Charities Bill [HL]

Lord Hodgson of Astley Abbotts Excerpts

Thursday 5th May 2011 Lords Chamber

[Lord Hodgson of Astley Abbotts]

My Lords, I declare interests as president of the NCVO and chairman of the Armed Forces Charities Advisory Company. I add my thanks to the Minister for bringing forward this Bill and my congratulations to all those who have been involved in its preparation. I do so on the grounds of the important principle, which has been referred to already, that there is nothing more infuriating or dispiriting than starting off to research new legislation which you find is amending previous legislation and which, when you get to it, amended earlier legislation and so on ad infinitum. It reminds one of those archaeological programmes where they slice away the side of a street and you find what was thrown on to it in about 1200, then layer on layer below.

That makes the law unfriendly and, as my noble friend Lord Phillips has said, it is particularly important that charity law should be as user-friendly as possible for the simple reason that most charities are run on voluntary effort. Of course, some will require the expert advice available from firms such as that where my noble friend Lord Phillips was previously a senior partner. However, as far as possible, DIY is a good principle for charities and that is facilitated by consolidation.

In at least two senses, however, I find this a slightly strangely timed Bill. First and most importantly, this being the year of our Lord 2011, the Charities Act 2006 is about to start the quinquennial review which, as my noble friend said, was written into Section 73 of that Act. It is and will be an extensive review because it requires the examiner to look at,

“public confidence in charities … the level of charitable donations … the willingness of individuals to volunteer”,

and,

“the status of the Charity Commission as a government department”.

It is clear from the word on the street that considerable changes will be suggested to the examiner when they set to work, so I fear that this consolidation Bill, while welcome in one sense, will not be the last word and that we shall be reploughing this ground before too long.

The second and more proximate reason for my surprise is the forthcoming charity tribunal hearing on the issue of public benefit. As noble Lords will recall, the 2006 Act ended the presumption of public benefit and required all charities to show that they had a public benefit requirement in their operation. That has always been controversial, as it takes you straight into the heartland of private schools and private hospitals. When we debated the 2006 Bill, some noble Lords found it counterintuitive that schools charging fees of £30,000 could be charities. For the record, I do not find that counterintuitive at all as you do not strengthen the weak by weakening the strong. Yet the strong have a contribution to make to our society in the form of bursaries, useful facilities, teacher exchanges and so on.

A further difficulty about the public benefit test is the rather obscure nature of the test case. The noble Lord, Lord Phillips, can expound on this at great length and has done so. It is the case of Re: Resch. which, as a non-lawyer, I find difficult to understand. It is about an Australian private hospital—a fee-paying institution—set in the grounds of a state, or free, hospital. That whole area of public benefit is quite obscure and difficult to deal with and one objective that we had in 2006 was to ensure that the thing was not further confused or compounded by introducing political angles into that tricky area from either end of the political spectrum. That was why the Charity Commission was given the role of establishing the public benefit test.

[Lord Phillips of Sudbury]

The noble Lord cited my name on Re: Resch., and he is quite right that it is a leading Privy Council case, but it is wonderfully obscure. He may remember that, during the debates on the 2006 Act, I moved an amendment to try to give the Charity Commission a little help in giving guidance and making judgments on public benefit. In many ways, it is a pity that we left it nude and relying on a paucity of very unsatisfactory cases.

[Lord Hodgson of Astley Abbotts]

The noble Lord, Lord Phillips, is one of the prime charity solicitors, and if he says Re: Resch. is obscure, who am I to disagree? I bow to his expert opinion. As he said, the Charity Commission was left with the task, and we now have a reference by the Attorney-General to the charity tribunal for a determination on the public benefit test. The hearing is later this month, so we are holding this Second Reading debate on the cusp of potentially significant changes for the charity sector. Some noble Lords may say that is all about private hospitals and private schools—that they deserve what is coming to them—but I think a word of caution is required because, as has been pointed out, the decisions made in those proceedings will affect not just fee-paying independent schools but potentially all fee-charging charities. That will include playgroups, nurseries, care homes, healthcare charities, museums, theatres, amateur sports clubs, advice centres, veterinary care charities, heritage and visitor attractions, housing associations and alms-houses. It has a very substantial possibility of changing the sector. When coming in to the House, noble Lords may have seen the huge queues outside Westminster Abbey of people wanting to go in to see the abbey today. It will be affected by the tribunal’s determination. While I absolutely support the Bill, I think we are holding this debate at an unusual point in the development of charity law.

As my noble friend pointed out, this Bill is a consolidation measure containing no new legislative proposals. I will not repeat what the noble Lord, Lord Phillips, said on the points that he made. The guts of the Bill are in Clauses 3 and 4 and are to do with the public benefit test and the test for charitable purposes. I entirely support what my noble friend said about the charitable purposes clause. I was surprised that Section 2 in the 2006 Act, which is headed “Meaning of ‘charitable purpose’” and seems absolutely clear, is replaced by a clause headed “Charitable purpose: purposes which can be charitable purposes”. That does not clarify anything; it seems to obscure things. That issue needs to be chased down.

Secondly, the words “under the old law” which, as my noble friend pointed out, now appear at the end of Clause 3(1)(m)(i), are a further confusion. Perhaps the Minister will explain why Section 2(8) in the 2006 Act, which contained the definitions of charity law and existing charity law, seems to have dropped out of the Bill. Maybe they appear somewhere else or have proved otiose or redundant, in which case, I am perfectly happy, but it would be helpful to have some words on that in due course.

One of the glories of consolidation Bills is that they provide a brief opportunity for reflection on where we got it wrong in the past and the direction of travel for the future. The Minister and my noble friend Lord Phillips referred to fundraising, which has proved a tricky subject and is clearly still in need of further treatment.

There are three brief issues that I would like to signpost this afternoon. The first is the role of the charity tribunal. The idea of the charity tribunal was to provide a quick, user-friendly, cheaper alternative to High Court proceedings so that small charities were not burdened by the risk that they would have to undertake if they appealed against Charity Commission hearings. I am afraid that it has not worked. There have been very few cases. Those that there have been have been highly legalistic in their approach and we are back with Silks, lawyers and everything else. The idea that we had for a simple remedy has not been fulfilled. One problem was the terms of the old Schedule 4, which is very prescriptive. We tried to persuade the then Labour Government that it would be a good idea to remove the schedule, but we were not able to do so. It is now reproduced wholesale in Schedule 6. If we are to make the tribunal as effective as we had hoped that it would be, a whole fresh eye is needed.

The second problem concerns dealing with the emergence of social investment. Recent years have seen the emergence of people who wish to make investments for social as well as financial purposes. They have an interest in making an investment and want to see a financial return but they also have a social purpose. The present proposals for charitable investments to be able to get improved results if they are successful—for example, as regards prisoner reoffending, getting people into work and ending school exclusions—would mean that the charities would get a better return.

There are implications for this whole area, including individuals. We have the counterintuitive idea that you may give the money to a charity to do something but you may not invest in it. That cannot be sensible. People who invest in charities or one of these schemes would get back their money or perhaps a modest return. That surely would be a sensible way of increasing the volume of money available for the sector. For charitable trusts, this would mean tackling the issue of permanent endowment, which cannot be spent. Therefore, many charities find it impossible to support schemes which are entirely in line with their objectives because of the issue whereby they cannot invest in schemes where there is a social return characteristic. That is a new area which has come to the fore in recent years. As we move forward we need to take time to think about it.

The last and greatest issue is of course the future regulatory structure. This afternoon, we have talked about charitable trusts. But there is now a welter of different corporate forms. You might be a charitable trust, a company limited by shares, a company limited by guarantee or a community interest company—a CIC. You could be an unincorporated association or an industrial and provident society, and you are shortly going to be able to become a charitable incorporated organisation—a CIO. Each of those forms of company or structure has different regulatory requirements as regards governance and fundraising. I am not sure that we have begun to think about how we get some coherence into the whole sector. I think that we can look at those issues in the future.

In conclusion, I entirely support this Bill. The UK charitable sector is glorious in its diversity. Therefore, this Bill has my strong support. But it is not the end of the road. Important decisions lie ahead if we are to find the right way to engage our fellow citizens in this critical area.