Small Charitable Donations Bill

Richard Fuller Excerpts

Tuesday 4th September 2012 Commons Chamber

[Miss Smith]

I do not want this debate to descend into a battle of quotations—although I could, for example, provide the hon. Gentleman with a quotation from Mr Graham, the chief executive of a charity not far from my constituency, who has said:

“Being a very small charity relying on small private donations and monies collected in tins positioned in shops etc I welcome this Bill. It will certainly make a difference to the very needy children in Kenya that Mnarani Aid supports.”

The Bill has been broadly welcomed by the sector. It puts cash towards charities. I shall set out how it does that and deal with some of the points that some stakeholders have made over the summer and beyond. I am confident that the Bill does what it sets out to do, which is to support charities in a constructive way and the funding will be welcomed.

[Richard Fuller (Bedford) (Con)]

If I may, I shall take the Minister away from the details and towards the overall philosophy. In the tax treatment of charities, we can use the gift aid or “charity grabs back the tax” model or we could convert to a model whereby individuals deduct from their tax the charitable contributions they make, as happens in the United States and other countries. Was that general philosophical debate part of her consultation and deliberation on the Bill, or has she looked more specifically at how to improve and enhance the gift aid scheme with this new initiative?

[Miss Smith]

I shall try to be careful in responding. A number of interesting issues have been raised that are not necessarily part of today’s Bill. In addition, a number of improvements to gift aid have often been mooted or discussed, but they are not necessarily part of the Bill either. In direct answer to my hon. Friend’s question, therefore, the matters for consultation and scrutiny to date relate closely to this scheme and the mechanisms within it, which I shall now set out.

Under the scheme, charities will be able to claim top-up payments equivalent to the basic rate of tax paid on a donation, which is currently worth 25p for every £1 collected on small cash donations of £20 or less. Therefore, if a charity claims on the full allowance of £5,000 of small donations in a year, that will mean an additional £1,250 of income. It is that which charities will welcome. Hon. Members will know that tax reliefs for charities and charitable giving are an important source of income for charities, totalling over £3 billion a year. Of those, gift aid is the largest relief and is worth over £1 billion a year. We estimate that the gift aid small donations scheme could result in additional Government funding of around £100 million a year for charities and CASCs by 2015. That represents a significant boost in income for the sector and will be especially valuable to small charities. That is why—I again emphasise the point—this is a Bill that is to be welcomed and which has been welcomed by many across the voluntary sector.

To ensure that the new scheme is as accessible as possible to charities, it will be administered using the same mechanisms that apply to claims for tax relief under gift aid. The scheme will look and feel familiar to those charities and CASCs that already claim gift aid, and Her Majesty’s Revenue and Customs will publish clear guidance ahead of the commencement of the scheme to ensure that it is simple to access. However, because the new scheme will not be a tax relief, it cannot be legislated for through the usual Finance Bill route— I regret to deprive my hon. Friend the Member for Bedford (Richard Fuller) of the chance to serve on such a Bill and discuss the philosophical principle—so we are legislating for it in this programme Bill instead. The scheme was widely welcomed by the sector when it was announced in Budget 2011 and continues to be well received. We have worked closely with the sector to get the scheme right.

Let me now address some of the points of detail that have been raised, and which I am confident will be well understood by hon. Members. I shall set out the rationale for the ways in which we have designed the scheme, but first I want to set it firmly in the wider context. We have had to take steps to ensure that it operates as fairly as possible, but also to ensure that it remains affordable and is protected against fraud. We want this money to go to legitimate charities doing important work with real social benefit. We also want the small donations scheme to be as fair as possible. We want to ensure that charities doing the same kinds of work at local level, but which have different historical structures, get allowances under the scheme that are not hundreds, or even thousands, of times different from one another.

Those are the key driving principles behind the scheme: fairness, protection against fraud, and providing a complementary scheme to gift aid. We also want to channel some extra funding to charities, which I suspect that no hon. Member would want to speak against. I ask hon. Members to keep those principles in mind as we debate the detail of the gift aid small donations scheme. Let me take them in turn.

First, we want the scheme to complement gift aid rather than to replace it. I would urge all charities that receive donations to make full use of gift aid, where there is no limit on the amount of donations on which the charity can claim. However, there are some donations for which gift aid declarations are hard to come by, and that is what the scheme is designed to address.

--- Later in debate ---

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

It is a pleasure to follow my hon. Friend and constituency neighbour, the Member for Brent North (Barry Gardiner), whose contribution reflects today’s interesting debate. We started with the Economic Secretary’s opening speech, during which there was a series of interesting interventions. The Chair of the Public Administration Committee, the hon. Member for Harwich and North Essex (Mr Jenkin), made a series of interventions, one of which dealt with the need to build into the legislation easy scope for a review of its effectiveness. As my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson) made clear in her opening remarks, we need to make every effort to ensure that the primary legislation is as strong as possible. The hon. Gentleman made an interesting point. He has developed a reputation as an assiduous— and, for the Government, troublesome—Chair of the Committee. In the eyes of his Whips, that may rule him out of serving on the Public Bill Committee, but his comments were a helpful guide to amendments that we might want to think through.

In her intervention on the Economic Secretary, the hon. Member for Congleton (Fiona Bruce) highlighted a concern that has clearly been put to her: whether, because of the way the clauses on community buildings have been drafted, hospices will benefit from the Bill as much as had been hoped. The hon. Member for Dartford (Gareth Johnson), in the first substantive speech in the debate, made a point of praising the Arrow riding centre in his constituency. It does indeed sound an excellent organisation, and in that sense probably reflects the many excellent organisations that each of us in this House can point to in our communities. They benefit our communities and make them stronger, particularly because of the enthusiasm of the volunteers and original sponsors of these charities.

Our challenge is surely to try to do what my hon. Friend the Member for Clwyd South (Susan Elan Jones) suggested: to simplify the system as much as possible and to enable those with fire in their belly—those behind a particular charity with the passion and commitment—to benefit as much as possible from this legislation. She has clearly been working throughout the summer recess, carrying out extensive research on charity debates and tracking down the first ever discussion of charities in the House of Commons, more than five centuries ago. That is a particularly impressive piece of work that I suspect puts the rest of the House to shame. It is not surprising, however, given her track record of interest in this sector.

In his short time in the House, the hon. Member for Warwick and Leamington (Chris White) has already built a track record of interest and enthusiasm in this subject. He urged Ministers to pay close attention to the comments and concerns of the National Council for Voluntary Organisations and the Charity Finance Group. He raised a particular concern about whether the three-year HMRC rule is quite as necessary as the Economic Secretary suggested in her opening remarks. He went on to argue that Leamington is the most generous town in Britain. He is stretching the credulity of the House there, if I may say so; nevertheless, it sounds almost—but I suspect not quite—as generous as Harrow.

The hon. Member for Stafford (Jeremy Lefroy), who has already established a strong record in this House in working with international development charities, outlined his support for the Bill. He will recognise that people in this country rightly respond to disasters around the world, and that the Bill could enable such charities to do more to make their money and effort go a little further.

The hon. Member for Banff and Buchan (Dr Whiteford) emphasised that Ministers should do further work on the detail behind the Bill, and I understand that she has a strong track record of working with charities, including development charities. Among the many thoughtful points she raised was whether or not HMRC might be persuaded to use marketing or analytical tools to provide further support to ensure that charities benefit as much as possible from this legislation, when both Houses eventually conclude their debates.

My hon. Friend the Member for Foyle (Mark Durkan) outlined his scepticism about the Bill being perfectly formed. He made the perfectly proper point that debate with the Northern Ireland Assembly on some of the detail is required. Again, Ministers and the Committee will need to have further conversations with the representatives of the sector to maximise the Bill’s benefit.

The hon. Member for Milton Keynes South (Iain Stewart) praised another excellent sounding organisation, Community Action Milton Keynes, which he knows well. He raised concerns about the three-year rule on eligibility, highlighting the need to get right the balance between preventing fraud and helping more charities to benefit. He hoped that today’s discussion is part of an “evolutionary” approach by Ministers, and I hope to encourage the Minister to take such an approach. My hon. Friend the Member for Brent North, in his substantive remarks, emphasised the concern of all Members about the eligibility criteria in the Bill and whether as many charities that rely on small donations will benefit from the Bill as might do.

As my hon. Friend the Member for Kilmarnock and Loudoun made clear, the Opposition will support the Bill, but we have a series of concerns about its detail, which she set out and which I will touch on briefly at the end of my remarks. The House will of course be aware that the Bill’s proposed changes to gift aid build on the reforms that my right hon. and hon. Friends introduced under the previous Government—my hon. Friend the Member for Clwyd South made that point. My right hon. Friend the then Chancellor had an excellent track record of enabling smaller charities to benefit from gift aid, introducing a less complex audit process and helping at least some charities to get a proper advantage from the various changes that he introduced.

We will want to probe and challenge the complexity that has been written into this scheme by Ministers, which has been highlighted to us by the NCVO, the Charity Finance Group, the Institute of Fundraising, the National Association for Voluntary and Community Action and a series of other groups. I, like a series of other hon. Members, alluded to the fact that this complexity risks ensuring that a number of small charities miss being able to benefit from the changes implicit in these arrangements.

Ministers have highlighted this measure in the past as a big source of help for charities and proof of their ongoing commitment to the big society. The Chancellor made that point in one of his Budgets. In truth, this is a modest Bill, which risks being far more modest than it needs to be. It is, sadly, an isolated gesture of help amid a dismal funding and contracting environment for charities, entirely of the Government’s making. The Bill will, nevertheless, put back into charity coffers a small amount of the income that Ministers have collectively axed since they came to power.

The context for this debate is grim, as a number of hon. Members have said, and it bears spelling out as a reminder to the whole House and, in particular, to the Committee to do our utmost to maximise the benefit of the legislation to the maximum number of charities. As my hon. Friend the Member for Clwyd South mentioned, earlier this year the NCVO highlighted the “toxic mix of circumstances” facing charities: increasing demand for their services, rising costs, and an unprecedented fall in income. The NCVO argues that Government spending on the sector will fall by some £3.3 billion between the coalition’s taking and eventually leaving office.

A report by the Association of Chief Executives of Voluntary Organisations, which was commissioned by the Government—by the Cabinet Office—and which Ministers were eventually forced to release, revealed that charities would lose, in 2011-12 alone, at least £1 billion as a direct result of Government cuts, with two thirds of the charities most at risk of suffering being in the most deprived areas of Britain.

[Richard Fuller]

In a comment in his opening inquiries of the Minister, the hon. Gentleman referred to the transition fund and he is now referring to the same point about Government funding, so I would just like to pick up on the point. Does he accept that one of the underlying philosophical differences with this Bill is that it is using Government money to support the actions of individual citizens in supporting the charities they wish to help, rather than looking at charities as an extension of the state that should be supported by public moneys? Although there may be an issue to address about the quantum and how much we can afford to put into these charities, does he accept that this is a wise way for the Government to spend their money?

[Mr Thomas]

With the greatest respect, the previous Government and the one before had exactly the same approach. The difference between us is over the scale of the funding cuts that the hon. Gentleman and other Government Members have signed up to. As I said in my opening remarks, I accept that the Bill will make a small positive difference. We welcome it on that basis and we want to work with Ministers and, indeed, with all hon. Members to try to maximise its benefit. He does not serve his cause well by minimising the scale of the cuts which charities are suffering. According to the National Children’s Bureau in April, two thirds of children’s charities had cut staff last year and reduced the range of services they offered, with 25% expecting to have to close this year. That grim direct funding situation is hardly a sign of a commitment to charities and community groups, or indeed of Ministers’ professed commitment to the small platoons or the so-called big society.

I say gently to the House that not one of the more than 140 charities I have met over the past 12 months has said that reform of gift aid is the defining answer to the problems the Government are causing charities, despite the Chancellor’s enthusiastic claims in the Budget. Ministers, notably Cabinet Office Ministers, have failed in the past 12 months to offer serious heavyweight leadership in Whitehall for charities. The Work programme has become an iconic example of charities losing out on funding because of poor commissioning of major Government contracts.

Let us consider the example of just one charity, St Mungo’s. Given its skills at getting people in the most challenging circumstances back into work, one would have thought it was the perfect participant in the Government’s Work programme. However, having had no referrals in just under 12 months, St Mungo’s finally called it a day earlier this summer. You couldn’t make it up: record long-term unemployment, a Work programme that is not exactly going all guns blazing and a charity with huge experience not being used —not even once.

We have, of course, also seen charity after charity having to line up to demand that the Government withdraw their charity tax relief cap. For example, Cancer Research UK is seriously worried about donations to build a world-class centre drying up because of Ministers’ incompetence. It was a badly bungled Budget measure from Treasury Ministers—one of a number. One of the arguments originally used to try to justify that measure, until it was eventually pulled, related to the problem of “dodgy charities”. Although the Economic Secretary veered a little towards such language in her opening remarks, she certainly did not repeat that mistake. However, we need to be careful that the requirements that we set out in the legislation that is finally passed do not allow people to think that Members in all parts of the House share the concern that there is a huge problem with poorly managed charities engaged in fraud. We will certainly wish to probe her argument about the three-year relationship with HMRC that charities must have in order to benefit from the Bill.

We debate this Bill in the context of a dismal picture of substantially reduced charity funding and of Treasury Ministers who need to make amends for the charity tax relief debacle. The Bill nevertheless deserves a Second Reading and further robust scrutiny. We will want to explore carefully the Government’s arguments on a series of clauses, particularly to try to reduce the complexity of the new arrangements, which has been highlighted by the likes of Sir Stuart Etherington, Peter Lewis, the chief executive of the Institute of Fundraising, and NAVCA. Let me take just one set of comments as an example: NAVCA called the proposed system “overly bureaucratic” and “out of proportion”.

To be fair, the Economic Secretary hinted that Ministers would be flexible in Committee. I hope that her ministerial colleague will emphasise that Ministers are determined to be flexible and to see the discussions in Committee as an evolutionary process. That point was made by the hon. Member for Milton Keynes South in particular. We will want to probe the concerns about the eligibility criteria as there is particularly wide consensus outside the Treasury among voluntary groups that many charities will miss out if the Bill goes through unamended in that regard. We will want, too, to explore the thinking of Ministers on the connected charities rules, which risk creating an unnecessary barrier to recruiting high-quality trustees if they have similar roles in similar organisations.

On community buildings, there is a risk that some charities could lose out, as other Members have highlighted. Ministers would be wise, given the scale of the Government’s failure to help and support charities, to recognise the limited scope of the Bill. It is a worthwhile Bill with the potential, if Ministers are open-minded, to offer even more significant benefits. It builds on the reforms Labour introduced when we were in power. It needs amending in Committee, and Committee members, particularly Ministers, will need to show further flexibility to maximise the benefit it could have for the charity sector. We will support the Bill tonight and I commend it to the House.