 House of Commons |
Session 2005 - 06 Publications on the internet Standing Committee Debates Charities Bill [Lords] |
Charities Bill [Lords] |
The Committee consisted of the following Members:Mrs E. Commander, Committee
Clerk † attended the
Committee Standing Committee ATuesday 11 July 2006(Afternoon)[Part II][Mrs. Joan Humble in the Chair]Charities Bill [Lords][Continuation
from column
234]
Clause 43Power
to spend
capital
The
Chairman: With this it will be convenient to discuss
amendment No. 137, in clause 43, page 47,line 9, leave out
£10,000 and insert
£5,000’.
Mr.
Turner: This is an interesting clause with which I
profoundly disagree, and I may wish to vote against it on stand part;
however, amendment No. 44 is designed to make it work better. That may
sound curious, but as we are here to scrutinise the Bill, and as we
want a good Bill to be produced at the end of it all, I do not think
that there is any great problem with trying both to make the clause
better and to get it out of the Bill
altogether. The
amendment would remove the last three lines above new section 75A on
page 46. The purpose of clause 43 is to enable charities to spend some
or all of their endowments. New section 75(7) says that
“‘available endowment
fund’, in relation to a charity,
means— (a) the
whole of the charity’s permanent endowment if it is all subject
to the same trusts, or
(b) any part of its permanent
endowment which is subject to any particular trusts that are different
from those to which any other part is
subject”. It goes on to
make some exclusions,
including “so much of
that endowment or part as consists of land held on trusts which
stipulate that it is to be used for the purposes, or any particular
purposes, of the
charity.” That land, I
understand, is called in specie land. Land held on trust is different
from money held on trust, because if it is excluded by virtue of
subsection (7) it would not be available for expenditure. That would
create a real problem for charitable organisations that are landowners,
rather than holders of property in the form of money. If a school wants
to build a new gymnasium, for example, it may wish to fund that by
disposing of some of its land.
Edward
Miliband: I do not want to stifle the hon.
Gentleman’s eloquence, but I shall anticipate my later remarks
and say that we are sympathetic to his amendment. We cannot accept it
in its current form,
but the point that he makes, with his customary eloquence, is important.
This is a legally complex matter, but we need to look into
it.
Helen
Goodman: I wish to speak to amendmentNo. 137,
which stands in my name. I shall be brief, as I am off the Whip at 6
o’clock. The purpose of this amendment, and my previous
amendments, is to reduce the regulatory burden on charities. In this
instance, that would be done by lowering rather than raising the limit.
I propose to lower it to £5,000 in line with the proposal that I
made earlier on the cy-près measures. All that I have to say to
the Minister, as I shall not have time to hear his reply, is that I
hope he will take what I say as an early
representation. 6
pm
Martin
Horwood: Although I would not want to dent the emerging
consensus on amendment No. 44, the example that I think the hon. Member
for Isle of Wight was about to complete seemed slightly worrying. It
would give charities more flexibility to dispose of land, including
playing fields. We might want to discourage that. It is not necessarily
the sort of thing that we want to give schools and other charitable
organisations more flexibility to dispose of willy-nilly. Having
sounded that cautionary note, I am interested to hear the
Minister’s
remarks. I am
extremely sympathetic to the amendment tabled by the hon. Member for
Bishop Auckland. I have been a little cautious about some of her
amendments, which would have changed thresholds in other respects, but
this one seems entirely laudable and would add sensibly to the
flexibility available to smaller charities. I support the
amendment.
Peter
Bottomley: Will the Minister reflect on whether there is a
particular point, meaning or purpose to line 35, which mentions land
“held on trusts” in the plural? There may be some reason
for it, or it may be imported across from something else, but it might
be worth reflecting on at some stage. If it is not important, there is
no need for him to respond, but I draw the Committee’s attention
to that
point.
My
hon. Friend the Member for Bishop Auckland has now departed. We will
review the thresholds after a year, including the one that her
amendment deals with. The amendment tabled by the hon. Member for Isle
of Wight deals with a difficult area, but he spoke eloquently about the
issues that might confront some charities that have assets in the form
of land held in trust that they want to use. We need to consider
further whether the power to spend capital can be extended to them, and
I shall endeavour to report back later on that and to take into account
the point made by the hon. Member for Worthing,
West.
Mr.
Turner: I am grateful to the Minister for his response,
and I beg to ask leave to withdraw the amendment.
Amendment, by leave,
withdrawn. Question
proposed, That the clause stand part of the
Bill.
Mr.
Turner: I am concerned about the whole of clause 43 and
about giving charities the power to spend capital. I understand why an
organisation should want to convert land into something else, or indeed
something else into land, and I understand the problem of whether an
asset held in buildings is appreciating or depreciating faster than the
land on which it is built, but I am concerned about the general
principle of charities spending their endowment.
My reading of the clause did
not make it absolutely clear. Perhaps the amendment that the hon.
Member for Bishop Auckland spoke to a moment ago should have signalled
to me that a threshold is involved somewhere, but I am concerned about
the principle that endowments might be spent. The Minister said on 6
July that “once assets
are put into a charitable trust, they cannot transition elsewhere.
Those assets are a pledge, in a way, in
perpetuity.”—[Official Report, Standing Committee
A, 6 July 2006; c. 100.] The
clause would enable them not to be a pledge in perpetuity but to be no
better than a grant of money to spend. I believe that when people
donate money to a charity, particularly a capital sum, they expect the
charity—and this would have been particularly true in the
past—to take the benefit of the interest on that capital, but
not to spend the capital itself. I realise that nowadays large sums
might be involved in some people’s donations to charities that
they would expect to be spent, but equally, in the past, people who
gave large sums would have expected the charity to benefit from the
income rather than spend the capital and deprive future generations of
the benefit of that capital. That is the point about which I have the
greatest concern.
Martin
Horwood: I understand what the hon. Gentleman is trying to
achieve by questioning the clause. However, he is representing a view
of charity that is slightly outdated. It is valuable for some charities
to rely on their endowments to generate income and for that to be the
foundation of their finances, but there is a model that is increasingly
used which suggests that endowment is not always the most efficient way
to use money. A much better return on investment—using
commercial language—can be achieved by spending that money on
fundraising. If
£100,000 is given as an endowment, that is in effect being
subjected to the risk of the vagaries of the stock market, and I have
worked in charities where that has not always paid off. As a result of
changes in investment income, income can sharply drop. That can lead to
staff redundancy and something of a crisis for the charity. If that
£100,000 had been spent on fundraising through some of the
popular methods that we shall probably discuss in this Committee, such
as direct marketing, that might in a few years’ time have
generated an income five times the amount that had been spent.
Historically, it would have been a much better way to spend that money.
Therefore, we need to allow even small charities the flexibility to
make that type of decision for themselves.
Peter
Bottomley: One thing has passed me by—are the
equivalent provisions to be found for an incorporated charity? Would
the Minister tell us whether they exist in one of the schedules, or in
other legislation, or in the 1993 Act?
I am not sure to what extent I
agree with my hon. Friend the Member for Isle of Wight. He has raised
an interesting issue. One should not necessarily look on land as being
particularly different from other assets that the charity may own. I am
a trustee of a large number of charities, some of which are associated
in a group, others not. In some cases we have been following the
trustees of the past 300 or 400 years and the original intentions of
the benefactor were clear, but the way they have been carried through
has necessarily had to change. In the old days—300 years ago,
for example—people may have only been able to leave land because
most building on land did not last. Building leases were expected to
fall in or the house was supposed to fall down within 100 years.
Therefore, the land was the permanent property. Nowadays that is not
the case. It does not
strike me as sensible to have a particular restriction on a particular
part of the assets of a charity, whether it is incorporated or not. The
question whether it is appropriate for trustees of an incorporated or
unincorporated charity to decide to use an endowment for the purposes
of the charity and end up with no endowment, is a matter that should be
closely supervised by the Charity Commission; and the larger the
amounts of money involved, the more important it is that that happens.
For the smaller charities, where administrative costs are significant,
trustees ought to have the option of either merging to create a larger
charity—where the costs of administration will be less
disproportionate or become lower—or spending the endowment and
going out of
business.
Edward
Miliband: I have not set out—perhaps I should have
done in relation to the other amendment—some of the safeguards
that may reassure the hon. Member for Isle of Wight. The key to
understanding this rather long clause lies in clause 75A(2). It
states: “But
this section does not apply to a fund if section 75A below (power of
larger charities to spend capital given for particular purpose) applies
to it.” The financial
conditions of that subsection to which my hon. Friend the Member for
Bishop Auckland referred are set out under proposed section 75A(2).
That provision requires contact with the Charity Commission. Some
interaction has to take place, so there are
safeguards. The clause
is interesting. It highlights the dilemma of striking the right balance
between central direction from Westminster and the Charity Commission
and how charities conduct their affairs. We need safeguards and minimum
standards, but we also need to ensure proper flexibility for charities,
which has been an echoing theme of the Committee. The hon. Member for
Cheltenham spoke very well about the problems faced by small charities,
in particular, when they are sitting on significant amounts of capital
but find that they cannot use them for one reason or another. I hope
that the clause strikes the right balance and that it can stand part of
the Bill.
The hon. Member for Isle of
Wight was quoting me, something that he is fond of doing, when he said
that charity was a one-way street. Even when using the powers under
clause 43, it is most important to realise that the resources freed up
as a result will continue to be used for the purposes of the charity.
They will not somehow be used for other purposes, so charity remains a
one-way street even under the clause because of the way that the
resources will be used. In response to the hon. Member for Worthing,
West, I must say that incorporated charities do not hold capital except
as a trustee, as a result of which the provisions will
apply.
|
| |
| ©Parliamentary copyright 2006 | Prepared 13 July 2006 |