---

Lord Phillips of Sudbury: I am grateful for the Minister's detailed rebuttal of the arguments put forward by the noble Lord, Lord Glentoran, and myself on this. In the politest way I have to say that they do not persuade me individually or collectively. As far as I am aware, the only representations that have been made since the Bill entered the House have been all one way. Although I accept that the number of charities wanting to adopt CIC status may be relatively small, they should not be denied that prospect. Although the Minister says that the benefits appear to be modest—I do not think that was his word, but it was the equivalent—why should not they have them.

I do not believe that the confusion argument is made. I do not think there will be any loss of distinctive status for CICs, not least because a charity that is also a CIC will go under the badge of charity, not CIC. It is the charitable status that will be the dominant and public face of any charity which adopts a CIC format.

I think that we may need to return to this issue at the next stage of the Bill.

4 p.m.

Lord Glentoran: I should like to pick up on one or two points the Minister made. First, established charities becoming CICs may have difficulties. I can see no difficulty with new companies on setting up becoming charities. I did not find any strength to the noble Lord's argument about choice, which I mentioned as part of my argument. Why not allow the management or whoever the promoters are of a CIC to have the choice whether they want to have charitable status?

I shall digress for a moment with personal experience. I am not an accountant or a lawyer, but I have had a significant amount of experience with companies that might have been CICs, had they been around—particularly those associated with the Millennium Commission. One of the positive things that I see about a CIC—perhaps it is the only positive thing, but it is certainly one of them—is the fact that there is a regulator. Those who put funds into a community interest company will undoubtedly get some comfort from the regulator.

Through the Millennium Commission we have funded a number of sizeable companies that have clearly been companies limited by guarantee and owned by trusts. However, often the biggest problem that we have is being able to sort out the management when things go wrong when the company has started from a smaller base and has grown. We are still

25 Mar 2004 : Column GC325

pouring millions in and things need to be changed. Outside this Committee I could give people chapter and verse on the matter but I shall not do so now. Serious loss of revenue would result if those companies were unable to benefit from having charitable status. There is a sound case for social companies—trusts that are running organisations and companies for the public good—to be charities, to come within charities law and to do all the things that charities law expects them to do. They would also, to some extent, come under the auspices of the CIC because, as a funder—in my case public money has been involved going back to 1991 in Northern Ireland—the problem has always been to manage the business at arm's length.

I see tremendous advantages flowing from the involvement of the regulator. I still believe that CICs have a good role to play but I think it is wrong to debar them from charitable status—the argument that is made for that is weak—should they choose to seek that status. I do not wish to promote the idea that all CICs should be charities, but I believe that they should have the choice.

Lord Sainsbury of Turville: I just make the point that charities are not unregulated bodies. They are tightly regulated under the Charity Commission. The main burden of our argument is as follows. First, why confuse the issue? Secondly, what is there to be gained by subjecting an organisation to two sets of regulations? That is the argument in a nutshell.

Lord Phillips of Sudbury: I hope that I may return to the point as we are in Committee. The matter is up to the body concerned that wants to be a CIC as well as a charity. The Minister may be right. Many people may consider the matter and decide that they do not want three regulators—company regulator, CIC regulator and Charity Commission. But some will. Frankly, the CIC regulation will not add anything at all to the Charity Commission regulation. Therefore, if I may say so, the argument does not run very far.

Lord Sainsbury of Turville: It has to be a question of balance. I return to this fundamental point. If one could show that there was real advantage to having the option that we are discussing, one could override the issue of confusion. I am perfectly happy to admit that it is rather difficult to establish whether or not there will be confusion. In a situation where there appears to be virtually no benefit to having this option, it seems to me that it is better to stick with the clarity of having the two different forms.

Lord Phillips of Sudbury: I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 102 not moved.]

On Question, Whether Clause 23 shall stand part of the Bill?

Lord Glentoran: I rise to speak on a probing basis to our amendment that Clause 23 should not stand part. Part 2 of the Bill deals with a complete different aspect

25 Mar 2004 : Column GC326

of company law. We move from the intricacies of the auditing and accountancy profession to the proposals for a new type of company, the community interest company.

I think it is important to preface my concerns about the proposal for CICs by emphasising that we on these Benches wholeheartedly support social enterprise. I think that I have done that. CICs are just one product of the consultation that has taken place. While we support the aim of establishing a new model of company intended to support social enterprise, our job here is to look at the detail of the proposals and to make sure that they are workable.

With this in mind, my first reaction upon seeing the proposals for CICs, was to question whether there really is a need for a new model. I have touched on this subject when speaking to the previous amendments. I commented that we are waiting for the reform of charity law, which, we understand, is intended to be a serious overhaul. It would have been much more sensible to have kept these proposals on CICs until we see how they will fit in to the whole picture of the new company law reform. However, we do not know what other new models will be proposed under charity law and we have already heard of the new charitable incorporated organisations that are anticipated.

The question here is one of take-up. We have spoken to the Bill team on this issue when they kindly agreed to talk through the proposals for CICs with us. One of my prime concerns was that, in setting up the administration for a new type of company, we should first be sure of the number of CICs likely to be created. Putting these proposals into place will be costly, financially and administratively. According to page 34 of their consultation document, the Government estimate a take-up of 100 to 300 CICs registering each year. On what basis has this estimate been made? If we are likely to have a reform of IPSs and an overhaul of charity law, including the introduction of CICs, not to mention the current models of company—BenComs, friendly societies, mutual, co-operatives and others—how can we predict the take-up in years to come?

We will have a number of different models from which a small organisation, which is looking to start up, will have to choose. I imagine that it will be a bewildering process. Can the Minister tell us what guidance on which model they should choose can be offered to those embarking on a new venture? Responses to the consultation documents included comments that there is scope for confusion between IPSs and CICs and suggestions that CICs should be introduced in parallel with the current updating and/or the planned revision of charity law.

As we have discussed, CICs and charities will be able to swap from one status to the other under the Bill. I think that that will be rather more difficult than some people imagine. I have mentioned that it looks like an administrative nightmare, and the Government admit that they think it is unlikely to happen—see paragraphs 15 and 16 of the report on the consultation document.

We feel that there are still many problems inherent in this multitude of different forms. What proof is there that another corporate vehicle is really

25 Mar 2004 : Column GC327

necessary? The primary issue is whether projects would wish to seek CIC status. It is not possible to discern clear advantages for such status from the Bill. What is in it for the recipients? At present, those organisations that currently have charitable status can establish trading companies. Such companies are not subject to the level of control that CICs would be, unless there are significant other incentives. It is difficult to see why such a company would seek CIC status.

I do not mean to sound negative, but implementing the proposals will be expensive and I am, frankly, not convinced that a need for CICs has been proven. The Government talk about the CIC as a trading company that has an asset lock which prevents assets being distributed for further profit and has a strict community interest test which must be fulfilled from the start and reported on in the community interest company report—see draft Regulation 24. It is quite possible for a company limited by guarantee, for example, to have not-for-profit shares which are locked into being used for public benefit by the constitution of the company itself. Asset locks can be prescribed in any company. I do not fully understand the need to have an "off the shelf" new company model if the only added benefit is to have an asset lock which could otherwise simply be written in to the constitution of the company. Furthermore, charities can still have trading companies as subsidiaries, while capitalising on tax breaks via the parent company and also having an asset lock directed by the trustees of the parent company.

The details of CICs are very much withheld from the Bill and relegated to regulations. I sincerely thank the Bill team for making a draft copy of the regulations available to us before Committee stage. As I understand it, they are not published publicly yet. However, there is much in the regulations, which we shall wish to probe during the course of our discussions on Part 2. I look forward to scrutinising the detail, but first it will be helpful to hear some justification from the Minister for introducing legislation on CICs, especially as this is being done in isolation from the reform of charity law. If charity law had been reformed first and CICs had fitted it, it would have made a great deal more sense and logic.

---