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 Ministers 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
units 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 charitys
principal
regulator.
We
propose to implement the provisions and make additional changes under
them in several tranches. The two statutory instruments being debated
today form
part of the first tranche, and further tranches of implementation
relating to exempt charities will follow. I shall summarise the main
changes that the instruments will bring about, who they affect and the
implications for charitiesthose that remain exempt and those
that are no longer exempt.
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 commissions 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.
There may be
some additional costs for charities that cease to be exempt and that
own registered land. The costs will arise because the Charities Act
1993 requires where land is held by or on trust for a registered or
excepted charity that the relevant entry in the Land Registry reflects
any restrictions imposed on transactions involving that land by the
1993 Act. Charities ceasing to be exempt will need to apply to update
the relevant entries in the Land Registry. I understand that the cost
of registering restrictions is £50 for the first three titles
affected and £25 per subsequent title
affected.
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