Voluntary and Charitable Sectors

Lord Hodgson of Astley Abbotts Excerpts

Thursday 26th June 2014 Lords Chamber

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I begin by adding my thanks to my noble friend for having given us the chance to debate this important topic. Some noble Lords will be aware that I was the official reviewer of the Charities Act 2006, which gave me the chance to see at first hand the fantastic work being done by the sector. I have no doubt about its value to our society.

I should like to underline two points that my noble friend made in her opening remarks. The first was on the dangers of the indiscriminate referral by jobcentres of individuals to charities. The reality is that too often it seems that the jobcentres are trying to fill a quota, with jobs being offered, and not thinking about what the charities need, important though charities can be in finding a way back to paid work. The second point she made was about tendering and contracting. I think she underestimated the risk-aversion among commissioners. Too often they are prepared to go to the large firms and not think about the more innovative small firms.

I want to focus my remarks on social investment. Noble Lords will be aware of the concept of social investment, whereby foundations and/or individuals do not give their money outright to a charitable endeavour but lend it or invest it, and they hope to get their capital back, maybe with a modest return. It has a very wide range of applications and obviously it is particularly relevant when considering proposals that contain an element of payment by results.

Social investment could be a game-changer in many ways; first, by encouraging big charities to use some of their investment assets. There is £126 billion-worth of investment assets among registered charities so a very small percentage of that diverted to this endeavour would be extraordinarily helpful. Secondly, and equally importantly, it gives wealthy individuals a chance to put something back, and we could easily see people who have an interest in a charity giving it not only money but effort, time and commitment and thereby improving its performance and work.

I hope the House will understand why I was very attracted to the possibility of developing the concept of social investment and why my report contained a number of recommendations as to how we might achieve it. Nevertheless, we have to recognise that the concept is in its early days so we need to be careful not to create too high expectations of what may be achieved. Importantly, the next stage is to facilitate social investment, not impose it.

However, facilitation will require a shift of approach by a number of bodies for which risk-aversion is the default option. These bodies include the accountancy profession, the actuarial profession, investment managers, charity advisers and the regulator, the Financial Conduct Authority. It will also require an entirely different approach from HMRC, which today has refused to give a clearance in advance to social investment schemes. That means that a charity has to go through the whole procedure of creating and setting up the scheme before it knows whether or not it will get the charitable breaks it requires. My noble friend on the Front Bench could act as Dyno-Rod in trying to deal with this problem, if only to follow the example of the Internal Revenue Service in the States, which offers blueprints where charitable permissions have been given so there are examples that charities can follow when they start to create their schemes.

All this will depend on us creating the right overarching legal framework. My report made a number of suggestions as to how this could be achieved. I am extremely grateful to the Government for having accepted most of them and having passed them to the Law Commission for consideration. I am equally grateful to the Law Commission for having written an exceptionally clear and concise consultation paper on social investment. The consultation period closed last week, on 18 June.

So far, so good—but there is one fundamental problem that, if not addressed now, could undermine all this good work, and that is the knotty legal definition that lies at the intersection of public and private benefit. Noble Lords will have seen in the briefing papers from the Library that charities must always act for the benefit of the public. So how does the concept of social investment fit into this, since it offers a financial return to lenders or investors, albeit at a modest level?

The law currently gets round this by permitting a level of private benefit where this is “necessary and incidental”. However, in my review I came to the conclusion that the word “incidental” did not offer sufficient protection for social investment proposals and recommended that it should be replaced by “proportionate”. I regret to say that the Government rejected this proposal. I quite understand the dangers of changing long-hallowed legal terminology and the potential unintended consequences that may follow. But if my noble friend on the Front Bench asks his officials to pass him a copy of the Shorter Oxford English Dictionary, he will find that the definition of incidental is:

“Occurring as something casual or of secondary importance; not directly relevant to”.

I do not see how this possibly fits with social investment returns. They are certainly not casual, nor to the investor or lender are they necessarily of secondary importance, and they are certainly directly relevant to. By contrast, proportionate is defined as:

“That is in (due) proportion (to); appropriate”.

As part of its consultation on social investment, I draw the Law Commission’s attention to this problem, but I fear that it will conclude that it is outside its terms of reference. I am, therefore, asking my noble friend to commit to taking this issue away and giving it a thorough re-examination.

To conclude, I have explained that the social investment movement has the capacity radically to improve funding flows to charities. It would be a tragedy—and I mean a tragedy—if it were to be stillborn because of an unduly narrow legal interpretation of the word “incidental”. I am not alone in this: I am supported by Bates Wells Braithwaite. My noble friend Lord Phillips, who was a senior partner, has given me permission to quote from its report to the Law Commission. It states:

“We believe that re-modelling the private benefit test solely in the case of social investment so that the private benefits can be reasonable and proportionate will be essential for English and Welsh charities to engage in this type of catalytic investments ... we are strongly of the view that a reform as proposed by Lord Hodgson would make a radical difference to the likelihood of the social investment market developing positively in the UK”.

I hope that my noble friend can help.

--- Later in debate ---

[Lord Wallace of Saltaire (LD)]

My Lords, as I expected, this has been an excellent debate. As I came here I thought that it would be very difficult to respond to comments from noble Lords, many of whom know a huge amount more about this sector than I do. I have learnt a huge amount from the noble Lord, Lord Hodgson, in particular. I remembering him taking me through the evolution of regulation and charities law from 1601 onwards. I hope that he noted the recent remark made by an eminent lawyer, that charities law had been asinine since 1601. As we all know, charities law has evolved to cope with charities changing their view of what they should do, which remains a contested issue. I speak on behalf of the Government when I say how grateful we are for the work that the noble Lord, Lord Hodgson, has done, both in his statutory review of the Charities Act 2006 and in his contribution to the Civil Society Red Tape Taskforce. The Government hope that he will continue to play an extremely valuable role in that area.

When I went to east London to look at the work which a local Baptist minister, Mr Mawson—the noble Lord, Lord Mawson—had done, I also learnt a huge amount about local initiatives and local activity. When I first learnt about community foundations I went to Calderdale with the noble Lord, Lord Shutt, and was enormously enthused by the work which the community foundation there is doing and the way in which it is able to galvanise local philanthropy. I repeat what I said the previous time we debated this issue. Oversight of the voluntary sector is the sort of role which the House of Lords in its current composition plays very well. We ought to have regular debates on aspects of that area, because it is one on which the Commons does not focus very well. As the voluntary sector begins to deal with different challenges, we should look at how well it copes.

I start with some very broad issues about the importance of this area. We are now reaching a point where there is a degree of consensus across all the political parties in this country about the importance of striking the right balance between an open society, a free but regulated market, and a strong but limited state. We can all argue—and that is the place for democratic politics—about exactly how that balance should be struck: how large the state should be, how large a proportion of the economy it should control, and how large a proportion of national income it should take. Those are all difficult issues that we must grasp, but we all now understand that the state cannot do everything, that the welfare state cannot provide everything, and that a state that is too strong impoverishes its citizens. In an open society, we need active citizens who are not too dependent on the state.

I have done most of my politics in Huddersfield, Manchester and Bradford. I remember particularly, when I was a candidate for a central Manchester constituency, arguing with local authority officials who were quite sure that they knew what was good for the people of Hulme better than the people of Hulme did. The people of Hulme sat around and had things done to them, and played very little part in managing their own affairs. Many of us have spent time in those big inner-city estates, and know the problems that that has led to. Part of what the Government have been doing with community organisers and the National Citizen Service has been getting back into those communities the idea that people are better off if they do some things for themselves. We all now know from all sorts of psychological studies that people who feel they have some control over their own lives, and play some active part in their local community, are happier and more fulfilled in their lives.

The right reverend Prelate the Bishop of Derby talks about the end of the welfare state, but I simply do not recognise that concept. Indeed, in some ways the welfare state is expanding. Health reform in the United States is becoming embedded, and I suspect that that will not be reformed. The biggest democracy that has resisted that element of the welfare state is now embedding it. However, we recognise that the welfare state, if simply left, would expand to crowd out all other elements of public expenditure, and would then crowd out the private aspect of the economy as well.

To be maintained in its current state, the National Health Service needs an income that grows larger and larger each year. I am particularly conscious of that at the moment, having just had a new hip, and having discovered how many other people in my generation have also had a new hip. That makes me realise to what extent that sort of thing, as we all get older, is leading to the strains on the welfare state as publicly funded. I hope to make 97 at least, and the strain on the state from my state pension, my travel pass and various other things will also contribute to the problems of the welfare state.

Yes, we are all committed to the continuation of the welfare state, but we recognise that it has limits, that it is bad for us to be too dependent on the state, and that the voluntary sector alongside it has a great deal to contribute—including, of course, to the National Health Service. Just think about how much money is raised for medical research and other dimensions from the voluntary sector, and the excellent initiatives such as those that the Government have been supporting—the growth of dementia volunteers and King’s College Hospital volunteers to relieve the pressures on local hospitals. That is all part of what we must do to ensure that the welfare state continues to maintain its functions.

I follow the debates of such bodies as Policy Network and Policy Exchange, and I recognise that they are all discussing these questions. We cannot depend entirely on the state. Twenty years ago, when I was working for the University of Oxford, I was helping to raise funds for a range of international initiatives. Someone from a Dutch university said to me, “It’s actually very difficult to raise money for universities from the private sector in the Netherlands, because when you approach a possible donor he thinks, ‘If this were a good idea, the state would already have paid for it,’ so the fact that you are asking for a private donation makes people think that it’s not a very good idea.” But when we went to the Swiss, they understood. With a more limited attitude towards their state, they understood that it was a good idea to have both voluntary funding and state funding for higher education. One of the reasons why British universities are better than those in a number of other European countries is that they have both state and private funding.

We have heard a lot of comments on central state funding and local activity. I think that there is a consensus that we have become too centralised, in the UK as a whole but above all in England, and that decentralisation—both from Whitehall to local authorities and, as far as possible, from a relationship between large national charities and the state to one in which local authorities and other local bodies relate to local charities—is healthier. The noble Baroness, Lady Barker, talked about the relationship between big charities and central government. Having stronger local authorities dealing with local voluntary organisations is a desirable state of affairs. I pay tribute to the noble Baroness, Lady Eaton, who talked about the role of Near Neighbours within a number of local communities. There are many examples like that. Local giving, as the noble Lord, Lord Shutt, said, is easier to make a case for—local actions and local campaigns. In Saltaire we are just embarking on local horticulture, imitating Todmorden and others. That means growing local food in spare ground and making it available to people who do not have their own gardens. There are all sorts of local activities that we should be helping to support.

The noble Lord, Lord Kennedy, asked what had happened to the big society. My answer to him is that a great deal is happening. I regret that the Prime Minister uses it less than he did, but I am extremely happy that the Labour Party is now accepting many of the Government’s initiatives into its own campaigns. I was a sceptic about the National Citizen Service myself when it started. It was a Conservative scheme that I was not entirely convinced about—but I became a convert as soon as I visited my first National Citizen Service scheme. I am happy to see that the Labour Party now proposes that that service should be extended. That means that all parties now accept that it is a highly desirable development.

I was equally sceptical about the Conservative proposals for community organisers when they were first made. But now that I have seen community organisers working in Bradford and Leeds, I am persuaded that that is a way of helping to energise shared local action within local communities that all of us, from all parties and perspectives, should be happy to support. That is what is happening on the ground, and I hope that the noble Lord, Lord Kennedy, is as impressed with it as I have been.

We have talked about the problems of youth engagement, but there is quite a lot of encouraging evidence that young people are becoming more engaged in local volunteering. The National Citizen Service has certainly helped, and it appears that young people are keen to get engaged where they are given the opportunity to do so. I recognise that, as one or two noble Lords have said, community work placements can muddy the water, but part of the philosophy behind such placements is to give people some experience of working with others and for others, which in itself is a self-motivating experience.

There has also been much talk about elderly volunteers. We are all aware of that aspect. I have promised my wife that when I retire, in a few years’ time, I will go into voluntary service. I am very proud that when my mother finally stepped down from her last voluntary role, as chair of an old people’s home, she was herself older than a substantial number of the people living in the home. This is not an entirely new idea. The elderly fit are now very much part of those who hold voluntary action of different sorts together.

We have talked a lot about fundraising and funding, state contracting, and provision of public services. Of course, there is a problem with state funding of the voluntary sector, because public funds have to be publicly accountable. That carries with it a level of bureaucracy that does not exist in the same way with private donations. There must be accountability for public funding. The Government are, however, carrying through a number of useful experiments. There are social investment targets to fulfil, and so on, as well as social action proposals and Community First funding, which help to encourage the sector to innovate.

As I have come to terms with different elements in this sector, I worry about the parts of the voluntary sector that are over-dependent on public funding. If a voluntary organisation is dependent on the state for most of its funding, it ceases in some ways to be an entirely voluntary organisation. That seems to me a large issue for the future.

[Lord Hodgson of Astley Abbotts]

I am extremely grateful to my noble friend and shall be very brief. He said some very nice things about me and I am very grateful to him for that. I do not want to bite the hand that feeds me, but before he leaves the issue of social investment, will he give a commitment to look at the wording of “necessary and incidental” and “necessary and proportionate”? Without that change there is a real danger that this important movement may be stifled.

[Lord Wallace of Saltaire]

My Lords, I am happy to give that assurance and I will be in touch with the noble Lord later in terms of what precisely the answer is. We have asked the Law Commission to look at the content of social investment by charities within the confines of charities law, and I will come back to the noble Lord on that.

The noble Baroness, Lady Tyler, asked about the JustGiving report, to which I trust the Government will respond in good time. Payroll giving has developed a good deal. I am well aware from one or two members of my family who work in the City that payroll giving has spread across the City. It is a useful contribution from those who can afford to pay. We all also need to focus on philanthropy in our unequal society. That is the sort of thing that I hope archbishops and bishops will be saying loud and clear. When I think of those within the community I particularly recall the contribution that the Sainsbury family has made in all sorts of ways to medical research, the University of East Anglia, the National Portrait Gallery, et cetera, with the money it inherited. I regret that we have not seen from the City and the financial sector as much in the way of philanthropy from those who have been lucky and successful enough to give back to society what they have gained economically. I hope that we will hear from others on that theme.

A large number of other issues were raised. In terms of campaigning and advocacy, there should be a natural tension between society, the voluntary sector and the state. That is unavoidable. The last thing we would like is a voluntary sector that always said the state was good. I grew up in the Church of England, and it seemed to me that it was far too close to the powers that be. As a boy I would sing:

“The rich man in his castle,

The poor man at his gate”—

not something that I assume the Church of England sets as a hymn very often these days. Thankfully, Churches now see themselves as unavoidably criticising the status quo. Voluntary organisations, of course, should be doing advocacy and campaigning. I should say to the noble Lord, Lord Patten, that I am not sure that I do see a clear difference between campaigning and advocacy.

When I was doing the consultation on the Transparency of Lobbying Bill, I met the Alzheimer’s Society, which told me about its dementia campaign—an absolute classic of a campaign—to raise public awareness on an issue to which society, the state and the media had not been paying sufficient attention. The noble Baroness, Lady Pitkeathley, talked about the carers campaign that had very much the same effect. That is precisely one of the many roles that the voluntary sector should have.

However, we all understand also that there is a point at which campaigning and advocacy becomes political in a partisan way, and therefore approaches a boundary over which campaigners should not step. I know Charity Commission paper CC9 almost off by heart now. CC9 is relatively clear and therefore the challenge made by the noble Lord, Lord Finkelstein, is one that is unlikely to be offered.