Charities Bill [HL]

Lord Hodgson of Astley Abbotts Excerpts

Thursday 18th November 2021 Other Business

Moved by

[Lord Hodgson of Astley Abbotts]

1: Clause 3, page 3, line 9, at end insert—
“(2A) For the purposes of this section “amendment” includes the entire replacement of the trusts of the charity.”Member’s explanatory statement
This amendment provides that the power of amendment in proposed section 280A can be used to replace the entire governing document of an unincorporated charity with a new governing document.

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[Lord Hodgson of Astley Abbotts (Con)]

My Lords, since I am not a Member of the Committee, I hope noble Lords will forgive me if I say a few words about why I have taken a particular interest in this sector and this piece of legislation. This comes about because, as long ago as 2005, I was the Conservative Party’s Front-Bench spokesman on what became the Charities Act 2006, which is now the Charities Act 2011. My party was then in opposition, so I was the shadow spokesman and the government Minister on the Bill was the noble Lord, Lord Bassam of Brighton, well known to all of us and a familiar Member of this House.

The 2006 Act represented the biggest shake-up of charity law since 1601. It was a very substantial change and, while it was generally agreed across the House that the sector needed a shake-up, there was a concern about the unintended consequences that might flow from such a big change. We therefore wrote into the Bill, again by consent and with the agreement of the then Labour Government, the need for a five-year review, which I was asked to undertake in 2011. That is really the basis of my interest. This Bill in large measure flows from the work that was done in 2011, which was reported on, looked at and then enhanced and improved by the Law Commission and forms the basis of what we are discussing and approving today.

I want to place on record my thanks for the help I received from what was then the team in the Cabinet Office, now DCMS, led by Ben Harrison who is here today. It was a terrific effort and they were exceptionally helpful. I want to make that very clear.

It is a humbling experience to spend a year looking at the charity sector, because you see what relatively small groups of men and women, with relatively few assets—money, plant, equipment or buildings—do at the local level to improve their communities and make the lives of their fellow citizens better. I therefore felt that there were three things we ought to try to achieve. First, we wanted to have lines of authority and responsibility that were as clear as possible, from the commission and within the 170,000 registered charities. Secondly, because many of those charities are pretty small, we wanted to be deregulatory, as far as possible. It was important, in my view, that people should spend their time on public benefit and not on filling in forms. That is the origin of the phrase that I have heard being used in evidence sessions in Committee of “getting the barnacles off the boat”. Thirdly, overarching this was the need to maintain public trust and confidence in the sector, without which all is lost.

I am sorry for taking a minute or two. I do not want the Committee to think that I am whingeing about the Bill. It is an excellent Bill and I support it very thoroughly. I have a certain avuncular interest in its success, but there are some improvements that we could make and to these I now turn.

When you are known to have undertaken a review of a sector like the charity sector and a piece of charity legislation comes along, you are fair game for a bit of lobbying. Everyone tips up and says, “Have you thought about this? Have you thought about that?” I suppose between 15 and 20 groups came to me about various points in the run-up to Second Reading. I said to them, “That’s absolutely fine, but I’m carrying a spear at the back of the stage on this now. I no longer have any influence on this at all. I’m just a normal Back-Bencher. You need to talk to the Bill team.” My noble friend Lord Parkinson’s predecessor, my noble friend Lady Barran, very kindly arranged for us to meet the Bill team, talk about it and give their details, so I said to each of the people who approached me, “Go to the Bill team and, if you don’t have any satisfaction, then of course come back to me. I’ll be pleased to try to see whether we can get clarity and/or satisfaction.”

Of the bodies that came to approach me only one came back, and this is the subject of these amendments. It was brought to my attention by solicitors acting for the Spilsby Grammar School Foundation, which is a registered charity but an unincorporated association—quite a rare form, but nevertheless one that does still exist. The foundation was created in 1994 to administer the property and funds connected with King Edward VI Grammar School in Spilsby in Lincolnshire. It is a grant-making charity and is not connected with its successor school, the King Edward VI Academy.

The charity is governed by a scheme put in place when it was set up in 1994, and its provisions are now very out of date. Individuals named are no longer alive. Property specifically referred to in it is constitution is no longer owned. Organisations have changed their names and the charity wishes to update its constitution. The trustees were very surprised when, earlier this year, the Charity Commission stated that it was not possible for a charity governed by a scheme—that is to say an unincorporated association—to replace that scheme by a constitution. The Charity Commission said, “A scheme is a narrative of the charity at the moment in time when it was made.” It further said that a schedule detailing the property, all of which was sold prior to 2009, does not require removal from the governing documents. This does not seem a very sensible way of proceeding. The solicitors to the trust said that they were aware of a handful of other foundations in a similar position.

To make it clear, nobody, certainly not I, is suggesting that the trustees of the Spilsby foundation should be free to make whatever changes they feel necessary without the appropriate permission from the Charity Commission. What do I mean by “appropriate”? It depends on precisely the level of importance of the changes you are making, in particular when they are to what are called protected clauses, which are the essence of the rationale and purpose of the individual charity. Clearly, where you are going to change major items of the constitution affecting its purpose, then you will need a higher level of permission.

Amendment 2 deals with a situation where you are dealing with issues that are merely changes of wording: they make no change to the underlying purpose of the charity but just change the wording. What might I mean by this? For example, a lot of charities have words such as “servicemen” in them. We do not have just servicemen anymore; we now have service men and women, so we need to change that to “service personnel”. In many charities, for example, what we would now describe as being disabled is described as “invalid”, which as a term has become slightly pejorative. So you are making changes to bring the document up to date with modern parlance. That is Amendment 2.

But Amendment 1 is where we deal with the wholesale replacement, which, according to the commission’s email on 21 January, is not currently permissible. This is to keep the protected clauses up to date and, obviously, can be done only with the full consent of the Charity Commission.

So when my noble friend the Minister comes to reply, there are three things I think he might say. One is that the Charity Commission was wrong in its interpretation, when it wrecks the Spilsby Grammar School Foundation, and there are ways in which it can update its constitution. The second is that the Government recognise that there is a problem and will take it on board and bring forward some suggested amendments at the next stage of the Bill’s proceedings. I hope that he will say one of those two things. The third thing he might say is that this is all too difficult and the boat has sailed so we must wait until it comes along next time and, in the meantime, Spilsby will have to work with the presently rather unsatisfactory situation. I hope that he will not say that but, with that, I beg to move.

[Baroness Barker (LD)]

My Lords, it has been a real privilege to be part of the Committee for this Bill and, in particular, to have been part of the special evidence sessions that we had, because this is a Law Commission Bill. As the noble Lord, Lord Hodgson, has just demonstrated, this is fiercely technical, arcane law governing very rare situations.

In the original proposals that were put forward, the Law Commission explained that in its recommendations it was trying to take several hundred years of charities’ existence in different forms and formats and try to bring some of the law that applies to charities of different formats—particularly unincorporated charities, as differentiated from incorporated charities; charities can be incorporated in a number of different forms—to try to bring the process of amending governing documents much more into line, so that a trustee in any charity would have a clearer idea of how they could go about amending their charity’s governing document. The Law Commission had to go back through all sorts of different statutes that have led us to the point where we are now in charity law. It readily admitted that, if you were going to invent a way of doing this in future, you would not start from where it had to start.

The Law Commission put in place what it saw as a new way of enabling charities to amend their governing documents. Part of our job today is to try to explain that to people who are not steeped in all the detail of it. What we are talking about, by and large, is charities not changing the purpose for which they exist but changing the ways in which they achieve that purpose. In the case that the noble Lord, Lord Hodgson, set out, he is right that, when a major change concerns the disposal of property, that is a very significant change. Our evidence from the Law Commission said that there is a particular problem in cases such as the one cited by the noble Lord where there may not be a dissolution clause in a very old constitution. Therefore, in order to achieve some kind of disposal of property, it is not possible for the charity simply to dispose of that property and merge with another charity. However, the Law Commission says that it is, and that what it has come up with is a simplified way of doing this. Some charity lawyers disagree with the way in which the Charity Commission has gone about seeking to do that; this is the issue that the noble Lord, Lord Hodgson, has alighted upon.

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[The Parliamentary Under-Secretary of State, Department for Digital, Culture, Media and Sport (Lord Parkinson of Whitley Bay) (Con)]

My Lords, before responding to this group of amendments, I first extend my best wishes to the noble and learned Lord, Lord Etherton, who has so ably chaired this Special Public Bill Committee so far. I hope he gets well soon and is back with us swiftly.

I thank my noble friend Lord Hodgson of Astley Abbotts for tabling Amendments 1 and 2 to Clause 3 and for the way he set out not just the amendments but, helpfully, the background to the Bill’s importance to charities and the people it will affect. Of course, he has long-standing interest and experience in this important area.

On my noble friend’s Amendment 1, which would insert a new subsection (2A) at line 9 on page 3 of the Bill, we consider that new Section 280A can be used to replace all the stated governing document in its entirety, with Charity Commission consent in respect of the particular provisions that fall within Section 280A(8). We do not think that a legislative solution is necessary and, as has been noted, this view is supported by the Law Commission and the Charity Commission—we have discussed the issue with both of them. I am grateful to my noble friend for raising this point, as it has prompted us to consider ways in which we can make the position clearer, but I hope that, on that basis, he will feel able to withdraw his Amendment 1.

On Amendment 2, which would insert subsection (9A) at line 14 on page 4 of the Bill, although my noble friend again makes an important point, we can in fact already achieve what the amendment sets out to do under the clause as it stands. Under the Bill, the Charity Commission’s consent is required for an amendment that would alter any unincorporated charity’s purposes. That is equivalent to one category of regulated alterations for charitable incorporated organisations, which requires the consent of the Charity Commission. By way of comparison, the Charity Commission currently treats amendments to the purposes of charitable incorporated organisations of the same type referred to in the amendment as not being a regulated alteration and therefore not requiring Charity Commission consent. Given the similarity between the statutory provision concerning charitable incorporated organisations and the new Section 280A(8)(a), the same approach would be taken in relation to changes to unincorporated charities’ purposes. Therefore, Section 280A(8) as it stands already looks at substance over form, and an amendment to a governing document would require Charity Commission consent only if it makes a substantive change, not if it is a pure drafting change. I hope that provides reassurance to noble Lords. As with the previous amendment, this is a view supported by the Charity Commission and the Law Commission.

However, I thank my noble friend for keeping us on our toes and for rightly probing this issue. Of course we want the situation to be clear to everybody who will be affected by the new law, so we will consider whether the Explanatory Notes could be expanded on this point to make that clearer. I hope that, on the basis of that reassurance—not the third of the options that my noble friend outlined in his opening speech but looking again at the Explanatory Notes to make this clear to all concerned—he will feel able not to press his Amendment 2.

[Lord Hodgson of Astley Abbotts (Con)]

I am grateful to the noble Baroness, Lady Barker, and the noble Lord, Lord Ponsonby, for their contributions. My noble friend the Minister has, of course, elegantly found a third way: it was not that the Charity Commission was wrong; it was not that we need to produce some new change to the Bill; there are powers within the Bill as it stands to find a way around the problem through Section 280A and ancillary provisions. I talked about getting barnacles off the boat, and this was certainly a barnacle. I will reflect on this, talk to the people from Spilsby, who are obviously at the front line of this to see if they have any comments. In the meantime, I beg to withdraw the amendment.

Amendment 1 withdrawn.

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[Lord Ponsonby of Shulbrede (Lab)]

My Lords, the noble and learned Lord, Lord Etherton, has asked me to move his Amendment 3 and has provided me with speaking notes, which I will read out. I would like to send my best wishes to the noble and learned Lord and hope that he comes back to our proceedings as soon as possible.

Amendment 3, as set out in the brief explanatory note included in the Marshalled List, is in accordance with the recommendation of the Delegated Powers and Regulatory Reform Committee’s fifth report of Session 2021-22. Clause 12, which introduces new Sections 284A, 284B, 284C and 284D to the Charities Act 2011, creates a new statutory power for a charity to borrow a limited amount from the permanent endowment subject to repayment. Borrowing is limited to the permitted amount, as defined in Section 284B by reference to a formula in new Section 284B(1), and must be repaid within 20 years, as required under new Section 284A(2)(b), under the current provision in Clause 12(3) of the Bill.

Those two matters can be amended by regulations made pursuant to the negative resolution procedure. Clause 12(3) is one of five provisions in the Bill providing for regulations to be made by negative resolution where the appropriateness of the negative procedure has been questioned by the DPRRC. The DCMS response was that the powers are narrow in scope and use of the negative procedure merely follows the practice in the 2011 Act. There are three answers to that response. First, the fact that the negative resolution procedure is mostly used in the 2011 Act does not warrant the negative resolution in every case in the Bill. Secondly, there are provisions in the 2011 Act that stipulate the affirmative resolution procedure—see Sections 348 and 349. Thirdly, the regulations in Clause 12(3) are to be contrasted with regulations that are directed merely to changes in the value of money over time. As to that, the 20-year repayment stipulation is not a financial or threshold amount. No doubt it is for that reason that in his oral evidence Professor Hopkins of the Law Commission accepted that Clause 12 was not like other provisions in the Bill which provide for financial limits to be altered by regulation.

As to the calculation of the permitted amount, it is to be noted that the DPRRC said that greater weight should be given to the exceptional case of Henry VIII powers subject to the negative resolution procedure than to consistency with the existing approach in the 2011 Act; that in such cases provision for the negative resolution procedure to apply is to be treated as exceptional and requires a full justification to be given; and that, critically, unlike a power to amend the financial limit or threshold limit to uprating for inflation, the power in the Bill to amend the permitted amount that can be borrowed from the permanent endowment is not limited in any way and, in particular, is not limited to making changes to reflect changes in the value of money. I beg to move.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I urge the Government and/or the Committee to accept this amendment and in doing so I, too, send my best wishes to the noble and learned Lord, Lord Etherton, for a speedy recovery. I am sorry he is not here to speak to his amendment.

The issue of permanent endowment is critical. It sounds highly technical, but it is critical because if you give a sum of money for the future, you may not wish your successors after you have died to spend it all. You may wish to have a permanent lump of money that will go on creating, looking after and fulfilling the public benefit you had in mind when you gave your funds in the first place. It is a key issue of a donor’s wishes as expressed in the way that the charity is set up. That is one problem.

The other half of the problem is that times change. The numbers get quite small because of inflation and the nature of the purposes to which you wish to put your money become outdated. We therefore need to find a way to balance this, but it is important because a person’s wishes as expressed in their will are a critical part of our society, so issues such as this require the affirmative resolution. Of course, we need to be able to change things to reflect inflation and so on, but it needs as high a level of scrutiny—of regulation—as we can offer. There are arguments about whether any level of secondary legislation scrutiny is good enough, but that is for another day. What is important is that we should have the highest possible level of scrutiny for this type of change that is available in the present regulatory structure.

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Moved by

[Lord Hodgson of Astley Abbotts]

5: After Clause 36, insert the following new Clause—
“References to the Tribunal
(1) In section 325 of the Charities Act 2011, in subsection (2), for “with the consent of the Attorney General” substitute “where the Commission has given the Attorney General 28 days’ notice of its intention to make such a reference”.(2) In section 326 of the Charities Act 2011, in subsection (1), at the end insert “provided the Attorney General has given the Commission 28 days’ notice of his or her intention to make such a reference”.”Member’s explanatory statement
This amendment implements the Law Commission's recommendations that the Charity Commission should not be required to obtain the consent of the Attorney General before making a reference to the Tribunal and vice versa.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I come to my second set of amendments. This is not a barnacle; it is an issue of principle. What a panoply of talented people have been good enough to put their names to the amendment: a past Front-Bench spokesman from the Labour Party; the current Front-Bench spokesperson for the Liberal Democrats; and, on my right, last but not least, my noble friend the immediate past chairman of the Charity Commission.

The amendment concerns an issue on which the Committee took a lot of evidence, which I sat in on and listened to with interest. I do not want to repeat all that, except to say the following: the man in the street would undoubtedly think, in so far as he thought about it at all, that the Charity Commission was an independent, stand-alone regulator responsible entirely for the proper behaviour of the 170,000 or so charities whose activities reach into every corner of our national life. Why do people think this? In part, it is because of the way in which the media report on the commission: investigating, adjudicating and disciplining the sector for which it is responsible. There is no suggestion of any second-guessing in that.

If you were to probe further, that idea would be reinforced. Section 13(4) of the Charities Act 2011 reads:

“In the exercise of its functions the Commission is not subject to the direction or control of any Minister of the Crown or of another government department.”


That is pretty clear, but, of course, subsection (5) has some weasel words:

“But subsection (4) does not affect … any provision made by or under any enactment”


or

“any administrative controls exercised over the Commission’s expenditure by the Treasury.”

You get the impression that this is about money, so you can understand why the Treasury does not want the commission to be able to run away with the cheque book.

The implications of this were discussed in our proceedings on the Bill. There were no clear conclusions, except that it was a knot that would need untying at some point. As I undertook my review, the complexities and problems of the knot became more apparent because, as we know, Section 325 of the 2011 Act requires any attempt by the commission to seek clarity on a point to law to do so only through the Attorney-General. This means that there is a second-guess of the Charity Commission. The commission will seek interpretation of these important points only rarely; in my view, this decision and the continuing position of the Attorney-General have led to a number of important consequences.

First, it means that there is no longer a clear chain of responsibility and command—one thing that I think is important in the sector. Indeed, the noble and learned Lord, Lord Etherton, put his finger on that point in the evidence session with the Minister, the noble Baroness, Lady Barran, when he said straight up that this means that there are two regulators. He was completely right. Secondly, this undermines the commission’s authority and can prevent it obtaining clarity in the operation of charity law. Thirdly, and most unattractively, it can serve to encourage individual charities to take on the commission. We shall come to an example of that in a minute.

These points were made to me and to the team when the review was being compiled. There was plenty of evidence for them. However, there was a contrary point of view that there could be a risk that the Charity Commission would be rushing off to the tribunal too often. One has to recognise the force of this point.

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[Lord Parkinson of Whitley Bay (Con)]

I am sorry, I should have said that I am glad that the long saga to which my noble friend referred has come to an end, but these are complex issues. We do not think we should give too much prominence to one case, long and complex though it may be. We do not think we should look to legislate to remove what is an important check and balance in the system on the basis of the evidence from that unique case, but I have heard the points of concern raised by noble Lords not just today but throughout our consideration of this Bill. We will certainly take away Amendment 6 from the noble and learned Lord, Lord Etherton, to consider it further ahead of Report, but I repeat that I hope my noble friend Lord Hodgson will withdraw Amendment 5.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I thank the noble Baronesses, Lady Stowell and Lady Barker, for supporting my amendment and for their powerful interventions. I also thank the noble Lord, Lord Ponsonby. He spoke on behalf of the noble and learned Lord, Lord Etherton, who was kind enough to speak to me over the weekend about his proposal.

Somebody said that the art of the diplomat is to create ladders down which people can climb. With respect to the noble and learned Lord, it seems to me that the law’s gain has been diplomacy’s loss, because a very elegant ladder has been presented to us here. The Attorney-General preserves his power but he accepts restrictions to it of the sort described by the noble Lord, Lord Ponsonby; namely, the 60-day limit—we will possibly need some clarification on that along the lines of what my noble friend Lady Stowell referred to—and on the comprehensive statement referred to in the second part of Amendment 6. When the noble and learned Lord, Lord Etherton, and I discussed this, we noted that it was very important that “not in the public interest” could not be an explanation, because that took us back to where we are now. If the Minister accepts this, we will certainly want to explore with him exactly what a comprehensive statement would mean and how it would work.

I understand and think this is a very elegant mid-way, but it is half a loaf and not full-fat milk, if I may change the analogy. It does not address the central problem of a divided command and the fact that the Charity Commission is beholden to the Attorney-General. The Minister slightly reminds me of one of those subalterns on the Western Front in the First World War. He is in a very desperate position and has sent a message back to the chateau behind the lines saying, “It is pretty tricky out here.” They say, “No, no. You stay there and hold the position to the last man.”

I will pick up just a couple of the things the Minister said, but I will not detain the Committee long. He said that the issue of the Attorney-General did not really affect many of the commission’s objectives. That is not true. The commission’s objectives concern: first, public confidence, which is affected here; secondly, public benefit, which relates to the public schools case; thirdly, compliance, which relates to the Royal Albert Hall case; and, fourthly and fifthly, charitable authorities and accountability. I would argue that in at least three—possibly three and a half—of those, the Attorney-General would take an active interest in points referred to as a result.

I understand the second point about the Royal Albert Hall case being particularly complex, but every one of these cases will be complex. Cases on public schools, religion and poverty will be extremely complex and complicated. None of the things that will rise to the top in respect of the Charity Commission’s position will be easy, because they are difficult moral questions affecting all sorts of views about public values and the way our society operates. I therefore do not accept that the Royal Albert Hall case was particularly complex.

As the noble Baroness, Lady Barker, said, four and a half years in, we do not have a decision. Is it a conflict to profit from the management of an organisation of which you are a trustee and so profit from the decisions you make? Should that be allowed? Since April 2017, the Charity Commission has been waiting to resolve that and the Royal Albert Hall is sailing on unaffected. Maybe that is right and reflects what the tribunal would find, but surely we need to get this resolved, in fairness to the Charity Commission and the sector.

I have gone on long enough today. This is an issue which remains thoroughly unsatisfactory in every way. We are a small group here today and I am not a member of the committee. I will withdraw the amendment, but I serve notice to the Minister that I reserve the right to bring it back when we come to the next stage of the Bill. I also look forward to hearing further about what the Government propose to do in response to the amendment from the noble and learned Lord, Lord Etherton. I beg leave to withdraw the amendment.

Amendment 5 withdrawn.