Examination of Witnesses (Question Numbers
200-219)
MR DAVID
MOBBS, MS
RUTH JARRATT
AND MR
STEPHEN LLOYD
8 JULY 2008
Q200 Chairman: It is a great pleasure
to welcome our witnesses today, and that is David Mobbs, who is
the Chief Executive of Nuffield Health, formerly Hospitals, Ruth
Jarratt, who is the Director of Policy Development at the Royal
Opera House, and Stephen Lloyd, who is a senior partner at Bates
Wells & Braithwaite Solicitors. As you will know, the Committee,
amongst its various roles, has interest in looking at the work
of the Charity Commission and, in particular, in looking now at
how it is interpreting its duties under the Charities Act and
particularly what it is doing in relation to the definition of
`public benefit' and the effect that will have on the charitable
sector. We have been doing some hearings on this and we have asked
you here because we are wanting to discuss the fee-paying charity
sector, and you know all this because that is why we have asked
you, but thank you for coming and talking to us. I normally ask
if people want to say something by way of introduction and I have
been told that David Mobbs would like to say something briefly,
so please do, and then, if others would like to, do or, if not,
we will just go into the questions. David?
Mr Mobbs: Thank you very much
and thank you very much for the invite. We have broadly got three
things that we would like to say in terms of an opening statement.
In terms of the process that the Charity Commission is following,
we welcome the process. We believe it gives charities the opportunity
to refresh the discipline that they should all apply when they
consider public benefit and how they approach that. We believe
there is some confusion in the draft guidance, especially where
law and best practice is not clear, and we know that some of the
lawyers are taking a real issue with this, and I do not want to
go into that today because it is probably outside of my expertise,
but we are taking the guidance at the moment on face value and
just getting on with it. The other issue that we want to raise
is that we think there is a massive missed opportunity in relation
to the approach to the guidance. The charity sector is a diverse
sector and Nuffield Health, as an example of a values-driven,
fee-charging charity, should be embraced as part of the charity
sector and not seen as an embarrassment that should be apologised
for, and sometimes we think that the language is slightly pejorative
in that sense.
Q201 Chairman: Thank you very much
for that. Would either of the other two like to add something
or would you just like to take some questions?
Ms Jarratt: I am happy to make
just a general statement which is that I quite welcomed the guidance
as being written for ordinary people like us who work, in our
case, in the arts sector, not too legalistic, flexible, lots of
use of "applicable", "reasonable" and so on.
It seemed to make sense, particularly to an organisation like
ours which already has a public role because it receives a certain
amount of public subsidy, so it seemed familiar territory and
it seemed to, if you like, fit well with the sort of expectations
that are upon us from other quarters, ie, our public funders.
In short, the idea of public benefit and public values seemed
to fit well together which, had they not, would have been unfortunate.
Q202 Chairman: So you do not see
the confusion that David Mobbs referred to?
Ms Jarratt: I may be short-sighted,
in fact I am long-sighted, but, to me, it made sense. It feels
like guidance which, I feel, the executive and trustees of the
Opera House and other organisations would not have too much trouble
making sense of.
Q203 Chairman: Well, we shall come
back to that. Thank you very much. Stephen Lloyd?
Mr Lloyd: I would merely like
to say this: that I think the Charity Commission has a very difficult
job in interpreting what is public benefit in the new dispensation
because, when the law was changed in Parliament, it was not quite
clear to what extent the law was being changed and there were
opinions from some charity lawyers that in effect the law had
not changed at all and, therefore, all case law, as was, remained
the guiding principle for the interpretation of charity law in
the future. On the other hand, clearly there has been the revocation
of the assumption of public benefit and the Charity Commission
was tasked to give guidance on what `public benefit' means. I
think the Charity Commission have actually got a jolly difficult
task in working out in this new context exactly where the old
law ends, what Parliament expected in terms of change and where
those dividing lines are to be drawn, and I think that actually
some of that is going to play out in the future in the forum of
the Charity Tribunal, and I think they have done a good job in
trying to draw all the strands together. You can criticise parts
of it, but fundamentally it is a difficult task they have got.
Q204 Chairman: Thank you for that,
but could I stay with you for a moment. Is it your sense that
some of this will get tested at law?
Mr Lloyd: I think it will, but
I would be surprised if individual charities, though they might
get together in a class action, were to take the guidance to the
Tribunal and then on to the High Court. My own sense is that it
is much more likely to arise out of an individual case where the
Commission challenges in future, based on its guidelines, the
operation of a particular charity, asks them the degree to which
they are delivering public benefit in the light of the guidance,
feels they are falling short and the trustees challenge the Commission's
interpretation of the law on that basis.
Q205 Chairman: So you are not saying
in general, that you think that the guidance issued by the Charity
Commission so far, has in any way departed from what you understand
to be the legal position?
Mr Lloyd: There are some very
subtle areas, and the big one is the degree to which, and you
are probably all familiar with this Australian case Re:Resch,
you cannot look at the issue of public benefit without having
come across this case in 1969, which is a case of the Judicial
Committee of the Privy Council which looked at the whole question
of a private charitable hospital in Australia which sat alongside
a public hospital and a gift to that private hospital which was
challenged. It came under the will of somebody, the family did
not want the money to go to the charity, they would rather have
the money themselves, they challenged the gift, it went right
the way up from probably Sydney to just around the corner from
here in the House of Lords and it was held to be a charitable
gift. Notwithstanding that the evidence was that this was quite
an elite hospital, it was expensive to get into, there was not
much evidence of anybody getting for-free places, it was charged
at cost with a small margin, it was non-profit-making, and it
was run by nuns, it was held to be a charitable bequest. In that
judgment, Lord Wilberforce made it very clear that it would not
be a charity if it excluded the poor, but, on the other hand,
if it was only for the rich, that is clearly not charitable, but
he did not say that charities have to make particular efforts
to include the poor. What is the subtlety around all of this fundamentally
is whether that exclusionary principle, ie, thou shalt not exclude
the poor, has actually now become an inclusionary principle, ie,
thou must include the poor, and the Charity Commission guidance
errs towards that.
Q206 Chairman: Well, let us just
kick off by then going through the practical examples of not excluding
the poor. This is the key area for testing public benefit. A commonsense
person would say, "How on earth can a charitable hospital,
fee-paying, only take in people who can afford to pay the fees?
How can it not be excluding the poor? Similarly, how can the Royal
Opera House, charging sky-high ticket prices not, by definition,
exclude the poor?" Those are the questions that are asked,
are they not? Shall we hear the first answers and then we can
explore it a bit more.
Ms Jarratt: The way that the Opera
House, maybe I should just describe how we operate and I am going
to stick around the issue of performance, fee-charging and so
on, though under charity law we have a number of reasons for being
charitable, like preserving certain ballets or creating new works
of art or working with young artists. Putting those to one side,
and those all stand up and stack up as, if you like, charitable
aims or fulfilling charitable aims, I am going to stick with the
performance essentially here. The way we work, in a sense, this
has been able to reflect our public value that we deliver back,
if you like, ultimately to taxpayers, citizens and so on, that
is what has been driving us in this direction and, if you like,
the deal that was done around the Opera House funded by the National
Lottery national funds, but it actually, as I say, fortunately
drives well in the direction of public benefit too, I think. As
a total sum, our box office, which is our income from tickets,
we do not look to get the maximum box office we can, but we actually
go against that. We look to raise as much as we can through donations,
sponsorship and so on and indeed our public subsidy so that the
total sum that we make in ticket income is as low as possible,
if that makes any sense. Within that total, we then very carefully
each year develop a pricing structure that delivers a very strong
proportion of very affordable seats, so at the moment in the coming
season 40 % of our tickets will be £30 or less, which in
the context of London, the West End, musicals, whatever, is very,
very competitive.
Q207 Chairman: How do you know that
they are going to poor people?
Ms Jarratt: We have what is called
a `customer relations management system' which is a large database,
a managed database, and we look at two things. Because we absolutely
want to be a resource to the nation and we want to reach all sorts
of, if you like, harder-to-reach groups, we will actively promote
our work in certain directions, promote our performances, and
then we can identify who responded to what approach, so where
did you advertise, red-top, broadsheet, that sort of stuff, so
we can analyse our ticket buyers in the way that one does, whether
it is by postcode or whatever, and you can get a fairly decent
approximation of who is buying what, what marketing spend resulted
in what result, and that is a balancing act. We have to market
to people, a high proportion of whom will buy tickets because
we need to make the income to make the model work. Equally, we
want to promote to people who are less likely to come, therefore,
the rate of return from the marketing activity is lower, but it
is reaching people that we want to bring in, so it is a balancing
act. Our whole operation is a balancing act between bringing in
balanced budgets, and, if you remember, for the Opera House in
some years gone by that was not always the case, so it is balancing
that financial sustainability against reach and access. In addition
to the pricing policy, we also have specific schemes, like £10
student standbys, family performances where the prices range from
£5-20, schools matinees at £6 a ticket and so on, and
those are quite structurally built around our education programmes
which, in turn, tend to work with more schools in more disadvantaged
areas, so those are more managed, if you like, to specifically
get maybe at that group who are described in the guidance as "in
poverty".
Q208 Chairman: But all of this you
were doing anyway. It is not so that you can pass the public benefit
test, is it?
Ms Jarratt: No, no.
Q209 Chairman: Are you doing more
of it?
Ms Jarratt: Not to disappoint
the Charity Commission, I think that we are doing it anyway, we
do as much as we possibly can, we spend time at executive team
meetings and we spend a lot of time exactly working out how to
drive financial sustainability against access the whole time,
and every year we introduce more schemes, so we provide free access
through those great big screens, like the big football screens,
which we put up around the country and we beam shows by satellite
and you can sit out, like a mini-Glyndebourne, and watch a show
for absolutely nothing. In fact, we have just negotiated deals
for high-definition, surround-sound screenings into cinemas at
£12.50, which, I am glad to say, is less than some other
international opera houses charge for something similar, which
answers, I think, another issue in the guidance which is that
it is not only price that limits access to the public, it can
be location, so, if you live in the north of England, being able
to go to a cinema and have this extraordinary experience, sometimes
live, sometimes not, at £12.50 may be more valuable to you
than even getting a cheap ticket if you have got to pay the fare
to get down from Liverpool, Leeds or whatever.
Q210 Chairman: Well, I can just about
understand how you can make all that stack up, but I cannot understand,
in relation to fee-charging hospitals, how you can have an equivalent
programme.
Mr Mobbs: Well, we are not just
a company that operates hospitals, and I will go on to describe
that in a minute, but I think what my colleague has just described
is that there is always a need to balance the public benefit you
are delivering with the accessibility and the financial sustainability
of the organisation, and all charities have to make a choice as
to the approach that they take to raise the funds to deliver their
benefit, and I think the choice that you take does not alter the
fact that you are still there to deliver a benefit. We choose
to charge fees and we do so solely so that we can raise funds
to deliver the benefit that we provide. Healthcare is an expensive
activity and it requires significant investment to set up and
maintain, but the common perception that we only provide the high-ticket
items, such as hip operations and so on, is slightly misplaced
because our fees range from a few pounds to a few thousand pounds.
The most common procedure undertaken in part of our hospitals
division is for a few hundred pounds, so people can access our
services on a broad range of fronts, not just in relation to the
common areas, such as the hip operation. In addition to that,
we also provide access on a whole range of procedures. For example,
in our hospitals division alone, we provided 20,000 operations
last year for the NHS free at the point of delivery. In addition,
in our mobile services division, we supported a further 20,000
operations by providing mobile operating theatres to support the
NHS. We also run 15 local authority contracts to help keep people
fit and well in their localities. We provide services to a whole
range of employers to keep their staff healthy in their workforce,
which of course is free to the employee because the employer is
paying for the overall service. There is a broad range of ways
that individuals can access the range of services that Nuffield
Health offers, so I do not think it is just a question of focusing
on a high-ticket item, such as a hip operation or in a private
hospital setting, and I think we balance it across the whole range.
I think there is an important distinction to make, that our purpose
is for the public benefit and that does not alter in terms of
the operating model we choose in order to raise the funds to service
that purpose.
Chairman: Thank you. I am sure we shall
want to explore some of those issues with you.
Q211 Mr Liddell-Grainger: Stephen,
have you done any research, as a firm, into any of the ramifications
of what the Charity Commission is now talking about?
Mr Lloyd: In terms of what?
Q212 Mr Liddell-Grainger: In other
words, the public accountability and the way that you have to
prove you are a charity. We have had the independent schools who
came in last week and that is obviously causing concern, but there
are other areas which, I am sure, will. Have you done any research
into it?
Mr Lloyd: No, we have not. My
reaction to the proposition as a whole is this: that, from my
experience of working with a lot of charities, it is quite amazing
how, to some degree, some of them have lost contact with their
charitable mission. It is particularly true, I have to say, in
some cases in the arts world and in the education world where
organisations sold themselves as schools first or theatres first
rather than as charities. Actually, one of the good things about
this whole debate is that it forces organisations to look back
and say, "What is our charitable purpose? We are here to
deliver public education rather than a sense of tradition",
and I think that is wholly good and actually all the forward-thinking
organisations that I have come across in my experience, when faced
with that choice, realise it. Actually, it is quite amazing how
many organisations have actually lost sight of what they were
set up to do. I had a client try and explain this to a group of
people the other day and somebody came up to me afterwards and
said, "Is it true that charities have to just do what their
mission says, their objects?" and I said, "Yes, why?"
and he said, "Well, I run an international school for boys
and girls, it's got a footprint that is way beyond the UK".
I said, "Yes, what's the problem?" He said, "Well,
our charitable objects are to provide education for 12 poor boys
in a small Midland area of Britain", so they were clearly
acting way outside their objects, doing perfectly good things,
and that is an illustration of the fact that actually quite a
lot of organisations just need to modernise and to come to terms
with this guidance and what their objects are. In terms of how
difficult will it be for them to comply, I think the key question
there, strangely enough, is that it is going to be easier for
richer organisations than poorer because, if you are an organisation
with endowments or you can have a pricing policy like the Opera
House which allows you to differentiate the price, then you can
easily accommodate poor people. If, on the other hand, you are
an organisation that is right on the margin of making a modest
surplus just to keep going and there is no fat in the machine,
it is more difficult for you actually to deliver free places or
whatever, and I will pose you a question and an interesting one.
Say, you were to set up a school that was aimed to provide education
to the public, it was fee-charging, but you only charged fees
at exactly the same price as it costs the State to provide education,
say, £5,500 for a primary school, but you could not afford
to have any subsidised places because that was your model, would
that be charitable and in the public benefit? Now, I would say
it was because the law has always been that, if you go right back
to the Statute of Queen Elizabeth 1601, it made a difference between
free schools and schools of learning. Universities' schools of
learning have always charged. The only difference nowadays is
that, until recently, the State paid for a lot of it and now that
balance is shifting again, so my point would be that there is
nothing inherently problematic about a charity charging fees for
the service it provides, but the crucial question is the degree
to which that is exclusionary through such high fees.
Q213 Mr Liddell-Grainger: I think
that is very interesting and the state boarding schools and others
may come under that because they are charitable trusts. Then,
if that is the case, do you think there is going to be the case
where people may say, "This is the Government, hospitals
and maybe schools, but they are filling up the gaps of the failure
of public services by forcing charities to become quasi-public
bodies, so, in other words, we don't have to spend as much on
education", I am taking the example, "and health",
but, if we can force them to do so, looking the other way, do
you think people may say, "Right, that's a problem, therefore,
we are having to subsidise failures in the system"?
Mr Lloyd: Well, I think the answer
to that is this: that the Charity Commission is a quasi-judicial,
independent body and it is not there to deliver government policy.
It is tasked with the charge by Parliament of reinterpreting what
`public benefit' means. Now, if people take care to conclude from
that that the implications of that policy are political in the
sense that it is a shift of resource from the State to an obligation
on charities, that is an interpretation people can put on it,
but my point is that that is certainly not, in my view, what the
Charity Commission is setting out to do.
Q214 Mr Liddell-Grainger: Is it a
fair point or not? Give us an opinion. Do not charge us, but we
would be interested to know!
Mr Lloyd: I do not think it is
a fair point. I think what the legislation is designed to do is
to ensure that charities deliver a broader range of public benefit.
Now, that could be that that means that actually you get more
bang for your buck from charitable assets and that could mean
that actually, where they have been subsidised by the State in
tax reliefs, there is a better return on, if you like, that state
investment, and that is a possibility.
Q215 Mr Liddell-Grainger: Can I just
ask you, David, because there are other hospital organisations
which are non-charitable, they are private, do you regret being
a charity, are you pleased to be a charity and, looking at what
you may or may not have to do in the future, will you still want
to be a charity?
Mr Mobbs: I actually think that
that question is at the root of an awful lot of confusion about
this whole issue because it almost assumes that there is a choice
to being a charity, that you can shop around and have charitable
status as an optional extra, and that is not the case. If you
set up an organisation for the public benefit and you dedicate
the assets and property of that organisation entirely to deliver
for the public benefit, then you automatically have to submit
that to the protective regime of the charity law, of which Parliament
is the custodian, so there really is not a choice in this matter
at all. Quite honestly, our purpose is for the public benefit,
and we will continue to dedicate our assets and property for the
public benefit and reinvest everything we earn to support that.
If our charitable status was lost for any other reason, that would
not change our purpose and we would continue to operate in that
manner.
Q216 Mr Liddell-Grainger: You can
go to court, I think, Stephen, can you not, to be de-registered
as a charity? Is that right?
Mr Lloyd: Well, no. The only way
you can do that is this: once assets, as David rightly says, are
dedicated to charitable purpose, that is what they are dedicated
to in perpetuity. If you want to `decharitise' yourself, to use
an ugly expression, what you would have to do, as a charity, is
say, "Well, we're running" let us say, "a school
and we don't want to run it as a charity any longer", you
must sell the assets for the open-market value, get the price
that is yielded from that and then apply that money, the cash,
for charitable purposes. What you cannot do is to say, "Well,
it's all become a real bore being a charity now. Thank you very
much, we're going to walk away with it", so we walk away
with the assets that have been created by charitable endowments,
gifts, in some cases state subsidy through taxes, and walk away
and turn it into a non-charity. That is not possible legally.
It is often commented in The Daily Telegraph that
it is a possibility, but it is not.
Q217 Mr Liddell-Grainger: I think
that is worth clarifying because David made the point and that
is the reason I put it.
D Mobbs: I think there is another
issue. I think we should be very suspicious of those organisations
that want to take that course of action just because they are
struggling in relation to fulfilling their role in being for the
public benefit and providing accessibility. This may be a challenge,
but it is a challenge which people need to think very carefully
about how they can meet in the future.
Q218 Mr Liddell-Grainger: The Royal
Opera House, with no disrespect, are not liable, unless somebody
falls down a staircase, to end up with David, but you deal with
people's healthcare and I think the most basic form of help for
a human is to make them better. Do you feel that you could be
pushed into a corner because of your charitable status where other
well-known private hospital firms will not have that onus on them
to do things?
Mr Mobbs: No. I think our charitable
status actually gives us a significant amount of independence.
It is the trustees that determine how the charity operates to
support its delivery of public benefit and, if you ever believe
that one body, whether it is the State or anyone else, were becoming
too dominant in your overall approach, you seek to check that.
Being a fee-charging charity actually gives us the flexibility
to always think about how we can maintain our independence and
actually deliver our public benefit in the way that, our trustees
feel, gives the best impact to our beneficiaries.
Q219 Mr Prentice: Mr Mobbs, you said
at the beginning that Nuffield should not be seen as some kind
of embarrassment, or that was roughly what you said. Why do you
think people are getting at you?
Mr Mobbs: I was not actually making
the point about Nuffield per se, I was making the point about
fee-charging charities overall and the contribution that fee-charging
charities could make to the future of a thriving and dynamic charity
sector. There is an awful lot of talk about the modernisation
of public services, for example, and I believe that fee-charging
charities have a significant role to play in society in the future.
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