functions the Commission is not subject to the direction or control of any Minister of the Crown or of another government department”.

The conclusion of that long debate was that the public benefit test should be put to the Charity Commission and that the commission should be given a wraparound of avoiding political interference.

I accept the point made by my noble friend Lord Moynihan that the initial public benefit guidance from the Charity Commission after the 2006 Act was unduly financially oriented. I think that everyone now recognises that there was too much emphasis on scholarships and bursaries and not enough on the hearts and minds that both these amendments are driving at—namely, the provision of sporting facilities, arts and music. Of course, following the independent schools tribunal, the guidance has now been revised and things are not quite as they were.

The Pandora’s box that could be opened is that if my noble friend were inclined to accept these amendments the Charity Commission would no longer be truly independent. You cannot be a little independent—you are either independent or you are not. Others might have their own ideas of what could be added to the list of things that the Charity Commission should consider and would have to take into account in considering the public benefit test. I need not remind the Committee that the OSCR—the Office of the Scottish Charity Regulator—has a different public benefit test. It requires that when the public benefit test is set, it should have particular regard to institutions that charge fees. That might be something to consider in this country in order to match the public benefit test in England with that in Scotland. I am concerned about how this might develop and, once the stitch is removed, how this theme might run through the charity sector. Slowly and inexorably, charities might find themselves moving towards the political stage, with all that that entails.

My noble friend made an important point about the uneven application of consistency. We have come across private schools that have been not unwilling but unable to provide the sorts of issues that my noble friend Lord Moynihan mentioned—a point also made by my noble friend Lord Lexden. A rural prep school that is badly endowed and has no local community is going to find it very hard to deal with the sorts of provisions that appear in these two amendments.

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[Lord Wallace of Saltaire]

My Lords, I must remind the noble Lord that on the previous day that this Committee sat he made a very powerful speech about the need to define rather more clearly some of the elements in the Bill. He now seems to be arguing in entirely the opposite direction.

I recognise that the public benefit test has to be left relatively broad, and indeed both these amendments say so. I also recognise, with regard to the use of the word “fully”, that there are ways in which this amendment might need to be reconsidered.

All that we are attempting to do here is to make it clear that there is an expectation of public benefit, as we have both said. Different schools demonstrate that in different ways, and we all expect them to do so. I have to say that many of us are a little worried about a small minority of schools that now seem to have a large proportion of overseas students, for example, and have raised their fees to such an extent that they are a very long way from the original charitable purposes for which they were founded. If we are nudging them—nudging is, after all, one of the things that this Government are extremely keen on—in the right direction, it is this sort of wording that seems to be pushing them in that direction, and that is what we wish to do. I do not think that we are going down the route of politicisation; we are, however, reminding them—and providing them with some examples—that charitable status is a privilege and public benefit is an expectation.

[Lord Hodgson of Astley Abbotts]

I entirely agree that charitable status is a privilege. The question is whether that status is better enhanced by statute or by guidance. I am saying that the test should be made clear but it should be a Charity Commission guidance test rather than be put in statute, with all the inflexibilities and ancillary problems that may flow from that.

Charities (Protection and Social Investment) Bill [HL]

Lord Hodgson of Astley Abbotts Excerpts

Wednesday 1st July 2015 Grand Committee

[Lord Lea of Crondall (Lab)]

My Lords, I am happy to be associated with this probing amendment. As I suspected, there is scope for talking at cross-purposes about the commission’s present understanding of “political”. I have been at the receiving end of an objection on the grounds of that word. The noble Lord, Lord Wallace of Saltaire, whose attention I do not have at the moment, equates “political” with “party-political”. As I understand it, that is not the Charity Commission’s feeling about the word. I have been at the receiving end of criticism that this is political, but when I speak to Amendment 15 no one would think there is anything party-political about it.

I will give one illustration from the press in the last six or nine months, to show why there is a need for a minimum of clarification on this question. We all get round-robin emails from organisations: we agree with some and disagree with others. This is one about a breakfast discussion to be held on Wednesday 15 October 2014, arranged by a Eurosceptic organisation concerned with EU regulatory issues called the CSFI; someone will probably know what this stands for. It said that the CSFI was,

“now accepting online donations via the Charities Aid Foundation (CAF). This is the most cost-effective way for the Centre to collect one-off donations online, which can also be GiftAided. To support the Centre, please click here”.

That clearly establishes that this is an all-singing and all-dancing registered charity as I understand it, or else it could not enjoy the benefits of the gift aid scheme. The first sentence by the director, Mr Andrew Hilton, states:

“As I am writing this, the Commission’s new gauleiter”—

being the European Commission—

“Mr. Juncker, is busy trimming the edges of the various portfolios he has offered individual Commissioners”.

Noble Lords who speak some German will know that, until 1933, “gauleiter” was a pretty everyday word, with “gau” meaning “area” and “leiter” meaning “leader”. But since 1933, no one would think that “gauleiter” was without very strong connotations and, I would say, strong political connotations. On the basis of what I have come across, this should be viewed by the Charity Commission as being out of bounds because it is political.

The Minister has a very sharp brain, so my question to him is this: does he acknowledge that there is an issue here? How should the commission go about its business if an organisation which can get gift aid refers to the President of the European Commission as the new gauleiter, while in other areas it says, “You cannot get Charity Commission registration because you are political”? That is my question.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, the noble Baroness and some other noble Lords know that I have been asked by the Government to review the operation of Part 2 of the transparency of lobbying Act, which is the part referred to by the noble Baroness in her amendment and is about third-party campaigning. I am doing so on a strictly non party-political basis and the review is going to be evidence-based, as was my review of the Charities Act. I have been working hard to make sure that as much evidence as possible from right across the political spectrum is gathered in. I have been to all the devolved Administrations and have ensured, with the team at the Cabinet Office which is helping me—it is a terrific team whose members are working hard, so I shall place that on the record now—that every candidate in the general election has received a questionnaire, that every returning officer has received one, and that we had a question for the public on our website which we publicised as far as we could through bodies like the NCVO and the CBI.

We now have an outstanding call for evidence that is more detailed in its questioning and will run until the end of July. Moreover, I have had a great many face-to-face meetings with people from all parts of the political spectrum and our commercial life. I have to tried to ensure that, as far as possible, all the leading interested parties in this area have had a chance to put their point of view and have it recorded. We have tried to do a lot of the meetings on the basis of Chatham House rules so that people can speak frankly. We say, “Tell us what you really feel and later on, when we make a call for evidence, we shall want you to go public and on the record”. However, in order to amplify and get the colour and context of these things, at this first stage we will treat their remarks in confidence.

The report is due by the end of the year, subject to the figures on actual spending that we need from the Electoral Commission. The commission’s second set of returns is due around the middle of November, so we will be a bit pushed, but I hope that we can do it. As I say, my report will be evidence based. So however my noble friend is going to answer this debate now, I say to the noble Baroness, the noble Lord, Lord Lea, and anyone else in the Committee—indeed, everyone in the House—that if they have information they think would be helpful and should be consulted on and included in the review, please get in touch. Firm factual evidence is a good basis for making recommendations, while rumour and myth are a bad one, and I am anxious to ensure that we get down to a hard evidence base. Obviously people can then debate the conclusions that can be drawn from it.

I shall not comment on the noble Baroness’s amendment this afternoon; I am not going to run before my horse to market. I want to collect the evidence, I am sure that Members of your Lordships’ House have a great deal of it, and I hope that they will ensure that I get it.

--- Later in debate ---

I am very well aware that these are controversial suggestions. I put them forward as a means of starting a discussion and as a consideration for the total review of funding that I am suggesting. I am also putting them forward in the interests of enabling the Charity Commission better to do the whole of its job, which will in turn benefit the whole charitable sector. Most importantly, it will benefit those who profit from and are the subjects of the excellent work of this sector, which is dear to my heart and, I know, to the hearts of all noble Lords. I beg to move.

[Lord Hodgson of Astley Abbotts]

My Lords, the Committee owes a debt of gratitude to the noble Baroness for giving us a chance to canter over this ground. As she says, this is controversial stuff but it is certainly worth the sort of creative thinking that she has just outlined.

There are a couple of public policy issues. The first is whether it is an issue for actual fundraising—a way to give more resources to the Charity Commission—but there are those charities for which you might have a second public policy idea; that is, if you made people pay they would behave better. You could use various policies to drive up standards of governance within charities. Some charities say, “What you don’t pay for, you don’t value”. Of course, as we know, a charity number is an exceptionally valuable thing to receive in the sense that it enables you to get local authority or central government funding or makes it possible for you to apply to grant-giving foundations that almost certainly will not even entertain an application from you unless you have a charity number. So there is the argument about how one might use an aspect of this issue to improve governance.

The challenge, of course, is how you levy it. We heard earlier today from the Minister that there were 7,192 new charities last year. Noble Lords can do the arithmetic, whether it is £10, £100 or £250. But unless it is going to be north of £100 for your initial registration you are not going to raise a significant sum of money. People will say that £100 is a great deal of money—maybe. Equally, you might say that if a charity starting out does not have £100 spare, its financial viability is a bit doubtful.

There is an argument about initial registration. I am less keen on things such as fines for late returns of stuff to the commission. If small charities do not do it, the problem of finding them and getting the money means that the administrative costs for the Charity Commission will almost certainly outweigh any money that is received. My particular issue, which came up in the evidence, was that if you set up a trust and you use a standard commissioning trust document, which is available on the website, that is fair enough; but if you want an all-singing, all-dancing trust deed because you are a wealthy bloke or a wealthy lady and you want a very specialised trust to reflect your own wishes, and you are going to send it down to Taunton to the Charity Commission to bless and it spends two or three days blessing it, I do not see why that should be paid for by the taxpayer. If you want your own special trust deed, that is fine—you are entitled to it—but there ought to be a cost-recovery basis for the Charity Commission to be able to get that paid back. That has a degree of fairness and equity that would be attractive and would raise a decent sum of money.

When I paid my visit to Taunton and talked to the people there, they said, “Well, you know, I get this telephone call from a law firm and they ask me a series of questions. I am virtually certain that they are writing down my words, putting it on their letterhead and sending it off to the client with a fee note attached”. There are issues there that need to be explored as part of the exercise that the noble Baroness was talking about. There is no reason why the taxpayer should subsidise the activities of law firms, however eminent and brilliant they may be.

My view is that in the end we shall move inexorably towards a hybrid funding model, under which the state will pay a basic amount for what one might say are the “must-have” tasks and the sector will pay for the “nice-to-have” tasks, such as help desks and the types of things to which the noble Baroness referred. If you talk to charities, there is a list of things that they think it would be helpful for the commission to provide. There might be a bit of argument about what is a “must have” and what is a “nice-to-have” but over time that could be sorted out by discussion and intellectual heavy lifting. The sector needs to show the way and that is a much better way for the sector to take charge and come up with some proposals.

That of course takes me to my last and most important point; namely, the attitude of the Treasury. It is no good my noble friend on the Front Bench thinking that this will happen, unless there is an absolutely cast-iron guarantee that the Treasury will keep its hands off it. If you raise a couple of million pounds or £3 million from the sector and the Treasury says, “That’s a brilliant idea. We will have £3 million off the grant”, the sector will be absolutely furious. How we get to the situation where the sector in good faith enters into a funding arrangement to help develop its own future and to have the right regulatory structure in which we all have trust and confidence, and how we get that level of commitment about which the sector can be assured—not just this year or next year but over time—is a very difficult issue, to which I am not sure that we have yet found the answer. For the sector to move forward with confidence and to think of new, creative ideas of the sort mentioned by the noble Baroness in her opening remarks, it will require us to find a way to unlock that problem.

[Baroness Barker]

My Lords, I too thank the noble Baroness, Lady Pitkeathley. The funding of the Charity Commission is a subject which anyone who has met its current chair for longer than about five minutes will have had raised. It is quite a complex issue. One of the most interesting points to arise from the investigation into the Cup Trust was the extent to which the Charity Commission was not, at that stage, aware of the cost of its own operation. At a time when every charity in the land has ruthlessly to look at the cost of its operation, it is only fair that the commission should do so, too.

I want to make three points. Clearly, the matter will not be resolved today but it is a useful contribution to the debate. First, the exercise of the commission’s powers is not in any way related to the number of charities which it has to regulate. In fact, it is rather disproportionate: a very small number of charities cause the most costs to the Charity Commission. Increasingly because of digitisation, most charities are dealt with in a low-cost and volume operation—there are just a few which are bigger.

Secondly, the noble Baroness, Lady Pitkeathley, was quite right when she said that it is the commission’s advice that is most valued. That is an area of work for which it receives no revenue at all. It is rather strange that this country has the most advanced charity legislation and regulation in the world, so much so that one would think we might be able to export it around the world to generate income. If I were setting up a charitable foundation in Russia, I would not want to register it there; I would want to do it here. Much as the previous Government set up an international commercial court in London, might the Charity Commission at some point look towards increasing its income by internationalising and commoditising what it does?

Finally, until the Charity Commission is willing to look to other regulators, such as the FCA, and to appreciate that it has common interests with them and to be less isolated in the way it pursues its function, it will inevitably always be running back to government asking for funding. As the commission has seen in the last few years, government funding is finite. The noble Baroness, Lady Pitkeathley, has raised some really interesting questions which the sector needs to think about but which the commission needs to start thinking about much more creatively than it has done before.

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Social Enterprise UK has expressed concern that the clause as written would catch within it investments that the charity may make which are not social investments and that they would end up having to report to different types of investments together, when that may not be appropriate. It is entirely appropriate to report on one’s financial investments purely in terms of the amount of interest or return on investment. Social investment may be different and, as we know, may involve the charity making a loss, at least in the first stages of its investment. That is why we have tabled Amendments 16 and 18, which enable a social investment to be defined as an act where the purpose is not only directly to further the charity’s purpose. That may be primarily what it is about and there may well be an intention to achieve a financial return, but there could be an interplay between those two. This is in the nature of an amendment in Committee trying to probe exactly what we mean by the new definition of social investment. I beg to move.

[Lord Hodgson of Astley Abbotts]

My Lords, I have three amendments in the group, Amendments 18A, 18B and 20A, which follow the noble Baroness down the rabbit hole of definition. However, I have to say that the advice I am getting—I am not going to pretend that I drafted these amendments—is that the Bill as drafted does not do what it says on the tin. I should like to take a minute to explain why that is the case and why the Government should be considering amendments along the lines of these three. I am supported in this by members of the Charity Law Association.

Perhaps I may back up for a moment. We spent quite a lot of time in my review on social investment, which obviously presents tremendous opportunities if we can set it up right and make it work effectively. As I said at Second Reading, that is not just in terms of this country. We in the UK have done so much heavy lifting that we are in a world-leading position in this new area. We heard from my noble friend on the Front Bench at Second Reading that the Law Commission carried out a consultation on these and various other proposals to remove unnecessary impediments to the growth of social investment. That consultation ended in July 2014 and the commission’s final report underpins much of what lies in Clause 13. I do not doubt for a moment the Government’s good intentions regarding social investment, but there is a view held by specialists in this area that the current drafting of the clause—specifically, proposed new Section 292A—does not capture the results of the Law Commission’s consultation, which the Government have accepted and which I think this Bill was supposed to implement. It is worth quoting from the summary of its conclusions at paragraphs 6 to 8 of the report:

“6. We recommend that a new statutory power should be created, conferring on charity trustees the power to make social investments, so as to put the law beyond doubt.

“7. A social investment is any use of funds from which charity trustees seek both:

(1) to further one or more of their charity’s objects; and

(2) a financial return, which might include (i) income, (ii) capital growth, (iii) full or partial repayment, or (iv) avoiding incurring financial liability at a future date.

“8. We recommend that the new power should apply unless it has been expressly excluded or modified by the charity’s governing document”.

The consultation paper produced by the Law Commission contains a splendidly clear diagram of how this works and sheds light on what is a pretty technical area. At one end are the grants where the money is given and at the other end is investment where there is a financial return. But in between, close to a grant, there are what is known in the trade as programme-related investments, which support the charitable objectives of the charity but do not expect a financial return. As you inch towards financial investments by moving across the spectrum, you reach something known as mixed-motive investment, a title that I find quite appalling because a mixed motive sounds like an ulterior motive. I wanted to change it to “mixed-purpose investment”, but that was altogether a bridge too far and we are still stuck with the terrible title of mixed-motive investment. Never mind; we can leave that for another day.

There is concern among charity lawyers that the Bill permits programme-related investments but does not give an adequate statutory power to mixed-motive investment, which I like to call mixed-purpose investment. That is because of the general drafting, particularly the use of the word “directly”, of subsection (2)(a) of Section 292A to be inserted in the Charities Act 2011 under Clause 13. Charities may not always act directly to further their charitable purposes. They may do so through a third party, which may not be exclusively charitable.

I have received examples of how this might work. First, a diabetes charity seeks to invest in a company developing foods calculated to reduce the impact of diabetes on sufferers but which are available to the general public. The investment will achieve some mission benefit for the diabetes charity but the fact that the foods will be available more widely means that not all the activities of the investee will advance the objects of the charity because there is a commercial element. The object therefore will be advanced only in part, which is why we need to get the words “in part” in the rephrasing.

Secondly, a charity that has purposes to relieve unemployment wants to invest in a social firm in the construction industry that employs ex-offenders at risk of unemployment. Once employed, the individuals employed by the social firm are not charitable beneficiaries because they are employed. The investment by the charity and the social firm may in part relieve unemployment but it also, in part, advances other purposes and benefits individuals who are employed by the social firm.

The worry is that almost any situation in which a charity is investing in a non-charitable social enterprise—picking up the point made by the noble Baroness—such as co-operatives, community benefit societies or community interest companies, will likely involve mixed-motive investment and will likely advance the objects of the charity in part and not exclusively. Without adequate clarification of the power, the Government risk introducing a statutory power which fails to achieve the clarity and confirmation that they seek.

Quite simply, Amendment 16A deletes the phrase,

“directly furthering the charity’s purposes”,

and replaces it with,

“furthering one or more of the charity’s purposes in whole or in part”.

The examples that I have just given underline that. Amendment 18B would insert a new subsection at the end of what will become subsection (7). It would state:

“A relevant act of a charity may be carried out with a view to furthering one or more of the charity’s purposes in whole or in part for the purposes of this section even where the relevant act may not exclusively further one or more of the charity’s purposes”.

Finally, Amendment 20A would make an amendment to new Section 292C, to which we will come later, headed “Charity trustees’ duties in relation to social investments”. At the end of subsection (2) it would insert,

“having had regard to the degree to which the relevant act is expected to further one or more of the charity’s purposes in whole or in part, and the expected financial return”.

That is all quite complicated, technical and difficult but it has important consequences. However, the charity law sector is concerned that we need to bottom this out. I am sure that the Government accept that, and I certainly believe that we want to put the ability of trustees to make mixed-purpose, mixed-motive investments beyond statutory doubt. I am sure that my noble friend will not be able answer all this today but I hope that he can take on board the concern about the technical details. I think that they have been raised elsewhere with the Treasury and so on, and it may be that we will need to have a discussion about it. I hope he can see what the sector is driving at. The sector is merely wishing to ensure that what the Government want to achieve can properly be achieved by the Bill. Currently, it does not think that the drafting achieves that.

[Lord Wallace of Saltaire]

My Lords, I agree with much of what the noble Lord has said. Perhaps I may remind him that when I first went to a tutorial with him on charity law history, he said that part of the glory of charity law was that so many definitions were left loose.

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[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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[Lord Hodgson of Astley Abbotts]

Probably not but I am grateful to the noble Lord for giving way. He is making a case for using charitable status for social engineering—fair enough, that is a perfectly good argument—but that is not what we are discussing in the Bill. Social engineering is a different issue. I have heard his callings and those of Members on the other side of the Committee on other occasions. There is nothing wrong with that but it is not what we are driving at on this occasion. We are talking about how to make charities more effective and how to widen the pool of money that is available for social investment.

[Lord Lea of Crondall]

Yes, I know the speech. I have great regard for the noble Lord, Lord Hodgson, but my truth is much more truthful than his truth, which is that charities are about socioeconomic distribution towards the regressive. If you put my caricature up against his caricature, the jury will ultimately decide. At the moment, I beg leave to withdraw the amendment.

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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 Hodgson of Astley Abbotts]

Does the noble Lord accept that charity trustees now understand that if they are making financial investments they must get advice? Do we need to write into the Bill that charity trustees ought to get appropriate advice before making financial investments? It is understood that they must do that—everyone understands that. All that is happening here is that social investment will have exactly the same requirements. At the moment, everyone understands that if you are going to make financial investments you will take advice. You will now take advice over social investments too. It does not need special categorisation. If it were categorised especially, people would start to say, “That is more difficult. We should not do it”.

[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.