Charities Bill [HL]

Debate between Baroness Barker and Lord Hodgson of Astley Abbotts

Thursday 18th November 2021 Other Business

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, since I am not a Member of the Committee, I hope noble Lords will forgive me if I say a few words about why I have taken a particular interest in this sector and this piece of legislation. This comes about because, as long ago as 2005, I was the Conservative Party’s Front-Bench spokesman on what became the Charities Act 2006, which is now the Charities Act 2011. My party was then in opposition, so I was the shadow spokesman and the government Minister on the Bill was the noble Lord, Lord Bassam of Brighton, well known to all of us and a familiar Member of this House.

The 2006 Act represented the biggest shake-up of charity law since 1601. It was a very substantial change and, while it was generally agreed across the House that the sector needed a shake-up, there was a concern about the unintended consequences that might flow from such a big change. We therefore wrote into the Bill, again by consent and with the agreement of the then Labour Government, the need for a five-year review, which I was asked to undertake in 2011. That is really the basis of my interest. This Bill in large measure flows from the work that was done in 2011, which was reported on, looked at and then enhanced and improved by the Law Commission and forms the basis of what we are discussing and approving today.

I want to place on record my thanks for the help I received from what was then the team in the Cabinet Office, now DCMS, led by Ben Harrison who is here today. It was a terrific effort and they were exceptionally helpful. I want to make that very clear.

It is a humbling experience to spend a year looking at the charity sector, because you see what relatively small groups of men and women, with relatively few assets—money, plant, equipment or buildings—do at the local level to improve their communities and make the lives of their fellow citizens better. I therefore felt that there were three things we ought to try to achieve. First, we wanted to have lines of authority and responsibility that were as clear as possible, from the commission and within the 170,000 registered charities. Secondly, because many of those charities are pretty small, we wanted to be deregulatory, as far as possible. It was important, in my view, that people should spend their time on public benefit and not on filling in forms. That is the origin of the phrase that I have heard being used in evidence sessions in Committee of “getting the barnacles off the boat”. Thirdly, overarching this was the need to maintain public trust and confidence in the sector, without which all is lost.

I am sorry for taking a minute or two. I do not want the Committee to think that I am whingeing about the Bill. It is an excellent Bill and I support it very thoroughly. I have a certain avuncular interest in its success, but there are some improvements that we could make and to these I now turn.

When you are known to have undertaken a review of a sector like the charity sector and a piece of charity legislation comes along, you are fair game for a bit of lobbying. Everyone tips up and says, “Have you thought about this? Have you thought about that?” I suppose between 15 and 20 groups came to me about various points in the run-up to Second Reading. I said to them, “That’s absolutely fine, but I’m carrying a spear at the back of the stage on this now. I no longer have any influence on this at all. I’m just a normal Back-Bencher. You need to talk to the Bill team.” My noble friend Lord Parkinson’s predecessor, my noble friend Lady Barran, very kindly arranged for us to meet the Bill team, talk about it and give their details, so I said to each of the people who approached me, “Go to the Bill team and, if you don’t have any satisfaction, then of course come back to me. I’ll be pleased to try to see whether we can get clarity and/or satisfaction.”

Of the bodies that came to approach me only one came back, and this is the subject of these amendments. It was brought to my attention by solicitors acting for the Spilsby Grammar School Foundation, which is a registered charity but an unincorporated association—quite a rare form, but nevertheless one that does still exist. The foundation was created in 1994 to administer the property and funds connected with King Edward VI Grammar School in Spilsby in Lincolnshire. It is a grant-making charity and is not connected with its successor school, the King Edward VI Academy.

The charity is governed by a scheme put in place when it was set up in 1994, and its provisions are now very out of date. Individuals named are no longer alive. Property specifically referred to in it is constitution is no longer owned. Organisations have changed their names and the charity wishes to update its constitution. The trustees were very surprised when, earlier this year, the Charity Commission stated that it was not possible for a charity governed by a scheme—that is to say an unincorporated association—to replace that scheme by a constitution. The Charity Commission said, “A scheme is a narrative of the charity at the moment in time when it was made.” It further said that a schedule detailing the property, all of which was sold prior to 2009, does not require removal from the governing documents. This does not seem a very sensible way of proceeding. The solicitors to the trust said that they were aware of a handful of other foundations in a similar position.

To make it clear, nobody, certainly not I, is suggesting that the trustees of the Spilsby foundation should be free to make whatever changes they feel necessary without the appropriate permission from the Charity Commission. What do I mean by “appropriate”? It depends on precisely the level of importance of the changes you are making, in particular when they are to what are called protected clauses, which are the essence of the rationale and purpose of the individual charity. Clearly, where you are going to change major items of the constitution affecting its purpose, then you will need a higher level of permission.

Amendment 2 deals with a situation where you are dealing with issues that are merely changes of wording: they make no change to the underlying purpose of the charity but just change the wording. What might I mean by this? For example, a lot of charities have words such as “servicemen” in them. We do not have just servicemen anymore; we now have service men and women, so we need to change that to “service personnel”. In many charities, for example, what we would now describe as being disabled is described as “invalid”, which as a term has become slightly pejorative. So you are making changes to bring the document up to date with modern parlance. That is Amendment 2.

But Amendment 1 is where we deal with the wholesale replacement, which, according to the commission’s email on 21 January, is not currently permissible. This is to keep the protected clauses up to date and, obviously, can be done only with the full consent of the Charity Commission.

So when my noble friend the Minister comes to reply, there are three things I think he might say. One is that the Charity Commission was wrong in its interpretation, when it wrecks the Spilsby Grammar School Foundation, and there are ways in which it can update its constitution. The second is that the Government recognise that there is a problem and will take it on board and bring forward some suggested amendments at the next stage of the Bill’s proceedings. I hope that he will say one of those two things. The third thing he might say is that this is all too difficult and the boat has sailed so we must wait until it comes along next time and, in the meantime, Spilsby will have to work with the presently rather unsatisfactory situation. I hope that he will not say that but, with that, I beg to move.

[Baroness Barker (LD)]

My Lords, it has been a real privilege to be part of the Committee for this Bill and, in particular, to have been part of the special evidence sessions that we had, because this is a Law Commission Bill. As the noble Lord, Lord Hodgson, has just demonstrated, this is fiercely technical, arcane law governing very rare situations.

In the original proposals that were put forward, the Law Commission explained that in its recommendations it was trying to take several hundred years of charities’ existence in different forms and formats and try to bring some of the law that applies to charities of different formats—particularly unincorporated charities, as differentiated from incorporated charities; charities can be incorporated in a number of different forms—to try to bring the process of amending governing documents much more into line, so that a trustee in any charity would have a clearer idea of how they could go about amending their charity’s governing document. The Law Commission had to go back through all sorts of different statutes that have led us to the point where we are now in charity law. It readily admitted that, if you were going to invent a way of doing this in future, you would not start from where it had to start.

The Law Commission put in place what it saw as a new way of enabling charities to amend their governing documents. Part of our job today is to try to explain that to people who are not steeped in all the detail of it. What we are talking about, by and large, is charities not changing the purpose for which they exist but changing the ways in which they achieve that purpose. In the case that the noble Lord, Lord Hodgson, set out, he is right that, when a major change concerns the disposal of property, that is a very significant change. Our evidence from the Law Commission said that there is a particular problem in cases such as the one cited by the noble Lord where there may not be a dissolution clause in a very old constitution. Therefore, in order to achieve some kind of disposal of property, it is not possible for the charity simply to dispose of that property and merge with another charity. However, the Law Commission says that it is, and that what it has come up with is a simplified way of doing this. Some charity lawyers disagree with the way in which the Charity Commission has gone about seeking to do that; this is the issue that the noble Lord, Lord Hodgson, has alighted upon.

Dormant Assets Bill [HL]

Debate between Baroness Barker and Lord Hodgson of Astley Abbotts

Committee stage
Monday 21st June 2021 Grand Committee

[Baroness Barker (LD)]

My Lords, following our Second Reading, I went away and reflected on the way in which the Bill has been received and debated in your Lordships’ House. It would be fair to say that noble Lords as a whole wish to be supportive of the Government in what they are trying to do in the Bill. However, from a number of different perspectives, we all have questions about the effectiveness and efficiency of this method of doing things.

In particular, I tabled my Amendment 63 to make the point that nowhere in this Bill, or in its predecessor, is there an explicit statement about what these assets are supposed to be used to achieve. If we do not know what the objectives are, it is difficult to measure either the effectiveness or the efficiency with which the vehicle that has been constructed is doing that. It therefore seems that we as a House have an obligation to look at the reporting mechanisms that already exist. There are many of them in different places. They are all bits and pieces that you have to go and look at in, for example, the National Lottery Community Fund reports or the Reclaim Fund Ltd reports. Much of the detail of income and expenditure is in those reports, but there is very little in any of them on what has happened in terms of the impact.

My understanding is that the fund exists to use dormant assets not just because they happen to be there but for specific purposes of financial inclusion and developing financial literacy, particularly within poorer communities. That is what I really want us to try to have. When the Minister introduced the Bill at Second Reading, I was very struck when she said to us that the main impetus behind it coming to us was from the financial services industry, which wishes to see more dormant assets being used. That is fine—I absolutely agree with that—but to what end, and is the expenditure on this being done properly?

Noble Lords have to understand that the charitable sector is in a seriously bad way. A year ago, the Government asked the charitable sector what it thought the impact of Covid would be. In the initial lockdown, it thought that it would lose £4 billion. We have been through three lockdowns since that one. The government funds released to the sector in response to that figure of £4 billion were £750 million, of which £150 million came from bringing forward some of the dormant assets referred to in the Bill. The whole of the charitable sector is going to experience severe problems. It is every part of it, from Cancer Research UK already having to delay some of its projected work for the next five years through to the small neighbourhood organisations.

It is therefore extremely important that these assets be used for the express purpose for which they have been given and used as effectively as possible. We must also be able to work out from all the reporting that we do get to see that the principle of additionality is being adhered to: that these are funds for a specific reason, and that they are largely treated as one-off and not as ongoing revenue, particularly when government comes to talk about its overall response to the charitable sector.

My amendment was in part a nod to the Public Accounts Committee’s report of 9 June, in which it came up with its analysis of the Government’s response to the charitable sector and Covid. I understand that that report relates not just to the £150 million of dormant assets funding but to the £750 million. Nevertheless, the PAC raised significant questions in it, not least about the National Lottery Community Fund being able to provide sufficient data about what is happening with the distribution of some of its funds to poorer communities. Similarly, the report raised questions with the Charity Commission and the Government about the ongoing viability of charities, which are sometimes involved in quite essential charitable work.

For all those reasons, I came up with my amendment. I am agnostic on the length of time to be taken. I do not think that, for a programme of this kind, it is worth doing reports of anything under three years, because I do not think that you can generate significant data in fewer than three years, but we should have reports that are something more than a succession of different sets of accounts and annual statements for the different bodies responsible for the collection or the distribution of money, and we should look at whether this will continue to be the best way to deal with this issue. That is my amendment.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, the noble Baroness, Lady Barker, made a very important point about impact. I will come back to it in a moment in my remarks.

In the first instance, we heard from the noble Lord, Lord Bassam of Brighton, and the noble and learned Lord, Lord Etherton, about the timing of reviews to look at whether the structure is working effectively now and will work effectively at some date in the future. I want to probe the Minister a little further about the situation now and the current operation of the system. Specifically, I want to ask her whether the Government think that the existing powers to investigate, measure and check are sufficient.

As I understand it—I stand to be corrected—under the present system, money from the fund is passed to recipient bodies or recipient groups by what are called distributors, which have clear responsibilities to decide which bodies are worthy of funding and should get the money, and, after the funds have been passed over, to ensure that the proceeds are spent properly, effectively and in accordance with the way envisaged at the time of the grant. Again, as I understand it, there are currently four distributors: Big Society Capital, Access, Fair4All Finance and the Youth Futures Foundation.

The work of these four distributors is overseen by the Oversight Trust, which has no power to determine where the money goes but is charged with ensuring that the distributors have effective procedures in place to ensure good governance and proper performance of their duties. Clearly, the Oversight Trust has a very important role to play in maintaining public trust and confidence in the dormant assets scheme.

Can my noble friend enlighten me on three points? First, can a new distributor be appointed or dis-appointed? Who decides that and initiates it? If a decision is made to go ahead, what powers, if any, does the Oversight Trust, which is responsible for monitoring that body, have in making that final decision? That is my first question: can we remove or add distributors? How do we do it? What role does the Oversight Trust have in that process?

Secondly, and more generally, are the Government satisfied that the Oversight Trust has the powers necessary to fulfil this important role? For example, are distributors required or obliged to collaborate and co-operate with the Oversight Trust to ensure that it performs its duties effectively?

Thirdly—this point was made by the noble Baroness, Lady Barker—what role, if any, does the Oversight Trust have in measuring the impact of what the distributors are doing? Do we look in any way at whether the distribution policy being followed by one of the four groups now in power to do this makes sense for our society, or are they free as a bird? It would be helpful if the Minister could say a little about that.

Finally, it must be of importance, as we begin to see the expansion of the whole scheme—I think every Member of your Lordships’ House thinks that it is a good idea in principle; I certainly do—to ensure that the governance structure is adequate for the increased responsibilities that will be placed on it. I hope that my noble friend the Minister will be able to reassure me on these points when she replies to the debate.