To be published as HC 574-i

House of COMMONS



Public Administration Committee

Regulation of the Charitable Sector and the Charities Act 2006

Tuesday 16 October 2012

Lord Hodgson of Astley Abbotts CBE

Evidence heard in Public Questions 1-47



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.

Oral Evidence

Taken before the Public Administration Committee

on Tuesday 16 October 2012

Members present:

Mr Bernard Jenkin (Chair)

Charlie Elphicke

David Heyes

Greg Mulholland

Lindsay Roy


Examination of Witness

Witness: Lord Hodgson of Astley Abbotts gave evidence.

Q1 Chair: Welcome, Lord Hodgson, to this first evidence session on the threeyearly review of the Charities Act. Just for the record, could you identify yourself, please?

Lord Hodgson of Astley Abbotts: I am Lord Hodgson of Astley Abbotts, the official reviewer of the Charities Act 2006.

Q2 Chair: First, may I place on record this Committee’s thanks for the extraordinarily diligent way you have conducted this review, though we have plenty of questions about it? If I may, I will start straight away. Do you think the Charities Act has achieved its objectives?

Lord Hodgson of Astley Abbotts: I think, broadly, yes it has. Without wishing to duck your question, it might be right for me to declare some interests before. Would that be appropriate?

Chair: Certainly. You may want to make an opening statement as well.

Lord Hodgson of Astley Abbotts: Would that be possible?

Chair: It’s perfectly alright.

Lord Hodgson of Astley Abbotts: I think it might be helpful for the Committee. First of all, the Committee needs to be aware that I am President of the National Council of Voluntary Organisations (NCVO). I will be handing over later this week to Tanni GreyThompson; my fiveyear term has expired. I remain the Chairman of the Armed Forces Charities Advisory Committee, rather inelegantly called AFCAC. The Committee also ought to be aware that I was the Conservative Party’s front-bench shadow spokesman, taking the 2006 Act through the House of Lords. The bill was a "Lords starter" and that was when I first became involved with charities legislation. I think that should be on the record, so that people at least know which side of the political divide I stand.

Fast forward then to 2010, when I was asked by the Cabinet Office to undertake a review of the issues that affected the charity and voluntary sector. We produced a report called "Unshackling Good Neighbours", which sought to answer the question about what stopped people giving time-volunteering-what stopped them giving money and what stopped charities and voluntary groups growing. The information that we gathered from that did inform the background to the work we undertook in the review of the Charities Act.

As far as that is concerned, I was very anxious when we did that work that we did not find ourselves confined to within the M25. The usual suspects within the M25 are able to access, Chairman, your Committee and the media very successfully, but I wanted to find out what was going on with the thousands of charities out in the provinces. We had what I call a "roundBritain quiz", in which we had a series of meetings outside London to try to find out what was going on and encourage, as far as possible, as wide a range of charities to deal with, answer and give evidence to our review.

As the reviewer, I stand by the review but I must place on record my thanks to the Cabinet Office team who helped me, led by Ben Harrison-and also my home team, Stephen Lloyd, the senior partner at Bates Wells & Braithwaite, the big charity solicitors, and Antonia Cox. We produced the report; it was 150 pages and 110 recommendations. I think it is now out to consultation. There are issues, of course, that I am sure you will wish to raise with me.

Just one final issue I will lay before you: when you undertake a review of charities, you find, as you might expect, very quickly, it is not just about money and law. It is about emotion. People support charities because they believe in them and, therefore, there is quite a bit of passion in the way they look at regulation and the organisation of charities. Therefore, in order to avoid having a situation in which we dived into the detail too quickly, I tried to lay out some principles which are in the report - the stars by which I steered the good ship Charity Review. There are seven of them and I will not go through them, because it would take too long, but there are three that I would just like to draw to the Committee’s attention.

The first is the emphasis on judgment not process. We should be doing what we can to encourage people involved in charities, whether as trustees, workers or supporters, to use their judgment and not rely on ticking the box.

Secondly, charitable status must be a privilege, not a right. If you wish to freely associate and carry out good works on your own, of course that is an absolutely essential part of our society; but if you wish to get a charity number, which gives you access to certain benefits-the ability to get government contracts, local or national, get grants from grantgiving foundations, greater facilities with Gift Aid and also the wraparound of the charity "brand"-that means that society is giving you something. Society is therefore entitled to ask whether you are using those particular benefits appropriately and properly. There is quite a bit of evidence of moribund or semimoribund charities, whose assets could possibly be usefully recycled.

Thirdly and lastly, the voluntary principle is at the heart of the charitable endeavour. I believe there is a big question coming up, which we will need to address somewhere in Parliament over the next few years. The Committee may not be aware that there are charities that have no volunteers in at all. There are charities that never raise a penny from the public; it all comes from the government, at local or national level. There are obviously charities that charge fees. We know well about that. There are charities that raise a great deal of money by selling other products, such as house and car insurance, under their brand. There are charities that are quite unusual. The Committee may or may not be aware that the largest charity by revenue is the British Council. Now, in the saloon bar of the Dog and Duck, I don’t think they would think that the British Council was a charity. I am not saying it shouldn’t be; I am making no value judgment. I am just suggesting, Chairman, that at some point in the future that is an issue that will need to be addressed by some Committee of Parliament, because the spread between the view in the saloon bar of the Dog and Duck of charities, about volunteers rattling the tin collecting coins, and what is now actually happening, is quite diverse. Thank you very much.

Q3 Chair: Thank you. Thank you for your 110 recommendations, which, I have to say, is quite a lot of recommendations. Some of your recommendations are, dare I say, a little bit "motherhood and apple pie". Which do you feel most passionately about? If you were to pick five, what do you think are the most important recommendations you have made?

Lord Hodgson of Astley Abbotts: I would like the Government to amend the Trustee Act to differentiate between the duties imposed on a trustee of an ordinary trust and a charitable trust. At the moment, there is no differentiation between the two. If you are running an ordinary trust, say a pension fund, preservation of capital is absolutely essential, because that is what is going to pay the pensions, but, if you are a charity, you may wish to use some of your permanent endowment to further your charitable objectives. I am quite robust about the need to raise the thresholds, though that recommendation has not been approved, either by the Charity Commission or by NCVO.

I believe we should be facilitating the social investment. It is very complicated, very difficult and we ought to be trying to increase the social investments and the ability of people to make them. Those would be my top three, Chairman.

Q4 Chair: Are those the ones that you think that the Government should prioritise?

Lord Hodgson of Astley Abbotts: Yes.

Q5 Chair: Which do you fear will not be implemented?

Lord Hodgson of Astley Abbotts: It looks as though I have had the black spot from the Charity Commission on raising the thresholds. The reason I believe the thresholds should be raised is that they are a package. It is important to understand that they are a package. The compulsory threshold should be raised to £25,000 from £5,000. I should say that, in 2002, the Cabinet Office report, ‘Private Action, Public Benefit’, recommended £10,000, so we are still half of what was recommended by the Cabinet Office review for the Labour Government 10 years ago. It should be £25,000. You should have to register if you apply for Gift Aid. If you are a Charity applying for Gift Aid, you should appear on the Charity Commission website.

In parallel to that, we should open up so that any charity of any size may register online. At present, you cannot register if you are below £5,000. That seems to me to be wrong. You say you do not have to register until you reach £25,000, unless you are using Gift Aid, but anybody may register at any level online. In parallel to that, those charities that are below £25,000 should have in front of their charity number the word ‘small’. It is not a value judgment-I am not trying to say they are bad-but the public should have it drawn to their attention that they are small and, therefore, as such, they are more vulnerable and the public should be aware of that in choosing whether to give money to them. It is a package, not just raising the threshold. In a way, I do not think what the Charity Commission has said has fully reflected that. I do not think they understand the nature of the package. Like most regulators, they talk about deregulation, but when it actually comes to giving away power and influence, they do not quite like it so much.

Q6 Chair: You talked briefly about the role of charities and wider society. If you had more time to look in depth at this subject, what would you be thinking about the very large number of organisations out there that are not charities, or not registered charities, but are public benefit organisations of one sort or another?

Lord Hodgson of Astley Abbotts: There are two major areas. One is the excepted charities, which have historically been primarily faithoriented, but may also be Scouts, Guides and those sorts of organisations. My recommendation is that they should gradually be brought within the net. That is to say they only have to register now if they have over £100,000 annual income, but that should be gradually brought down a series of steps to £25,000. Therefore, they would then fall within the arrangements that exist for all charities.

As far as exempt charities are concerned, where there is another regulator, the title principal regulator can be misleading. The Higher Education Funding Council, which looks after the charitable status of English universities-not Welsh ones, but English ones-is a funding body and does perfectly well but to call it the principal regulator seems to me to be misleading. One wants to try to introduce the idea of coregulation, which is the title I have suggested, but again I don’t think the Charity Commission likes that much. We need to make it clear that this is a charitable role and that, where you have a Government Department or quasiGovernment Department carrying out the regulation, that needs to be made clear.

Q7 Greg Mulholland: Lord Hodgson, taking you directly to points about the £25,000 increase of the threshold, you are aware that that has met with some quite strong criticism from certain quarters. Debra Allcock Tyler, the Chief Executive of the Directory of Social Change, said it would be "disastrous for small charities and not in the public interest".

Lord Hodgson of Astley Abbotts: That is because she doesn’t understand what I am saying.

Greg Mulholland: Let me finish my question, please. Also Pauline Broomhead, Chief Executive of the Foundation for Social Improvement, said, "Small charities need the same levels of scrutiny to be on them in order to maintain public trust." Considering the concern there, obviously you believe this is something that is there to assist small charities, but that is clearly not being understood. Why do you think it is not being understood and how would you justify the recommendation?

Lord Hodgson of Astley Abbotts: I don’t think it is being understood, because I don’t think people understand the package. As I tried to explain, it is a series of issues that need to be bound together. I believe the right of any charity to be able to register and get a charity number, though it has to be done online for reasons of economy, actually facilitates the growth of small charities, because the very smallest charities cannot now register. I do not think that people have taken in, as I say, the wraparound that I intend to have happen.

Implicit in your question is the question of supervision. There are 160,000 registered charities and, if you assume it is a 250day working year, allowing for Saturdays, Sundays and some Bank Holidays, that means that to have supervision 750 sets of accounts have to be examined every working day. If we follow the Chairman’s wish to bring in the excepted charities, we will have double that number. There is no body that is going to be able to give a degree of supervision for 750 sets of accounts a day, let alone 1,500 sets of accounts a day. What is happening at the moment is there is a belief among the public that the charity number somehow represents a stamp. The Charity Commission cannot possibly, would never be able, to supervise, in the sense that your question implied, that number of charities. We have to accept that the Charity Commission looks at things that are brought to their attention, and indeed one of my proposals for what I call the "traffic light system" was to try to draw attention to some of the areas that might justify the Charity Commission having a look.

Q8 Greg Mulholland: You gave a figure there. Do you know what percentage of charities currently registered fall below the £25,000 threshold? Do you have any idea or sense of how many may seek to deregister?

Lord Hodgson of Astley Abbotts: I think very few will. The overwhelming result will be charities below £5,000 revenue rushing to register. My package, in which if you are unregistered you would have to say you are unregistered, actually provides the right answer. It will actually shine more light on the lower end of the charity sector than is able to be done under the current regulatory structure.

Q9 Greg Mulholland: An obvious question then is the figure I do have is 43% currently registered have an income of less than £10,000. Presumably well over half fall below this figure.

Lord Hodgson of Astley Abbotts: Huge.

Greg Mulholland: Considering the financial pressure that we are all well aware the Charity Commission is under, do you believe this is going to increase or decrease their workload, and will they be able to manage if there are, as you suggested, increased numbers of registrations under £5,000?

Lord Hodgson of Astley Abbotts: The financial pressures they face are well identified and well known, but they already have substantial pressures coming up, because we have the CIO, the Charitable Incorporated Organisation, which was due-it has been a long time coming this-after the 2006 Act. It was due in February. It was due in May and I am now told it is due in November. That will give rise to a series of pressures on the Charity Commission. All of this will have to be phased in over a period of years. This is not something you are going to do tomorrow; you are going to do it by a series of steps, probably over four or five years. It has to be done online. More and more will have to be done online, with people accessing information via the Charity Commission website.

Q10 Greg Mulholland: One related issue here, which I am sure you would recognise, is that the provision in the 2006 Act for voluntary registration has not been implemented. Why do you think that is and does that not ring alarm bells, considering your recommendation to allow charities of all sizes to go on the register?

Lord Hodgson of Astley Abbotts: I think that was wrong. I think it should have been implemented. That is exactly what I am trying to get at. I am trying to say any charity should be able to register, so long as it does so online. That should provide the Charity Commission and the public with more information, because more charities are registered and, where they are not registered, they will have to say so on their letterhead. It will actually encourage further transparency at the lower end of the charity sector which, as you pointed out with your statistics, is a very big one.

Q11 Greg Mulholland: Finally, going back to the issue of resources-and I do not have the numbers of charities under £5,000 at the moment-do you think there could be a serious problem if that was brought in, in terms of resourcing? Do you think the Charity Commission would need extra resources to deal with that?

Lord Hodgson of Astley Abbotts: My review did not actually examine the financial viability or the operational efficiency of the Charity Commission. That was not part of my terms of reference. Clearly, the issue of its budget being cut from £30 million to £20 million has caused some stresses and strains. How much that can be offset by operational efficiency and greater use of, say, online facilities I suspect is a question for the new Chairman of the Charity Commission, rather than me. If you think what Companies House can do and you think very laterally, could the Charity Commission use some of Companies House’s facilities, where they process hundreds of thousands of pieces of documentation every year? Is there some way that they could collaborate to their greater mutual benefit? One of the things that I have strongly recommended and made absolutely no progress on is the fact that, if you are a charitable company, you have to make two separate returns-one to the Charity Commission and one to Companies House. There are 35,000 charitable companies. It should not be beyond the wit of man to create a form that serves both organisations.

Greg Mulholland: That is something we may take up with the Charity Commission.

Lord Hodgson of Astley Abbotts: And Companies House.

Q12 Chair: Thank you for that very helpful suggestion. Basically, you think the opposition to this package of measures really arises from fear of change and lack of imagination.

Lord Hodgson of Astley Abbotts: Those would be your words. I couldn’t possibly say anything about the sector that I have written I think is brilliant.

Chair: We will move on to payment of trustees.

Q13 David Heyes: This has also been controversial. Your recommendation was to give an automatic right to pay trustees to the largest charities. If it is right for the largest charities, why not for all?

Lord Hodgson of Astley Abbotts: This is a piece of philosophy in which you will have heard Sir Stephen Bubb from ACEVO say we should pay trustees and you will have heard Sir Stuart Etherington from NCVO say we should not pay them. My view was this: that a £1 million revenue charity is a bigish business and the trustees should have the good sense and good judgment-this is part of judgment, not process-to say, "I need to pay my trustees to get the right people." At the lower level, if you are talking about a £10,000 or £12,000 charity, in my proposal below the £25,000, then clearly there is a danger of you and I, as trustees of such a charity, saying, "It would be very nice to be paid a fee; why don’t we pay ourselves £500 for our work?" This may represent quite a significant proportion of the income of our charity. The temptations might be there.

I am saying the smaller charities should still have to make that application, for reasons of conflict and of maintenance of public confidence, but in the big charities I can pay you for your services as a chartered accountant at going rates. I can pay you for your services as a chartered surveyor at going rates, but I cannot pay you for your services as a general manager. That seems to me to be counterintuitive, because what these big charities need is general management, as well as specific professional advice.

Q14 David Heyes: The ability to pay exists already, with the permission of the Charity Commission, so what is wrong with that system? Why does it need to change?

Lord Hodgson of Astley Abbotts: I am trying to be deregulatory. I am trying to increase the emphasis on judgment that trustees use. If a trustee of a £1 million charity does not have the judgment as to whether he or she needs to pay their trustees, then that is disappointing. They are big businesses and they need the best people.

Q15 David Heyes: Is there not a risk in this that introducing that system of payment is going to pull the most capable and committed trustees towards larger charities?

Lord Hodgson of Astley Abbotts: Let me just say one more thing about payment of trustees. In the Ipsos MORI research that we did, it was interesting how the readiness to allow the payment of trustees was in inverse proportion to your age. The younger the person questioned, the more willing they were to see trustees paid. The older the person, the less willing they were. There is a generational shift taking place, at least in public opinion. I am trying to look forward as to how things are developing but, all the time, I am trying to say where one can, one should rely on the good sense and judgment of trustees, and instead of trying to think of the cases where things could go wrong, accept that there will be mistakes. Of course there will be mistakes-we are a big sector-but we are trying to find ways to free people up, to use their judgment and not to have to go to the Charity Commission to say, "May we pay our trustees?" Make that judgment and stick by it.

Q16 Lindsay Roy: Lord Hodgson, you will be familiar with the term ‘chugging’. It remains a problem for the charitable sector, and sometimes fundraisers have overtly misled the public and broken the code of conduct. Two thirds of the public say that some fundraising methods used by charities make them feel uncomfortable. Your answer is selfregulation, so what have you done to promote more robust selfregulation?

Lord Hodgson of Astley Abbotts: Can I just briefly lay out the challenge? It may be helpful if you think about it in terms of a vertical and horizontal axis. The vertical axis is the sorts of charities that go fundraising and the horizontal axis is the way they raise funds. The top category is national charities raising money. They raise money in three ways. They raise money permanently, all the time, by continuous fundraising. They raise money episodically but regularly episodically, by which I mean Poppy Day, as the classic example. They raise money episodically but periodically, depending on events such as the Darfur famine, Pakistani flood relief and so on. You have those national charities wishing to meet those three particular points. Then second you will have your respected local charity. Your constituency may well have a hospice in it, which raises money, but only wants to raise money locally. Finally, you have Mrs Jones, 27 Acacia Avenue, and she is raising money to repair the parish hall roof or to put some money in the youth club. Everybody knows Mrs Jones; everybody knows she is a good person; everybody knows it is a worthwhile cause. That is what you have to cover-that spectrum.

Along the horizontal access, you have face-to-facerun fundraising in the street, facetoface fundraising doortodoor, internet, email and telephone. When you have that schematic, you have the local authorities that want to have power over the way fundraising operates in their area. Then you have a piece of legislation from 1916 that covers one part and a piece of legislation from 1939 that covers another. Finally, when you put all this pressure on the charity sector, you have commercial collectors that find there are no regulations at all. If you wish to go and collect clothing doortodoor, for your own benefit, you are not regulated in the least. To design a silver bullet that is going to hit all those targets is quite tricky. I believe that, in order to achieve that necessary flexibility, selfregulation will be the best answer.

What is the drawback so far? The drawback so far is that the sector will not agree on where the problems are. The chuggers blame direct mail. Direct mail blames doortodoor collectors and so on. Chuggers is an issue that obviously concerns people, but there are more complaints about direct mail than about chugging. I have said to the three major bodies, the Institute of Fundraising, the Fundraising Standards Board and the PFRA, which does the licensing of sites with local authorities, that they need to get together and agree a united front, so that you and I have a telephone number or an address to which we can send our complaints. At the same time we know not only that they are reacting to our complaints, but there is some mystery shopping going on at points of stress. Upper Street in Islington is a place where the footfall is very great and chuggers congregate - so somebody must go up there and test, allowing themselves to be used by the chuggers to see if they are behaving appropriately and are not hassling the public, because, Chairman, what we have to do is balance the right of the charity to ask with the right of the public not to be hassled.

Q17 Lindsay Roy: Would it be fair to say that the promotion of greater and more robust selfregulation is in its early stages? Have you any indications of success?

Lord Hodgson of Astley Abbotts: The Fundraising Standards Board was a product of an initiative after the 2006 Act. It has made good progress in some ways, but there have been too many freeriders, who have said, "We don’t need to bother to get involved and will just coast along at the back." There has perhaps not been enough attention by the Charity Commission to try to encourage the emergence of the Fundraising Standards Board to use its "give with confidence" and those sorts of things. There is a greater need for the sector to understand that this is a problem that they cannot just pass around like a hot potato. Every part of the fundraising sector is damaged by the public’s feeling, evidenced by your question, that this thing is not being tackled properly.

Q18 Lindsay Roy: What indications do you have of progress?

Lord Hodgson of Astley Abbotts: I am being sent responses by various people and there certainly have been meetings when the three bodies that I referred to have got together. I have said to them, "You have to forget your silos, guys. You have to come out of your silo and have something, so that every Member of Parliament and every member of public can know that there is a body that is overseeing the way this whole thing works."

Q19 Lindsay Roy: A key question from me is: we have had meetings; we have done this; we have done that; so what? What has happened that has brought about improvement?

Lord Hodgson of Astley Abbotts: I gave them a sixmonth window in the report. I said they should have six months to come up with a proposal, and I encouraged the Minister for the Cabinet Office to act as a midwife, along with the Charity Commission, to try to ensure something happened. The trouble with statutory regulation is that it will never keep up with the way that things are shifting all the time. That is the trouble. You risk creating a very elaborate hammer that misses the nut.

Lindsay Roy: We won’t ask who the nuts are.

Lord Hodgson of Astley Abbotts: I think the fundraising sector is getting it: you around this table and the rest of us are not going to put up with the present situation. If I may say so, just so you understand, chugging affects local shops. If I am a baker and someone comes and chugs outside my shop, people cross the street to avoid the chugger and go to my competitor. It is a problem in the high street.

Lindsay Roy: With an impact on business and communities.

Lord Hodgson of Astley Abbotts: Local authorities can work on this. They can work with the PFRA to make this better, and there are some local authorities that have actually had problems and have sorted them by using the PFRA.

But it is an issue and when you touch this issue, stand well back, because charities are extremely sensitive to attempts that affect their ability to raise income. I said something about the National Exemption Orders and was accused of actually trying to abolish Poppy Day. That is hardly what I was trying to do, but was quite an extreme reaction to a thought that we might look at how National Exemption Orders could fit into the structure.

Q20 Lindsay Roy: It is work in progress.

Lord Hodgson of Astley Abbotts: I think it will be work in progress for some time but, Chairman, your Committee can help to keep pressure on this.

Chair: It seems to me that the health and safety warning on the elaborate hammer would be that this could be extremely hazardous for the user.

Q21 Charlie Elphicke: Lord Hodgson, I recently met with Dame Judith Mayhew of the New West End Company, and their concern is that we are not talking about people rattling a tin for Poppy Day; we are talking about aggressive systematic harassment of tourists and visitors, which drives these people away from shopping centres. It is not simply in the West End. They were caustic about the complete failure of the Charity Commission to use any of the powers under the 2006 Act, which they could have taken forward before now. They want to see action. Two thirds of the public wants to see action. Do you really think that selfregulation is going to be good enough or is it time to bring in statutory powers to take real action and put a stop to it?

Lord Hodgson of Astley Abbotts: It is a very good question. But if you talk to the charities, they will say, "We are desperate not to have our good names besmirched by chugging." When I am a national charity and my chugger upsets you, Mr Elphicke, you not only think, "I will not support them anymore," but in the pub that evening, the dinner party or wherever you socialise, you might tell your friends "I had a horrendous experience." So charities will say, "It is in our interests to have very good relationships with the public, because we are damaging our brands if we behave badly." There must be some truth in that.

I think that selfregulation is the least worst option The sector could, if they chose to react to the pressure that Members of this Committee and the public feel, create a really worthwhile structure that would provide a proper way of dealing with these issues, but we do have to recognise, all of us, that when we walk by a chugger working for a very worthwhile cause thinking, "I am not going to give him a quid or sign a direct debit," we can feel an element of guilt. We sometimes wish to transfer our guilt by saying, "He didn’t behave very well." I freely admit that sometimes I feel, "Gosh, that’s a good cause. I ought to be doing something for them," but I do not want to, so I want to find a reason in my own mind for why I should not. There is some behaviour transference sometimes. I do not think, at this stage, the statutory situation would be appropriately cost effective, and the FRSB is making progress. What I hope will happen as a result of this is that there will be some pooling of sovereignty between the key bodies.

Q22 Charlie Elphicke: My concern on this and so many other issues is that the Charity Commission does not get it. In her valedictory evidence, I asked Dame Suzi Leather whether she was satisfied with the whole business of chugging. She said it all seemed to work just fine. Yet again, we have a situation where the Charity Commission is just completely divorced from any kind of proper regulatory function. Do you think that there is a need for the Charity Commission to be more focused on this and to get it more?

Lord Hodgson of Astley Abbotts: Of course, the powers for statutory regulation, which would presumably come under the Charity Commission, have never been brought into force. They weren’t brought into force in the 1993 Act or the 2006 Act. Insofar as they are the guardians of the sector, they should be taking an interest in it. I have already said that I think the Charity Commission has a role as midwife, if that is the right word, along with the Cabinet Office to try to make sure some pressure is put behind the creation of this new body. It is in their interests to do that.

Q23 Chair: When you say "at this stage", what you are really saying is that the Government should set a deadline. If the charitable sector cannot get its act together on a voluntary basis in a certain period of time, it would be reasonable for us to recommend as a Committee that the Government ought to bring those provisions into force to enable the Charity Commission to take action.

Lord Hodgson of Astley Abbotts: It is the question of taking the statutory powers and enforcing them.

Q24 Chair: Leaving this openended does not seem to be very satisfactory.

Lord Hodgson of Astley Abbotts: No. That is why I put six months in my report-to try to have an end date.

Q25 Charlie Elphicke: Lord Hodgson, on the issue of public benefit, you just gave the picture of the Charity Commission as being a sort of midwife for the sector. The best healthcare learning is not provided or espoused by a Hampstead dinner party approach to life and nor is the best regulation of the Charity Commission. There have been substantial concerns, as I am sure you are aware, about what is perceived as a tax on our schools, a tax on religion and indeed attempts to suppress religion in this country, with this sort of Hampstead approach, which the Charity Commission has previously taken up to now. Turning to the issue of public benefit and the independent schools case, which is the leading legal case on the matter, would you say that the Charity Commission has handled things well and covered itself in glory or should it rethink what it does and how it does it?

Lord Hodgson of Astley Abbotts: I think the Charity Commission has had a very difficult job. It was given a hospital pass; it was bound to upset people, because the question is: are we going to have a fixed statutory definition of "public benefit", with all that implies. The nature of the charity sector, for reasons we have touched on, is evolving very quickly all the time. The danger of saying, "Okay, we won’t have this rather unsatisfactory moving target; we are going to have a statutory definition," is that we will actually then fix the public benefit test forever. When we come to talk about the tribunal, the tribunal was originally designed to be a quick nonadversarial userfriendly nonlawyerlytype organisation. As I said to Lord Bassam of Brighton, with whom I debated the 2006 Act, when I saw there were eight QCs doing the independent schools case, we had done well on that one.

But there are things happening there. Judges quite rightly value their independence, and I hope the tribunal can be encouraged to look forward in its judgments about these sorts of things, in the future. There has tended in my nonlawyer’s view to be a tendency to look back at history. The tribunal could help the development of the sorts of things that you are talking about, and indeed the whole public benefit area, if it could begin to look sideways and forwards in terms of its interpretation to reflect more reasons and conditions. It could make itself more accessible. The public schools case judgment is some 110 pages long, and you lose the will to live after about page 50. The Supreme Court now has a front page for each case that summarises, in layman’s language, the essence of the judgment. The Tribunal could put those sorts of things at the front of their judgments. They could do things like that to help the development of the sorts of issues relating to public benefit that you are raising. For me, there can be no statutory definition, because you then fix the world, when the world is moving.

Q26 Charlie Elphicke: Looking at the Charities Act 2006, it mentioned public benefit. Looking at the socalled public schools case, the tribunal says, "So far as we are aware, the courts have never made any assumption about whether a purpose is directed to the public or a sufficient section of the public." It then goes on, "[It is] directed to what it is that the institution was set up to do, not to how it would achieve its objects or whether its subsequent activities are in accordance with what it was set up to do." From a lot of the evidence we have had from a lot of interested parties, there is this idea that, in fact, public benefit was always in the charities law, well before the 2006 Act. What happened was putting it into the Act caused the Charity Commission to then issue guidance, which effectively was seeking to change the law. Do you not think there is a risk then, when quangos come along and issue guidance that is at variance with the previous case law, that they are going to cause massive turbulence and instability in a system that was previously well understood? Would it not be better to just get rid of the words "public benefit" out of any revised Act and go back to the case law system?

Lord Hodgson of Astley Abbotts: Of course that was a matter for Parliament, and Parliament felt strongly that the words "public benefit" should appear. You will be aware that the public benefit test in Scotland is still more restrictive, in the sense that OSCR, the Scottish Charity Regulator, is required to have regard in deciding public benefit to those institutions that charge fees for their services. There may be yet a third definition of "public benefit" for Northern Ireland. I hope they can be persuaded to follow either the English and Welsh or Scottish one. This is a debate that is actually philosophical, to some extent. Certainly the will of Parliament was to ensure that the words "public benefit" appeared on the face of the Act and that the Charity Commission should interpret this. The purpose was to try to find a way not merely always to be looking forward, but to move in keeping with the times. I accept that it has proved highly controversial.

Q27 Charlie Elphicke: It is controversial, because millions of people in this country, as you know, believe in religion of whichever faith and denomination. Millions and millions of people have deeply held religious views and they feel that the way this guidance has been used has been as a weapon to attack their deeply held beliefs, by a secularist state and secularist Charity Commission. It takes me back to the Hampstead dinner party analogy, which I put earlier. People feel it is a metropolitantype view. There is particular concern from the Christian Institute, which says, "If the Charity Commission can now find against the Plymouth Brethren and their Preston Down Trust, it would appear to have grave implications for other Christian Churches and groups, the majority of which apply some restrictions on access to sacraments and benefits, on the basis of teachings of scripture. This includes the Church of England, Roman Catholic Churches and many free Churches." I, as a CofEdenominated individual, cannot have communion in the Catholic Church. Therefore, it might be said that there is no public benefit; it should not be allowed. It is a serious issue. Do you think that the Charity Commission needs to seriously rethink its whole approach to religious groups and actually have a bit more understanding and religious tolerance in Britain, once again?

Lord Hodgson of Astley Abbotts: The Charity Commission has got its new guidance out for consultation at the moment. Clearly they were set back by the outcome of the independent schools case and the implications that you referred to in your question. In the end, we want tolerance; we want to find a way for people to be encouraged to do their best for their society, and we want to try to find a means for doing this, but we have to balance the fact that sometimes it becomes so narrow that the charitable status linked to the tax and other benefits associated with it are actually no longer offering a sufficiently wide section of the public proper recompense for society’s financial and other supports.

Q28 Charlie Elphicke: Lord Hodgson, you say that they were set back by the public schools case. I would put it to you that they have learned nothing and forgotten nothing, because now they are lashing out and seeking to persecute and suppress the Plymouth Brethren, not a denomination that you or I may follow, but many tens of thousands of people in this country do. Is it not important that they learn from this experience and amend their behaviour?

Lord Hodgson of Astley Abbotts: The Plymouth Brethren have written to me. I have not yet met them. They are here in the room today and they have already given me a large package, before I came before you this morning. I will be meeting them. I have said what I have said about the public benefit test that I do not think a statutory definition is going to help. I think it freezes the situation. The thrust of your question is probably now for the Charity Commission rather than for me.

Q29 Chair: Before we pass on, is it really one for Parliament? Should Parliament take responsibility, because these are highly controversial value judgments? In the independent schools judgment, it was for the trustees of a charitable independent school to decide what was appropriate in their particular circumstances, not the Charity Commission. It is almost passing it back to the trustees, not even to the Charity Commission. It leaves everybody in a limbo. Can I just press you on one thing? Why is it in Scotland that independent schools do not seem to have had this problem?

Lord Hodgson of Astley Abbotts: I have no idea. You will have to ask OSCR. I went to see OSCR, but I did not raise that question with them.

Q30 Chair: OSCR seems to have handled it in a completely different way, perhaps more constructively.

Lord Hodgson of Astley Abbotts: The answer is I do not know. Of course the situation there is they have a much smaller number of charities, I think 15,000, and they have their arms around the lot. They are able to give them a great deal more detailed attention, because of the number, than is possible with 350,000 charities here. But I don’t know. It is a good question, but frankly, I am afraid, Chairman, I have not asked it.

Q31 Charlie Elphicke: Finally, Lord Hodgson, you say you do not see it is a good idea to have a statutory statement clarifying what exactly public benefit would mean. There should not be a fullblown statutory definition, but would you think in that case it is preferable to just excise "public benefit" from the Act and go back to the present system or have some form of statement clarifying different elements of public benefit?

Lord Hodgson of Astley Abbotts: One of the principles I put as leading my review is about the independence of the sector. But the sector can sometimes be a bit precious about being above politics. The reality is that charitable activity gives rise to some very sharp issues of public policy, which have to be decided in this building. Therefore, independence does not mean freedom for a charity to do whatever it likes. There are concerns among your colleagues about some charities that are morphing into almost the work of members of Parliament, in some of the activities they are doing in campaigning, which we may come to in a minute. There are some issues here that only Parliament can decide upon because, as the Chairman has rightly pointed out, these are issues that need to be decided outside the immediate environment of the charity world, because they affect society as a whole.

Q32 Chair: Moving on to the question raised by NCVO that there are different definitions of public benefit in different parts of the country, leading to confusion for charities that operate in all parts of the United Kingdom, you say it is desirable in the longer term that there should be a UK approach to this. How should that be achieved?

Lord Hodgson of Astley Abbotts: It goes to the heart of devolution and the relative independence of Scotland, England and Wales. I do not think it is achievable in the short run. Because the size of their charity sector is much smaller and ours is very much larger, I do not think the regulatory approach can be anywhere near the same. We are some way away from getting agreement. I mentioned desirability, but that is hope rather than expectation.

Q33 Chair: Did you find any evidence of what one might call regulatory arbitrage of charities domiciling themselves in one part of the United Kingdom rather than another in order to benefit? Is that a danger?

Lord Hodgson of Astley Abbotts: No. Some national charities say it is a bit of a difficulty, but I did not come across anybody who said, "This really is a pain."

Q34 Chair: The HMRC rules are uniform for the whole of the United Kingdom.

Lord Hodgson of Astley Abbotts: They are, but of course tax is not a devolved matter, whereas charity law is.

Q35 David Heyes: I have occasionally, in my constituency work, come across charities that I have had concerns about. Constituents have been to see me to voice their concerns. I am thinking of a particular case. It was a case where the charity seemed to be being run more for the benefit of the trustees and the main staff than for the supposed beneficiaries. It was probably short of criminality, but it was certainly abusing charitable status, in my view. I tried to refer that to the Charity Commission to get them to look at it, and they did, fairly superficially. I thought it was a superficial look at it, and then they declined to take it on, saying, "This is for the trustees to sort out." I felt it was really more to do with their lack of resources, and then making excuses for not following through on it. At the time, I would have really loved to have been able to take a complaint like that to an ombudsman. That is what I would do if it was a local authority that was failing to deliver or a Government Department. You were apparently enthusiastic about the idea of a charities ombudsman, but not in your report.

Lord Hodgson of Astley Abbotts: The complaints about charities really fall into three parts. There are the ones that are clearly statutory, which the Charity Commission has a duty to follow up. There are those about the services they provide, and there are actually quite a lot of ombudsmen that cover those-the Health Service Ombudsman, the Care Quality Commission and so on. Quite a lot of the services are covered. You then get down to the internal operations of the charity, where there are some extremely difficult value judgments to be made, very often caused by personality disputes within the charity, to be honest. That is a minefield, into which you wander at great expense and time commitment and without any obvious likely successful outcome.

The more I thought about it and discussed it, the more I thought this was not going to be a good use of the Charity Commission’s and therefore the taxpayers’ money. Therefore, my recommendation is that every charity should have a complaints procedure and that complaints procedure must have a degree of external verification. What upsets people at present is that complaints are heard by the charity and they say, "Sorry, Mr Heyes. We are not going to accept your complaint; it is not founded." You think that is all very well, but they are judge and jury. I have suggested that people like NCVO or ACEVO could actually help by providing a means for somebody to provide independent verification of what the charity’s internal complaints procedure provides. I think that the ombudsman, attractive at first sight, unfortunately will not achieve what I think you want to achieve and I would like to achieve, which is producing an outcome that everyone accepts.

Q36 David Heyes: I don’t want to labour this too much, but in the most recent case that is fairly fresh in my mind, I was very aware of the dangers that you allude to-personality conflicts and that kind of thing. I looked into that carefully and discounted that as being what was going on. There were real causes for concern. Was that your sole reason for discounting the idea of an ombudsman, the fact that it is a muddy area?

Lord Hodgson of Astley Abbotts: It is that you move by slow degrees from something that is just bad practice to something that is illegal. You are on a swingometer, but where you are on the swingometer is very difficult to judge. I referred before to the question of moribund and semimoribund charities. When a charity finally becomes moribund is very difficult to judge. A lot of them just keep going, but they are not doing very much. They have, say, £0.5 million worth of assets; the trustees meet four times a year at the golf club; they do not have any new trustees and have not had for 20 years. It is just ticking over. Frankly, they should be finding a charity to merge with or winding up, and deploying their assets cy-près in some other parallel similar activity. The same is true of what you are saying here. Where is the tipping point? An ombudsman would be expensive, and will the people accept the outcome? When you have gone through all this and produced the judgment, will they say, "never mind"? How do you enforce it?

Q37 Chair: You mentioned merging charities. Is it much too difficult to merge charities? Is it something that should be made easier?

Lord Hodgson of Astley Abbotts: Merging is difficult and there are all sorts of technical actions that could be done to improve it. One of the classic things is that, when you merge a charity with another charity and it is all done above board and properly, the banks will not allow you to transfer standing orders and direct debits. You have to resign them. You know that if you send direct debits and standing orders around for resigning, you lose 75% of them. We have quite a number of charities that exist in name only to collect direct debits and standing orders forever, because they are inertia revenue. Even more it applies to the issue of legacies. There is a real argument-and the Financial Services Bill may provide some answer to this or at least a chance to aerate and ventilate the problem-that banks should say, "Look, when a bona fide merger has taken place, we will accept that the standing orders and direct debits should go to the new merged charity."

Chair: Maybe they should be obliged to do so.

Lord Hodgson of Astley Abbotts: Maybe they should be.

Q38 David Heyes: In the case that I have been referring to, if the Charity Commission had declined to investigate my complaint, I think your recommendation might have been that, in the absence of an ombudsman, I could take that to the Charity Tribunal to challenge the Charity Commission’s decision.

Lord Hodgson of Astley Abbotts: The Charity Tribunal has more tasks that it could usefully be given. Presently, the schedule to the Act, which limits the way you can go to the Tribunal, is very restrictive as to how it can be done and to time. I have suggested that that schedule should go and the Tribunal should be able to hear appeals against any decision of the Charity Commission or review any action they take. There would be an opportunity then for the Charity Tribunal to have a greater say and I have suggested, incidentally, that charities should have four months to make their decision, not three.

Q39 Chair: Finally moving on to political campaigning, another very controversial area, what sort of representations did you get on this subject? Did you start out with any preconceived ideas about this subject and did they change as you were undertaking this review?

Lord Hodgson of Astley Abbotts: My only conclusion takes me back to what a charity is. The sector runs the risk, if it becomes too involved in political campaigning, that some of the crossparty-all parties but no party-benefit that it gets will disappear if it is seen to be too strident or seems to become an arm of political activity. This, along with the other issues that I raised in my opening remarks, is something that Committees of this House or the House of Lords could usefully examine. There are those who believe that the present guidance is fine. It obviously places quite severe restrictions on the way you can operate. As a charity, carrying out political campaigning must be incidental to your purposes and all that sort of stuff. The State of Queensland in Australia is looking at legislation, which I think proposed that, where you get more than 50% of your revenue from government sources, you are not allowed to undertake political campaigning. I do not know where the thing is in the process of the legislative sausage machine in Queensland, but that is something they are looking at.

Chair: We will have a look at that.

Lord Hodgson of Astley Abbotts: It is to try to deal with this point about organisations campaigning against the Government of the day, when they are using the money that the Government is providing.

Q40 Chair: Or campaigning for the party in office. What does the public think about this?

Lord Hodgson of Astley Abbotts: I think the public is way off the pace on these sorts of issues.

Q41 Chair: Do you think the public expects charities to be political? I think the public can be affronted when they see a charity they respect taking a very strident political line on something. One of our colleagues, absent today I am afraid, would be complaining about Christian Aid and their very proPalestinian stance, for example. Somebody else might complain about Oxfam’s campaigns against free trade.

Lord Hodgson of Astley Abbotts: I said earlier that this is about emotion and there is a lot of emotion in these things. People feel very strongly about these charities.

Q42 Chair: Yet you have some charities, War on Want, saying, "We urge the PASC to send an unequivocal message in support of the right of charities to engage in political activity, and to remove the last remaining restriction preventing charities from achieving their charitable objectives to the best of their abilities."

Lord Hodgson of Astley Abbotts: If you mention the Queensland proposals to charities here, again, stand well back. They feel very, very strongly about that.

Q43 Chair: It would mean that public money becomes a muzzle. Isn’t the corollary of allowing charities to engage in political activities actually to suggest that political parties themselves, each of which would argue they are trying to benefit the public, should themselves be charities, have charitable status or the same advantages of charities, as they do for example in the United States of America?

Lord Hodgson of Astley Abbotts: I would have thought that was not something that was likely to find favour with the public. For all the reasons that I have touched on, it would be better to reduce the amount of political involvement, rather than increase it, in the charitable sector.

Q44 Chair: That may well be my view. The corollary of allowing charities unfettered right to do political campaigning would suggest that any organisation that does political campaigning should be a charity.

Lord Hodgson of Astley Abbotts: It is not unfettered of course, because it has to be related to their charitable purposes and it may not be their primary purpose. I do not have the guidance in front of me, but there is quite strict guidance on what is allowable and what is permissible. A political party that has only one purpose, which is political activity, would not be able to.

Q45 Chair: On the other hand, if people do not want to give money to a charity that takes a political stance, that is up to them, is it not?

Lord Hodgson of Astley Abbotts: Going back to my earlier remarks about the trafficlight system on the front of every charity return, one of the questions that ought to be there is: does your charity give money overseas and, if so, to which countries? Some people are concerned about where some of the money is going. You try to inform people.

Q46 Chair: Your advice to the Committee seems to be: there be dragons; stay away.

Lord Hodgson of Astley Abbotts: Yes.

Q47 Chair: Having done dragons and elaborate hammers, I think we are at the end of our crossexamination, unless any colleagues have any further questions. Can I thank you very much indeed? Is there anything you want to add, any passing thoughts?

Lord Hodgson of Astley Abbotts: All I would say is, when you go around the country and see what people are doing, what wonderful work they are doing with very little resources, my report was trying to encourage them, invigorate them and make them feel they were appreciated. I do hope, Chairman, that your report, when you publish it, can do the same.

Chair: Thank you very much for the extraordinary knowledge that you have demonstrated today, confirming that your report is a great work. You have gone into great detail with great diligence, and we are very grateful to you. Thank you very much indeed.

Prepared 6th November 2012