Community Interest Company (Amendment) Regulations 2014

Lord Young of Norwood Green Excerpts

Monday 21st July 2014 Grand Committee

It is strange to set this performance-related percentage in a vacuum. It would be much better if it were related to the Bank of England’s base rate, as then it would go up and down depending on interest rates. There have been times when rates have reached a level when a 20% performance-related rate would have been perfectly proper, but at current levels that is not the case. I understand that this is pretty specialised and specific. My noble friend may wish to write to Members of the Committee about it, but her officials may have managed to scribble a note that has made it absolutely clear that the whole thing is not as I thought it. If that is the case, I would be happy to withdraw my concern, which is that there is an opportunity here for malfeasance that could undermine general confidence in the sector.

[Lord Young of Norwood Green (Lab)]

My Lords, I thank the Minister for her introduction and the noble Lord, Lord Hodgson of Astley Abbotts, for his seminar on the variety of different organisations, which certainly educated me. He talked about destroying trust, but even now you regularly get bits of paper through your door, sometimes accompanied by a bag, from organisations purporting to be collecting clothes for charity. It is only when you read more carefully that you realise that there is not a registered charitable number associated with it. Even now the public have to be careful when they are contributing either in cash or kind.

We are not opposed to these changes, but we have some questions, to which I trust the noble Baroness will be able to respond. One justification for this move is to increase the number of CIC start-ups, but does the Minister have any estimate of the increase that will result? What merits are there in the Government’s proposal to remove the individual share cap while retaining the aggregate cap, versus the CIC Association’s proposal of linking the individual dividend cap to profits rather than paid-up share capital? Have I made that clear, or do I need to repeat it? I am looking at those behind you. What merits are there in the Government’s proposal to remove the individual share cap while retaining the aggregate cap, versus the CIC Association’s proposal to link the individual dividend cap to profits rather than paid-up share capital? That is your starter for five.

The Government aim to create more of a market in CIC shares through the removal of the dividend cap. However, the CIC regulator has said that that alone is not enough, and that it must be accompanied by clearer guidance and a campaign to educate stakeholders. What is being done to fulfil that objective? I am glad that the noble Lord, Lord Hodgson, raised the question of the performance-related interest rate, because I confess that I did not quite understand what that meant in practice.

On a final point, as a matter of interest, although the Minister may not have the figures: have there been any situations where a CIC company has failed—due to misconduct, shall we say—in any way? What has the track record of those companies been, now that we have 9,300 of them?

[Baroness Neville-Rolfe]

My Lords, I thank noble Lords for their valuable comments during this debate, and for their kind words on my first day on the Front Bench. These regulations introduce a welcome simplification and are important in enabling and encouraging the growth of CICs and making the model accessible to more social entrepreneurs. In response to the question asked by the noble Lord, Lord Young, we expect there to be an increase of between 10% to 20% within the first two years.

With their community benefit, CICs are an important part of the social enterprise landscape which have widespread support, and these regulations will ensure that CICs remain so. The measure will encourage a wider market for investment in a key and growing model of social enterprise that is accountable and transparent in its operation. I was glad that my noble friend Lord Hodgson of Astley Abbotts joined our debate today and was able to make a valuable contribution given his great expertise in the charitable area.

I will make a number of points. The steps we are taking are cautious, and indeed, as the noble Lord acknowledged, they are intended to preserve the vital asset lock. The change to the dividend cap has been 10 years in the making. As I said in my opening speech, that has been thoroughly consulted on and is supported by the CIC community. On the point on performance-related interest, this recognises the balance between risk and reward. The 20% is a maximum and is based on profit. At present, very few CICs pay performance-related interest at all. However, I will look at the points that he made and will perhaps write to him in the light of that.

I agree with both noble Lords that the public should be properly communicated with on the availability of different types of social enterprise entities. We need to explain the options clearly to citizens—and online options in that area can be very helpful and important. That will also be important in the debate we had previously on the new family-friendly policies. We will certainly consider how we can best make sure that those new arrangements and the whole range of social enterprise entity provisions are made publicly available.

The noble Lord, Lord Young, asked about the failure of CICs. The regulator has had a number of complaints about CICs, but that is a very small proportion in relation to the numbers on the register. All are investigated, and I will write to noble Lords with the exact numbers. On the campaign to educate stakeholders, I understand that not only does the regulator place priority on this matter, but it also works closely with umbrella organisations such as Social Enterprise UK, Social Enterprise Mark and the CIC Association to promote CICs. In my experience, that is often a very good way of ensuring wider dissemination of information in the market. I am grateful for the points raised in this debate and I commend these regulations to the House.

[Lord Young of Norwood Green]

Before the noble Baroness sits down, did she cover the rather complex question I asked in her response?

[Baroness Neville-Rolfe]

Perhaps this is the question that the noble Lord kindly repeated for me, twice. I fear that I still found—