Charities (Protection and Social Investment) Bill [HL]

Lord Wallace of Saltaire Excerpts

Wednesday 1st July 2015 Grand Committee

I am glad that my noble friend has tabled this important amendment but I wonder whether one or two points might be expressed more clearly at the next stage.

[Lord Wallace of Saltaire (LD)]

My Lords, my name has been mentioned in this debate and perhaps I should intervene. I spent a good two months of my life much preoccupied with this issue and I came away from it content with the law as it stands. It is quite clear that there is a line between advocacy—which is an entirely appropriate and proper part of what charities should do—and moving too close to party-political campaigning. This is not purely a matter of, as it were, good-works charities on what one might describe as the left, but also about think tanks on the left and on the right. I can think of one or two think tanks which have got quite close to the line of moving from research to a highly partisan presentation of the research they provide. Having worked for 12 years in a think tank, I am conscious of the lines that one has to draw.

In speaking to 50 representatives of different charities, I certainly came across the advocacy point. Some first- class charities raised public awareness of mental or physical conditions, the problem of women unnecessarily in prison and so on—all of which are entirely within charity law. I also came across a small number of organisations which appeared to want to get a little too close to party campaigning, including on one splendid occasion meeting a group of rather large charities, one of which said, “We do not want to have to register for this because the little old ladies who give us money would not want to know that we were doing it”. That seemed to be a recognition that they were indeed moving towards a line that they should not be too close to.

I am happy with a restatement of the position as it stands. I think we all accept that advocacy is a part of what charities do in furtherance of their charitable purposes, but that they should not move too far into the party-political area. Anyone who has been involved in the think-tank world knows how conscious they have to be that that is a line they should not cross.

[Lord Judd]

Does the noble Lord agree that this is not altogether simple? He and I clearly agree on this important matter, but it is not simple because if a charity finds itself strongly advocating a position and a political party is doing the same, that is open to misinterpretation. We have to be absolutely clear that the way in which the law is administered is also transparent. There have been arguments that campaigning should be curbed in the last year before an election. It is absolute nonsense for a charity, which feels strongly, passionately and morally obliged to put forward a case because it wants policy change, to have to lay off in the year of a general election. That would be condoning something they believe is wrong and that is not what any of us would want to imagine happening in Britain. It is very important that the Charity Commission is held to account; that the whims of a particular commissioner are not prevailing and that, from an objective, analytical position, very strict rules are fairly observed.

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[Lord Leigh of Hurley (Con)]

My Lords, I declare my interest as a trustee of a number of charities, national and local, a former trustee of a care charity and, of course, as a senior treasurer of the Conservative Party. I broadly agree with the remarks made by the noble Lord, Lord Wallace of Saltaire. I remember the arguments on the then transparency of lobbying Bill; I was fairly new to Parliament, and I found myself for the first and only time being lobbied—on a lobbying Bill, as it transpired—by charities. However, I take issue with his remark, unless I misunderstood it, about the charities doing good works being broadly on the left. In the charities that I see, the donors’ register broadly replicates that of the Conservative Party, and there are many good-works charities on the right that are helping people to help themselves. I may have misunderstood.

[Lord Wallace of Saltaire]

As the chair of trustees of a musical charity, I would welcome the further conversation that we might have on that.

[Lord Leigh of Hurley]

I thank the noble Lord. I also think that I may have misunderstood the noble Baroness, Lady Hayter, when she talked about some charities not solely campaigning. My experience is that some charities are solely campaigning ones; in fact, I had personal experience of that only two weeks ago when a raven bird got stuck in my basement. In a moment of panic, and prompted by my young children, I was too frightened to address the issue myself so I rang the RSPB, thinking that that was a logical solution. The RSPB informed me that under no circumstances does it actually go out to assist birds in distress or in danger of damage; no, it is a lobbying charity. I was to either ring another charity or do it myself. In the event, I passed the buck to my wife.

My point is that there are charities that have evolved—some quite rightly, but some perhaps worryingly—into pure campaigning. The charities with which I am involved found the transparency of lobbying Bill helpful, in that it was clear that during the election we had to keep on the straight and narrow. On the boards of the charities with which I am involved sat a broad-array spectrum of political opinions, and it helped to ensure that we all abided by the Act and did not engage in political advocacy during the election.

I am particularly heartened by the comments from my noble friend Lord Hodgson of Astley Abbotts that he is taking further evidence on this issue. I rather hope that this can still be discussed at a later stage with that evidence, and I ask for the Minister’s comments on that.

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[Lord Hodgson of Astley Abbotts]

My Lords, I have three amendments in the group, Amendments 18A, 18B and 20A, which follow the noble Baroness down the rabbit hole of definition. However, I have to say that the advice I am getting—I am not going to pretend that I drafted these amendments—is that the Bill as drafted does not do what it says on the tin. I should like to take a minute to explain why that is the case and why the Government should be considering amendments along the lines of these three. I am supported in this by members of the Charity Law Association.

Perhaps I may back up for a moment. We spent quite a lot of time in my review on social investment, which obviously presents tremendous opportunities if we can set it up right and make it work effectively. As I said at Second Reading, that is not just in terms of this country. We in the UK have done so much heavy lifting that we are in a world-leading position in this new area. We heard from my noble friend on the Front Bench at Second Reading that the Law Commission carried out a consultation on these and various other proposals to remove unnecessary impediments to the growth of social investment. That consultation ended in July 2014 and the commission’s final report underpins much of what lies in Clause 13. I do not doubt for a moment the Government’s good intentions regarding social investment, but there is a view held by specialists in this area that the current drafting of the clause—specifically, proposed new Section 292A—does not capture the results of the Law Commission’s consultation, which the Government have accepted and which I think this Bill was supposed to implement. It is worth quoting from the summary of its conclusions at paragraphs 6 to 8 of the report:

“6. We recommend that a new statutory power should be created, conferring on charity trustees the power to make social investments, so as to put the law beyond doubt.

“7. A social investment is any use of funds from which charity trustees seek both:

(1) to further one or more of their charity’s objects; and

(2) a financial return, which might include (i) income, (ii) capital growth, (iii) full or partial repayment, or (iv) avoiding incurring financial liability at a future date.

“8. We recommend that the new power should apply unless it has been expressly excluded or modified by the charity’s governing document”.

The consultation paper produced by the Law Commission contains a splendidly clear diagram of how this works and sheds light on what is a pretty technical area. At one end are the grants where the money is given and at the other end is investment where there is a financial return. But in between, close to a grant, there are what is known in the trade as programme-related investments, which support the charitable objectives of the charity but do not expect a financial return. As you inch towards financial investments by moving across the spectrum, you reach something known as mixed-motive investment, a title that I find quite appalling because a mixed motive sounds like an ulterior motive. I wanted to change it to “mixed-purpose investment”, but that was altogether a bridge too far and we are still stuck with the terrible title of mixed-motive investment. Never mind; we can leave that for another day.

There is concern among charity lawyers that the Bill permits programme-related investments but does not give an adequate statutory power to mixed-motive investment, which I like to call mixed-purpose investment. That is because of the general drafting, particularly the use of the word “directly”, of subsection (2)(a) of Section 292A to be inserted in the Charities Act 2011 under Clause 13. Charities may not always act directly to further their charitable purposes. They may do so through a third party, which may not be exclusively charitable.

I have received examples of how this might work. First, a diabetes charity seeks to invest in a company developing foods calculated to reduce the impact of diabetes on sufferers but which are available to the general public. The investment will achieve some mission benefit for the diabetes charity but the fact that the foods will be available more widely means that not all the activities of the investee will advance the objects of the charity because there is a commercial element. The object therefore will be advanced only in part, which is why we need to get the words “in part” in the rephrasing.

Secondly, a charity that has purposes to relieve unemployment wants to invest in a social firm in the construction industry that employs ex-offenders at risk of unemployment. Once employed, the individuals employed by the social firm are not charitable beneficiaries because they are employed. The investment by the charity and the social firm may in part relieve unemployment but it also, in part, advances other purposes and benefits individuals who are employed by the social firm.

The worry is that almost any situation in which a charity is investing in a non-charitable social enterprise—picking up the point made by the noble Baroness—such as co-operatives, community benefit societies or community interest companies, will likely involve mixed-motive investment and will likely advance the objects of the charity in part and not exclusively. Without adequate clarification of the power, the Government risk introducing a statutory power which fails to achieve the clarity and confirmation that they seek.

Quite simply, Amendment 16A deletes the phrase,

“directly furthering the charity’s purposes”,

and replaces it with,

“furthering one or more of the charity’s purposes in whole or in part”.

The examples that I have just given underline that. Amendment 18B would insert a new subsection at the end of what will become subsection (7). It would state:

“A relevant act of a charity may be carried out with a view to furthering one or more of the charity’s purposes in whole or in part for the purposes of this section even where the relevant act may not exclusively further one or more of the charity’s purposes”.

Finally, Amendment 20A would make an amendment to new Section 292C, to which we will come later, headed “Charity trustees’ duties in relation to social investments”. At the end of subsection (2) it would insert,

“having had regard to the degree to which the relevant act is expected to further one or more of the charity’s purposes in whole or in part, and the expected financial return”.

That is all quite complicated, technical and difficult but it has important consequences. However, the charity law sector is concerned that we need to bottom this out. I am sure that the Government accept that, and I certainly believe that we want to put the ability of trustees to make mixed-purpose, mixed-motive investments beyond statutory doubt. I am sure that my noble friend will not be able answer all this today but I hope that he can take on board the concern about the technical details. I think that they have been raised elsewhere with the Treasury and so on, and it may be that we will need to have a discussion about it. I hope he can see what the sector is driving at. The sector is merely wishing to ensure that what the Government want to achieve can properly be achieved by the Bill. Currently, it does not think that the drafting achieves that.

[Lord Wallace of Saltaire]

My Lords, I agree with much of what the noble Lord has said. Perhaps I may remind him that when I first went to a tutorial with him on charity law history, he said that part of the glory of charity law was that so many definitions were left loose.

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[Lord Lea of Crondall]

My Lords, I tabled this amendment to help clarify what Clause 13 is not, as much as what it is. I would like to ask the Minister how widely this clause can be interpreted. I do not want to wake up one morning and find that it means something quite different from what I thought it meant. I would like to clarify that it is not an opportunity to open up a further shift towards helping taxpayers invest, with socioecononomic income distributional consequences, in private education rather than public education. I do not think anyone would deny that that is a consequence of the charity status of public schools in this country. I repeat that my purpose is to ensure that we all put our cards on the table as to what is going on here and what may be open to interpretation. We do not want to wake up one morning in four years’ time and say, “Well, people kicked the ball through that goal and you did nothing about it. Are you stupid or something? You didn’t keep your eye on the ball”.

I do not know how we are going to avoid the spectre that I am talking about but I will put my question to the Minister in two parts. First, will he comment on my anxieties or analysis of what this may lead to? Secondly, if he wants to reassure me—not me, I am sure he does not wake up in the middle of the night and think, “I’d like to reassure the noble Lord, Lord Lea, of something”; but if he wanted to reassure people—that this does not have any wider consequences in the sphere that I am talking about, what is wrong with this amendment? The answer can only be that it is redundant or offensive. I would like to know which it is. Is it redundant or is it offensive and if so, why? I beg to move.

[Lord Wallace of Saltaire]

My Lords, the noble Lord, Lord Moynihan, and I both have amendments down for Monday’s Committee sitting which relate to the issue of public benefit and public schools, and specifically the provision of their facilities for use by others. We all know that this is a delicate and sometimes politically controversial issue. What I want to say on Monday—although I realise with horror that I am supposed to be speaking in a debate on Gaza at the same time—is that now that private schools in Britain with charitable status have some wonderful sports, music and drama facilities, the question of how far they make them available to their communities is one that we cannot entirely ignore.

It happens that a charity which I chair has benefited from very good partnerships with a small number of public schools which do this precisely because it demonstrates that there is a public benefit, and I am sure that the noble Lord, Lord Moynihan, will be saying much the same thing. We will return to this issue on Monday, but one has to be careful not to go on an all-out attack on schools with charitable status. Nevertheless one would wish to insist that public benefit does mean what it says in this and other areas. As I say, we will return to these matters on Monday.

[Baroness Hayter of Kentish Town]

My Lords, I want to add little to what my noble friend Lord Lea has said, but it is a question that needs a serious answer. It does not take much imagination to see how such investment could be used by certain facilities to further enhance the advantages they already have, and therefore a serious response is needed. We look forward to hearing it.