Small Charitable Donations and Childcare Payments Bill

Debate between Rebecca Long Bailey and Susan Elan Jones

3rd reading: House of Commons & Report stage: House of Commons
Tuesday 15th November 2016 Commons Chamber

[Rebecca Long Bailey]

New clause 1 would require Her Majesty’s Revenue and Customs to publish in each tax year a report detailing the number of penalties imposed under the Small Charitable Donations Act 2012 and the circumstances giving rise to the imposition of such penalties; HMRC’s assessment of the extent to which charities have been established or have operated for the primary purpose of securing benefits from the small donations scheme; and an assessment of the evidence available on the role of the gift aid matching rule in preventing fraud and abuse. New clause 2 would require the Government to conduct a review of the operation of the gift aid matching rule, which is the rule that the total gift aid donations operation for a charity must be 10% or more of the amount of small donations on which top-up payments are made. The new clause stipulates that the Chancellor should consult charities and other relevant organisations about the role of the matching rule in preventing fraud and abuse, and the appropriateness of exercising the Treasury’s powers to amend or abolish the rule. New clause 4, which was tabled by the Scottish National party, would also require the Chancellor to assess the impact of abolishing the matching requirement.

During the Bill’s passage through the House, we have had extensive debates about the matching requirement—rightly so, because it is the biggest issue affecting the efficacy of the scheme, according to the charities that use it. The sector thinks broadly that the requirement is arbitrary and is a significant barrier to charities being eligible for the scheme. A consultation with members of the National Council for Voluntary Organisations showed that it is the most significant barrier to access for smaller organisations. The survey found that 50% of respondents with an income under £10,000 wanted the removal or reduction of the matching requirement.

Ahead of Second Reading, the NCVO argued that the Government have presented no evidence to demonstrate the extent to which the matching requirement is a necessary mechanism to prevent fraud and error, or that the matching ratio of 1:10 is the minimum necessary to achieve this objective. Despite considerable debate on this matter, we have got all the way to Report and the Government have still failed to provide any evidence that the matching requirement works. I would welcome the Minister’s comments on that today.

New clause 2 would force the Government to produce evidence in the form of a review and report on the operation of the gift aid matching rule, and whether it should be changed or removed entirely. New clause 4 would require a similar review, so we will be happy to support that measure. I would rather not have to press our new clauses 1 and 2 to a Division unless we have to. They call for a review of something that the charity sector says is hindering the scheme. I hope for some movement from the Minister on the issue today, but if the SNP’s new clause is pressed to a Division, we will support it wholeheartedly, as it reflects many of the principles that we have outlined in new clauses 1 and 2.

I am sure that the Minister will repeat her argument that the matching requirement is necessary to prevent fraud. I agree that we need measures to safeguard against such abuses. The Charity Commission has provided figures showing the extent of fraud in the charity sector. In 2014-15, 417 serious incidents involving fraud and/or theft or the misapplication of funds were reported by charities to the commission, and 255 operational compliance cases were completed. As Members are aware, just last week the commission announced in a press release that it was investigating the charity Our Local Heroes Foundation. According to the commission, it had received information about a proposed disposal of land owned by the charity, concerns regarding the founder of the charity receiving significant personal benefit through the charity, and a complaint that the charity was receiving only 20% of funds raised through a fundraising company.

This is just one case, but it is a sad example of charities being used as vehicles for tax avoidance and fraud. It is therefore incumbent on us to make it as hard as possible to abuse charitable status. That is why we have tabled new clause 1, which would require a review of the prevention of fraud and abuse in the small donations scheme. As I said, the review would need to address the number of penalties imposed under the Small Charitable Donations Act 2012 and the circumstances giving rise to the imposition of such penalties. It should include Her Majesty’s Revenue and Customs’ assessment of the extent to which charities have been established or have operated for the primary purpose of securing benefits from the small donations scheme, and HMRC’s assessment of the evidence available on the role of the gift aid matching rule in preventing fraud and abuse.

The Government’s guidance on the scheme explains that if a charity or community amateur sports club

“incurs a penalty in respect of an incorrect Gift Aid claim or GASDS”—

gift aid small donations scheme—

“claim, it won’t be eligible for the scheme both for the tax year in which the incorrect claim was made and in the following tax year.”

I would argue that the link between gift aid and the scheme is stronger than the matching requirement. Charities claiming gift aid can still be, and indeed have been, fraudulent organisations, so simply having a monetary link to the gift aid is not enough. This provision—that if a gift aid claim is wrong, a charity cannot claim through the scheme for that tax year and the following tax year—seems to be a stronger safeguard against fraudulent organisations than the matching requirement. Things might be more complex than that, but a review would clearly be beneficial, because we could assess where the matching requirement actually works effectively. In that way, the Government and the charities sector would be able to see clearly which anti-fraud measures were most effective.

New clause 3 deals with a different matter. Members and the Minister will remember that we made the case in Committee that certain groups—the girl guides, the scouts, and the Army, Navy and Air Force cadet groups—were not able to get the full benefit of the small donations scheme. That was after feedback from the respective charities’ representatives that, because of the structure of the groups, they were able to make only one claim for the entirety of the group, even though individual groups within them fund themselves.

The Minister responded that the measure proposed in Committee was unnecessary because the Bill allowed for what it proposed. She neatly illustrated why she would reject it—because, at the time, it carved out a few selected charities—but we want provisions to benefit a broad range of charities, some of which were not named in the original new clause tabled in Committee.

New clause 3 attempts to address the Minister’s points by allowing the Treasury to make regulations to exempt certain organisations from the connected charities rules. The Government would have to consult the Scout Association, the Guide Association and the Combined Cadet Force Association, in particular, before publishing those regulations. The Minister said she would reflect on the points raised in Committee, so I hope that she will accept the new clause today. It would not carve out a few selected charities, but give the Government the power to consult organisations that are mistakenly affected by the connected charities rules. It would, therefore, make the scheme run more smoothly, which is, after all, the point of the Bill.

I hope that the Minister has listened carefully to the rationale behind the new clauses and recognises that we are genuinely trying to achieve the same end: to make the gift aid small donations scheme work as well as possible for as many charities as possible. I hope that the new clauses will be accepted. We will not press new clauses 1 and 2 to a vote, but we will divide the House on new clause 3, and we will support new clause 4 should the SNP choose to press it to a Division.

[Susan Elan Jones (Clwyd South) (Lab)]

I speak in support of the points made by our shadow Minister about new clauses 1 and 2, which deal practically with the issue of fraud and put the onus very simply on HMRC to establish the extent of the problem. The difficulty facing the voluntary sector is that even with the £15 million of additional support in the Bill, the gift aid small donations scheme will distribute roughly £40 million, which is only about a third of the £115 million that was, according to Government opinion, projected to be distributed next year. This scheme could and should be growing. It is important because it helps and develops the smallest charities, and that must continue.