Charities (Protection and Social Investment) Bill [HL]

Baroness Barker Excerpts

Monday 20th July 2015 Lords Chamber

[Baroness Barker (LD)]

My Lords, I made my views about this amendment known in Committee, and they have not changed. I listened very carefully to what the noble Baroness, Lady Deech, said, and she said one thing that made me believe that this amendment is wrong. She said:

“It is just like a company”.

Well, no, it is not. Charities are distinctly different in law, which is why there are different charitable formats. The noble Baroness said that the majority of charities would be incorporated, but that is not so: approximately 50% of the charities in this country are very small and most of them are not even registered with the Charity Commission. The unincorporated association format is there specifically to enable people who wish to come together for charitable purposes to do so to a standard of operating which is regulated by the Charity Commission in most cases. But they are not held to exactly the same standards as an incorporated association.

The noble Baroness and I often come at things from completely opposite sides, and I disagree with her on this. One reason why the unincorporated association is a valuable framework that is worth retaining for charities is that in the sorts of cases that she raised, it is trustees who have done wrong who are personally liable for what has happened, but the purpose and the assets of the charity remain valid. The effect of this would be to obliterate a whole level of charitable activity; the noble Baroness will, in effect, rip the heart out of a lot of community good up and down the land.

One thing I am not sure about, and the one thing that the noble Baroness did not tell us about in her introduction, is the scale of the problem she is seeking to address. If there is evidence that this is a widespread problem, she has a case, but it needs to be made in a different way; there needs to be a thoroughgoing investigation, which would settle for all time whether or not unincorporated associations, in their present form, should continue or not. I would like to see that done in a thorough and considered way and not on the basis of this debate and this amendment.

[Lord Deben (Con)]

My Lords, the noble Baroness has made a very important point. It is conceivable that we should discuss whether these two forms of charity—the incorporated and the unincorporated—might no longer be entirely fitting for the circumstances of the day. We could discuss wholesale reform, but it seems to me that approaching that in a particular and narrow way is not the right way to do it. Law is not best made that way, not least because if you do it in that piecemeal manner, you can end up with something that is much worse than what you started off with. The law of unintended consequences is very powerful in these circumstances.

The second thing I would say to your Lordships is that Britain has a remarkable reputation around the world for charity, as we have often said in debates. But we have to remember that this is not something that has come about recently; it has happened over a very long period of time. It has resulted in, I have to say, a rather untidy system—there is no doubt about that. There are various different ways of looking at this, and sometimes people want to tidy it up. Perhaps one of the system’s strengths is the fact that there are so many different sorts of charities and so many different groups of people doing things in a slightly different way. With the Charity Commission, we have tried to set some reasonable standards and to ensure that there are very clear reference points.

We have tried hard to do that in a way that corrals people as little as possible. New charities often arise because people feel strongly about something that they have a personal relationship with: something happens, somebody they know has been hurt, they are concerned and they say, “I must do something about that”. Personally, I am a huge supporter of that. When one is canvassing, it always seems the worst thing when you bang on a door and someone says, “Somebody ought to do something about that”. My response is always, “Why don’t you do something about it? It is no good talking about somebody else”. Charities often arise because people say, “I want to do something about it”. That is a really important part of it.

My worry here is therefore, secondly, that we are not just approaching a complex business from a particular, narrow direction but also that we are adding yet again to the complications that face people when they want to turn a spontaneous reaction into a more permanent form. Of course, that leads to duplication of charities and I know that there is a real problem there. However, it is a good, healthy and encourageable part of humanity that people want to do something themselves about a matter they feel strongly about. I fear that if we went down this route without thinking very hard about it, we would—as the noble Baroness, Lady Barker, rightly said—put into the small charities some real concerns.

Thirdly, I would have to be much more convinced about the propriety of putting at risk the funds of a charity given for a particular purpose because of the activities of a particular trustee—which would be the result of the amendment. I can imagine amendments that would not produce that response. I can imagine changing the law in a way that might help to solve the problem that the noble Baroness, Lady Deech, put before the House. However, this amendment does not do that and could put a whole lot of other things into serious default.

The noble Baroness, Lady Barker, is right that to bring forward so complex an amendment in a debate of this kind without having some idea of the size of the problem, or the nature of the different parts of it, is not the way to deal with it. If you do not know how big the problem is, you do not know how dangerous it is to make the change. If it is a huge problem, you may want to risk the change, but if the problem is much more limited, you will probably want to say to yourself, “This is better left to a more mature and serious consideration, and there should be a much bigger one about the legal distinctions between incorporation and unincorporation”.

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Moved by

[Baroness Barker]

20: Clause 13, page 16, line 19, leave out “both” and insert “primarily”

[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.

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[Baroness Barker]

I thank the Minister for that answer. I think that we are edging closer to a common position. If my amendments have helped to achieve that, that is worth while. I particularly welcomed the Minister’s statements about my Amendment 22. At this stage, I will curtail this discussion and be delighted to take part in the discussion on the next group of amendments. I beg leave to withdraw the amendment.

Amendment 20 withdrawn.

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[Lord Bridges of Headley]

Moved formally.

[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.

[Baroness Barker]

My Lords, it was very helpful of the noble Lord to give us that explanation of Amendments 26 and 28, which, as he said, were minor and technical, but they set out the geographical differences of certain charities. That was very helpful. I invite the noble Lord to address Amendment 27, which deals with charities established by royal charter. Noble Lords would find that helpful.

[Lord Bridges of Headley]

My Lords, forgive me. I thought that I had addressed that in what I have just said but, clearly, I have not. As far as I understand it, I thought that the amendment as set out relates to what I have just addressed as regards the wording of the specification around the exclusion of charities established by legislation or by royal charter. I thought that I had just explained that to the noble Baroness, but I hope she will forgive me if she wishes to be clearer about the purpose of her amendment. My apologies, I am not entirely clear why we are in this situation.

[Baroness Barker]

My Lords, the noble Lord has made it clear to the House that certain charities established by royal charter are exempt from the provisions of social enterprise. I, for one, am content to leave the matter at this stage.

Amendment 27 agreed.

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Moved by

[Baroness Barker]

34: Clause 14, page 18, line 19, after “donations,” insert—
“( ) the relationship between grant-making and social investment,”

[Baroness Barker]

My Lords, we come to the last group of amendments on the list of groupings, although the noble Baroness, Lady Hayter of Kentish Town, may be somewhat upset if we do not cover Amendments 36 and 37 on the Marshalled List.

Clause 14 deals with reviews of the operation of this Bill. I think the review clause was drafted before the new clauses on social investment were added to the Bill. The original substance of the review was about the main purposes of the original Bill—that is, in Clause 14(1),

“public confidence in charities … the level of charitable donations, and … people’s willingness to volunteer”.

That is entirely right. But there is nothing in the substance of this review about the matters of social investment which we have been discussing.

My Amendment 34 simply asks that in the review of the Act the relationship between grant-making and social investment be reviewed, because if the new powers to make social investment work as the Government envisage they will, my assumption is that there should be an effect on grant-making, which should be reduced. To put it another way, the total amount of income to the charitable sector should change. The composition of the income should change, too, not least in the balance between the amount of grant-making and the amount of investment.

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[Lord Bridges of Headley]

My Lords, I am grateful to the noble Baroness, Lady Barker, for explaining the rationale behind her amendment and to the noble Lord, Lord Watson, for what he just said.

Clause 14 currently makes provision for the operation of the Act to be reviewed by the Minister at least every five years, in line with government policy. We agreed a requirement for the review to include specific consideration of certain matters based on requirements in the statutory review provision of the Charities Act 2006, but that should not be considered as limiting the scope of any review of this legislation.

As noble Lords know, this Bill makes only a modest contribution to the growth of the social investment market, by clarifying charity trustees’ social investment powers and duties. At the moment, charitable foundations hold some £80 billion in assets, of which less than £100 million is invested as social investment. While we certainly hope that more charities will consider the total impact that social investment can deliver, I expect that it will be an incremental growth rather than a sudden swing of the pendulum.

That said, I do not believe that a statutory review requirement to consider a specific aspect of social investment and its interaction with grant-making would achieve much that is not already being done more frequently by many parties, not just the Government, and with much broader scope. I am reluctant to say so, but I do not accept the rationale for Amendment 34.

As the noble Lord, Lord Watson, said, I have sympathy, as I demonstrated in Committee, with several of his arguments for bringing forward the first review from five years to three. I do so not least because of the measures being introduced on social investment, because of the point the noble Baroness, Lady Hayter, made about the disqualification power, and because of the issue of fundraising more generally and ensuring that we continue to maintain the public’s trust and confidence in charities as a whole.

As the noble Lord said, my concern was that if we said the review would have to report within three years, that would be seen as too soon, particularly when one factors in the time it would take to prepare guidance and commence provisions, and for the review itself. That is why I have come back with government Amendment 35 which requires the first review to begin within three years and to report within four years. This strikes me as a sensible compromise which I hope noble Lords will support.

[Baroness Barker]

My Lords, I am disappointed that the significant change to the substance and purpose of the Bill made by the insertion of the new clauses on social investment will not form part of the review of the Act. I do not have a problem with the timing of the review; I welcome the fact that it will be sooner than it would otherwise have been.

I do not understand the Government’s reluctance to subject the new proposals on social investment to the scrutiny which will be applied to the rest of the Bill. Like others in this House, I am keen that we take every opportunity to try to increase social investment. Over the past 20 years, social investment has been very slow, despite the support of successive Governments. Therefore, it is a shame that we pass over an opportunity to look at how this first attempt to put a definition into legislation is working and its impact on the funding of the sector. Reluctantly, I beg leave to withdraw the amendment.

Amendment 34 withdrawn.