Small Charitable Donations Bill

Chloe Smith Excerpts

Tuesday 4th September 2012 Commons Chamber

[The Economic Secretary to the Treasury (Miss Chloe Smith)]

I beg to move, That the Bill be now read a Second time.

It is my pleasure to move Second Reading of the Bill, which is the product of many months of consideration and consultation, both formal and informal. I begin by thanking all who have worked so hard on it, including the voluntary and representative bodies, Her Majesty’s Revenue and Customs, and officials and lawyers, who have worked hard over the past months to produce the Bill.

The Bill provides the legislative framework for the gift aid small donations scheme, which was announced in Budget 2011. This scheme was announced as part of a significant package of measures to encourage charitable giving and philanthropy by donors from all walks of life, from the largest donors to those who give small amounts through charity bucket collections. The measures announced included reducing the rate of inheritance tax for individuals who leave 10% or more of their estate to charity, and a tax reduction in return for the donation of a pre-eminent object, or collection of objects, to the nation. Taken together, the 2011 Budget philanthropy package of measures represented the most radical and generous reforms to charitable giving for more than 20 years.

Crucially, at the centre of the package was the announcement of the gift aid small donation scheme.

[Mr Jim Cunningham (Coventry South) (Lab)]

The Minister might not be able to answer this, but I would accept an answer in letter form. Why have the Christian Brethren been denied charitable status? I have had many approaches from them.

[Miss Smith]

I hope you will forgive me, Mr Speaker, if I do not tackle that question in the context of this debate. I do not believe it is crucial to this scheme, but I will be happy to come back to the hon. Gentleman after the debate, if there is a pressing matter he needs answering.

[Mr Cunningham]

Why can the Minister not write to me about it or even meet me?

[Miss Smith]

I shall be happy to look into the matter, within my powers, and come back to him. However, it might well be a question for the Charity Commission, in which case the hon. Gentleman will know where to direct his inquiries. If there is information I can give him, though, I shall be happy to get back to him.

[Mr Bernard Jenkin (Harwich and North Essex) (Con)]

To assist the Minister and the House, may I inform Members that the Public Administration Committee is conducting an inquiry into the post-legislative review of the Charities Act 2011 and that the role and charitable status of religious organisations are subjects we are concerned about? I invite the hon. Member for Coventry South (Mr Cunningham) to engage with the Committee on this subject. We are happy to discuss it with him.

[Miss Smith]

I thank my hon. Friend for that contribution, which I hope has given the House enough to go on on this subject.

The purpose of the scheme—

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

rose—

[Miss Smith]

If the hon. Gentleman will allow me to set out the purpose of the scheme, I shall be happy to engage in further debate as we proceed.

The purpose of the scheme is to enable charities and community amateur sports clubs to claim a gift aid-style payment on small cash donations of up to £20 in cases where it is often difficult to obtain a gift aid declaration. In general terms, eligible charities and CASCs will be able to claim top-up payments on up to £5,000 of small donations each year. As I said, the crucial point is that the Bill provides for top-up payments to be made to eligible charities that find it difficult to claim gift aid on donations, such as those from street buckets and church plates—when donors might be reluctant to stop to fill in gift aid declarations. In such situations, charities are currently missing out on income.

[Martin Horwood (Cheltenham) (LD)]

I declare a non-pecuniary interest as a member of the Institute of Fundraising. Are Ministers aware of the institute’s response? It has welcomed the Bill as an important measure for small charities that might have difficulty claiming gift aid, but pointed out that there are so many conditions and complexities in the scheme that it will actually undermine its accessibility to those very charities. Will she agree to meet the institute and discuss some of its suggestions for improving this important Bill?

[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.

[Mr Thomas]

It is not just the Institute of Fundraising, which the hon. Member for Cheltenham (Martin Horwood) mentioned, which has concerns. Caron Bradshaw, the chief executive of the Charity Finance Group, has said:

“Eligibility for the scheme is limited and…will stop those that need it most from using it.”

Sir Stuart Etherington, the chief executive of the National Council for Voluntary Organisations, has said:

“Even for those of us who spend a lot of time looking at Gift Aid, some of the restrictions are hugely complex to understand”.

Why does the Minister think that charities that were initially positive about the Bill are now so sceptical about some of the detail?

[Miss Smith]

I do not want this debate to descend into a battle of quotations—although I could, for example, provide the hon. Gentleman with a quotation from Mr Graham, the chief executive of a charity not far from my constituency, who has said:

“Being a very small charity relying on small private donations and monies collected in tins positioned in shops etc I welcome this Bill. It will certainly make a difference to the very needy children in Kenya that Mnarani Aid supports.”

The Bill has been broadly welcomed by the sector. It puts cash towards charities. I shall set out how it does that and deal with some of the points that some stakeholders have made over the summer and beyond. I am confident that the Bill does what it sets out to do, which is to support charities in a constructive way and the funding will be welcomed.

[Richard Fuller (Bedford) (Con)]

If I may, I shall take the Minister away from the details and towards the overall philosophy. In the tax treatment of charities, we can use the gift aid or “charity grabs back the tax” model or we could convert to a model whereby individuals deduct from their tax the charitable contributions they make, as happens in the United States and other countries. Was that general philosophical debate part of her consultation and deliberation on the Bill, or has she looked more specifically at how to improve and enhance the gift aid scheme with this new initiative?

[Miss Smith]

I shall try to be careful in responding. A number of interesting issues have been raised that are not necessarily part of today’s Bill. In addition, a number of improvements to gift aid have often been mooted or discussed, but they are not necessarily part of the Bill either. In direct answer to my hon. Friend’s question, therefore, the matters for consultation and scrutiny to date relate closely to this scheme and the mechanisms within it, which I shall now set out.

Under the scheme, charities will be able to claim top-up payments equivalent to the basic rate of tax paid on a donation, which is currently worth 25p for every £1 collected on small cash donations of £20 or less. Therefore, if a charity claims on the full allowance of £5,000 of small donations in a year, that will mean an additional £1,250 of income. It is that which charities will welcome. Hon. Members will know that tax reliefs for charities and charitable giving are an important source of income for charities, totalling over £3 billion a year. Of those, gift aid is the largest relief and is worth over £1 billion a year. We estimate that the gift aid small donations scheme could result in additional Government funding of around £100 million a year for charities and CASCs by 2015. That represents a significant boost in income for the sector and will be especially valuable to small charities. That is why—I again emphasise the point—this is a Bill that is to be welcomed and which has been welcomed by many across the voluntary sector.

To ensure that the new scheme is as accessible as possible to charities, it will be administered using the same mechanisms that apply to claims for tax relief under gift aid. The scheme will look and feel familiar to those charities and CASCs that already claim gift aid, and Her Majesty’s Revenue and Customs will publish clear guidance ahead of the commencement of the scheme to ensure that it is simple to access. However, because the new scheme will not be a tax relief, it cannot be legislated for through the usual Finance Bill route— I regret to deprive my hon. Friend the Member for Bedford (Richard Fuller) of the chance to serve on such a Bill and discuss the philosophical principle—so we are legislating for it in this programme Bill instead. The scheme was widely welcomed by the sector when it was announced in Budget 2011 and continues to be well received. We have worked closely with the sector to get the scheme right.

Let me now address some of the points of detail that have been raised, and which I am confident will be well understood by hon. Members. I shall set out the rationale for the ways in which we have designed the scheme, but first I want to set it firmly in the wider context. We have had to take steps to ensure that it operates as fairly as possible, but also to ensure that it remains affordable and is protected against fraud. We want this money to go to legitimate charities doing important work with real social benefit. We also want the small donations scheme to be as fair as possible. We want to ensure that charities doing the same kinds of work at local level, but which have different historical structures, get allowances under the scheme that are not hundreds, or even thousands, of times different from one another.

Those are the key driving principles behind the scheme: fairness, protection against fraud, and providing a complementary scheme to gift aid. We also want to channel some extra funding to charities, which I suspect that no hon. Member would want to speak against. I ask hon. Members to keep those principles in mind as we debate the detail of the gift aid small donations scheme. Let me take them in turn.

First, we want the scheme to complement gift aid rather than to replace it. I would urge all charities that receive donations to make full use of gift aid, where there is no limit on the amount of donations on which the charity can claim. However, there are some donations for which gift aid declarations are hard to come by, and that is what the scheme is designed to address.

[Mr Thomas]

Will the hon. Lady tell the House how much the Bill will cost the country? I ask that question in the context of transitional relief for charities having come to an end last April, at a cost of about £100 million. Will the Bill simply lead to a replacement of that money?

[Miss Smith]

I have already said that the Bill will channel up to £100 million to charities over the years in which the scheme gears up. That is to be welcomed. I think that the hon. Gentleman will also understand that the clue is in the title, in relation to transitional relief. This is a new scheme that ought to be welcomed in its own right.

The second principle behind the proposal relates to protection against fraud. We have designed the scheme so that for a charity or CASC to be eligible to claim, it must have a minimum three-year track record of successfully claiming tax relief under gift aid. It will also have to continue making gift aid claims while it is claiming under the new scheme. I know that the three-year rule and the requirement to match claims with gift aid claims have raised some concerns among charities, but I must be frank and say that the generous nature of charitable tax reliefs means that they are vulnerable to exploitation, with a small minority looking to take advantage of the arrangements.

[Martin Horwood]

The Minister has just mentioned two conditions: the requirements already to have claimed gift aid for three years and to match existing gift aid claims. The Institute of Fundraising has pointed out that charities that find gift aid hard to come by will be unlikely to be able to meet either of those conditions. May I repeat my request for her to meet representatives of the institute, which represents the fundraising sector, to discuss its amendments to this important Bill, which it otherwise supports?

[Miss Smith]

I should make it clear that I am in no way refusing to have such a meeting. I would be happy to take up that point. The scheme will be complementary to the gift aid scheme. Some charities have struggled to claim gift aid on certain types of donation—for example, cash donations whose donors it might be hard to persuade to stop and fill out a form. However, that is a different type of problem from the one to which my hon. Friend has just referred. I shall be happy to take up his point in greater detail.

I shall explain why we have had to put in place the three-year matching rule. There is an understandable reason behind it, and I think that charities will find it reasonable to work with. I am keen to avoid a situation in which the new scheme might become vulnerable to exploitation. None of us would wish to see funds that have been directed towards charities and the good causes they support being diverted or lost to fraud. I certainly hope that all Members cleave to that principle.

As I have said, HMRC pays around £1 billion a year in gift aid to charities, and such large sums inevitably attract fraudsters. Fraudsters scrutinise any payment system for weaknesses, and we have to be aware of that in designing any new scheme. As the new scheme is based on cash donations, records of the donor will, by their very nature, be limited. It could be said that this makes it even more attractive to fraudsters, so the very qualities of the scheme that are designed to make it work for charities—in other words, the ease of putting some money in a bucket—also help fraudsters. We have needed to find ways to protect the scheme from abuse, without adding to the paperwork that it might be feared would sit along small donations. One way we have tried to do this is by retaining the link to the gift aid scheme, which has tried-and-tested methods to protect against fraud. This also fits in with the desire, as I have said, for this scheme to be complementary to gift aid, not to replace it.

You will be able to appreciate, Mr Speaker, the idea I am developing of the need for charities to have a compliance record that will give HMRC a little more reassurance that the scheme is well protected against fraud. I am confident that every Member supports that. Charities with a good compliance record will be able to access the quite generous top-up payments available. Linking the scheme to claims made through gift aid gives not only HMRC, but all of us in this House, vital reassurance that checks and balances are in place.

[Barry Gardiner (Brent North) (Lab)]

We all appreciate the need to ensure that the scheme is not open to fraud. That will be agreed across the House. What assessment, however, has the Department made of the number, the size and the scope of the charities that the Minister believes will be able to access the benefits of the scheme, with these conditions attached? The industry seems to think that the number, size and scope of such charities will be severely curtailed.

[Miss Smith]

We hope that this scheme will be well used, and I have already set out that aspiration. I have set out the aspiration, too, that the scheme will get £100 million to charities. The hon. Gentleman will be aware of the numbers set out in the impact assessment, which has certainly been made available to him. The key point is that the scheme needs to be open and, as we have said, worth while for charities to access, which I think it will be. Equally, we need to be able to keep track of the possible costs of the scheme, which I am coming on to deal with. I can reassure the hon. Gentleman that a pool of around 100,000 charities have claimed gift aid in the past four years. It might be possible to take that number as an estimate of the number of charities that could be eligible to apply to the scheme. We hope that take-up will be high, but by its nature, it is somewhat hard to predict at this point, but I am not suggesting that all those 100,000 charities will put in claims.

[Susan Elan Jones (Clwyd South) (Lab)]

Does the Minister accept that if organisations such as the National Council for Voluntary Organisations, the Charity Finance Group, the Charities Aid Foundation and, I believe, the Institute of Fundraisers have problems with the practicalities of what she has suggested, she should at least consider the details again? I am sure we all agree on the general principles, but this is about getting it right for predominantly small community and voluntary groups.

[Miss Smith]

It is indeed about getting it right for those groups that we all care about. I can reassure the hon. Lady that I have already made changes to the Bill on a number of points, in comparison with what was originally outlined. If I can make a little progress, I will come on to explain them. I further reassure her that the whole point of having a public scrutiny stage for the Bill is exactly to hear those points. I have made it my priority to work with those representative bodies and, indeed, to work directly with charities as much as possible, reassuring them about the benefits of the scheme and explaining why I designed it carefully in order to protect its aims.

[Mr Jenkin]

I welcome the Bill, as does the charitable sector generally. So many people making small donations have thought about the need for this reform, and it is such an obvious reform to make—although, of course, the implementation is much more complex than the concept. Would it be sensible for the Government to agree now that whatever scheme is implemented in the Bill will be subject to review after two or three years, so that there is a mechanism allowing it to be swiftly amended by secondary legislation within a limited period? That will enable lessons to be learned, and perhaps it will be possible to extend the scheme to a broader range of charities so that more of them can benefit from it in the future.

[Miss Smith]

My hon. Friend has made a good point. I know that he has spoken to charitable groups in his constituency and others and has benefited from his experience on the Public Administration Committee. He will be aware that the impact assessment contains a commitment to keep the scheme under review. I am sure he will agree that the purpose of the scheme is to engage the charitable sector, and that it is certainly not intended to “turn off” charities that we want to support by means of the mechanism that it provides. I hope I can reassure him that we want to encourage smaller charities not to give up on gift aid, and to embrace a new scheme which we hope will be helpful.

As I was about to say to the hon. Member for Clwyd South (Susan Elan Jones), many improvements to the Bill have been suggested, and I have listened to those suggestions during our consultation on the scheme. We originally proposed a one-for-one match in relation to the amount of donations on which a claim could be made under the scheme, and on which a claim could be made under gift aid, in the same tax year. Every £1 claimed on small donations would need to be matched with £1 claimed under gift aid. However, the sector feared that that would constitute too high a barrier for many organisations, especially small charities.

Having listened carefully to what charities thought, I accepted that our proposed arrangement would limit the amount of small donations payments that could be claimed for some of those charities. We have therefore reduced the level of matching from 100% to 50%, so that charities and CASCs will be able to make a claim for £2 on small donations for every £1 donated under gift aid. I think that that is a good compromise between helping charities to claim as high a level of small donations payments as possible, and ensuring that the payments go only to legitimate charities. Given that such a matching procedure will significantly reduce the attractiveness of the scheme to fraudsters, I hope that the sector will support it.

Let me now explain how we intend to ensure fairness of access to the scheme for charities that are doing similar work in a given locality. The scheme allows all charities that meet the entry requirements to claim a payment on up to £5,000 of small donations per charity. For many charities, that will suffice. Small local charities that are independent charities in their own right need consider the rules no further. I hope I can reassure Members that small charities will welcome the scheme, and, in terms of what they receive of the proportion that they seek, will obtain the most benefit from it. However, the scheme also allows some charities to claim more on small donations than the main limit of £5,000 if they carry out charitable activities in what we have called a “community building”, and meet certain conditions.

When we were developing the detail of this part of the scheme, it became clear that unless special rules were introduced, some charities would be able to claim hundreds or even thousands of times less under the scheme than their counterparts doing very similar work, simply because of the way in which they were historically set up. For example, Church of England parish churches are generally set up as separate charities, but in the Roman Catholic Church there is usually one charity at the diocese level with a couple of hundred parish churches below it. Without special provision, the Catholic Church, and certain other secular and faith charities with similar set-ups, would qualify for a small fraction of what their counterparts could claim under the scheme, unless they were to fragment and set up many more charities locally. I do not think forcing charities to set up more charities just for the sake of this scheme is sensible, nor would placing them at a very significant financial disadvantage simply because of the way they have historically been structured. So I have introduced the community building rule to ensure that charities carrying out similar activities in local communities—either through independent charities under an umbrella organisation or as local groups of a larger charity—get allowances under the scheme that are not hundreds or thousands of times different. Finding a solution to that issue was a priority.

[Mr Jenkin]

Why has £5,000 been chosen as the sum, and why is it actually written into the Bill? Is there some means of amending the figure at a later date, in the light of experience or inflation?

[Miss Smith]

As I have said, there will, of course, be an opportunity to review the Bill in the light of how it operates. The answer to this question is all to do with realism: the Bill’s provisions are, in effect, a form of public spending—I shall explain later how they differ from tax relief—and so a limit has to be included in the design, because such funds are not endless.

The sector has raised concerns about the perceived complexity of the community building rule. It is true that in order to obtain a simple result—that charities doing the same things should get an entitlement that is similar—we are going to need to put in place some fairly detailed rules. I hope Members agree that that is preferable to disadvantaging some charities just because of the way they are set up. However, as I have said, it is only those charities, or groups of connected charities, wishing to apply for top-up payments on more than £5,000 in donations who need to consider the community building rule. Most small charities collect less than £5,000 in small donations, so the rules will be irrelevant to them. Her Majesty’s Revenue and Customs will issue clear guidance, developed through working with the sector, to show exactly how these rules will work in real-life situations. I am confident that that can be made to work.

[Fiona Bruce (Congleton) (Con)]

In that respect, will the Minister look at the prohibition on the residential use of the community building? That will potentially have a negative impact on hospices, for example, which we all value so greatly in our communities.

--- Later in debate ---

[Miss Smith]

That point has been raised, and I look forward to addressing the details of it with my hon. Friend and others. She will be aware that we have sought to put in place restrictions in respect of community buildings—the other being commercial and is in the same part of the Bill—because we want to focus the Bill’s provisions on charities that are operating for charitable purposes.

A separate rule ensures that charities that are connected qualify for just one allocation of the £5,000 maximum limit between them, so that there is no incentive for charities to fragment solely in order to qualify for extra allocations of the maximum limit. We had originally suggested a broad test in respect of connected charities. Following consultation, however, we have developed a much more targeted rule and, as a result, fewer charities will be connected for the purposes of the scheme.

As I have said, some in the sector have raised concerns that the community building rule does not go far enough. They have said that more charities should be able to benefit from the rule. It has been suggested that any charities carrying out one-to-one support for their beneficiaries should be eligible, and that the top-up should not be restricted to cash collected during the charitable activities carried out in the community building.

I want to remind Members of a central point. The objective is to allow individual charities to claim a top-up payment on £5,000-worth of donations. That is the starting point. It is not the intention to give a £5,000 allowance for every building they use; that is different from having an allowance per charity. Rather, I have used the existence of a building as an indicator that there may be a local group that warrants an additional £5,000. I do not envisage every charity that has a local presence claiming up to £1,250 of the payment for each local group or building from which it operates.

The community building rule is an effort to minimise some significantly unfair results between different charities. As I have said, some have been able to claim perhaps many thousands times more in the way of payments than others, in what are otherwise, to all intents and purposes, very similar situations. We have to draw a line somewhere, and I look forward to getting into the detail of the scheme.

It is very important to note a point that has emerged during scrutiny of this issue, and which I look forward to being published in guidance, so that it is clear to charities. Some of the examples that Members are raising will not necessarily be excluded under the rules of the scheme. It is a question of ensuring eligibility against the guidance once it is published. My hon. Friend the Member for Congleton (Fiona Bruce) mentioned the example of hospices. If the hospice itself is used for mainly residential purposes, it does not qualify as a community building under the provisions as drafted. However, if it is not so used—indeed, many are not—it could qualify as a community building if a section of the public has access to it, in ways that the guidance will make clear. Lines do need to be drawn, but there is a keenness to get this Bill right.

[Mr Thomas]

The hon. Lady will be aware that clause 13 gives her the power to vary the £5,000 figure. Will she confirm today that the Treasury intends to use that power to uprate that figure in line with inflation each year?

--- Later in debate ---

[Miss Smith]

You will be well aware, Mr Speaker, that any such change needs to be agreed by this House under the affirmative procedure. What I want to see is this scheme bedded in as we begin. Like all limits, it will be kept under review—a point I am confident the hon. Gentleman understands, in the context of financial responsibility.

Throughout the development of the Bill, we have engaged with charities and other stakeholders on the detail through formal and informal consultation. We are engaging in a pilot initiative, aimed at getting members of the public more involved in the business of Parliament through holding a public reading stage. Although our public consultation was of course open to all, often, it is only those with a particular interest in the policy who respond. This Government are committed to giving voters the chance to participate more widely and to help develop the legislation that comes before Parliament. In answer to the earlier question from the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), there were 85 comments from a total of 21 people and organisations. She will agree that that is a starting point for a piloted procedure. We all recognise that there are ways to get the public more involved in the work we do here, and I know we all believe that to be very important.

We published the Bill and explanatory notes in July, asking people for comments and recommendations on the detail of the legislation. A report will be brought forward at the Public Bill Committee next month. The Government will consider the comments carefully and I will respond to those suggestions in Committee. We are also going to pilot the tabling of explanatory statements alongside amendments during the Bill’s proceedings. That will help to set out the rationale behind any amendments the Government table, and I encourage any other Members tabling amendments to provide accompanying explanatory statements. I look forward to using these piloted processes to continue our engagement with those for whom we work.

In conclusion, the Bill represents the potential for a significant new income stream for charities and for community amateur sports clubs, which is particularly valuable to the sector during difficult economic times. There is no point in denying an attempt to make the situation better because of a disagreement over technicalities; we should value this scheme. Charities will be able to claim these new payments on those small donations where, to date, it has been difficult or impossible to collect the necessary paperwork for gift aid to apply. As I have said, this scheme could unlock about £100 million a year for the sector as a whole, once it is up and running. As such, it represents an important part of the strategy that I strongly support to get charitable giving going in all walks of life. I hope that hon. Members from all parts of the House will join me in supporting this important new scheme for the benefit it will deliver to small charities. I commend this Bill to the House and look forward to further debate.