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Charities Bill [ Lords]

As amended in the Standing Committee, considered.

New Clause 1

Amendments reflecting changes in company law audit provisions

‘(1) The Minister may by order make such amendments of the 1993 Act or this Act as he considers appropriate—

(a) in consequence of, or in connection with, any changes made or to be made by any enactment to the provisions of company law relating to the accounts of charitable companies or to the auditing of, or preparation of reports in respect of, such accounts;

(b) for the purposes of, or in connection with, applying provisions of Schedule 5A to the 1993 Act (group accounts) to charitable companies that are not required to produce group accounts under company law.

(2) In this section—

“accounts” includes group accounts;

“amendments” includes repeals and modifications;

“charitable companies” means companies which are charities;

“company law” means the enactments relating to companies.’.— [Edward Miliband.]

Brought up, and read the First time.

1.35 pm

The Parliamentary Secretary, Cabinet Office (Edward Miliband):

I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Sir Alan Haselhurst): With this it will be convenient to discuss the following Governments amendments: Nos. 28 to 30, 61, 65 and 69.

Edward Miliband: As well as moving new clause 1, proposed by my right hon. Friend the Chancellor of the Duchy of Lancaster, I shall speak to Government amendments Nos. 28 to 30, 61, 65 and 69.

The new clause deals with the accounts scrutiny regime for charitable companies—that is, charities established in the legal form of a company. One consequence is that smaller charitable companies are subject to a regime whose requirements are designed for small businesses, not small charities. In the debate on the Companies Bill in the other place, Lord Hodgson tabled Opposition amendments to take small charitable companies out of the company law regime for accounts scrutiny, placing them instead within the charity law regime. The Government accepted the merit of that idea, took representations from a number of umbrella bodies for charities and professional accountancy bodies and received a favourable response, so we agreed to proceed with the idea.

At its heart is the sensible proposition that we should treat charitable companies primarily as charities, albeit ones that happen to be set up in company form, rather than primarily as companies that happen to have charitable status. To give effect to that, changes are
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needed to the Companies Bill and the Charities Bill. The necessary Companies Bill amendments were made on Report last week and the principal amendment to the Charities Bill is set out in new clause 1.

The new clause contains a new order-making power, allowing Ministers to amend the Charities Act 1993 and the Bill to reflect changes in company law—the changes that will be made by the Companies Bill when it comes into force. The result will be that we can apply the same accounts scrutiny requirements—professional audit for those with an income above £500,000, independent examination for those between £10,000 and £500,000 and no compulsory scrutiny for those below £10,000—to all charities, regardless of their legal form. The order-making power will also allow the group accounting requirements to be changed so that, in preparation of group accounts, a group of charities headed by a charitable company is put in the same position as a group headed by any other form of charity.

Mr. Charles Walker (Broxbourne) (Con): The Minister mentions the impact of the proposals, but how many charities would benefit from it?

Edward Miliband: I believe that I am right in saying that about 15 per cent. of the UK’s 190,000 charities are in that category, so it amounts to a significant number.

I was about to say that because the order-making power will allow Ministers to amend primary legislation, the order will be subject to the affirmative resolution procedure, and amendment No. 61 achieves that.

Amendment No. 65 is designed to ensure that the power to make consequential amendments under clause 75 can be used to amend the Companies Bill, when it is enacted, in line with amendments that the Bill makes to the Companies Act 1985.

Amendment No. 30 is the other substantive amendment in the group. It amends new section 73E, inserted by clause 38 into the Charities Act 1993, and arises from the diligence of the hon. Member for Isle of Wight (Mr. Turner)—and not for the first time, either. It is designed to give the court the power to grant relief to the trustees of a charitable incorporated organisation. Section 61 of the Trustee Act 1925 gives the court a power to grant relief to trustees, but the charity trustees of a CIO are not trustees within section 61 of that Act, mainly because the CIO is a new institution. Section 727 of the Companies Act 1985 gives the court the power to grant relief to the officers of a company, but that, too, does not at present apply in the case of a CIO. The amendment therefore provides for section 727 of the Companies Act to have effect in relation to the charity trustees of a CIO.

In Committee I promised the hon. Member for Isle of Wight that I would propose an amendment in response to his previous amendment that identified the gap I have just described. I am grateful to him for identifying it.

Amendments Nos. 28, 29 and 69 are minor consequential amendments to new clause 1 and amendment No. 30.

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Mr. Andrew Turner (Isle of Wight) (Con): It is a pleasure to follow the Minister and to thank him for his generous words about the contribution that my noble Friend Lord Hodgson and I made to the development of the new clause and one of the Government amendments.

The Minister has confirmed that the procedure under new clause 1 is subject to the affirmative resolution procedure, which is appropriate and we welcome it. We support the extension of the new provision covered by amendment No. 28 to charities that are companies, and I welcome the movement to afford protection to the trustees of new charitable incorporated organisations.

I shall not detain the House further on this group.

Martin Horwood (Cheltenham) (LD): I, too, thank the Minister for his opening remarks. One of the best aspects of the Bill is that it has somewhat alleviated the onerous nature of company law, especially for smaller charities but also for others who might want to pursue a different path. The amendments are designed to further the spirit of reconciliation between new organisational statuses, such as that of charitable incorporated organisations, and existing company and charity law.

In that spirit, I, too, am happy to support the new clause.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 3

Property from trusts in residuary legacies

‘After section 36(3) of the Charities Act 1993 (c. 10) insert—

“(3A) Subsection (3) above shall not apply to any such land that is left in a will to a charity.

(3B) Subsection (3A) above shall not preclude charity trustees commissioning a report in accordance with subsection (3) if they so wish.”.’.— [Martin Horwood.]

Brought up, and read the First time.

Martin Horwood: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker: With this it will be convenient to discuss Government amendment No. 35.

Martin Horwood: New clause 3 addresses a problem that has, I think, arisen by accident. Before the Charities Acts of 1992 and 1993, section 29 of the Charities Act 1960 provided that no land held by or in trust for a charity that—this is an important phrase—had been occupied for the purposes of the charity could be sold, leased for more than 22 years, mortgaged or charged to security without the consent of the court or the Charity Commission.

Section 32 of the 1992 Act superseded the 1960 Act and imposed an overall prohibition of disposal of any land held by, or in trust, for a charity without an order from the court or the Charity Commission. That section was repealed and re-enacted without alteration as section 36 of the 1993 Act, which is the crucial provision that we are addressing.

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The effect of the rather rushed 1993 legislation was inadvertently to catch a category of land held in trust for charities, left in wills as a charitable bequest, which had not been included before 1992, because the original Act covered only land held in trust that had been occupied for the purposes of the charity. The section 36 requirements were perfectly reasonable for the normal disposal of land by charities, which had to acquire a proper valuation and go through various procedures set out in the section. However, by applying such procedures to land left in legacies, the 1993 Act inadvertently gave charities a new and serious burden.

I shall give the Minister a few examples. Macmillan Cancer Support derives about 33 per cent. of its total income from legacies. It says:

It calculates that

Macmillan makes the important point that the fiduciary duty on executors would protect assets held in trust for the charity by the executor. It states:

1.45 pm

Macmillan is quite a large charity, but the provision affects smaller charities, too, for which it might be even more onerous. A letter from Battersea Dogs Home, which is at the lower end of the larger charity scale, states:

At the upper end of the scale, the largest charity of all—Cancer Research UK—estimates that it has spent more than £80,000 on section 36 reports in the past year and tells me:

One of the procedures that are particularly onerous for larger charities is that the section 36 reports have to be presented to the charity’s trustees and approved by them. That is all very well for an occasional disposal of land, but larger charities frequently have to deal with land left to them in legacies, or held in trust in legacies. Large charities such as Cancer Research UK depend greatly on legacies, so the provisions are a burden on the trustees as well as on the charity’s staff.

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All in all, that adds up to a serious problem, about which we have previously advised the Minister, so I shall be interested to hear his comments. If he can provide a suitably robust form of words I shall be reassured, but this is a matter of law and unless the Bill is amended it is difficult to imagine how the problem can be tackled.

Edward Miliband: I am grateful to the hon. Member for Cheltenham (Martin Horwood) for raising this important issue. The letters from various charities that he read out were quite compelling and I hope that I can help to offer a way forward. I shall also address our amendment No. 35.

As the hon. Gentleman said, the purpose of new clause 3 is to change the regime under which trustees may sell land belonging to a charity, where the land has been given to it through a bequest made under a will. One normal feature of that regime is that the charity trustees must obtain a surveyor’s report about the proposed sale. I have seen a letter from the Society of Trust and Estate Practitioners—STEP. I suspect the organisation has also written to other Front Benchers. The letter raises a number of concerns, which I have discussed with the Charity Commission. It seems pretty clear that the question is not, as the hon. Gentleman suggests, one of law but more of perception or administration—either the perception of the charities or the administration of the commission, as I shall explain when I have set out the legal position.

The concern seems to be that, at present, separate reports have to be obtained in some cases where land is given to a charity in a will. One report has to be obtained by the personal representatives of the donor—that is, of the estate—and another by the trustees of the beneficiary charity or charities, resulting in unnecessary expense for the charity. I have talked to the Charity Commission about that concern at some length. In its view, the legal position is that there is never any need for double compliance with the regime.

If the estate’s personal representatives sell the land in the course of their administration of the donor’s estate, the charity land disposal regime does not apply. If the administration of the estate has been completed and the land belongs to the charity, the personal representatives can sell it only as agents of the charity, or as its trustees. The charity trustees must comply with the charity land disposal regime, but their personal representatives need not. I hope that that makes clear the legal position on double compliance.

STEP says in its letter—the point was repeated by the hon. Gentleman—that the situation is particularly difficult for legacy-receiving charities with non-executive trustees, because a surveyor’s report and a certification of compliance with the procedures must be obtained by the charity trustee personally. I checked with the Charity Commission on that point, and found that a whole range of powers given to trustees can be delegated to members of staff; the section 36 power is one of them. There is no need for the trustees personally to give approval—that was one of the concerns raised by STEP. I have made the position on double compliance clear, but to enhance understanding
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on all sides I have agreed with the Charity Commission that it will listen to representations about the practical implementation of the law on the subject, so that we can clear up any misperceptions or administrative problems.

If the intention behind the amendment was the removal of the need for anyone to follow the normal requirements of the charity land disposal regime when selling land left to a charity as a legacy, there would be no justification for it. In other words, charity trustees should not be exempt simply because land has been given to them in a will. The regime is sensible, and it clearly encourages the trustees to carry out their duties properly and effectively; in addition, it ensures that, if charity land is sold, a proper price is obtained, so it is a necessary protection for charities and their beneficiaries. Having said that, the necessary content of the surveyor’s report is set out in regulations that are nearly 15 years old, so there is a question of administration, too. I said in Committee that the Government have undertaken to review those regulations, with a view to simplifying them, thereby reducing the costs of surveyors’ reports.

Finally, although we note the intentions behind the hon. Gentleman’s amendment, as he set them out, I am advised that its wording will have quite a different effect. If charity trustees have followed the requirements set out in section 36(3) of the Charities Act 1993, they need not seek the authority of the commission for the sale. I know that this is not his intention, but if we removed the possibility of complying with those requirements, trustees selling land that they received in a will would always have to seek the authority of the commission. In practice, that would involve complying once again with a bureaucratic requirement.

Mr. Andrew Turner: I am a little unclear about what the Parliamentary Secretary is saying. He seems to say that the charity’s trustees would not have to obtain a valuation when they inherit property that they sell straight away. However, clearly, there must be a cut-off point between inherited property that is sold straight away, and inherited property that is sold at a later stage, and I am not sure what that cut-off point is.

Edward Miliband: I am saying two things. First, as I understand it, the concern raised by charities, and in STEP’s letter, is that there is a double compliance problem. Their concern is that, after the representatives of an estate have completed the whole process of obtaining an evaluation and so on, the charity must go through the same process. That is duplication. I am assured by the Charity Commission that there was never any need for double compliance—that is a matter of law.

Secondly, to respond directly to the hon. Gentleman’s intervention, it is right that there should be the necessary protections ensuring that, when a charity gets a bequest, it seeks a valuation of the land, so that it can act in the best interests of its beneficiaries. However, one of the concerns raised is that the sale of the land will require the personal approval of charity trustees. That is a particular problem if they are non-executives who are abroad. I reassure the hon. Gentleman that, as with many other functions of a charity, that function can be delegated to members of the charity’s staff.

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