Examination of Witnesses (Questions 900
- 919)
WEDNESDAY 14 JULY 2004
MAJOR MICHAEL
ADLER, MR
DAOUD ROSSER-OWEN
AND MR
ANDREW BRITTON
Q900 Chairman: We have heard that
argument, with respect, from many other charitable heads. We heard
that argument—although you are not in the same category—from
both the independent schools and the independent hospitals sector.
Why should different rules apply to you from them?
Major Adler: Because we are the
only group of people who have to go onto a battle field and risk
our lives. We are different in many respects. The building of
morale of the Armed Forces is almost certainly the major war winning
factor. In the Principles of War, of which there are about 10,
morale is considered to be the most important. I would venture
to suggest that within other charitable groups we do not have
that sort of requirement.
Q901 Chairman: Mr Britton, what is
your response?
Mr Britton: Our case has not been
that it is wrong for the local parishes to be separate charities
but just that it is unnecessary. As I have said before, we are
not objecting to the larger ones coming in, as is proposed in
this Bill. It has been argued in the past and it might well still
be in relation to smaller churches that the supervision that is
provided through the diocese and bishops and the diocese and officials
actually has proved adequate for the purposes of the Charity Commission.
So it is not that we say it is inappropriate, we just have argued
in the past that it was unnecessary.
Q902 Chairman: What is your big fear
if you lose excepted status?
Major Adler: Increased nugatory
work going on to people who are already heavily committed. It
is a very small number of people within a unit involved in financial
management and this is adding yet another task when they should
be more concerned with pay and allowances. If I may say so, sir,
the internal systems of audit and accountancy within the Armed
Forces are actually tighter than they would be if we were forced
to go outside and use external audit. A military audit board will
sit for so long as it is required. I have been on some which have
been run for three days because of the sheer size of the funds.
The Adjutant General is tasked within the Army with making sure
that these funds are run according to extremely strict regulations
and I would argue that internal regulation is stricter than would
apply outside and cheaper. We did an exercise in the Portsmouth
area for the Royal Navy a short time ago and we looked at some
of their large Service Non-Public Funds there, and if they have
to go outside for audit there will be an extra cost of at least
£110,000 a year just for that one area. Those accounts are
at present internally inspected by the Royal Navy. I look at them
from time to time. I know that they are being properly accounted
for.
Q903 Chairman: That is fine. I am
not saying this is my view, but one could argue that it is not
an unreasonable proposition to suggest, since as a charity you
enjoy certain financial advantages which accrue from all of us
as taxpayers, there should be some form of accountability for
how taxpayers' money is spent. Is that an unreasonable proposition?
Major Adler: We have lost it on
our investment income. I would be hard pressed to think of any
tax reliefs that are actually being claimed within a Service Non-Public
Fund. Deposit interest is paid gross, but that is about it.
Baroness McIntosh of Hudnall: This is
exactly what I was hoping we might discover. There are a range
of potential benefits that accrue to an established charity, not
all of which all charities take up. Major Adler, what are the
benefits to your organisations of being charities at all? Certainly,
on the face of it, given the objectives that your organisations
have and the way in which the duties and objectives are followed
through and so narrowly drawn and precisely targeted, you are
saying that you do not accrue any particular tax advantage. This
leads one to ask why are you a charity, why do you have charitable
status?
Q904 Lord Campbell-Savours: When
a sergeant gives two days' pay to the mess, is that tax relief
as a charitable contribution?
Major Adler: Yes, sir, that would
be gift aided. In one of my earlier papers—and I think I
have submitted three—I did make the point that one did not
have to be registered with the Charity Commission in order to
accrue the tax advantages which apply. Therefore I think there
is an argument for the Service Non-Public Funds to be withdrawn
altogether from this arena and the Services to have an arrangement
with the Inland Revenue whereby that deposit interest is paid
gross and they qualify for gift aid on a day's pay scheme. I think
it is just going to clog the whole system up if we put all these
Service unit funds into an already overloaded public audit area.
Q905 Lord Sainsbury of Preston Candover:
I was wanting to distinguish how much real benefit small units
are getting? It is the same question as has already been asked.
I can see there is a small amount of benefit from gift aid. Do
you have any way of measuring how important the gift aid income
is to the charities you are talking of?
Major Adler: The gift aid would
only apply within the officers' and sergeants' messes. Some officers'
messes are giving two days' pay to the unit funds each year under
gift aid. Within The Royal Logistic Corps our sergeants' mess
is only giving half a day's pay. The maximum that one can actually
compel an officer to give—you cannot compel him but you
can put internal pressure on—is to apply one day's pay under
the gift aid scheme. We are not talking about the corporals' mess
giving large amounts, we are talking about very limited funds
mainly from the officers' mess and the sergeants' mess which are
gift aided. Within the First Battalion loamshires[1]
we aggregate the Service funds into a thing called the "Central
bank". Within the loamshires there may be about 40 or 50
sub-funds from the band fund and the jazz club and the wives'
club upwards. If we cheated we could go below the figure and we
could dis-aggregate all our blanket funds and make them all tiny,
but that goes against the whole spirit of trying to run things
administratively efficiently and in large groups. So we are earning
deposit interest on a large bulk of funds because we bulk up the
unit funds and then break that down into sub-funds.
Q906 Chairman: How much does the
"Central bank" have at any one point?
Major Adler: It depends on the
type of unit, but I would say that an average balance on the "Central
bank" is in the order of £100,000 cash. There may be
a considerable volume of investments as well. When you get above
the unit level then you get into regimental funds and by and large
those are registered charities. The Royal Logistic Corps Regimental
Association Trust, of which I am a trustee, is a registered charity.
I am not really concerned about those.
Q907 Mr Mitchell: We are talking
about the funds you have been talking about so far, not further
up the line?
Major Adler: Absolutely. We are
talking about the funds of fighting parts of the Armed Forces.
Q908 Mr Mitchell: You have answered
most of the questions that I came armed to ask partly because,
of course, you have produced this really excellent paper which
I found extremely helpful. I have really only two things to ask
you, one of which is only a matter of detail. It might perhaps
be helpful to others on the Committee if you said a little bit
more about what these unit funds are used for. Are we talking
about KitKats on top of compo rations, as they used to be called
in my day in the Army, or are we talking about helping out the
widow of a former distinguished member of a unit? Can you tell
us a little bit more about how these funds are dispersed?
Major Adler: Within the officers'
mess and the sergeants' mess a certain amount of money is taken
from the mess members for extra "messing" and that is
exceptional. Within all the accounts the main activity would be
subsidy of sporting activity so that the private soldier has to
pay as little as possible. Sport in the Armed Forces is an extremely
good way of team building, keeping people fit and keeping people
out of trouble. Then we take that one step further.
Q909 Chairman: Maybe we should try
that here!
Major Adler: I cannot speak, sir.
I only deal with the military.
Q910 Chairman: Maybe we will get
you on secondment.
Major Adler: We go one step further
than sport and into adventure training, which is the envy of certainly
the American Army. A very large amount of the money that we take
is applied to sending people all over the world in very small
groups, usually a young officer masterminded by a much more experienced
sergeant, with 10 or 15 soldiers and they will go and climb the
Himalayas, dive or sail. Right now we have got about 60-80 expeditions
in the field and they do a lot of good work for the nation as
a whole.
Q911 Mr Mitchell: That adds some
more detail to what these funds do. If we accept the logic of
your case, can I take it that the Adjutant General's Corps supervision
of these funds would be absolutely sufficient in your view to
meet the criteria which for other non-military charities will
be met by the provisions of this new Bill?
Major Adler: The Adjutant General's
Corps audit procedures and accounting practices are extremely
effective and efficient. I have done the Service funds accountancy
course myself and various other accounting courses and as a civilian
I have often applied much of what I learned there to civilian
accounting practice as it is better in many respects. I have no
doubt that the present system is more searching and more efficient
than it would be if privatised.
Mr Mitchell: Thank you very much.
Q912 Earl of Caithness: All your
funds that you are managing are for serving officers, are they
not?
Major Adler: Within the Service
Non-Public Fund area, the excepted charity area, they are all
for serving members of the Armed Forces. We are not talking about
any benevolent activity at all, that is a separate activity. We
are talking about in-Service welfare funds covered by a Statutory
Instrument, which I have with me if you would like a copy, and
that expressly excludes any ex-Service benevolence. We are talking
about funds for the efficiency of serving members of the Armed
Forces.
Q913 Earl of Caithness: Are there
any charitable activities for non-serving members of the Armed
Forces who are much more involved which would be affected by this
legislation?
Major Adler: Regimental and above
that level of benevolent fund at present abide and, I would imagine,
will always continue to abide by existing charitable procedures.
We have no worries about such funds and the new law.
Q914 Chairman: Do you think they
are currently non-excepted, those ones that you have just described?
Major Adler: All the charities
for which I am a trustee, things like the Royal Regiment of Wales
Common Investment Fund, are all registered charities and will
continue to be so. We probably have 5,000 for the Army, 1,500
registered charities for the Navy and 700 for the Royal Air Force.
The Royal Air Force tends to be more compact because it has not
got the regimental history.
Q915 Mr Campbell: If the financial
benefits are relatively small then why bother at all to seek charitable
status?
Major Adler: I agree, sir. I would
like to see us really outwith that system and simply registered
with the Inland Revenue.
Q916 Mr Campbell: The very admirable
things that you have said about sport and team building and everything
else would seem to me to be really more to do with the core activities
of the Armed Forces rather than something which should be left
to charity. The route that you have inherited, is it not actually
in some regards self-defeating, in other words it holds you back
from making the case to the MoD for the funding of what I would
regard as pretty essential activities?
Major Adler: I have difficulty
with proposed legislation in that it ignores a thing called the
public utility aspect of charity and it is much more concerned
with the social level of charity. If you go back to the 1601 Act,
things like the making of roads, protection against highwaymen
and the setting out of soldiers are all charitable purposes. Most
of those things have evaporated except for the setting out of
soldiers in defence of the Realm. All charity law since then is
in the social area. I would agree with you, sir, I think we have
got to get back to the original Act and say this military activity
has been called charitable but it is not in the current Oxford
dictionary sense a charitable activity, so let us get it out of
the legislation.
Q917 Chairman: So your bid in a sense,
if I can again try to paraphrase, is that in an ideal world you
would have nothing to do with this vexed complex issue of charitable
law, you would quite like the Treasury to be supportive. That
is your bid. Alternatively, you would like excepted status to
be maintained, and your third fall-back position is that if you
cannot be excepted you want to be exempt. Is that correct?
Major Adler: Thank you, sir, absolutely.
Chairman: That is quite a bid. Good for
you for trying it!
Mr Mitchell: Under the Adjutant General.
Chairman: Yes, presumably.
Q918 Lord Campbell-Savours: Michael,
do you think you would pass the new public benefit test?
Major Adler: Sir, without Armed
Forces there could potentially be anarchy.
Q919 Lord Campbell-Savours: That
is not what I asked. It is a very, very interesting answer. The
answer basically is yes or no.
Major Adler: Yes.
1 Loamshire; a hypothetical regiment. Back
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