Small Charitable Donations Bill

Cathy Jamieson Excerpts

Tuesday 4th September 2012 Commons Chamber

[Miss Smith]

I am aware of that point of view, and if my hon. Friend will allow me, I will deal it and some others. I think he will know that the Bill has been subject to a pilot of a particular type of scrutiny over the summer, so there have been many opportunities to start that kind of discourse, and I look forward to continuing that in this debate.

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

I thank the Minister for mentioning the public reading stage. How many people engaged with that process? It has been brought to my attention that it was quite difficult to find the information, which was tucked away on the Cabinet Office website.

[Miss Smith]

I will be happy to come to that, but if the hon. Lady will allow me, I will make my points in sequence. I am starting to stack up—in a non-polycarbonate way, of course—the points I need to make, so I will set out a few more of the basics first.

The new scheme does not require individual donors to complete a gift aid declaration or the charity or CASC to collect and provide the donor’s details with every payment claim, as is required under gift aid. The aim of the scheme is to complement gift aid, not replace it, and we are keen that charities continue to make full use of gift aid wherever possible.

--- Later in debate ---

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

I am pleased to have the opportunity to speak on an issue that is particularly important for charities and CASCs. I am sure that Ministers well recall the Finance Bill Committee debates, where we heard about the good work being done by charities, local organisations and CASCs across the UK. I have no doubt that the success of the Olympics and Paralympics is leading to more and more people, particularly the young, seeking to be involved at that local level. That will, of course, be welcomed by the clubs and organisations, but it also places additional pressures on them to recruit, to retain volunteers and to expand on their activities, rather than just sustaining what they are doing. I am sure that we will hear a lot about the good work being done in each constituency.

We also know that many charities are feeling the impact of the recession. A number of individuals have told me that they are no longer able to keep up their monthly gift aid donations as they feel the squeeze on their household budgets. Many have reluctantly had to take the decision to cancel their donations or to lower the amount that they give to charity, and a large number of them have told me that they have felt particularly bad about that when they have received a phone call, an e-mail or other correspondence from a charity asking them to reconsider.

I have also heard that small local charities are finding that while donations are less than they would have received in the past, the calls on their services are increasing during these tough economic times. Only last week, I heard from people in my local area about churches being approached to help people who are struggling financially, and that has not happened for many years. So every additional penny and pound that can be added to the funds that charities have raised for themselves will, of course, be very welcome and will be put to very good use.

I recognise that the Bill’s intention is to provide more help to those organisations, which is why the Opposition support the Bill in principle. However, it is our responsibility to examine it closely, and to assess whether it delivers what it promises and where it may need to be improved. That will be the focus of my remarks. I hope that the Minister will accept that this is being done in a constructive way ahead of the Committee stage.

As the Minister said, the Bill introduces the gift aid small donations scheme, which was announced in the 2011 Budget; the Chancellor proposed a new scheme enabling gift aid to be claimed on small donations, up to a total of £5,000 per charity, without the need for donors to fill in a gift aid declaration. That would mean that each charity could claim up to £1,250 per year. As she said, the scheme is similar to gift aid, in that the amount the charity gets is linked to the income tax rate of the donor; it is a gift aid-style top-up payment. As we have heard, the scheme’s purpose is to enable charities and CASCs to claim a gift aid-style payment on small cash donations of up to £20, where it is often difficult, if not impossible, to obtain the gift aid declaration.

When the Chancellor announced the scheme, he said that it would deliver

“gift aid on the contents of the collecting tin and the street bucket”.

He also promised that the reforms would be bureaucracy-lite, as he described it,

“without the need for donors to fill in any forms at all.”—[Official Report, 23 March 2011; Vol. 525, c. 962.]

More recently, a Treasury spokesperson confirmed that the scheme is

“intended to reduce the administrative burden and boost the income of small groups that rely on”

those very important

“bucket donations.”

As the Minister has said, and other Members have commented, the Bill’s intentions have generally been welcomed. Concerns have been expressed, however, by organisations such as the National Council for Voluntary Organisations, the Charity Finance Group and the Charities Aid Foundation, who described the legislation as highly complex and not accessible enough for smaller charities. They have raised concerns that there is a danger that it will simply act as a reward scheme for the established organisations that are already good at, and involved in, claiming gift aid. They also suggest that some of the provisions proposed in the Bill could significantly disadvantage certain types of charities, which has prompted some concerns about the equality dimensions of the scheme.

Those organisations are asking the Government to simplify the scheme, to make it more accessible to smaller organisations and to make it fairer, allowing equal access for similar charities. We have already heard the comments and concerns from Caron Bradshaw, the chief executive of the Charity Finance Group, and Sir Stuart Etherington, the chief executive of the NCVO. I say gently to the Minister that the Opposition’s approach is not about a battle of quotes. I am sure that she agrees that people such as Caron Bradshaw and Stuart Etherington reflect the sincerely held views of the charities and organisations and their concerns about the Bill. We should listen to those voices. The Minister has the opportunity to lay out how she will take account of some of those concerns as the Bill makes progress. To be fair, she has gone some way towards doing that, but we still need to hear more from her about a number of matters.

[Mr Jenkin]

As I said, the Public Administration Committee is very interested in this issue and my hon. Friend the Economic Secretary was very receptive to the idea of revising the scheme after a period of operation to accommodate those concerns. Does the hon. Lady agree, therefore, that it would be sensible to include a clause that allows the scheme to be amended by secondary legislation without having to come back to the House to get another Act of Parliament? That clause is not in the Bill at the moment, but would she support its inclusion?

[Cathy Jamieson]

The hon. Gentleman makes an interesting point and that is precisely the kind of thing that the Bill Committee will want to consider very closely. Anything that makes reviewing and improving the Bill once it has been enacted better is worth considering and, potentially, supporting. I also hope that we will see where we can improve the primary legislation to make it less likely that we will need to revisit or revise it quickly. I hear what he says and I am sure that we will have further such discussions in Committee.

Let me return to some of the issues raised by the charities and the voluntary sector. The Bill proposes that an eligible charity must have been registered with HMRC for a minimum of three years, have made a gift aid claim in three of the past seven years and not had a penalty imposed as a result of a gift aid claim. One obvious concern raised by many small charities who rely on small cash donations is that they will not necessarily have a three-year history of claiming gift aid. They feel that that has the potential to disadvantage them from the start. I shall say something else about that shortly.

Another area of concern is the matching provision outlined in clause 1, and the Minister has given us some information about her thinking and why she decided to set the ratio at 2:1 rather than at the point she originally intended. In order for a charity to take full advantage of the scheme, claiming the maximum £1,250 on £5,000 of small donations, it will need to have claimed at least £625 in gift aid in the same year. Charities say that that raises a number of potential problems. As we have heard, many small charities may not be registered with HMRC, and unless they register they will not be eligible to join the scheme. There is a worry that the three-year period may not give people an incentive to do so. Many may simply decide that the scheme is too complex, particularly some of the small charities that do not have the resources or an extensive staff network; they may just rule themselves out.

Additionally, many small charities only receive cash donations, so they often do not raise enough to claim the maximum £625 in gift aid in a year that they would need to benefit from the scheme. Ministers may want to give charities some reassurance about that, because charities that claim less under gift aid are at a direct disadvantage as a result of the matching provision, compared with those that are better able to use the scheme. That could further reduce access to the very small charities that the Minister said she would like to see benefit.

The NCVO recommends that the matching 2:1 principle is dropped, and would welcome steps to open up the scheme—for example, so that start-up charities and those currently not registered for gift aid had the opportunity to register and get into the system sooner. I heard what the Minister said about anti-avoidance measures and potential fraud, but we want to ensure that we do everything possible to allow smaller charities that try to respond to local issues, or are set up to respond—not quite on an emergency basis—to a particular issue, to get as much benefit as possible.

On the connected principle, charities have identified additional areas of concern in clauses 4 to 9, which cover the rules intended to stop charities and community groups fragmenting in order to be eligible for greater amounts under the scheme. Clause 5 defines the meaning of “connected” using section 993 of the Income Tax Act 2007, where a person who has control is “a trustee”, or a person who

“has power to appoint or remove a trustee…or…has any power of approval or direction in relation to the carrying out by the trustees of any of their functions.”

However, charities are not connected

“unless the purposes and activities of the charities are the same or substantially similar.”

Once again, charities and the organisations that represent them have pointed out that in reality many trustees will serve on more than one trustee board, which is particularly likely at local level. The concern is that there could be an impact on the charity’s eligibility to join the scheme if a trustee sits on the boards of two organisations that are considered similar. Charities suggest that that could easily occur, because if an individual has expertise or an interest in a particular area of service provision, they might sit on the boards of two comparable organisations. It is important that the rule is not seen as a barrier to attracting people or appointing high quality trustees with experience and expertise. I hope the Minister will look at the issue and offer some reassurance and, if necessary, some changes so that we get the maximum benefit from the Bill.

It is highly unlikely that an organisation would be incentivised to fragment to increase its accessibility to the scheme, which has been given as the main reason behind the provision. The majority of charities simply want to get on with doing the job—I see the Minister nodding. Of course they want to maximise their resources and the last thing on their minds is setting up different structures to fragment to obtain some other advantage—as it has been described. Will the Minister consider providing further clarification so that charities with similar purposes will not be disadvantaged simply because they have a common trustee?

[Barry Gardiner]

Does my hon. Friend agree that because of the matching requirement the conditions to stop fraud in gift aid will already be followed through? There is not the capacity for the extent of fraud that the Treasury fears, because it is already captured by gift aid requirements.

[Cathy Jamieson]

My hon. Friend articulately outlines one of the points that some of the charitable organisations make. They want a balance between ensuring that there is no fraud and maximising the income for charities. Many of them believe that the current provisions give the protection for that.

A number of organisations have raised concerns about community buildings. Clause 6 attempts to recognise that some charities have multiple independent local groups, which should not be excluded from the scheme if they would have been eligible as completely separate organisations. Having run a charity in a previous existence, I know something of the practicalities and difficulties of trying to work in that context. I recognise that it is difficult to get this right and we will have to return to this in Committee.

The proposal is that the use of a community building always should serve as a proxy for assessing eligibility of the independent local groups. Clause 6 stipulates that charities running activities in separate community buildings, which could be considered independent, might be entitled to an additional specified amount under the scheme. The additional community building limit applies only to small donations that are made to the charity in the community building in the tax year while it is running charitable activities. The charities tell us that, once again, that could be problematic.

Beneficiary and donor groups are usually separate, and it is often the exception, not the rule, that funds are raised during charitable activity, so the charities are saying that the provision risks disadvantaging those charities for which it would not be appropriate or possible to raise funds in that way. They give the example of a support group for people who are recovering from addiction problems, which would not be expected to raise funds during counselling or one-to-one sessions, whereas a church or a church organisation might often take up a collection during meetings. It is more relevant, therefore, that the funding is directed towards the activities of the local group, rather than that donations are made in the building during charitable activities.

Clause 7 stipulates that a charity running activities in separate community buildings, which could be considered independent, might be entitled to an additional specified amount with respect to the scheme

“if it carries out charitable activities with a group of 10 or more people in the building on 6 or more occasions in the tax year”.

However, specifying the number of beneficiaries could limit the types of organisation that may access the scheme of their own accord. Again, I hope that the Minister will listen to what the charities are saying about that. They are also concerned that some community groups are based in a community building that is itself a registered charity, with a number of non-registered organisations carrying out activities in an umbrella organisation of some kind underneath that. It is not entirely clear to the people who will have to work the scheme on the ground how the rules apply in such a situation. Perhaps the Minister can clarify that. If not, we shall return to the matter in Committee.

There are a number of other situations in which the criteria might not apply. Local groups of charities that deliver services such as counselling to individuals or small groups might well not meet the 10-people rule, although they might be doing good and valuable work. In local groups of conservation or animal welfare charities, the individuals present might be volunteers. One concern about the Bill is when a person is a volunteer, a staff member or a beneficiary of the charity. The reality of many of those organisations is that people might occupy each role at different times, or indeed occupy some of those roles at the same time. There could also be problems where local groups carry out home visits and service delivery in the buildings of partner organisations.

There are some limitations to such an approach, which sees the links with the community buildings as the most effective way to identify an independent local group. The concern is that, for those groups, the Bill restricts eligible fundraising activities to those conducted in the building. If that is the case, it is unhelpful and will disadvantage those groups compared with other charities using the scheme, where no such restriction is in place.

Clause 8 stipulates that a community building cannot include a building, or any part of a building, used wholly or mainly for commercial or residential purposes. That point has already been referred to. It is said that the provision aims to ensure that groups run from homes and commercial entities such as charity shops cannot access a separate entitlement to the scheme.

The intention behind the provision is clear, but once again a number of challenges are posed. For instance, many charities that may be part of a group structure run activities that are residential in nature. Hospices have already been mentioned. Further examples are care homes and respite care. It will sometimes be difficult to decide what the main purpose is. It would be interesting to hear Ministers’ views on that. It may be difficult for those charities to access the scheme independently, as they may be entitled to only one limit across the whole group structure, unless they are awarded special consideration. Charities or community groups carrying out contracted services may also be considered commercial. That is a genuine issue for some of the charities that are delivering services on which many of our constituents depend.

If the additional limits are awarded only to groups carrying out charitable activities, this should be sufficient to restrict charity shops from accessing the scheme, if that is the purpose. Commercial activity that is carried out as part of the delivery of charitable activities—so-called primary purpose trading—should be exempt from falling under this definition.

A number of charities and voluntary sector organisations have expressed their concerns about the Bill, and the Minister gave us some information about involvement in consultation. The Bill has also raised concerns among some in the legal profession, including the Law Society of Scotland. It supports the policy intent of the Bill and suggests that it is an attempt to strike a reasonable balance between pragmatism and identifying fraud, so the Minister has the support of the Law Society of Scotland in that context. However, the LSS makes the point that it is difficult to identify a way of achieving in practice what the Bill attempts to do in theory. It suggests that flexibility be built into the legislation, as has already been mentioned this afternoon, or that there should be provision for a review of how it is working, as it may prove easier to identify ways to widen the scope of the legislation once it has been in operation for a time.

The Law Society of Scotland echoes the points made by NCVO and others that the legislation is likely to have limited impact and that it will not catch all the charities that could usefully benefit from it. The LSS goes on to highlight some specific issues about the drafting of the Bill. I do not want to spend too much time dealing with those this afternoon, but I shall set out a couple. On clause 3, the LSS has voiced concerns that £20 is too small an amount and that in certain situations it may be difficult for managers to police. It notes that the schedule to the clause provides that

“Where a gift of cash is made to the charity and its managers do not know whether the gift is £20 or less, the condition in sub-paragraph (1)—

With which I am sure the Minister is au fait—

“ is to be treated as met if the managers have taken reasonable steps to find out.”

The Minister and I have had enough exchanges in Committees to know that there are always questions about what “reasonable steps” in such a case would mean. This is another example where something that makes perfect sense to those drafting the wording of a Bill may not easily translate into practice and I, like the LSS, am left wondering what the “reasonable steps” envisaged might be in practice and whether the Minister is proposing guidance on this point.

I seek clarification from the Minister whether the provisions laid out in clause 12 are intended to provide continuity where a charity opts to change its legal form. Does she agree that although it would be sufficient in respect of incorporations, more would be required in the case of mergers? Does the primary legislation need to be wider in that respect?

Although the Bill of course covers the UK and contains provisions for different parts of the United Kingdom, particularly the exception for Northern Ireland, the Minister will be aware that there is different legislation for charities in Scotland. Concern has been expressed by the Law Society of Scotland that the definition of “charitable purpose” in the Bill is the English definition. Will the Minister clarify whether the wording in clause 17(2)(a) is necessary or desirable in view of the terms of sections 7, 8 and 356 of the Charities Act 2011? Scottish charities will need to be aware of the different legal definitions that will apply to them for different purposes.

I know that all probably sounds pretty technical when broken down clause by clause, and there might be Members on both sides of the House whose eyes are now glazing over because of all the detailed points I have made, but it is an example of what we are going to have to deal with in Committee. However, I think that it is worth reflecting on the fact that these issues have been raised because charities have told us that the changes will affect people in our communities.

The CFG has highlighted the example of a local branch of a national charity that works with disabled children. The branch is independently managed and holds its own business contracts. It runs in-home services for children and young people and focuses on developing independent skills. It occasionally holds social groups for its beneficiaries in different venues, depending on the cost of rent and availability. A local commercial hotel and leisure club often provides it with low-cost space to hold such events. The branch regularly claims under gift aid and often fundraises with collection buckets in the local area and through events at local schools.

One of the concerns that have been raised is that that organisation might be unable to claim gift aid fully under the proposed scheme because, as a local branch of a national charity, it might be considered to be connected and so would fall under the community buildings rules. As its services are not linked to one community building, it might be unable to claim for small cash donations. Residential and commercial buildings are not eligible, so it will not be able to register off the back of regular meetings in beneficiaries’ homes or the local hotel that provides low-cost space. One-to-one services do not count, as the legislation stipulates that meetings in community buildings must take place with at least 10 people present, not including staff and volunteers, and at least six times a year. Donations are not always made during the course of its charitable activities or within a community building used for those activities, but rather through separate fundraising events and activities. That picture of what a typical charitable organisation or set-up involves is one that we will have to look at more closely in Committee to ensure that absolutely everything is put in place to assist them.

In conclusion, the scheme is a welcome addition to the gift aid landscape and could be of particular benefit to small charities. We know that millions of pounds in potential gift aid is left unclaimed every year, and the scheme could go some way towards bringing some of that money back to the beneficiaries who need it most. We know that giving small amounts of cash is the most common donation method, and it has been estimated that in 2010-11 the average person would have donated £11 through charity buckets or donation tins.

Therefore, charities are asking the Government to simplify the scheme substantially to make it fairer and allow improved access for smaller organisations and equal access for similar charities. The abiding principle they want to see adopted is that the scheme should be easy to access and not tied up in red tape—something I am sure Ministers will absolutely wish to ensure. It would be helpful if the Minister gave some response to the concerns about the matching ratio requirement, the eligibility criteria and the community buildings rules. We have also heard some concerns about gift aid, such as the burden on charities of its being a paper-based system in an increasingly digital world. Indeed, the comment has been made that it is perhaps time to look again at the whole gift aid system and ways of bringing it up to date. I would be interested to hear her views in that regard.

Finally, I welcome what the Minister said about being committed to the consultation process and the new public reading stage for Bills, but I must reiterate the comments I made in my earlier intervention. It has actually been quite difficult for members of the public to find the information on the Cabinet Office website and take part in the consultation. If this is a pilot for the future, I hope that she will consult colleagues on how the whole experience could be improved. She has updated us on a number of comments that have been made, but perhaps she will also give us a specific time scale for when the information will be given to Members so that we have the opportunity to engage fully with the organisations that took the time to contribute.

The Opposition support the principle of the Bill and want to see it progress to Committee, where it needs to be amended to reflect the views of those who have contributed so far and the needs of the charities and community amateur sports clubs that do so much good work in our local communities.