Charity Commission

Lord Phillips of Sudbury Excerpts

Thursday 27th February 2014 Grand Committee

[Lord Phillips of Sudbury (LD)]

My Lords, I thank my noble friend Lady Barker for this debate. It is sad that it is so short. The issues that it seeks to cover are immense and deep, so I am going to have to be as selective as everyone else. I declare my interests, which are in the register: I have been a charity lawyer for 40 years, and I suppose I have had as many dealings with the Charity Commission in that time as anyone alive. I want to come to their aid, though it has many shortcomings. I have one point, which I know is a dangerous one to make but it is at the root of those shortcomings, of which I have been the victim over the years: it is grossly under-resourced.

The noble Lord, Lord Hodgson, made that point, as did the NAO. It is fruitless for any of us to go on saying, “They must do this better,” “They must do that better,” “There must be better inquiries, more inquiries, more of this and more of that”. In its report, the NAO says that in the past six years the commission’s income has declined by 40% in real terms. None the less—like everyone else—it makes a list of recommendations, more than half of which require greater resources of men and women. The lawyers in the Charity Commission oversee more than 330,000 charities. Half of those are registered, but more than half are below the levels for registration. They all have to be registered. They are ruled, governed and led by volunteers. I hope I do not misconstrue what the noble Lord, Lord Borwick, said, but the charity sector is essentially and at its heart a volunteer movement. That is its ethos. That is why altruism is still the central legal purpose of charity. You cannot conceivably do what it is asked to do.

As I was saying, the NAO made a huge number of recommendations, over half of which need extra resources. The legal department, where I was, has only 10 to 12 lawyers. My firm, one firm of solicitors, has over 10 to 12 charity lawyers. What sort of farce is that? They do their best and on the whole they are jolly good, but they are pathetically underpaid. Any good lawyer can go out of the Charity Commission any day of any week and get paid two to five times more than they are paid at the commission. How can we ensure that it can therefore recruit the people that it needs, let alone extra people, to do the job, which—I could not agree more—is so important?

I end by emphasising how important all this is, and that the funds that I am talking about—the actual resources—are but a drop in the bucket compared with what the voluntary and charity sector does. Frankly, without the charity sector, this country would be in a profound mess; it is in enough of a mess. We live now according to money, sex and celebrity. The charity sector is wonderful counterbalance to the phenomenal materialism that engulfs us now, with 1 million unpaid trustees. Think of that: over half the adult population giving of their time willingly and lovingly in a country that is parched of those characteristics. I therefore, like my noble friend Lady Barker, do not emphasise the shortcomings of the commission. Of course it has them—I could give your Lordships 10 things that it could do. However, it must have more support and help. Without those, it is a load of hot air.

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[Lord Wallace of Saltaire (LD)]

My Lords, I welcome this debate. Given how important the charities sector is for the country, holding regular debates on aspects of charities law and charities regulation seems to be one role that the second Chamber might usefully consider as particularly valuable for itself. These are immensely complex issues, as we all know. We have inherited charities law as developed over the past 400 years, and it continues to adapt. I have spent some time looking at public benefit issues and think I am persuaded that if we were to define “public benefit” now, in statute form, we would find ourselves having even more legal cases about the edges of public benefit. I am therefore persuaded that allowing it to evolve through case law is very important, in particular, for those elements of charities which are concerned with religion. For the first 300 years of charities law, it was almost entirely concerned with charities associated with the Church of England or, after some time, with a number of non-conformist churches. That eventually included a small number of Jewish charities and, as we all know, it now extends over a much wider area, in which the questions of what religion and belief are have come to be very much part of where we all are.

I will take on the question of the Preston Down Trust case, which went before the tribunal. One of the things I think I have learnt is that using the charities tribunal, which was intended to save money and time, has now become a very expensive legal activity. It was felt more useful therefore to negotiate. We have negotiated an agreement which will be reviewed after a year and we will see where we are then. The noble Baroness is well aware of the intensive lobbying that there was on both sides, including by a number of MPs from within her own party—not always, I think, necessarily wisely. However, this is now in train, it will be continued, and a review will take place.

To come back to where my noble friend Lady Barker started, this is an important sector which has a gross income of £61 billion, although I suspect that contains a certain amount of double counting because some charities give money to other charities. It includes more than 160,000 different charities, although 1,000 are the most important and account for the largest amount of spending. As the noble Lord, Lord Borwick, said, the sector has become much more professional, and in certain ways some of the larger charities have become a good deal more ruthless, which is part of what I discovered in the extensive consultation I had with large charities over the transparency of lobbying Bill. It is a much more professional sector than it was. Reading through the evidence given to the PAC and others shows that the Charity Commission has been going through a change of culture from one in which you automatically assume that almost everyone in this sector is full of good will and altruism and that the role of the Charity Commission is to be helpful and offer advice, to one in which we recognise that a small number of charities, whether small or large, test the limits or are involved in actual fraud, and that the Charity Commission has therefore got to be a less trusting regulator. Questions have been raised by a number of noble Lords about whether it can do that and whether its resources are too small. Reading through the various reports and the evidence given, it is quite clear to me that if the new Charity Commission board and chief executive can make a strong and positive case for additional resources, the Government will look at it very carefully. Whether some element of charging for larger charities becomes part of that larger package may be for a further debate on another occasion, but we recognise that resources are now extremely stretched and that the clear regulation we need requires to be strengthened.

Digital transition is an important part of this, as the noble Baroness said. The Government have provided a further £500,000 of capital spending to the Charity Commission to assist in moving towards an easier digital openness strategy. As a trustee of a couple of musical education charities, I agree strongly with the noble Baroness that simple provision in digital form of accounts, declaration of public benefit and all the things that one needs to do, as well as advice to trustees, is exactly what one needs. When I went around the Charity Commission’s website last week looking for a simple definition of public benefit, it was not as easy to find as I had hoped and expected, so there are improvements to be made.

[Lord Phillips of Sudbury]

I reassure the Minister that he has not been deficient in his trawl of the website: it is just that there is no simple definition of public benefit. It is intrinsically complex.

[Lord Wallace of Saltaire]

That is one of the reasons why charity lawyers can make such a good living.

The Cup Trust, into which I have looked in detail, was raised. As has been said, clearly that was fundamentally a tax avoidance scheme. The Charity Commission decided that it could not take up the case. I am assured that HMRC has not paid out any money on the tax avoidance scheme. It issued guidance about such schemes at an early stage in the process and is now resisting paying the gift aid refunds that the scheme was set up to gain.

On the transparency of lobbying Act, I disagree with the noble Lord, Lord Borwick, on a number of issues, but I also disagree with the noble Baroness, Lady Hayter. I have learned a great deal about the shift in a number of big charities towards campaigning, but campaigning has always been part of what charities have done. One of the most impressive discussions I had was with the dementia trust, which has managed by campaigning to raise public awareness of the importance of the issue—to raise the quality of understanding of an extremely important public issue. That is entirely legitimate and desirable in the public debate. The idea that charities should not have a campaigning dimension is something that I hope we all accept is not appropriate. Let me reassure the right reverend Prelate that the Act in no way affects hustings in the run-up to the 2015 election. A great deal of exaggerated concern was put out during the passage of the then Bill about what it might do. If you read CC9—I must have read it 15 times in the last year—it is entirely clear that it is not affected by that Act, and that churches will continue in their extremely valuable role in public education in this respect.

I hope that I have now answered a number of the issues raised. Why not charge charities? The question is out in the open. Needless to say, charities do not respond with much enthusiasm to that suggestion. The Government are looking at the question of how we provide the resources needed for regulation. I have also discussed public benefit. We all have a concept of public benefit. Happily, no one today has mentioned public schools—that is out there as well. Public benefit can be provided in a range of different ways. Case by case, you look at the sort of public benefit being provided, but it has to be public. The noble Baroness will know that, in religious cases, those religious bodies that do not open some of their facilities to a broader public and do not provide wider benefit to a broader public are therefore not accepted as charities.

On the question of executive remuneration, the noble Lord, Lord Borwick, said that he regretted that the new chairman of the Charity Commission had offered some criticism. Charities are in the public sector and in the public view, so they need the respect of their members and people who give money. During the consultation on the transparency of lobbying Bill, I remember being told by representatives of a large charity that it is important that the charity should maintain its reputation because the people who give small sums of money need to know that it has that reputation. That is part of the reason why charities need to be aware of the dangers of becoming overly professional and corporate. Some of our big charities have edged a little far in that direction.

On the question of co-regulation, raised by the noble Lord, Lord Best, the Charity Commission now has a clear partnership strategy and works with a number of partners. Incidentally, we are aware of the question of accepted charities and how to move towards a different situation with them without swamping the Charity Commission.

The question of a charities ombudsman has also been discussed. The Government are not yet convinced that the case has been made. The Charity Commission does its best to respond to queries from charities. Part of the reason why the Charity Commission has been swamped in recent years is because many charities throw a lot of queries for advice at it which get in the way of its compliance activity.

I hope that I have answered most of the points raised. I encourage the noble Baroness and other noble Lords to return to this question regularly. This is a large and important part of our social fabric and economy, and we need to be sure that it continues to command the confidence and respect of the public, politicians, government and financial accountants.