Charities Act 2006 (Principal Regulators of Exempt Charities) Regulations 2011

Lord Hodgson of Astley Abbotts Excerpts

Tuesday 5th July 2011 Grand Committee

[Lord Hodgson of Astley Abbotts]

My Lords, my noble friend Lord Phillips, from his lengthy experience in the charity field, has carried most of the points with him. I shall attempt to sweep up behind a little, if I may, and raise a couple of issues. Before doing so, I need to declare interests as president of the National Council for Voluntary Organisations and as chairman of the Armed Forces Charities Advisory Company.

I wanted to speak on this issue because, first, the concept of exempt charities is complex and their structure and rationale is not immediately apparent. Secondly, these exempt charities are of course educational charities, and it is around education and health, but particularly education, that the whole issue of public benefit and charitable status revolves in the case of private schools. Therefore, it is important that we give these instruments a proper degree of scrutiny.

One danger and one problem or issue that arose during the passage of the Academies Act was whether we had undermined the issue of presumption, because the Act merely stated that these institutions would be charitable, full stop. Having spent a great deal of time earlier removing presumption and making sure that all charities had to justify their public benefit status, it seemed strange and possibly dangerous that we would suddenly say that a group of charities—in this case, schools—was exempt. Therefore, the question of how they are going to be regulated and the nature of the regulator is important.

As for when the regulator takes over from the Charity Commission, originally the 2006 draft Bill suggested that exempt charities could only disappear. Originally, the Bill as drafted allowed only for exempt charities to be removed; the original concept was that they would finally fade out. However, some of us, including my noble friend Lord Phillips and I, decided that it would be better to have a two-way valve, not a one-way valve. Indeed, it is the two-way valve that is being used to create a new category of exempt charities.

When we examined some of the exempt charity regulators, there were some surprises, which have a read-across to this debate. The regulator for universities is the Higher Education Funding Council for England. It has always been surprising that that is the regulator because it has no charitable knowledge at all; it is merely a funding body. I shall come back to that again in connection with the proposals for the regulator and the Secretary of State in the current regulation. We have had some grave disappointments. Given that we were trying to create a proportionate regime, it was a shame that the MoD was not prepared to take on some of the requirements of the exempt regulation for Armed Forces charities, because there are many hundreds of them and they require a particular light touch.

On the upside, you can have light-touch and proportionate regulation focused on a particular group of exempt charities, but there is a down side, which is regulatory arbitrage. You can find ways to fall between the cracks of the regulatory regime, which is something that we have to be very careful about. As I understand it, there will be two principal regulators. One of them is the Secretary of State for Education—that is very clear, although there are some down sides that my noble friend has just mentioned—but in the Welsh situation the regulator is a “responsible person”, which is defined in Regulation 6(2). It means a person who,

“is or was … a Welsh Minister”,

was,

“acting on behalf of the Welsh Ministers”,

or was,

“a member of a committee established by the Welsh Ministers”.

This is not an attack on the devolution process but it does mean that nobody is identified as the regulator for the Welsh educational institutions. I think that responsibility should lie with someone, or some defined body, and there is a danger here of having an amorphous and opaque nature of responsibility with regard to Welsh educational institutions.

On the question of memoranda of understanding, through which we can avoid regulatory arbitrage, I assume that there will be two—one with the English regulator, the Secretary of State, and one with the Welsh person. It will be interesting to know from my noble friend who that person will be in the light of the rather opaque drafting of the regulation. This will be the first time that we have had two regulators—one for England and one for Wales. As I look through the other exempt regulators, I see that DCMS regulates museums and galleries for both England and Wales. We are now dividing them for the first time and creating an interesting precedent.

I share the concerns that my noble friend Lord Phillips raised about role of the Secretary of State for Education in respect of England. This is a tiny part of his empire and can hardly have the attention that it might deserve. There is the issue of independence that my noble friend underlined, as well as the question of conflicts of interest that may arise in the future. I was quite attracted by the idea that the YPLA should be a regulator. If it is to be succeeded by the education funding agency, so be it. After all, if the Higher Education Funding Council is doing universities, why should the education funding agency not do this group of educational institutions? As the Explanatory Memorandum says:

“In practice, the YPLA (and its proposed successor the EFA) will carry out much of the necessary information gathering which would then be used to report to and advise the Secretary of State”?

Why not just have them carry out the role? It would be a good devolution of power. It would remove the role from the Secretary of State and avoid the conflicts of interest to which my noble friend referred.

In conclusion, I understand that these are technical questions. I am sorry that my technical e-mailing skills are not sufficient to have been able to get them to my noble friend in advance of this afternoon’s debate, but I think that they are important. In these stringent, difficult and suspicious times, we need to maintain the culture of the charity brand, especially in the field of education. Some precedents are being set here and we need to be careful that we are not doing something that we will later regret. I think that, in line with the Government’s overall policy, devolving power for regulation to the lowest possible level is appropriate, and therefore I do not quite see why the Secretary of State has to have a continuing role here. That seems to be centralising rather than devolving.

[Baroness Royall of Blaisdon]

My Lords, I, too, am grateful to the Minister for introducing these orders. Of course, it is right to ensure that there is proportionate but effective oversight of charities under charity law while keeping the regulatory burden to the minimum necessary, but that regulation must be effective and ensure proper compliance with charity law. Therefore, I share the concerns of noble Lords who have spoken about the potential conflict of interest and perhaps the impact on the independence of charities if the Secretary of State is to be the regulator for so many of these institutions. I, too, think that again this is a demonstration of centralisation rather than enabling organisations to flourish, and that dismays me. I should be grateful for the Minister’s views but I also hope that the Government will reflect on potential conflicts of interest in relation to the Secretary of State’s role as regulator and his role as Secretary of State for Education.

I find no reference to free schools in the documents before us and I do not understand their status. Are they charities or not? I do not know. All academies are included. However, I do not know what the status of free schools is and I should be grateful for some clarification. If they are charities, who is the principal regulator?

In the Academies Act 2010, as the Minister said, it was agreed that a principal regulator would be required for academies and, as noble Lords have said, it was proposed that this should be the YPLA. Then along came the Public Bodies Bill and the aim to abolish the YPLA. Of course, the Bill is still in Committee in the House of Commons.

I have a few questions. First, is it not precipitate to appoint the Secretary of State for Education as the regulator when the YPLA has not yet been abolished? Like the noble Lord, Lord Hodgson, I wonder why the Education Funding Agency should not be the regulator rather than the Secretary of State. Secondly, the memoranda of understanding are clearly extremely important and I wonder whether Parliament will be able to see them before they are concluded.

My last question is a small one. The section relating to monitoring and review is a little perplexing. A review is supposed to commence later this year. However, this will be pretty worthless in relation to the regulator because the review of the 2006 Act is expected to follow shortly after the change is made by these regulations. Essentially, I am asking: why have two reviews? Why not have one review in three years’ time? That would obviate a lot of work that will go into reviewing in the mean time.

--- Later in debate ---

[Baroness Verma]

Since this is a legal and technical matter, perhaps I could write to my noble friend. I know that such words can change the law very quickly, and I shall not be drawn into that trap by my noble friend today.

On the issue of independence, both the Charity Commission and the Cabinet Office are satisfied that the appointment of the Secretary of State for Education and the Welsh Minister as principal regulators will not give rise to an inherent conflict of interest. The commission and the principal regulator will work together to ensure that a charity’s independence is maintained. The functioning roles already have accountability. There is no conflict, since assurance is largely derived from the funding function and both roles require similar levels of assurance.

We all accept that the law on exempt charities is an incredibly complex area with a complex history. More than anybody else in this Committee, my noble friend is aware of the difficulties that this law raises. I accept that we would rather be in a better position, but we are where we are and it is difficult to unpick some of the complexities. As a result, we should go for a simpler legal regulatory framework for exempt charities. It has always been intended for exempt charities to be exempt. When the ASCL Bill was enacted, it was agreed that this would be done through exempt-charity SIs. That is what these instruments do.

My noble friend Lord Hodgson spoke on the MOUs. Principal regulators are not expected to be experts in charity law. It is not their job to be, nor is it their duty to promote charity law unless charity law compliance requires it. Expertise in charity law lies with the Charity Commission. That is why the commission has investigation and enforcement powers in relation to exempt charities.

My noble friend also asked why the Education Funding Agency is not the regulator. As I said to my noble friend Lord Phillips, the EFA will be an agency of the Secretary of State. It will not have a separate legal personality, so it cannot be appointed as the principal regulator.

[Lord Hodgson of Astley Abbotts]

Will the MOU be in place when the regulations come into force on 1 August?

[Baroness Verma]

I have been told by my experts behind me that it will be shortly afterwards.

The noble Baroness, Lady Royall, reminded us of the effectiveness of the regulators. The principal regulator approach will not mean less effective regulation. It will be entirely valid to use different models of regulation to fit the circumstances so that we end up with smarter regulation that maintains trust and confidence in charities. Using an existing regulator’s processes and procedures to oversee charity compliance avoids costly and wasteful duplication.

The noble Baroness asked also about free schools. Free schools are a type of academy. They are charities in the same way as other academies. She asked also about the MOUs between the Charity Commission and principal regulators. MOUs will be published on the Charity Commission website. We are happy to deposit copies in the House Library.

I suspect that I have not given satisfactory answers to my noble friends who are experts in this area. I hope that they can be assured that I will provide written responses to questions to which they feel they have not answers.

The regulations are about making the system leaner and smarter. I therefore commend them to the House.