To be published as HC 1542 -i

House of COMMONS



Public Administration Committee

Work of the Charity Commission

Tuesday 25 October 2011

Dame Suzi Leather DBE and Sam Younger CBE

Evidence heard in Public Questions 1 - 124



This is a corrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.


The transcript is an approved formal record of these proceedings. It will be printed in due course.

Oral Evidence

Taken before the Public Administration Committee

on Tuesday 25 October 2011

Members present

Mr Bernard Jenkin (Chair)

Charlie Elphicke

Paul Flynn

Robert Halfon

David Heyes

Kelvin Hopkins

Greg Mulholland

Lindsay Roy


Examination of Witnesses

Witnesses: Dame Suzi Leather DBE, Chair, and Sam Younger CBE, Chief Executive, Charity Commission, gave evidence.

Q1 Chair: Welcome, both of you, to this session on the work of the Charity Commission. I wonder if you could each identify yourselves for the record.

Dame Suzi Leather: Thank you very much indeed. I am Suzi Leather; I chair the Commission.

Sam Younger: Sam Younger, Chief Executive of the Charity Commission.

Q2 Chair: Thank you for being with us today. The purpose of our session is to look at the work that the Charity Commission does in the light of the forthcoming review. Dame Suzi, I believe you would like to make a brief opening statement.

Dame Suzi Leather: Only to thank you for this opportunity to talk to you about our work. Since we last appeared before you, quite a lot has happened; not least, like many other Government departments, we have had a very significant funding reduction. That has necessitated a root-and-branch strategic review. We have now a new strategic policy going forward. We have very fundamentally restructured the organisation, and it would be very helpful to talk to you about all those things. I would also like to record my thanks to all our staff, because as you will see from our annual report, in terms of our performance, it has been a very good year; we have achieved a lot against a very difficult background, so on behalf of the board, I want to thank all my staff.

Q3 Chair: May I place on record my thanks-I am sure that I speak on behalf of the Committee as a whole-for the work that the Commission has done in a very difficult period? Particularly, our thoughts are with your staff, who are suffering the effects of downsizing, and we realise that this is a very, very difficult time for the Commission, as it is for very many parts of the public sector. I hope that you will pass on our very best wishes to your staff.

Dame Suzi Leather: Thank you. That will be much appreciated.

Q4 Chair: We have quite a lot of housekeeping questions, but we think we may deal with some of those in writing rather than orally, because we have very many pressing issues that we want to press on with. May I ask, to start with, about your resource funding? You have had a cut of £2.8 million on a budget of about £30 million, and it will be cut by nearly a further £1 million by 2013-14. What activities have you actually ceased to undertake as a result of that?

Dame Suzi Leather: When we consulted with the strategic review, it was very clear from responses that all the people we consulted felt that there was really nothing very obvious that we could stop doing. That came to us from the charity sector, from umbrella bodies, and internally from our own staff. We have, of course, the same statutory objectives in the 2006 Act.

What that said to us was that we had to change fundamentally how we did things, rather than what we did, but also really carry out the functions that only we as the regulator could do-in other words, stop doing things that other organisations could do. Clearly, you do not do that overnight, but we did identify that one-to-one advice and support was an area where we could do less and rely more on umbrella bodies to do that, supported, of course, by our own guidance. The guidance that we provide will continue to be incredibly important, but what we are seeking to do is rather fewer of what I might term hand-holding responses. I think Sam will come in on the figures on this, but the traffic coming into the Commission asking informal questions, whether by phone, letter or e-mail, is really quite considerable, and we wanted to stop doing that.

Q5 Lindsay Roy: Good morning. How satisfied are you that the umbrella organisations can fulfil that function-the one-to-one rapport?

Dame Suzi Leather: Mr Roy, you have put your finger on a really important issue, and this is why I emphasise the importance of not stopping what we are doing overnight but moving gradually to asking the umbrella organisations to do more. Certainly, many of them are facing the same funding problem that we are. I think in the short term it is a difficulty, but our long-term vision, as it were, is to build up the self-reliance of the sector, to make those umbrella bodies stronger and perhaps increase their membership, so they become more resilient.

Q6 Chair: What does that mean in practice? Somebody rings up and starts asking questions, and you say, "Look, you have to ring this person, and they will deal with it"? How does it actually work?

Sam Younger: There are two forms in which we can do it. When people come to us, whether by telephone, e-mail, via the web or whatever, we can have better signposting to other sources of advice beyond what is on our web that is not just straight back to us. That is one element. The other is working more positively to develop a strategic relationship with a number of umbrella bodies, so that they are in a better position to take this on and avoid things coming to us in the first place.

In answer to Mr Roy’s question, one thing that was striking in the context of our strategic review consultations was that the umbrella bodies expressed quite a positive wish in principle to take on some of these areas of contact with and advice to their members. I think it is also important to remember with umbrella bodies that we are not just talking about half a dozen large national organisations; there are a lot of sub-sectoral umbrella bodies, such as the Almshouse Association or the National Confederation of Parent Teacher Associations, that we have been working with over some years to make sure they are in a position effectively to give advice that arguably is better suited to their members than the more generic advice that we could give.

Q7 Lindsay Roy: You are being asked to do more with less. To what extent has professional training and development been incorporated within the plans of the umbrella organisations?

Sam Younger: In terms of the umbrella organisations, we are still at quite an early stage of the discussions about how they might take on more, but as we develop those relationships with umbrella bodies, I think we will certainly want-it is not exactly training-to make sure that we have a privileged relationship, or they with us, in terms of understanding what the requirements are. In a sense, if there is a very long-term vision, it is that our engagement is with 150 umbrella bodies right across the breadth of the sector, rather than with 180,000 individual charities, but it is then incumbent on us to make sure that they are very well up to date with what the legal requirements are as we see them, and that they keep us up to date with the kinds of things that their members are asking them.

Q8 Lindsay Roy: Surely you need to be satisfied that they can fulfil the function.

Sam Younger: Yes, indeed. For that reason, we want to make sure that we have a relationship, as indeed on a smaller scale we have developed relationships with other sub-sectoral bodies where we are convinced that they are capable of providing good advice. That said, we need to be careful not to compromise our regulatory independence by allowing them to be in the position that, as it were, those that follow their advice can rely on that and avert the possibility of regulatory intervention from the Commission. So we need to keep a firewall to that degree.

Q9 Chair: What effect on charities has the downsizing of your operation had?

Dame Suzi Leather: I think it probably has not had very much impact so far. However, I would say that we have noticed a reduction in the number of contacts from organisations. Having said that I do not think that it has had a huge effect, I think the message is beginning to get through that our communication with the sector, or at least our regulatory touch, certainly in an informal-advice-and-guidance sense, will move up from contact one-to-one with individual organisations to the umbrella bodies. That may be driving some of the decrease in contacts with us.

Q10 Chair: In terms of your staff redundancy programme, how have you ensured that you hang on to the people and the skills that you want, rather than some of your best and brightest taking the opportunity to accept redundancy and move on to something else?

Sam Younger: In the context of our strategic review, we have run two voluntary exit schemes so far. Obviously, voluntary exit schemes are not targeted in the sense that the management says, "These are the people we wish to go"; they are volunteers coming forward. There was a clear management decision early on that said, "If we are going to lose as many as the 140 or so people we need to lose, we need to make this as voluntary as we can, in terms of our ability to operate and manage the organisation, staff morale and so on." When those expressions of interest in voluntary exit come in, it has always been open, and in a number of cases the management have said, "No, we are not allowing this application to go forward". Largely, that would have been a matter of wanting to keep not just particular talents, but people in areas where, if we had allowed somebody to go, we would simply have been paying public money for them to go and then having to recruit externally because it was a specialist skill, for example.

I think in a voluntary exit scheme-I think this is how it is proved-because of its voluntary nature, you do not keep absolutely everybody you would like to keep. Among those who leave are some whom you would prefer to keep, and some whom you are content should leave. I think that is part of the equation when you look at the case for going down the voluntary exit route as opposed to a voluntary/compulsory redundancy route. I am satisfied in terms of the way it has gone so far. We are not absolutely at the end of the road yet. At the moment, we are probably about 20 to 25 short of the numbers that we need to get to by the beginning of 2013-14, but I think the balance that we have got has maintained a spread.

We do have an added complication, because we are spread over different sites. You have the geographical location of where people go, and we are working through that in those final stages now, to see whether certain roles can be transferred from one geographical location to another. We do not want to be in the position of potentially making somebody redundant in one location while we are having to recruit externally somebody of broadly the same skills and experience at another.

Q11 Kelvin Hopkins : The Commission currently receives all its funding from money voted by Parliament. I preface this by saying that I am not making a suggestion, but have you explored alternative models of funding for the Commission’s activities?

Dame Suzi Leather: Over the years, we have thought about getting our money in a different way. We could not move to, for instance, a levy on the sector without primary legislation; we are not enabled at the moment to do that. When we have looked at the different funding models, the most attractive one would be a unit cost on each individual charity, perhaps with a threshold below which you would not ask for money. At the moment, on the register, I think there are just over 100,000 charities with an annual income of less than £10,0001. You might, for instance, want to exclude those. We are trying to encourage the development of small, community-based organisations, which are after all an important part of the big society. It would mean that perhaps you could ask the larger charities to pay a certain amount every year-a few thousand pounds-and go down from there. I think it would be very difficult to get our funding, for instance, through asking charities to pay to register their annual accounts with us. I think that would give out one message: if you do not register your annual accounts, you do not have to pay the money. That would not be very good for transparency.

Q12 Kelvin Hopkins : Is there not a danger of conflict of interest when charities are paying you to regulate them?

Dame Suzi Leather: Absolutely. This is something that perhaps the review of the Act could consider. I do not think there are any easy solutions to this, nor would it necessarily be the case that if we moved to a different funding base we would have larger or more sustainable funds, but many regulators are funded by the sector that they regulate.

Sam Younger: I think it is important to make a distinction between something that is an automatic levy on registered charities, and something that might be payment for services. I think if we went down the payment for services route, we would be in danger of creating a customer-supplier relationship, rather than a regulator-regulatee relationship, if I can use that phrase.

As Suzi says, when we put in the case for funding for the last spending review, we outlined a possible model for a levy on the sector. Just for illustration, some of the figures that went in there were saying that, if we were looking to raise broadly the amount of public money we had at the time, which is higher than we will have in the future-this was about £30 million per annum-one of the models, just to give an idea of the order of magnitude, was to exempt charities with an income of under £250,000 from any payment. Above there, it would range from £300 for charities of between £250,000 and £500,000, up to £6,000 for those of £5 million plus. I remember that last winter, when I raised this at the Charity Finance Directors’ Group-to about 300 of them-it was audible around the room that there was not a great degree of popularity for the notion of £5,000 or £6,000, particularly in the current economic circumstances.

Q13 Chair: Is the idea that charities with large trading accounts should contribute something? It is still taking money away from charities, instead of using taxpayers’ money.

Dame Suzi Leather: I think there is quite a lot to be said for it, but it does need to be properly debated. In response to the strategic review, some charities did ask why we were not doing it now as a way of solving our funding problem. Perhaps it is not generally understood that we would not be able to do that now. There are these problems of capture that Mr Hopkins has alluded to, but this would be an ideal thing to be looked at by the review of the Act.

Sam Younger: There is one other aspect of it. Even if we were to move towards having some form of levy on the sector, I cannot conceive that it would be done without any form of control on what those levels would be. It is not as though that would in itself, from our point of view, solve the funding problem, because there would still need to be controls on what those charges were and how they would move in the future.

Chair: Can we move on to campaigning and political activity concerning charities? Mr Halfon.

Q14 Robert Halfon: Good morning. Obviously, Atlantic Bridge has been in the news recently. I know my colleague, Mr Flynn, is going to ask you in more detail about that, but could I just understand from you how you decide what is and what is not a charity? What are your criteria?

Dame Suzi Leather: In law, a charity is an organisation that has charitable purposes and is for public benefit, both in terms of its purposes and how it behaves day to day. Parliament has laid down what those charitable purposes are.

Q15 Robert Halfon: Can you explain what those charitable purposes are?

Dame Suzi Leather: Yes, there is a list that includes, for instance, advancing education, advancing religion, promoting animal welfare, protecting the environment, arts and museums and so on. It is quite a long list, laid out in the 2006 Act.

Q16 Robert Halfon: Can you explain why you decided that Atlantic Bridge should not be a charity?

Dame Suzi Leather: We conducted our investigation of Atlantic Bridge in 2009 to 2010, and published our report on that in 2010. We were looking at whether it was an organisation that was capable of being a charity-whether it had been rightly registered-and, in carrying out its activities, whether it behaved like a charity. We concluded that it was capable of being a charity. It was set up as an education charity. For an education charity, case law requires a certain amount of, for instance, balance, but case law also requires that charities remain insulated from party politics. They cannot support different political parties or align themselves, or run the risk of being seen to align themselves, with political parties.

Q17 Robert Halfon: Could you then explain why you allowed the IPPR to be a charity, for example, which is clearly an organisation on the left aligned with many people in the Labour party?

Dame Suzi Leather: Most think-tanks, which I guess is what you are referring to, are education charities. There are some think-tanks that are not charities and do not wish to be, or wish to have to behave as charities. Where a think-tank is a charity, it has to maintain balance and a degree of neutrality. It cannot align itself with a political party.

Q18 Robert Halfon: I accept what you say about the rules and so on, but I cannot see any difference with the IPPR, because they have links with the Labour party and people who work for them are former Labour party people. Why is that classed as a charity, when something like Atlantic Bridge and other organisations are not?

Sam Younger: I think I am right in saying that when the investigation of Atlantic Bridge was done, part of the reason it was determined that Atlantic Bridge was not carrying out activities in line with its charitable purposes was that there was no evidence of research that was being published and widely disseminated. In this case of an IPPR, it would not be quite like that. It has come up in a number of discussions we have had, and is still coming up, in terms of applications for registration over the last year, since I have been there, one or two of which we have actually rejected, saying, "This is getting too close to being political." It is fair to say that it is a very thin line, and it is one that I would say is worth discussing in the context of the review of the Act, in terms of whether greater clarity could be brought to it.

Q19 Charlie Elphicke: IPPR is a left-wing think-tank that is well known, but it does education. I acted as the advisor to the Centre for Social Justice as a lawyer with an understanding of charitable law, and put the case for charity status for that. They said that was political. My clear impression as a lawyer was that there was a cause-related issue with that within the Charity Commission. Can you explain why the Centre for Social Justice did not get charitable status, whereas IPPR, the Smith Institute and places like that do?

Sam Younger: I cannot speak for that individual case, because I do not know the detail of it. All I would say is that from my experience I see no evidence within the Charity Commission of any partial view of this. You have got people genuinely struggling with what is a difficult issue to determine about that line. Normally, it is a line between what is education and what slips into political activity, and I acknowledge that that is a difficult and a thin line, and there are a lot of discussions around it.

Q20 Robert Halfon: There is a view that you are more lenient to so-called charities on the left, and much harsher with those that are regarded as connected with the centre-right. Could you answer that?

Sam Younger: I do not see any evidence of that myself.

Q21 Robert Halfon: My colleague has just given you one, with the IPPR and the Centre for Social Justice.

Sam Younger: Obviously I cannot answer an individual case, but what I see is-

Q22 Chair: The Smith Institute was a charity and you withdrew charitable status from it.

Sam Younger: Yes.

Q23 Chair: That is on the left. I think the problem we have here is that this is a very subjective process, isn’t it?

Sam Younger: There is a judgment to be made.

Q24 Chair: Will you have suggestions for the legislation to make this less subjective?

Dame Suzi Leather: I think it is one of the areas that is really difficult for the Commission, because what case law says is that charities cannot promote a particular view in an area that is not uncontroversial. I think that is the actual wording; Mr Elphicke probably knows it better than I do. I think that is a difficult area for the Commission. Over the years, we have had quite tricky questions raised about particular think-tanks, and they have not been completely on one side at all; it has been much more mixed than that. It is a controversial area. I have suggested that we have a look at think-tanks generically in the next year or so. I think, in the context of requiring information from think-tanks, it might be worth considering a bit more transparency about sources of funding, because when you are drawing these very difficult lines, where organisations are getting their funding from may help you make those difficult judgments.

Q25 Chair: The Tax Justice Network-I should declare an interest; I am on the Council of St Paul’s Cathedral-are now arguing that St Paul’s Cathedral is compromised because most of its donors are connected with City institutions. It is very dangerous to look at sources of funding as a determinant of the independence of an institution.

Dame Suzi Leather: It is not straightforward at all, but I think it is worth considering.

Q26 Robert Halfon: Moving away from think-tanks and on to charities in general, you say that charities are not allowed to have a political purpose. How easy is it to make the distinction between an organisation that campaigns, or spends most or a substantial portion of its money on campaigning, to change legislation as part of its activities, or criticise or support the Government or Opposition in one way or another, and one for which this is a main activity?

Dame Suzi Leather: Charities may campaign so long as it is in keeping with their charitable purpose, and so long as they do not give a general endorsement to a particular party.

Q27 Chair: If an aid charity is campaigning against free trade, is that not political activity? Is that not straying into politics, and is that what people expect a charity to do?

Sam Younger: The important distinction is that the purposes must be exclusively charitable. Change in legislation is not a legitimate charitable purpose; that is a political purpose, but in support of a charitable purpose, both campaigning in general terms and what is defined as political activity-looking for, for example, changes in legislation-are legitimate in support of those purposes, so long as it is in support of those purposes.

Just going back to the think-tanks, I was quite struck by somebody making that distinction in a discussion about charities not very long ago. Particularly with think-tanks again, there is a concern that it is much easier to identify the campaigning that is in support of a charitable purpose when the charitable purpose is one of service delivery of one kind or another, where the campaigning is very much linked to it. It is less easy where you have got something that is intellectual property that you are developing, rather than services.

Q28 Robert Halfon: Many of the bigger Tesco-type charities, as I call them, spend most of their money on political campaigning, Shelter being a classic example. Why is that regarded as perfectly okay, but a political think-tank possibly is not regarded as a charity? What is the difference? If a so-called charity is spending most of its time on campaigning rather than providing charitable services, why is that regarded as a charity?

Dame Suzi Leather: In the case of the think-tank, it has education purposes and must carry out those purposes in a balanced way. In the case of Shelter, its beneficiaries are people who may be homeless, so it is carrying out its campaigning in support of its beneficiaries and in keeping with its charitable purpose.

Q29 Chair: It is very easy for somebody to set up a charity and use it as a cloak for political campaigning. I am not accusing Shelter of that, but it would be quite easy to do so, wouldn’t it?

Dame Suzi Leather: It is perfectly acceptable for charities to campaign in promotion of-

Q30 Chair: Do you ever pull up a charity, saying, "You are doing too much politics and not enough of your core purposes?"

Sam Younger: It is fundamentally not for the Commission to tell trustees how they should run their charities, so long as the political activity or the campaigning is clearly in support of an exclusively charitable purpose.

Q31 Chair: This is a matter for legislation, isn’t it?

Sam Younger: It is certainly a matter for review of the legislation. Just going back to your earlier remark, I think there is a case for looking at different forms of organisation that may deserve certain privileges but are in rather different categories. I think getting those categories right is important.

Q32 Robert Halfon: Would you not accept that your decision on whether something is a charity or a pressure group is pretty subjective, and that there are many people who could argue that many of the organisations that you class as charities are in fact pressure groups? There is nothing wrong with having a pressure group-that is fine-but they get charitable status for all the tax benefits, et cetera, that brings.

Sam Younger: Undoubtedly there is a judgment that has to be made, and sometimes quite a fine judgment, and to that extent it is subjective, but it is based on what the law says. The other difficulty-an important one to recognise-about the registration of charities is that you register charities on the basis of their charitable purposes at the time of registration and what they say about their activities. We are not a licensing operation that can then subsequently say, "Well, actually, we do not like the way-"

Q33 Chair: Except you want to look at their sources of funding.

Dame Suzi Leather: I want it to be considered in the case of think-tanks.

Chair : Last question, very briefly.

Q34 Robert Halfon: Well, it is sort of one and a half, Mr Chairman. Are you able to provide the Committee with a list of organisations to which you have refused charitable status, and give the reasons why?

Dame Suzi Leather: Yes.

Sam Younger: Yes, we certainly could.

Robert Halfon: My final question-

Chair : I have given you long enough.

Q35 Robert Halfon: That was just to ask for information. I have one quick question. Do you agree that an organisation that derives more than 10% of its income and more that £1 million from the Government, while also lobbying the Government, has questionable aims as a charity? It should not get money from the Government and then lobby Government; that is what I am saying.

Sam Younger: I do not see the connection between the two.

Dame Suzi Leather: No. Can I just be quite clear on what we are being asked for? I do not think it was a list of all the charities we have turned down.

Chair: We will write to you. I am going to short-circuit that.

Q36 Paul Flynn: Did the Commission investigate the allegation that Atlantic Bridge was using taxpayers’ money for a political purpose?

Dame Suzi Leather: When we carried out our investigation, what we were looking at was whether Atlantic Bridge first of all was capable of being a charity and had been properly registered, and secondly, whether its activities reflected its charitable status.

Paul Flynn: So the answer is no.

Dame Suzi Leather: And we were absolutely clear in our-

Q37 Paul Flynn: You did not look at the allegation, made as long ago as 2009, that Atlantic Bridge was using taxpayers’ money for a political purpose? You have been criticised by a past Chair of the Commission for failing to carry out a full investigation into all aspects of the initial and other complaints. Is this fair criticism by Geraldine Peacock?

Sam Younger: No, I do not think it is fair criticism. You ask whether we looked at them using taxpayers’ money; of course, it is not for us to look into the issue of tax. That is for HMRC. What we were looking at was whether it was using the resources it had, wherever they came from, for charitable purposes. We did a thorough investigation of that and concluded back in 2010 that the activities that they were undertaking were not in line with their charitable purposes. We came out and gave the trustees 12 months in which to sort themselves out, and they ultimately decided that they would deregister.

Q38 Paul Flynn: Did it occur to you that a so-called charity set up by Liam Fox and supported by William Hague, George Osborne and Michael Gove might possibly have a political purpose?

Dame Suzi Leather: We have already discussed what difficult territory this is. It is also the case that think-tanks can be bona fide education charities. The crucial thing is whether their objects are right and whether they are carrying out those objects in practice-whether their activities reflect their charitable objects. In the case of Atlantic Bridge, they absolutely did not.

Q39 Paul Flynn: Are you aware of what the Chief Executive of Atlantic Bridge in America said about the British Atlantic Bridge? She described it as a shell game, which is a game of deception-a confidence trick in which a stone is put down, covered by shells, and people have to guess where the stone is. That seems to be a complete admission that Atlantic Bridge was being used for the purpose alleged in the complaints-to divert taxpayers’ money into political ends. You had this from the highest authority you can get it from-the Atlantic Bridge in America.

Dame Suzi Leather: Mr Flynn, I would encourage you to look at the report that we published in 2010, because I think that very firmly criticised the charity, and very firmly said what they had to do, and in the light of that they decided to cease all their activities and have since wrapped up.

Q40 Paul Flynn: They fled the scene; they disbanded last month. Their excuse for whatever bad behaviour concerned was that they were ignorant of the rules. Is that correct? They did not understand. I mean we are not talking about a charity run in the village hall. These are the most powerful people in the land who said that they were ignorant of what they were actually doing in running this front for the Conservative party. Well, that is unfair-a front for the right wing of the Conservative party.

Dame Suzi Leather: That is what they claim, and to be fair, this is-

Paul Flynn: Complete ignorance?

Chair: Let her answer, please, Mr Flynn.

Dame Suzi Leather: It is a very complex area of charity law, but I think it is also clear that they were absolutely pulled up by the Charity Commission. It was clear that they could not continue any longer. They had to cease all their activities, and they subsequently decided, as is their legal entitlement, to close the organisation.

Q41 Paul Flynn: You directed them to have a look at their activities and to review the governance of the charity and report back to the Commission within two months. Have they reported back to you?

Dame Suzi Leather: In the period that we gave them, they were carrying out, as I understand it, no activities whatsoever. They were looking at the requirements and the recommendations we had made, and they then decided to close the charity. They are legally entitled to do that.

Q42 Paul Flynn: And to get off scot-free, without any responsibility for breaching the rules that you have identified, and possibly breaching other rules? Is the fact you can close down a charity and then escape without any responsibility a satisfactory situation?

Sam Younger: There are two elements here. The winding up of the charity is one. There is a further possible area of investigation, which for us would be dependent on the evidence, which is if you identify what is effectively a fundamental dishonesty in the running of a charity, and there seek restitution of funding. It is a very high hurdle of proof, and it requires the Attorney General’s consent to pursue it. If we see significant evidence that that is the case, we would look at it again.

Q43 Paul Flynn: Have you not got the evidence already? Have you not been criticised for failing to carry out your responsibilities and answering the full complaint? One is tempted to ask: are these people too big and too important to pursue?

Sam Younger: No, I do not think that is the case at all. I would very much say that the action the Commission took was proportionate as a regulator, and the right action to take with that organisation. It was to take them to task, given that complaints had been made, and to say that they had charitable purposes capable of being carried out for public benefit, and that they must put their house in order and do that. They chose to stop being a charity. Unless there is very compelling evidence of fundamental dishonesty, I think that is the proper role the regulator should provide.

Q44 Paul Flynn: Isn’t the message you are sending out to any charity-we know that many of them are involved with fraud and dishonesty-that what they should do is just close the charity down, go home, hide their heads under the pillow and soon it will be forgotten? Is that the message? This is the message you have given to Liam Fox, George Osborne and the rest.

Sam Younger: I do not think it is the message we give at all. We have plenty of investigations going on into areas of fraud. Of course, fraud itself is a criminal matter for the police rather than for us; what we are supposed to look at, and need to look at, is whether a charity is capable of being carried on in line with its purposes for public benefit. That is what we did in this case. I do not think there is any such message.

Q45 Paul Flynn: Are you not concerned by what the Chief Executive of the American branch says of it? She described the charity, Atlantic Bridge, as virtually a confidence trick. Should that not be a matter that causes you some alarm? There seems to be no evidence that this was a charity in any way that most people would recognise. It was used as a front for using money under questionable headings. Sources are absolutely vital. People do not give money for causes with which they disagree. I disagree with what the Chairman said; of course the source of the money is important, and the sources are pretty questionable in this case. Is it not something you should look into when you have a prominent charity run by powerful people who behave in this extraordinary way, running a non-charity?

Dame Suzi Leather: I think the quote that you have given us does clearly reveal a cynical opportunism. The question for the Commission is whether the organisation is set up to be a charity-whether it is capable of being a charity. Then there is the second question about whether it is actually behaving as a charity. We could not have been clearer that it was not behaving as a charity. The upshot is that it is no longer a charity on the register.

Q46 Paul Flynn: I am not sure I gave you the quote, but the quote from Amanda Bowman is: "When events occur in America, expenses are paid by the Atlantic Bridge Inc (US), run by Scott Syfert. If a British citizen wishes to attend an event in the US, and prefers to give a donation in GBP, the UK charity will accept the donations on behalf of Atlantic Bridge Inc." That sounds very much like a confidence trick-a way to disguise funding. That is why Amanda Bowman is saying this as the Chief Executive of Atlantic Bridge, American end.

Dame Suzi Leather: I completely accept that Atlantic Bridge was not behaving as a charity. That is why we took the action we did. I think it is a credit to the regulation of charities here that it is no longer a charity. The message that goes out to charities is, "You are not going to get away with it; the Charity Commission will come down on you."

Q47 Paul Flynn: No, the message is exactly the opposite of that. It is: "You will get away with it." They have got away with it by closing it down, by the sound of it. You are washing your hands of this. The statement you made in answer to the complaint from Geraldine Peacock was, I understand, that, "We consider that in this case the nature of our investigation was appropriate to the concerns about the charity", and that is the end of it.

Q48 Chair: May I interject at this point? Is that not a complaint from Mr Flynn about the nature of your role as prescribed by legislation, rather than a complaint about the conduct of the Charity Commission?

Dame Suzi Leather: Correct.

Paul Flynn: It may well be, but we have to get to the bottom of this.

Chair: I agree with that.

Q49 Paul Flynn: It is the most prominent case of a charity winding up when they are under pressure from the Charity Commission. It sends out ripples that mean that smaller charities will see what has happened with Atlantic Bridge, and if Atlantic Bridge can get away with bad behaviour, it means that everyone else can. Have you seen Geraldine Peacock’s complaint? How do you respond to it? She is saying, as somebody who did the job before, that your response in dealing with the complaint did not deal with important parts of it.

Chair: Can you conclude your questioning, Mr Flynn?

Paul Flynn: Okay.

Dame Suzi Leather: She made all sorts of allegations. Just before I took office, I made a point of going to see Geraldine to talk about the Commission and how it carried out its work, and whether she had any concerns, general or particular, which I think is a sensible thing to do when you take office. She did not give me any indication that she had the kinds of general concerns that she has given in that interview. I find it puzzling and confusing. It seems to me that what Mr Flynn is raising is a point about the Commission’s powers, and that is perhaps for the review of the Act, rather than for us to comment on now.

Paul Flynn: I am grateful to you.

Q50 Greg Mulholland: I think this will be helpful for us in working out if there is an issue with your remit. One of the things that is very unsatisfactory in this case is that the destination of Atlantic Bridge assets has not been disclosed. On the basis that they were charitable donations to a registered charity, and therefore treated in a very specific way, are they not obliged to do so? If not, is that a failure in the system?

Dame Suzi Leather: We are in contact with the charity trustees about precisely this matter, and you are absolutely correct. Our understanding at the moment is that when they have paid all their liabilities, tax and otherwise, they will be left with a very small sum of money. The plans that they have to give that money to another charity with similar purposes is one that we will look at, and we should be satisfied.

Q51 Greg Mulholland: And all that will be fully made public?

Dame Suzi Leather: Yes, of course it will be.

Sam Younger: There is a distinction between what happens to the assets on the charity winding up, and any question of restitution of previous donations to the charity on the grounds of any fundamental dishonesty, which is that higher threshold I spoke about before. That is a separate process.

Q52 Chair: Can we move on now and look at the Charity Tribunal decision on public benefit and the charitable status of independent schools? The 2009 guidance was taken to judicial review, and it was described by the judge as prescriptive and interventionist. This judgment was referred to the Charity Tribunal, which ruled that the Commission’s guidance on the adequacy of provision for the poor was not clear, and that the number of bursaries and the level of bursaries available to pupils who could not otherwise afford the fees should not be the only test of whether an independent school was acting in the public benefit and therefore qualified for charitable status. This guidance was a big mistake, was it not?

Dame Suzi Leather: First, the Tribunal says in its judgment that it has every sympathy with the Charity Commission for having to provide guidance in this very difficult area of charity law.

Q53 Chair: Yes, but it was the wrong guidance, wasn’t it?

Dame Suzi Leather: I absolutely accept that there are parts of the guidance that we must amend in the light of this judgment. The judgement, however, does uphold the Charity Commission in important legal respects. First, it confirms unequivocally, and I think for the first time, that charities must make some provision for the poor-for people who cannot afford the fees. That is significant and important. That level must be above what they call de minimis or tokenistic, and how charity trustees provide that is up to them. We have always said that; we were absolutely clear in our guidance. You do not have to provide bursaries; you do not have to support an academy; it is up to you how you do it. These crucial legal aspects-that you must provide provision for the poor both in your purposes and in how you carry out those activities, but that it is absolutely up to trustees how they do that-have been clarified, and I think that is helpful. There is a great deal that, as a result of the judgment, is not clear, and the judgment itself apologises for being unable to bring greater clarity. There is no objective test, even for the de minimis or tokenistic level that the judgment refers to.

Q54 Chair: But speaking personally, you do recognise that independent schools are entitled to be charities?

Dame Suzi Leather: We have, of course, always recognised that independent schools are very important charities, but they have to behave as charities. With this judgment, we now have absolute clarity about the need to provide for people who cannot afford the fees but it is at a de minimis or just above level. It is for the trustees to decide that.

Sam Younger: I just wanted to add something. You referred to the Tribunal saying that there needed to be greater clarity. It is a difficult area to be clear in. One of the things that I accept about our guidance is that we need to be clearer about the decisions being for the trustees. It is quite interesting to note that it is there in the guidance; it says it is not a matter for the Commission to say whether you should do bursaries; it is up to the trustees, and the bursaries are an example of how you could do it. Nevertheless, I accept that the way the guidance has been taken has been to focus very much on bursaries, and we need to be clearer about saying, "This is a matter for trustees."

At the same time, in defending the Charity Commission’s guidance, which was heavily consulted on at the time, and had pretty widespread approval and endorsement at the time from those with whom we consulted, when it is picked apart for clarity by a court, that is fine, but of course it was written to try to be understandable to trustees, and not written as a legal document.

Q55 Chair : That was a mistake, wasn’t it?

Sam Younger: We need to be careful when we try to provide clarity on the basis of the judgment that we actually provide clarity.

Q56 Chair: Why is it that the charity commission in Scotland did not get into a similar dispute with independent schools in Scotland?

Dame Suzi Leather: Because the law is different in Scotland.

Q57 Chair : So have we got something to learn from the law in Scotland to avoid this kind of dispute?

Dame Suzi Leather: I think when the 2006 Act is reviewed, looking at what has been the impact of the English and Welsh requirement and how it is different in Scotland would be quite useful. There is a different test-an activities test-in Scotland; it is a purposes test here.

Q58 Chair: So would it be better if there was an activities test applied, rather than a purposes test?

Dame Suzi Leather: That is not for us as the regulator in England and Wales to say.

Q59 Chair: There is an impression that the legislation may have been framed in order to foment a dispute with the independent sector.

Sam Younger: Our view as the regulator would be the more clarity we can get in law, the better. The element of the law clarification that we got out of this judgment that I think is very helpful says that, in order to be a charity operating for public benefit, there must be-in the case of independent, fee-charging schools, because that is what the judgment is limited to-a benefit beyond to those who can afford to pay the high fees, and that must be above a de minimis level and not tokenistic. That much is clear, but what is not clear is what that public benefit needs to be. Were there to be a possibility of that being clearer in a reconsideration of the law, that would obviously be helpful to us as a regulator, because as it is, although it is the case that this is very much up to the trustees, I cannot see that in the future we are going to be able to avoid being sucked in. If somebody makes a substantive complaint that a school is not operating for public benefit, it is something we will have to look at and make a judgment on.

Q60 Chair: When you knew this was leading to a legal dispute, you must have taken advice and been told what the issues in doubt and in contention would be. Would that not have been a better time to withdraw your guidance or to declare that you would revise your guidance, rather than wasting time and money in the courts?

Dame Suzi Leather: We have always been confident that we have got the legal principles right.

Q61 Chair: Well, you got them wrong.

Dame Suzi Leather: No, we have not. The judgment has upheld them. That is why I am saying that it is so helpful that we now have the Tribunal in the judgment very clearly saying for the first time that charities must make provision for the poor.

Q62 Chair : Yes, but that was clear from the legislation. It was the manner in which you were prescribing schools to make provision for the poor that seemed to be the problem.

Dame Suzi Leather: No, the difficulty we have always had in providing the guidance-we have to carry out that statutory responsibility-was that we were looking at case law since, I think, 1767, and rather sparse case law, and trying to tease out of that what are the general principles. Now we were confident, because we had done this so carefully and consulted so widely, that we had got this right. We have been upheld in that. What the Tribunal does not think is correct is that the wording of our guidance seems to imply that trustees have to provide a reasonable amount of benefit for people who cannot afford the fees. It is that implied reasonableness test-

Q63 Chair: Your guidance was much too prescriptive. It was much too definitive.

Dame Suzi Leather: If you say the requirement to be reasonable is too prescriptive, then it is too prescriptive, but I am not sure that most people would think being reasonable meant that.

Q64 Chair: I think that was the point at issue. This dispute could have been avoided if you had been a little bit less prescriptive.

Dame Suzi Leather: We really have not been prescriptive about this, because we have never said that trustees have to provide bursaries or have to do partnership working with schools.

Q65 Chair: Then why did the judge say that you were prescriptive and interventionist?

Dame Suzi Leather: We have always said it is up to trustees. Please read the guidance.

Q66 Kelvin Hopkins : I take a different view, and the Chairman will not be surprised by that, I am sure. I raised this with you and Sam Younger’s predecessor in the previous Parliament. I cannot persuade myself that public schools are charities, and the Government clearly want to subsidise them by tax relief. You cannot comment politically, I appreciate, but if the Government want to subsidise private education, they should be upfront about it and say, "We are giving a subsidy to private education," and that would be a much more honest way of doing it.

Chair: Isn’t that really your view, Dame Suzi, personally?

Dame Suzi Leather: My view is that we should uphold the law. That is what we have tried to do all along: to provide guidance on what the law is, and then to uphold it. I go absolutely no further than that. The judgment rather clearly says, in a sense, "This is going to please no one on the political divide on this, and must eventually be answered by Parliament-not the courts and not the Charity Commission."

Q67 Chair: So the legislation is not clear enough.

Dame Suzi Leather: I think we now know, as a result of this judgment, what the 2006 Act means. We have greater clarity about that. It is up to Parliament whether what it means is what Parliament wants.

Q68 Paul Flynn: In a previous session of the Committee, the Chairman had to apologise. I think it is up to me to apologise, perhaps, for the Chairman imputing a motive to you, Dame Suzi, of which you have been widely accused by the Daily Mail, entirely unjustly. Do you think the savage cut to your department has any explanation other than political malice?

Dame Suzi Leather: I do not think that we have, as a Government department, been singled out for different treatment. We are facing exactly the same stringent budgetary constraint that other departments are. I do not think this is politically motivated; of course I do not.

Sam Younger: The thing that I think disappointed me about the settlement, having just come in, was not so much that we were going to take a significant cut, because many other departments were doing that, but that absolutely everything the Charity Commission does was considered by Government as administrative expenditure. Even investigatory work was considered administrative, and I think that went across all regulators. That is the bit that we felt a little bit disappointed by, if anything.

Chair: It is a very disappointing time for the public sector generally. Let us go on to compliance investigations and enforcement.

Q69 Charlie Elphicke: Dame Suzi, a few moments ago, you spoke of the public benefit criteria in the Charities Act 2006, and you said that it was about poverty. Can you tell me how public benefit is defined precisely in the 2006 Act, and where the definition is?

Dame Suzi Leather: Of poverty?

Q70 Charlie Elphicke: No, public benefit. A few moments ago, you said that we have to look at public benefit; that it is in the 2006 Act; and that it is about poverty. What is the definition of public benefit in that Act?

Dame Suzi Leather: Sorry, you misunderstood me. I referred to the requirement in the Act that we provide guidance on public benefit.

Q71 Charlie Elphicke: Where is the definition of public benefit in that Act? Is it defined?

Dame Suzi Leather: No. As you know, Parliament declined to define public benefit.

Chair: This is a feature of modern legislation, is it not?

Q72 Charlie Elphicke: Okay, so you provided guidance. In terms of the cases you took, or chose to take, you have discretion as the Charity Commission, do you not? In terms of compliance and enforcement, is it or is it not the case that the Charity Commission has discretion as to which cases they take?

Sam Younger: Yes, cases are taken up according to our risk framework.

Q73 Charlie Elphicke: So it was your decision to take the cases on the public schools, which we have just dealt with. Was it also your decision exercising-

Dame Suzi Leather: Sorry, I think you have misunderstood. When we were providing the guidance, we looked at all the case law. It is my understanding that we looked at all the case law. We did not selectively choose which cases to include, and we provided a legal underpinning to the guidance that we published at the same time as publishing the guidance.

Sam Younger: I think there are two separate things. When complaints come to our attention of one kind or another, whether from another agency or a member of the public or whomever, it is within our discretion, according to our risk framework, to decide what action we take on that. There was a separate process that was undertaken some time ago in relation to public benefit, looking at how a random sample of institutions across the board operated under public benefit. That was a different line.

Q74 Charlie Elphicke: I understand. The other celebrated case in this area is that of the Catholic adoption agencies. Again, was it or was it not a matter for the discretion of the Charity Commission as to whether to take action in that area?

Dame Suzi Leather: No, because Catholic Care applied to us to change their objects, and therefore we had to respond to that.

Q75 Charlie Elphicke: And was that under the public benefit criteria?

Dame Suzi Leather: No.

Q76 Charlie Elphicke: Or was that purely under the discrimination laws?

Dame Suzi Leather: No, it was nothing to do with-

Sam Younger: The discrimination laws and the Human Rights Act would have been the areas in play in the case here, rather than public benefit. There is this judgment; I know it is being appealed at the moment. It is this question of a proportionate response to a legitimate cause; that is what it turns on.

Q77 Charlie Elphicke: Many people will say that where you are targeting your risk-based enforcement is not right. We now have a situation where there are only 60 adoptions in the country, and people point to the Charity Commission and say, "They have stuffed a whole load of children into care who could have been in a family who had a stable, good life. They are going to have a rubbish life, and the Charity Commission is responsible for that." What would you say in response to that concern that people put to me?

Dame Suzi Leather: Absolutely the opposite is the case. Indeed, when we looked at this the second time, one of the things we were careful to do was to ask local authorities what impact, in their view, there would be on children’s ability to find loving homes. The answer was it would not make that difference. In fact, opening up to the widest possible list of potential parents was regarded as in the child’s interest. I should also point out that, when the High Court in 2010 looked at the appeal to them, they actually said that respect for religious views could not be a justification for discriminating in the way that Catholic Care wanted to, because of the public nature of adoption work. I think that is rather important-that it actually came from the High Court.

Q78 Charlie Elphicke: Nevertheless, we also have to look at outcomes. You have discretion; we have to look at outcomes. The outcome is that adoptions have halved in the last few years. Is that not a tragedy?

Sam Younger: There are two things. First, again, this area is not one of discretion, because we are not talking here about compliance cases and complaints coming to us. We are talking about an organisation requiring the Charity Commission’s permission to do something, so it is not optional for us to get involved in that and make a judgment on what the law requires. That was the judgment that was made, and that judgment has been upheld by the court.

Q79 Lindsay Roy: Is it not the case that we need a major review in terms of engagement and intervention? We have this polarisation: on the one hand we are saying in relation to independent schools that it is too prescriptive, and on the other hand we are saying that evidence can be highly subjective. In other words, there needs to be a matter of judgment, whereas in other cases it seems to be very crystal clear and over-prescriptive.

Sam Younger: There will always be, it seems to me, matters of judgment, whether it is judgment about registration or risk. Clearly, from our point of view, the greater the clarity there is in the law that we are implementing, the better.

Chair: There is a very clear message that is coming through from all these very contentious areas that you are dealing with: very general legislation, relying on very detailed interpretation at the front end, is leading you into very contentious areas, and is leading people to question the judgment of the Charity Commission on all fronts. You are getting criticism from all sides of the political spectrum on these areas. I think we will be very interested in perhaps a written assessment from you about your risk-based approach, how you deal with complaints, and your view of how the legislation could be improved as we go through this review, if you have a house view; if you do not have a house view, perhaps you have individual views.

Q80 Lindsay Roy: Do the criteria need to be more robust?

Sam Younger: You look at the cases that are coming in, and I would say the Commission has been robust in its approach, but it needs to be proportionate both in terms of the resources it puts in and the judgments it makes. Those judgments are always open to challenge-that is the nature of the 2006 legislation putting in the Charity Tribunal-and that is how it should be. One of the themes of our strategic review, looking at how we adapt to having a smaller resource base, is to say that we need to be better at making decisions in a lot of areas in a more timely way, and have the right resources going into them, while recognising that that can be challenged. We are often talking about areas of judgment where one set of people can take one view, and on the same evidence another set of people can take a slightly different view. In a sense, that is a nature of these difficult judgments; they are at the margin, and there is a case that can be made on either side. It is the nature of it being difficult.

Q81 Greg Mulholland: We are talking about the review that is coming up. This is a very timely session, with the independent reviewer being appointed on 5 November. You have given us some brief but helpful comments about what the Commission sees as potential ways forward. We have clearly dealt with the issues, and you have very clearly said that you want to review the definition of charity, charitable purposes and public benefit requirement. Very clearly, this session has shown that that is right. In terms of the review, how could it change the scale and breadth of the Charity Commission’s statutory objectives, functions and duties? Are you feeling that you have to make certain decisions on those duties because of the funding cuts that you face?

Sam Younger: In terms of our funding cuts, the area that relates most to the review of the Act is the fine-toothed comb we have taken through all these areas where the Commission has to give consents and permissions. To reduce incoming demand to ensure that we have got resources there to do the investigatory work-the key regulatory work we do-we are looking at where the areas are where we could withdraw from having to give formal permissions. We are reducing demand to some extent through technology and improving the process of that, but part of our agenda for the review of the Act-the Office for Civil Society are well aware of this in advance of finalising the terms of reference and the reviewer-is that there are a number of areas, particularly in terms of the disposal and purchase of land by charities, where we think there is not sufficient added value in the Commission’s involvement-that we could pull back there. So that is where the two are probably linked most closely.

Q82 Greg Mulholland: And where do you think you need more powers? One of the things you mentioned was trustees’ disqualification, so that is one issue, but are there other areas where you feel that the Commission needs more powers in this review?

Dame Suzi Leather: I do not think there are a lot of areas where we think we need more powers, but this really goes to the heart of what kind of charity regulator you want. We are the closest that you come to regulating civil society, and it seems to me that you do not want an organisation with huge draconian powers. You need sufficient powers, but we have quite considerable powers, for instance, when we open a statutory inquiry-powers to freeze bank accounts, remove trustees, impose trustees and stop payments being made. There is quite a lot that we can do, and it is how you exercise your discretion that is really key here.

Sam Younger: As you have suggested, there are a couple of areas to be addressed in the review. One is about powers in relation to disqualification of trustees, and the other is some of our powers of information exchange with other agencies and powers to require information, but not, I think, very major ones. I think one of the things that it is always important for us to remember as a regulator is that we are there to regulate the governance of charities. We are not a prosecutor; we are a civil regulator, and issues of criminality, for example, are for other agencies, not for us.

Dame Suzi Leather: There is one area-the regulation of common investment funds-that falls to us at the moment, but that we think much more properly belongs to the Financial Services Authority, so that is an area where we want to have some of our responsibility taken away from us and put somewhere more appropriate.

Q83 Charlie Elphicke: Let’s look at investigation and enforcement. I have read your Charities Back on Track 2010-11, and you say that the scrutiny of the accounts of charities that were targeted for compliance included high administration, high support or administration costs, low expenditure on the charity’s purposes, and high staff costs. Can you tell me where the issue of how these issues are to be dealt with is to be found in your strategic plan? There are two points of the section concerned.

Sam Younger: In our strategic review, we have looked at where we need to devote our resources. In the things that you have said there, we need to be careful that we are not drawn into telling trustees how to run their resources. We have a significant role, in terms of the information required from charities in their annual return, for that to be transparent, but it is not up to us to tell a charity, "You should spend more on administration", or "less on administration."

Q84 Charlie Elphicke: It is taxpayers’ money, of course it is. It is absolutely a prime interest; it is public money.

Sam Younger: That is not our role.

Charlie Elphicke: It is abuse of public money that we are talking about.

Sam Younger: But that is not the role of the Commission as regulator. Look at the judgment, for example, on public benefit coming out. It is saying, "These charities are for trustees to run." One of the things that we are pulling back from a little bit is talking about best practice. We are looking at whether these organisations are run for charitable purposes and whether the activities are in line with that. It is up to donors and supporters to judge, with what comes out from that, whether the charities are ones worth supporting.

Q85 Charlie Elphicke: So you are saying that if they have massively high administrative costs, chief executives who pay themselves over £150,000 a year and massively high staff costs, there is absolutely nothing that you can or will do?

Sam Younger: No, I am not saying that there is absolutely nothing we will do. That is a matter of making sure that we have the right powers to require information, and that that information is in the public domain. Beyond that, it is for the charity’s own supporters to decide whether they should support that charity.

Q86 Charlie Elphicke: So as long as you are transparent, then you can trough. Is that the message?

Dame Suzi Leather: If a charity was doing nothing and spending all its money on a very highly paid chief executive, that would clearly not be acceptable and we would step in, but there is no routine requirement that charities should not pay a certain amount in administrative costs, or pay their chief executive a certain amount. That is not a matter for the Charity Commission, but I think it is rightly something that charities ought to be transparent about, because it is a matter of public interest.

Q87 Chair: As a supplementary to that, in the review, is that something that you think you should be interested in? Should the legislation reflect a regulatory role for the Charity Commission in that respect?

Dame Suzi Leather: In the amount of money that is paid in administrative cost?

Chair: It would be an extra task.

Sam Younger: My feeling is we should be looking at the absolutely core regulatory functions, not being an organisation that forces charities to run themselves in any particular way; that really is for them. We are talking about a very varied sector of 180,000 charities. The question that you raise about paying a huge amount to a chief executive arises if the evidence is there that the activities are not reflecting the charitable purpose-in other words, were it to be a vehicle only for paying the chief executive, rather than for carrying out that charitable activity. I think that is where our role stops, not in saying that there is a best-practice percentage of income and resource that can and should be spent on administration that we would police. I do not think that is practicable, quite apart from the fact that I personally think it is probably not desirable to get into that level of potential intervention in the way charities run themselves.

Q88 Charlie Elphicke: So just to be very, very clear in my own mind, when it comes to campaigning, advertising, how much people are paid and administrative costs, you do not see that as your remit?

Sam Younger: No, it is not in our remit.

Q89 Charlie Elphicke: Fine. As a matter of public policy we may disagree, but I hear what you are saying. Let u s move to the matter of trustees having conflicts of interest. Under ‘Issues for other charities’ in your Charities Back on Track , you say: "Charit y trustees must not put themselves in a position where their personal interest s conflict or are likely to conflict with their duty to act in the best interest s of the charity " , and there is an onus on the trustees to prove that they have not. "The law states that t rustees cannot receive any benefit from their charity in return for any service they provide to it or enter into any self-dealing transactions" . That is in your strategic plan . In developing the compliance and accountability of the sector , you say that you will take " timely and decisive action " in cases of malpractice and misconduct, and ensure decisive interventions to give rise to public confidence. That is really important . Ensuring that there is complete openness of dealing and no self-dealing with trustees is right, because that would be a breach of trust as a matter of law, would it not?

Sam Younger: Yes.

Q90 Charlie Elphicke: Let me give you an example. Let us say that a trustee sells an asset or goods to a charity of which they are trustee; would that potentially set off alarm bells, and would you say, "This may be a case we ought to take into assessment and look at"?

Sam Younger: Yes, I think that is a fair statement.

Q91 Charlie Elphicke: If an officer of a charity gave a contract to their spouse for a large amount of money, would that also set off alarm bells: "There is something a bit fishy about this and we should look into that"?

Sam Younger: Yes. Can I make one rider? I think you are right in both of those, but one thing I have to say is that, in looking at those things, we do always have to look at what resources we have able and how we best use them. With 180,000 charities, we can only ever significantly investigate a fraction of the complaints that come in to us.

Q92 Charlie Elphicke: Granted, so it would need to be a substantial charity-a substantial amount of money involved.

Sam Younger: That is one of the factors. It may be, even if the amount of money is small, that we would want to look at a particular charity-for example, if an executive was letting a contract to a spouse or whatever, or a company with whom the spouse was associated-if there were other elements in that charity that we were also interested in. In our strategic review, one of the questions that we threw out at the time was, "Should there be a de minimis of charitable funds at risk before we actually get involved and intervene?". The response that came back very clearly was that it would be a mistake to set any threshold, because all you are doing is potentially driving people just below that threshold.

Q93 Charlie Elphicke: I take your point. A last example: the charity gives a contract of services or something to a company that a trustee is a chairman and shareholder of. That would also presumably, in the same vein, set off alarm bells.

Sam Younger: Yes.

Q94 Charlie Elphicke: In that case, would you be willing to open an assessment case in relation to the National Trust, which falls foul of a lot of the things put in the annual report? Is it not right that it is not just the actual wrongdoing but the appearance of conflict that needs to be dealt with, so that people can be sure that there is openness, transparency and public confidence in all charities, particularly large charities like that?

Sam Younger: I am not going to answer that on the hoof, but if you put in a case to be made, that case is considered, as we would any case that is made of malpractice.

Q95 Charlie Elphicke: Finally, do you provide guidance to trustees on how to handle complaints, and is that an appropriate thing for a regulator to do?

Dame Suzi Leather: We think it is a good idea for charities to have complaints procedures themselves, absolutely. Is it a requirement? No, it is not.

Sam Younger: The issue you raise is something we struggle with and will continue to struggle with: what is the line between what you tell trustees they must think about and potentially do in order to stay within the law, and moving into best practice? Certainly one of the views coming back from a number of bodies in the course of our strategic review was that, in a resource-constrained world, the Charity Commission should be doing what only it can do, which is compliance with the law, and not move too strongly into the areas of best practice. You cannot stay out of them altogether, because proper use of charitable resources remains a statutory objective, but it is an area that others can make a contribution in, rather than the Commission only. That theme has been very strong in our strategic review-that we need to focus on those things that only we as the regulator can do.

Q96 Charlie Elphicke: I understand. Just for the record, can I say that it is numbers 12, 17, 20 and 25 of the related party transactions disclosed in the latest National Trust Report that I am concerned about. I do think it is important as a matter of public confidence that we ensure that there is absolute clarity in upholding trust in trustees. Would you agree?

Sam Younger: I absolutely agree that confidence in trustees is important. You will have seen from looking at how we would like to develop our own performance indicators that we are looking to have only three at the top level, one of which is public confidence. Clearly public confidence will be driven by a whole lot of other things as well as what the Charity Commission does, but it nevertheless is absolutely critical.

Q97 Chair: Before we leave the area of inquiries, do you believe that the 2006 Charities Act inquiries procedure is operating satisfactorily?

Sam Younger: I think so. The most difficult issue for us is the application of the risk framework with a huge amount of incoming complaint, but I think mostly the powers are there to undertake inquiries. The trick for us is to get right the ones that we look at and spend resources on, and the ones we do not. That is inherently difficult in an area where every complaint you get in, however small and local the charity, is a matter of great passion to the person making the complaint. That always creates difficulties and will continue to do so, but I do not think it is the investigatory powers as such that are, generally speaking, the issue.

Q98 Chair: But there is the invidious business of when an inquiry becomes a statutory inquiry, as opposed to a preliminary excursion-what you would refer to as regulatory compliance case procedure. How are you addressing this? Is it true that you are going to cease this procedure?

Dame Suzi Leather: I would not describe that compliance activity as a preliminary excursion. That is certainly not what it feels like to the trustees on the end.

Q99 Chair: Well, it might feel like it to the trustees on the end; that is exactly the point.

Dame Suzi Leather: It does not. It feels a lot more rigorous than that, I can assure you. We generally open a statutory inquiry if we think it is going to be necessary or desirable to use the specific powers that opening a statutory inquiry gives us, such as the ability to freeze bank accounts and so on.

Q100 Chair: Obviously, it is very invidious for a charity to be under investigation when they do not know that they are being investigated formally. Is that not the concern that charities express?

Sam Younger: The legislation gives us a wide discretion in how we carry out our business. As Suzi says, the section 8 inquiries-the formal inquiries-are when we think we may need to use specific powers. Indeed, in our restructuring, we are refocusing so that that really high-level investigatory activity is in one area, so that we can develop the focus and the specialism of it. Charities that are engaged with us when we have a matter of complaint and are going to them are in no doubt that there is an investigation being undertaken; there is nothing underneath the radar about it, as far as they are concerned.

Q101 Chair: The reports that you are going to change your procedures on regulatory compliance are not true?

Sam Younger: No, it is not true. There has been something that we have called regulatory compliance cases, and the name may not stay the same, but the principle will that says that we have a top level of inquiry. That is when we deploy those section 8 powers, which are for the highest risk areas, where we think we need to use those powers-whether to freeze bank accounts or force changes in trustees, for example.

With the others, I think we need to be quite flexible, and it goes back to this thing of how much resource it is proportionate to devote to a particular area of inquiry. I think we need to be better at putting the appropriate level of resource and inquiry into individual areas to cope with what comes at us. In addition, one of the things that I have been struck by in my year at the Commission is that the Commission has been inundated with incoming stuff to react to, and I think in our regulatory role we need to find the space to be able to look at category areas of activity and anticipate areas of risk, as opposed to only responding to things that come at us.

Q102 Chair : Dame Suzi, did you want to add something?

Dame Suzi Leather: I think that when we next appear before you, it is likely that the number of complaints about us for not intervening will have gone up. My sense is that this will happen not just to the Charity Commission but many different regulators, as they are faced with resource constraint and are having to be much more rigorous about applying their resources to the high end. It does mean that there are going to be times when we cannot take up issues, and people may feel that we jolly well should, and many of them will write to their MPs, and then their MPs are going to have a go at us as well. But we cannot do everything, and I hope that you will support us in sometimes saying no.

Q103 Lindsay Roy: In the introduction to your report, you indicate that you have met all your key performance indicators. Is that not gilding the lily a bit? When you look at Key Performance Indicators 4, there are three of the six that you have not met, and they relate particularly to investigations being completed within a period of time. Why were these targets not met?

Dame Suzi Leather: Because the indicators we have had have been, to some extent, composite indicators, and we have not been required-it has to be said, nor has this Committee ever fed back to us, I believe-to tick absolutely every box to get the green light.

This is an opportunity, perhaps, for hearing how we are going to treat our performance indicators going forward, because we are no longer required now to agree our key performance indicators with the Treasury. It is up to us what performance indicators we set, and as part of our Strategic Review we have given some thought to this. We want to simplify how we measure our own performance, and what we have come up with is that we should look at our cost, we should look at the impact we have, and we should look at public confidence in us. I think the impact we have must have a quality dimension: are we getting our decisions right first time? Those seem to us to be quite sensible ways of measuring our own performance, but if you have any words of wisdom on this, now is a really good time to tell us.

Q104 Lindsay Roy: You describe the indicators as challenging. I look at the improvement over a six-year period in the critical area of trust, where you have moved from 63% to 66%. Would you not say that you have made modest improvements? Indeed, they were not quantified so any improvement would have been a plus factor.

Sam Younger: In what we are looking to have as our key indicators going forward, public confidence is one, but as I think I said in answer to an earlier question, one of the things about any kind of measure of public confidence is that it will be driven by a lot else other than what the Charity Commission does. It is something that we need to keep an eye on, because if anything significant happened to it in a negative direction we would need to look hard at ourselves and ask if there is something that we are not doing that we need to.

Q105 Lindsay Roy: 66% confidence is not particularly high.

Sam Younger: It is higher than every group of people other than doctors and the police, I think.

Chair: You are doing better than MPs.

Sam Younger: I think so.

Paul Flynn: I think everyone is doing better than MPs, certainly. You have been in position for two terms now, and looking back on them, we still have a situation-

Chair : Can we come back to this at the end, Mr Flynn? I am terribly sorry. Mr Heyes has been very patient.

Paul Flynn: I thought this was the end.

Q106 David Heyes: I think we have a time constraint now, Chair, so I think there should probably be brief answers to the questions I want to ask. Despite the impending review of the Act, you have had to do your medium-term planning on the basis of the 2006 Act, and that is in your draft strategic plan for the next three years. I have just a couple of points on that. You have touched on them already, so this is an opportunity to expand on them. You talk in there about bringing in stronger, more robust action against charities defaulting on their reporting requirements. In what way more robust?

Sam Younger: Clearly, that is medium-term, and as you say, before the review of the Act, we are not going to be in a position where you could in theory fine for late submission. The question is whether, in terms of the information about charities that is on our website, we can highlight better and more clearly for users those areas where we think there has been non-compliance. It is looking at using the public information to make sure that people understand what the charity they are interested in is delivering, or not delivering.

Q107 David Heyes: It is just a continuation of your present practice of trying to embarrass charities into better reporting.

Sam Younger: Yes, and chasing up charities to make sure they do actually make those returns. We have now got those returns coming in for 99% of the income of the sector, but it is not 99% of the charities. We need to look at how we can try to improve that last area.

Q108 David Heyes: Does that point to a need for greater powers in the review of the Act?

Dame Suzi Leather: I think 84% of charities file their accounts within the 10-month deadline. Our approach for the last few years has been twofold. One is embarrassing them, as you have said, by putting a red or green box on our website, and I think that has been effective. It is quite a good example of nudge and is used, for instance, by foundation trusts who are giving out grants. Many of them have said to me, "We would not give a grant to an organisation that cannot be bothered to get its accounts to you on time." So I think that has been quite successful.

We also remind charities that they are about to come up to the 10-month deadline. They get two reminders before the 10-month deadline, and at least two afterwards, and that has managed to bring up the percentage of charities filing on time. Even taking those steps has not worked completely-we have not got 100%; and some small charities write to me and say, "For heaven’s sake, haven’t you got better things to do with your money than remind us that we haven’t got our accounts in on time?" Getting the right balance in encouraging these mostly very small organisations to file on time-because we do think that accountability and transparency are important-is quite delicate.

Q109 David Heyes: One of your aims is to be more proactive and less reactive in ensuring compliance with legal obligations. Have you set yourselves any targets for this?

Sam Younger: No, we are not at the stage of targets for that.

Q110 David Heyes: Will you be doing that?

Sam Younger: Yes, I think we certainly could, probably starting with our business planning for 2012-13. There are a number of examples where I think we would certainly have some targets. One is to make sure we have a threshold of annual accounts that we scrutinise in a random way. It is not that we are thinking we are going to pick up malpractice so much as having the sort of deterrent effect of it being clear that we are looking at those accounts and are able to pick up any trends. We also have a target in proactivity, and we need to be careful about the proactive area, because with a reduction in resources, we need to test whether we are able to cope with what is coming in at us.

Q111 David Heyes: Without clear targets and under the tighter financial constraints that you have, it would be quite easy for that to be lost and not given sufficient priority.

Sam Younger: Yes, it would, which is why I want to make sure that we have got some deliverables in there, but we have to be realistic about it, given the reduction in resources. I would want to set targets in particular areas of proactive work. For example, one that we have launched recently looks at charities’ readiness or ability to cope with fraud and financial controls. We have gone into a partnership-it is a resource issue as much as anything else-with the Institute of Chartered Accountants in England and Wales, who are providing, pro bono, 25 accountants to go into a sample of 25 charities to review their systems. They get free consultancy; we get a report telling us whether the guidance we have got is adequate and meets the need, and how we should do it. I would be looking to put in targets for developing those kinds of programmes, so that would be one example of an area of proactivity that I would want to pursue.

Q112 David Heyes: You talk in your plan about greater clarity in setting the scope and boundaries of the Commission’s role in compliance. Where do you plan to set the boundary?

Sam Younger: We currently have a top-level risk framework, and it is a unified risk framework for the organisation that determines what we take on and what we do not take on. At the moment, we are doing the detailed operational application of that across different areas of function-registration and handling complaints, for example. A lot of it is about clarity, and it goes back to the answer Suzi was giving the Chair. We need to be very clear about using our resources to the best possible effect, so there are going to be things where we are saying we are going to be less involved than we might have been historically-for example, in disputes within charities.

Q113 David Heyes: So for "greater clarity", read "we are going to do less"? That is really what that means, is it?

Dame Suzi Leather: Fewer of the less important things.

Sam Younger: The other element of greater clarity, from our point of view, is that one thing we have been pulled up on by our independent complaints reviewer over the years is not necessarily being as clear with complainants early enough in the process about what they can and cannot expect of us.

Q114 David Heyes: Is this not going to add to that downward spiral that you referred to of increasing complaints about your work? I will not make a complaint about the work of the Commission, but I felt tempted to because of the tardy, unhelpful response that I have had when I have referred concerns within my own constituency. I think perhaps many of us could say that. Are you not setting your stall out for even more of that?

Sam Younger: No. I think what we are setting our stall out for is to say that we need to be better about being clear in our responses as to what we will and will not take on and why, which I think we have not necessarily been as good at in the past as we could have been. That said, in any area of constrained resources, we need to be very clear that we are using our resources in the right way, and in that sense, there will be some things that maybe we might have investigated before that we will not investigate now. That is not to say that we were necessarily right to investigate them before. I think we need to make sure that we are investigating the things that are really important.

David Heyes: Okay, fine.

Chair : There are one or two supplementary questions.

Q115 Robert Halfon: Going back to how you decide whether organisations have committed a breach in terms of campaigning and charitable activities, can I just clarify with you how you actually make that decision? Do you base it on parliamentary guidelines, or is it your own guidelines, and then how do you make the decision within the organisation?

Dame Suzi Leather: It is not fantastically difficult, because mostly the breaches are absolutely obvious. It is charities giving money to a political party, for instance. That is a nobrainer; you cannot do it. In fact, there are very few complaints about this; I think only 2% of our investigations were about that.

Q116 Robert Halfon: But do you have internal guidelines?

Dame Suzi Leather: Oh, absolutely.

Q117 Robert Halfon: Are there parliamentary guidelines-a clear set of defined criteria set by Parliament-or are they set by yourselves? Do you have a committee that makes the decision? That is what I am trying to tease out.

Sam Younger: There is nothing prescriptive in what has come through Parliament. What we have produced after plenty of consultation is guidance of various kinds. There is strong campaigning and political activity guidance. We put out specific guidance, for example, on referendums in the run up to the AV vote.

Q118 Robert Halfon: So you produce the guidance.

Sam Younger: Yes.

Q119 Robert Halfon: Who produces it? Is it a committee or is it you two?

Sam Younger: No, it is not us two.

Dame Suzi Leather: No.

Sam Younger: We have a policy function that takes the lead, and it takes its advice from the operational areas that are involved in compliance work and other areas. Then, as with all guidance, there is significant external consultation.

Q120 Robert Halfon: So the guidelines are entirely subjective as to what your organisation thinks.

Dame Suzi Leather: No, because we also look at what case law has decided.

Q121 Robert Halfon: But again, that is your interpretation of it.

Sam Younger: Yes, based on law and case law.

Dame Suzi Leather: Yes, absolutely.

Q122 Robert Halfon: Do you not think it would be better if Parliament set the guidelines for this, so that everyone would see that it was fair, which they do not see at the moment? At the moment, it seems to be rather-dare I say it-like choosing a Cardinal at the Vatican: smoke-filled rooms and smoke coming out of the chimneys. No one really knows how you come to your decisions.

Chair: It gives you a lot of responsibility, doesn’t it?

Dame Suzi Leather: If Parliament wants to achieve something different, then obviously it is for you to set the rules differently. We are accountable. It is not just the smoke coming out with no accountability. You had the good sense to introduce the Tribunal as part of the 2006 Act, and visibly it has done its job.

Sam Younger: As a regulator, you prefer maximum clarity from Parliament on what the law actually means and how to apply it. It is more difficult the greater margin there is; you have to produce guidance when the law is not necessarily 100% clear-it is subjectively more difficult. I would not go along with the description of smoke-filled rooms and puffs of smoke, because we do extensive external consultation.

Chair: I am sorry to cut you off. I sense that a number of the members of the Committee are feeling that Parliament should be more prescriptive, but ultimately you are accountable to Parliament through this Committee. I think we would be interested in your views about how the legislation could be clarified to make your job less contentious.

Q123 Paul Flynn: I thank you for being here, and for what you have done, and echo what David has said about the fine co-operation we have from the Charity Commission on constituency matters. I certainly very much enjoyed the contact I have had with them. We know about the bizarre cases of charities; I think there is one public school devoted to providing education for the orphans of soldiers who died at the Battle of Waterloo. We know of other bizarre ones. It does seem extraordinary to me, as Mr Hopkins said, that it is regarded as a charity to provide a tax handout-an advantage-to the sons of rich people, an advantage denied to the sons and daughters of poor people. I think it is astonishing that someone has the bare-faced cheek to use charity money to launch a book in the United States, as one of our major politicians did. When you look at the changes that have taken place while you have been at the Charity Commission, what are the main disappointments and what have been the main improvements?

Dame Suzi Leather: I think the 2006 Act has overall been a very positive encouragement to trustees to think consciously about the public benefit that they provide. I think the requirement for them to account for that in their trustees’ annual report has been a very significant move. It is not about the Charity Commission requiring things; it is not about compliance. What I am talking about here is the self-conscious consideration of what impact a charity is having for its beneficiaries. I think that has been the single most important achievement of the 2006 Act. The review will noodle down into all the nuts and bolts and will come out with a lot of things that have gone well and things that have gone less well, but for me that is the top line-the most important thing.

Many boards of trustees tell us that they find that reporting of public benefit actually rather helpful. It takes them out of the day-to-day fire-fighting of "What are we going to do with x amount of money?" and allows them to sit back and think, "Why are we here? What is the impact we want to have? How can we best achieve that?" It is actually what you yourselves drew attention to when you were talking about Government departments downsizing-that they should go through precisely that thought process.

Q124 Charlie Elphicke: Just following up on Mr Heyes’ point on MPs raising issues with you, previously I raised the issue with you of a charity in my own constituency, the Deal Maritime Museum, and you were kind enough to correspond with me and say it was outside your risk matrix. I will just let you know the conclusion of that. There was a legal case, which the charity took. It lost completely and lost £60,000-most of the assets of the charity. I think it was right for me to bring that to your attention, because I wanted to safeguard the assets. I think it shows an issue that those issues were not safeguarded, and I think that is a great pity.

Chair: But you would regard that as a matter for the trustees and not the Charity Commission?

Dame Suzi Leather: Absolutely.

Chair : I think this is an interesting area.

Charlie Elphicke: I would say it is supervisory, and it is you guys who should do it.

Chair: We will be looking at all these matters as we look at the new Bill that the Government say they are going to bring forward, and we will be doing pre-legislative scrutiny on the draft Bill. We will look forward to your views on that. But in the meantime, may I thank you very much indeed? You have been excellent witnesses; you have been very forthcoming and you have put up with some rigorous crossexamination. Dame Suzi, your present term of office is due to end in August next year. I am not inviting you to comment on that at the moment; I just want to say we are extremely grateful for your huge contribution over your period of office in what has been a very difficult and contentious period for the Charity Commission. We may see you again, but in case we do not, may I thank you on behalf of the Committee for your service as Chairman of the Charity Commission?

Dame Suzi Leather: Thank you very much indeed.

[1] Note from witness: As at 30 September 2011, there were 70,522 charities on the Register of Charities with an income below £10,000 per annum.

Prepared 14th November 2011