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Session 2009 - 10
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Delegated Legislation Committee Debates



The Committee consisted of the following Members:

Chairman: Ann Winterton
Ainger, Nick (Carmarthen, West and South Pembrokeshire) (Lab)
Bain, Mr. William (Glasgow, North-East) (Lab)
Baldry, Tony (Banbury) (Con)
Blizzard, Mr. Bob (Lord Commissioner of Her Majesty's Treasury)
Curry, Mr. David (Skipton and Ripon) (Con)
Dorrell, Mr. Stephen (Charnwood) (Con)
Fabricant, Michael (Lichfield) (Con)
Horwood, Martin (Cheltenham) (LD)
Hurd, Mr. Nick (Ruislip-Northwood) (Con)
Levitt, Tom (High Peak) (Lab)
Roy, Lindsay (Glenrothes) (Lab)
Salter, Martin (Reading, West) (Lab)
Smith, Angela E. (Minister of State, Cabinet Office)
Williams, Mrs. Betty (Conwy) (Lab)
Willott, Jenny (Cardiff, Central) (LD)
Wood, Mike (Batley and Spen) (Lab)
Joanna Dodd, Eliot Wilson, Committee Clerks
† attended the Committee

Fifth Delegated Legislation Committee

Tuesday 19 January 2010

[Ann Winterton in the Chair]

Draft Charities Act 2006 (Changes in Exempt Charities) Order 2009
4.30 pm
The Minister of State, Cabinet Office (Angela E. Smith): I beg to move,
That the Committee has considered the draft Charities Act 2006 (Changes in Exempt Charities) Order 2009.
The Chairman: With this it will be convenient to discuss the draft Charities Act 2006 (Principal Regulators of Exempt Charities) Regulations 2009.
Angela E. Smith: I think this is the first time that I have served under your chairmanship, Mrs. Winterton. It is a great pleasure. You have a reputation for fairness and doing things properly in Committee. I welcome that and look forward to a well-ordered and good debate. I would also like to note that my hon. Friend the Member for High Peak and the hon. Member for Cheltenham, who is not yet in his place, both served on the Charities Bill Committee and therefore have experience of the issues. It is also worth noting that this is the first Statutory Instrument Committee that my hon. Friend the Member for Glasgow, North-East has served on. He is very welcome on a Committee on such a great order.
The two statutory instruments under consideration form part of a package of changes to the regulation of exempt charities resulting from the Charities Act 2006. I will briefly explain the policy background to those changes, before explaining what the instruments will achieve.
Exempt charities are not regulated in the same way as other charities. The general law of charity applies to them, but they are exempt from many provisions of the Charities Act 1993, including the supervisory power of the Charity Commission. Exclusion from that supervision is underlined by the fact that exempt charities are not permitted to register with the commission. Many such exemptions are historical. Others have been created since 1960 when charity legislation was consolidated. Most are now to be found in schedule 2 to the 1993 Act. Exemptions have been granted when Parliament concluded that satisfactory arrangements were in place for regulating the relevant institutions and that additional supervision by the Charity Commission was not required.
In 2001, the Prime Minister’s strategy unit carried out a wide-ranging review of the legal and regulatory framework for charities and not-for-profits in England and Wales with the aim of modernising charity law and developing greater accountability and transparency to build public trust and confidence in charities. On exempt charities, it found that the position was anomalous, confusing for the public and a threat to the integrity of charitable status. Some exempt organisations, for example, were unaware of the requirements of charity law. As a result, the strategy unit made recommendations for improving the regulation of exempt charities.
In 2003, following public consultation, the Government accepted the recommendation that exempt charities that benefit from the fiscal advantages of charitable status should come under some form of regulatory oversight as charities. The majority of consultation respondents agreed with that principle. In accepting the strategy unit’s recommendation, the Government set out their aim of establishing arrangements that secured greater accountability of, and charity law compliance by, exempt charities while imposing the minimum of extra bureaucracy. That was to be done by, wherever possible, identifying a Minister or body with existing oversight responsibility for a particular exempt charity or group of exempt charities to become the principal regulator for that charity or group. The principal regulator would then be under a new duty to promote charity law compliance by the charities for which it was responsible.
When it was not possible to identify a principal regulator for a charity or group of charities, they would cease to be exempt. However, they would be required to register with the commission only if their gross annual income exceeded a specific financial threshold, which is currently £100,000.
Michael Fabricant (Lichfield) (Con): For the sake of clarity, will the Minister explain the financial implications for bodies that lose exempt status? Will they suffer as a consequence or will their situation remain unchanged in practice?
Angela E. Smith: The hon. Gentleman is very eager. Patience rewards all questions. I will come to that point. I think it important that we give the commission full information on it.
The changes I have mentioned were enacted in sections 11, 13 and 14 of the 2006 Act. I will talk about charges in a moment, but first I shall outline some of the other implications involved, because it is rather a complex, although non-controversial, order.
Section 11 removes certain charities or groups of charities from schedule 2 to the 1993 Act. It also enables the Minister to make further changes to the schedule to confer or remove exempt status. Changes may be made, subject to parliamentary approval, only if the Minister is satisfied that the change is in the interests of ensuring appropriate or effective regulation of the charities or charity concerned in relation to charity law compliance.
Section 13 of the 2006 Act enables the Minister of State for the Cabinet Office to appoint a principal regulator for each exempt charity or group of exempt charities to promote charity law compliance. The Act, of which my hon. Friend the Member for High Peak will be aware as he served on the Committee, also increases the extent to which exempt charities are subject to Charity Commission regulation. More important, the Charity Commission cannot exercise any regulatory powers in relation to an exempt charity without first consulting the exempt charity’s principal regulator.
Paragraphs (1) to (6) of article 2 of the draft exempt charities order make provision to remove exempt status from certain charities for which it has not been possible to identify a suitable person to take on the role of principal regulator. Those institutions are the colleges and halls in the universities of Cambridge and Durham, and the colleges in the university of Oxford; higher education institutions in Wales, which are currently exempt charities; charitable institutions connected with the institutions that I have just mentioned, which were exempt charities because of that connection; and the board of governors of the Museum of London. Regulations will be made separately to ensure that those charities or categories of charities are excepted from the requirement to register with the Charity Commission if their annual income does not exceed the current £100,000 threshold.
The order also removes from the schedule references to a number of institutions that have ceased to exist. It confers exempt charity status on certain charities connected with the British Library board. The order also makes consequential amendments, transitional provisions and savings, which make it clear how legislation that applies differently to exempt and other charities applies to the charities ceasing to be, or becoming, exempt. They cover, for example, the accounting and reporting requirements that are to apply for the current financial year, the matters over which the commission will have jurisdiction and the requirements relating to ongoing charity land transactions or charity proceedings.
The draft principal regulators of exempt charities regulations prescribe principal regulators for certain groups of exempt charities. The principal regulators the regulations appoint are the Higher Education Funding Council for England for certain higher education institutions in England and their connected institutions; the Secretary of State for Culture, Media and Sport for the boards of trustees of the museums and galleries and their connected institutions; and the Secretary of State for Environment, Food and Rural Affairs for the board of trustees of the Royal Botanic Gardens, Kew and its connected institutions.
The duty imposed by the 2006 Act on the principal regulators of exempt charities is forward looking. It means they are only required to promote compliance by the charity trustees with charity law obligations arising on or after, or ongoing on, the commencement date. We currently anticipate that being 1 April 2001. Principal regulators will not be required to take action under the new duty in relation to matters that occur before the commencement date and in connection with which there is no charity law obligation continuing at that date. Similar provisions will apply to the Charity Commission in relation to those institutions and to those ceasing to be exempt.
The Office of the Third Sector and the Charity Commission have been closely engaged with stakeholders and have consulted the proposed principal regulators and bodies representing the groups of charities that will be affected by the changes. In some cases, they consulted individual charities. Drafts of the instruments were shared with those bodies.
The hon. Member for Lichfield asked about the financial impact. There are a number of impacts, not only financial ones, to which I will refer. For charities that continue as exempt charities under the principal regulator regime, there will be little, if any, noticeable impact. They will continue, as now, under the existing regulatory regime, albeit with their regulator also promoting charity law compliance. An impact is likely to be felt only if something goes wrong and the principal regulator invites the Charity Commission to intervene. However, charities under the principal regulator regime are likely to benefit from tailored guidance on charity law issues that may be specific to that particular sector.
There will be an impact on charities that cease to be exempt and must register with the Charity Commission, but we have worked extremely hard with the commission to minimise the burden of regulation wherever possible. The commission does not charge fees for registration, but charities that must register will pay some indirect costs. The commission estimates that registration is likely to cost charities an average of £169, but higher costs can be expected when there are complex issues to resolve.
Michael Fabricant: I wholly accept what the Minister says about the fairly minimal costs of re-registering. I am not an expert in the subject, nor do I need to be as a Whip, although I am not like the Government Whip, who is not allowed to say a word, only to glare at me. Will the Minister let me know whether there will be a tax ramification? Will there be different tax treatment for charities that were exempt and must now re-register?
Angela E. Smith: No. They all benefit already from the tax regime for charities, and that will not change for any of them in this case. The new regulations will ensure that the playing field is level and that all charities operate within the same compliance requirements.
The commission has been engaging with the charities that will be required to register as a result of the changes, in an effort to make the process as simple as possible. For example, the commission has worked with the National Union of Students to develop model constitutions for students unions, the adoption of which can be done online and will speed the registration process. The commission’s Wales office is liaising directly with the Welsh charities that will be required to register as a result of the changes.
The cost of preparing an annual return to the Charity Commission is estimated at £32 in the first year and up to £23 in subsequent years, or up to £124 for charities with incomes of more than £1 million, which must provide a more detailed summary information return. Those, too, can be completed online. No extra costs are anticipated in relation to the preparation or scrutiny of accounts, but the accounts will have to be sent to the commission each year. Again, that can be done online to simplify the process. Charities that cease to be exempt will, like other non-exempt charities, have to prepare a trustees’ annual report. The commission has estimated the annual cost to formerly exempt charities required to register as ranging from £287 to £534 for the largest charity.
Those costs were not anticipated in the original impact assessment prepared for the Bill. We have explored with the Land Registry whether the fees could be waived or reduced, but the Land Registry depends on the fees it charges to cover its costs, so the applications will be treated in the normal way. No other costs are anticipated for charities that become exempt as a result of the orders.
The Charity Commission is at an advanced stage in developing memorandums of understanding to formalise details of the relationship between it and the principal regulators. It has also set up a committee of principal regulators that will meet regularly to share best practice and ensure consistency in the application of regulatory requirements.
The commission publishes detailed guidance on its website about the forthcoming changes in the regulation of exempt charities, including guidance on registration for charities that will now be required to register. The Charities Act 2006 requires the Act to be reviewed within five years of enactment and the report to be laid before Parliament. The review will include an evaluation of the changes made to exempt charities and the effectiveness of the principal regulator approach in promoting compliance with charity law.
4.44 pm
Sitting suspended for a Division in the House.
4.56 pm
On resuming—
 
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