Charities (Protection and Social Investment) Bill [ Lords ] (Fifth sitting)
Debate between Wendy Morton and Rob Wilson(8 years, 10 months ago)
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Wendy Morton
I am grateful to the Minister for sharing those examples with us because they really show the breadth of partnerships that have evolved over time in different communities across the country. Does he therefore agree that the new clause would be so prescriptive—such a one-size-fits-all approach—that it would stop that really good way of working at a community level? I was brought up in an area where there was one school; the nearest school was probably about 15 miles away and there was no independent school. People like me would never have benefited from such a clause.
Mr Wilson
My hon. Friend makes her case powerfully. I would not seek to add anything because I agree with her. She is absolutely correct.
It is not just the largest schools with the most resources that are engaging in such partnerships. Belmont Preparatory School near Dorking has, for over a decade, provided facilities and resources for a local community pre-school music education group to meet twice a week, enabling early years children and their parents to enjoy music making and to form links between the local community and the school.
In order to show that strong partnerships already exist, the Independent Schools Council has created and is managing a “Schools Together” website that launches this month. I hope that everyone will have the chance to look at it. As well as showcasing existing examples of best practice, the website will act as a vehicle for the development of new partnerships between the independent and state sectors, enabling schools to register their interest in developing a partnership. So far, more than 175 schools have registered and reported on more than 400 partnership projects. I encourage the Committee, particularly Opposition Members, to review the growing number of projects on the website and support the development of new partnerships in their constituencies.
The ISC will undertake a census of all partnership activities and will promote partnerships among its member schools. The Charity Commission has updated its guidance on ways that trustees of charitable independent schools can ensure they run their charities for public benefit.
Charities (Protection and Social Investment) Bill [ Lords ] (First sitting)
Debate between Wendy Morton and Rob Wilson(8 years, 11 months ago)
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Wendy Morton
Absolutely. I was about to say that it is important that we have the powers to protect and safeguard charities and their reputations and to maintain the trust of the public, on whose generosity they depend. That also helps trustees, who usually do their job out of the goodness of their hearts, often for a cause that is close to their hearts. They deserve that trust, respect and support.
It is understandable that the mention of additional powers can raise concerns. It is important to ensure that smaller charities are not disproportionately affected. I do not believe they will be, but that is something to be mindful of. It is equally important to reassure the public that charities are more accountable and, in particular, that large charities are transparent about their fundraising and their activities.
In conclusion, in our drive to maintain and strengthen public trust in charities, we should be mindful that the Bill is helping, not hindering. I therefore support it and hope that clause 1 will stand part of the Bill.
Mr Wilson
It is a great pleasure to serve under your chairmanship, Mrs Main. This is a Bill on which there is a great deal of consensus across the House. I think we all accept that the regulatory powers of the Charity Commission needed to be brought up to date, to support the regulator in tackling cases of abuse in charities.
The Bill has already been through significant scrutiny. The previous Government first published their proposals for public consultation just over two years ago, in December 2013. Those followed criticism of the Charity Commission’s powers by the National Audit Office and were based on proposals put forward by the commission itself. There was broad support for the measures from charities, particularly small ones, although some measures received mixed reactions from charities and their representative bodies.
The proposals were refined as a result of consultation and a draft Bill was published in October 2014. The draft Bill was subjected to extensive pre-legislative scrutiny by the Joint Committee on the Draft Protection of Charities Bill, ably chaired by Lord Hope of Craighead, a former deputy president of the Supreme Court. I pay tribute to its detailed scrutiny, which led to a number of improvements and refinements being made. We should also note that the Bill has already been considered in detail in the other place, in a largely collaborative and consensual way. That, too, led to sensible refinements to the Bill. I very much hope that we can continue working together in that spirit of cross-party consensus on most aspects of the Bill for the benefit of the Charity Commission and the public.
Before moving to clause 1 and the amendments on official warnings, I want to make three more general points. First, I repeat what I said on Second Reading: the vast majority of charities are run well by decent, honest people who selflessly want to do good for the benefit of others. When considering these powers, it is important to remind ourselves that they will help to protect public trust and confidence in charities generally and will target only the minority involved in abuse.
Secondly, I want to place on record my thanks to the staff and the leadership at the Charity Commission, who are transforming the commission into a modern, proactive, risk-based regulator and who will use the new powers in a targeted and proportionate way. I was pleased to see that, when the National Audit Office returned to the commission just a few months after publishing its report, it found that it had made “good, early progress” against all its recommendations. That progress is down to the effective leadership and hard work of everyone at the commission.
The third point is an overarching one relating to the Charity Commission’s duty to act in line with the principles of better regulation, human rights and equalities duties, some of which have already been raised. These all require the commission to carefully consider a number of factors when exercising its powers. The duty is set out in section 16(4) of the Charities Act 2011:
“In performing its functions the Commission must, so far as relevant, have regard to the principles of best regulatory practice (including the principles under which regulatory activities should be proportionate, accountable, consistent, transparent and targeted only at cases in which action is needed).”
The Charity Commission also has a published risk framework that explains this regulatory approach to protecting the public’s interest in charity and how it assesses risks and manages its resources. The commission’s risk framework sets out the criteria it uses to determine whether it should open a statutory inquiry and where it is likely to use its temporary and/or permanent powers. In assessing regulatory issues that come to its attention by whatever means, the commission needs to be as sure as it can that the facts are correct and that it does not act on a false or unproven premise. It relies on information as evidence in its case work when making decisions.
The commission also has to act fairly and needs to be able to explain its actions to trustees and those directly affected by its decisions when it exercises legal powers. The commission may be called to justify its actions by the first-tier tribunal for charities or by the court. In doing so, the commission needs to show that its action has been taken on the basis that relevant issues have been properly considered. In assessing information and deciding to use it, it is important that the commission acts fairly and consistently in line with the principles set out in its guidance. The commission also considers its decision-making, as it is bound to, in accordance with the relevant statutory duties, namely those relating to the best regulatory practice, proportionality, human rights, the Equality Act 2010 and wider public law considerations.
I will now turn to clause 1 before responding to amendment 2. I will also try to respond to all the issues that hon. Members have raised during the wider debate on clause 1. The clause gives the Charity Commission an important new power to issue an official warning. This is one of the most important new powers in the Bill and is considered to be a normal power in the toolbox of modern regulators. It is already a staple tool of other regulators, such as the Care Quality Commission, the Financial Conduct Authority, the Pensions Regulator and the Solicitors Regulation Authority, to name a few.
An official warning could be issued to a charity trustee or to the charity itself where the Charity Commission considers there to have been a breach of trust or duty or other misconduct or mismanagement. The power would enable the Charity Commission to publish a warning, which it has said it would do in most cases. The commission has also said that it would not publish all warnings. The decision to publish would be in line with its current policy on publishing the announcement of statutory inquiries, which depends on whether publication is in the public interest. The Charity Commission would not publish an official warning if it considered that it would not be in the public interest to do so.
The Charity Commission does not expect to use the power too often. It is hard to put a precise number on it, but the commission estimates that it would be in the dozens of warnings each year, rather than the hundreds. Let me give two examples of when the Charity Commission might consider issuing an official warning—let us remember that these are low-level activities. One example is when a charity is consistently a little late in submitting its accounts. An official warning would remind the trustees of the seriousness of their non-compliance. We recognise that this is already a criminal offence, but it is rarely investigated or prosecuted as such. An official warning would be a much more proportionate response to encourage trustees to rectify the position.
The second example is when a charity makes unauthorised payments to a connected company or payments that benefit a trustee. If the size of the sums involved meant that it would be disproportionate for the Charity Commission to take firmer action, it could issue an official warning on future conduct. As one would expect, the power is subject to a number of important safeguards.
Charities (Protection and Social Investment) Bill [ Lords ] (Second sitting)
Debate between Wendy Morton and Rob Wilson(8 years, 11 months ago)
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Mr Wilson
I will certainly ask the Charity Commission to make sure that the hon. Gentleman has those figures; I hope that that will happen by the end of my comments, but if not, it will be straight after. [Interruption.] That is quite impressive—I thank my officials. I can tell the hon. Gentleman that there will be one or two such occasions a year.
The new power in clause 7, which I admit is quite a straightforward power, will enable the Charity Commission, in the context of a statutory inquiry, to act to transfer any remaining assets of the charity under inquiry to another charity with the same charitable purposes, something the commission can already do under its existing powers, and then—this is the new provision—direct that the empty shell of the charity be wound up, which it cannot currently do. This power will be rarely used by the Charity Commission. The commission estimates it will be exercised on only one or two occasions each year, as I have just said, and it is subject to a range of safeguards.
The power to direct winding up will only be available in the context of a statutory inquiry and where the commission is satisfied that there is misconduct, mismanagement or risk to charity property. The commission must be satisfied that the charity does not operate or that its charitable purposes could be more effectively promoted if it were to cease to operate and that the exercise of this power is
“expedient in the public interest.”
As I have said several times, all the Charity Commission’s powers must be exercised in line with the commission’s duty in section 16 of the Charities Act 2011, which requires the commission to have regard to the principles of best regulatory practice, including the principles by which regulatory activities should be proportionate, accountable, consistent, transparent and targeted only at cases in which action is needed. So there is a high bar for the commission to make the case for winding up following an inquiry.
The commission is required to publish details of a proposed winding-up order and to invite representations from any interested party. The commission must take into account any representations it receives before making the order to direct winding up. In most cases, the commission will be expected to allow 60 days for the making of representations before it can make the order. It can shorten that period when it considers it necessary to make the order sooner to prevent or reduce misconduct or mismanagement, or to protect the charity’s property or property that may come to the charity. An order directing the winding up of a charity can be appealed to the tribunal by its recipient and the charity’s members, so ensuring proper judicial oversight.
The clause will enable the commission to direct the charity’s trustees, officers or employees to take action to wind up that charity. The commission itself cannot wind the charity up, as that would involve the commission acting in the administration of the charity—something that it is prohibited from doing by law. The Joint Committee welcomed the proposed winding-up power, saying:
“We are persuaded that the power to direct the trustees of a charity to wind it up in certain circumstances and transfer resources elsewhere would only be used in rare circumstances and that, in such circumstances, the Charity Commission would use it sparingly, given its significance. We therefore support the inclusion of clause 6 of the draft Bill”—
as it was then—
“subject to an amendment setting out the publication scheme for a notice of intention to direct the winding up of a charity.”
We amended the draft Bill to include the requirement to publish a notice and consider representations, as recommended by the Joint Committee.
Let me give the Committee an example of where this power could be used. The commission has information suggesting that one of only two trustees was acting while disqualified. The finances were being grossly misrepresented, funds were being misappropriated and the commission had been given false or misleading information. It reported its concerns to the police, highlighting potential criminal offences. The disqualified trustee left the charity, leaving only one trustee, who was unable to explain the position. The remaining trustee was potentially vulnerable and had not been privy to the disqualified trustee’s actions. The commission found that the charity had been used for years to personally benefit the disqualified trustee, who was later convicted and imprisoned for theft. It had applied only nominal amounts for its charitable purposes. The commission decided to remove the charity from the register, as it was not operating, but the remaining trustee did not take action to wind up the charity. The commission does not have the power to force the trustee to do so and cannot do so itself. In such cases, the use of the proposed power would clarify the position, provide for the proper application of assets and ensure that the charity could not later restart operations with a risk of further abuse. Although its use will not be common, I hope the Committee will agree that this will be a useful tool in the Charity Commission’s armoury.
Mr Wilson
Clause 8 should be fairly uncontroversial and, although I do not want to pre-empt the Committee, a fairly short one for us to consider. The clause amends an existing Charity Commission power in section 85 of the Charities Act 2011, which allows the commission to direct the application of charity funds or property when the person holding it is unwilling to apply the property for the charity’s purposes and the commission considers it necessary or desirable to make the order to secure the proper application of the charity’s property.
The purpose of the clause is to extend the power and enable the commission to make an effective direction in cases where the person holding the charity property may be willing but unable to apply the charitable property. The most commons example of this problem is considered to be where financial institutions, such as banks, hold a charity’s property but are unable to comply with a commission direction to transfer that property because to do so without the consent of authorised account signatories would result in a breach of their contract with the charity for which the bank could be held liable.
For example, a number of charities subject to a class inquiry ceased to operate but funds remained in their bank accounts. The commission’s powers relating to dormant accounts could not be used until a certain time had elapsed and there was a risk that the remaining funds could be misapplied by individuals on the mandate. Before the commission could use the power as currently worded, it had to establish that a number of banks were unwilling to apply the funds without an order of the commission. The banks were willing to apply the funds but were unable because of their contractual obligations to the account signatories. Amending section 85 to include “unable” as well as “unwilling” would allow the situation to be resolved swiftly and satisfactorily and the charitable funds to be properly applied for their charitable purposes.
Wendy Morton
I am grateful to the Minister for sharing with us some examples of what the Bill will mean in practice, as he did in our discussion of the previous clause. Does he agree that the clause includes some sensible and proportionate measures that, in the round, are all part of helping to restore the trust that charities have in the public domain?
Mr Wilson
My hon. Friend makes a very good point. The clause is partly about restoring trust. It is also about making the Charity Commission work better and more efficiently and focus its funds on the areas where it can really make a difference—day in, day out. She is absolutely right.
Other barriers may make a person unable to comply with a commission direction of this type, such as restrictions in the charity’s governing document, which may prevent otherwise willing trustees or members from complying with this type of commission order because they are legally unable to do so. The Joint Committee recommended that we consider the inclusion of some form of statutory protection for a financial institution in cases where compliance with the direction from the commission in those circumstances might constitute a breach of its contract with a charity. The clause seeks to remove any obstacles by allowing the commission’s direction to overcome a contractual obligation owed to a charity.
Importantly, clause 8 continues to provide the specific, statutory protection for a financial institution—or, for that matter, any person holding the charitable property—in cases where compliance with the commission’s direction in those circumstances might constitute a breach of its contract with the charity. It is always important to consider the practical application of legislation and the clause will help the Charity Commission make use of the existing power more effectively.