Charities (Protection and Social Investment) Bill [HL]

Debate between Lord Scott of Foscote and Lord Bridges of Headley

Tuesday 23rd June 2015 Grand Committee

[Lord Scott of Foscote (CB)]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

--- Later in debate ---

[Lord Scott of Foscote (CB)]

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

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

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

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

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

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

[Lord Bridges of Headley]

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

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

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

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

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

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

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

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

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