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Lord Phillips of Sudbury: I hate to break ranks with the noble Lord, Lord Glentoran, especially after the Minister was so unresponsive to the last amendment. But truth will out: I believe that there is virtue to this part of the Bill and that CICs will add something of use in a number of important circumstances.
The fact is that no other watertight legal protection exists for the defence of public assets held within a private corporation. For non-charitable assets, there is no absolute bar against their subsequent privatisation, and any company or industrial or provident society or co-op can be converted or its assets transferred into a private shareholder company by the required resolution of its members, ordinarily by way of a 75 per cent majority of those voting. However high-minded the original concept behind the formation of a
company that was designed to be, as a CIC must be, for community benefit, it is possible to break out in the manner that I have indicated. I have had examples in my own professional experience of a first-generation entity with a pure "CIC" character which, not long after the founders who had built it up had disappeared, was cashed in for private benefit.The provision could have very useful applications, within the private sector, if I can call it that, the local government sector and the central government sector. Therefore, I am unable to support the noble Lord.
Lord Sainsbury of Turville: Clause 23 introduces the concept of the community interest company, or CIC. The CIC will be a company with additional features to ensure that it will work for the community benefit. We have developed this legislation in the light of substantial consultation: first, on the strategy unit's initial proposal for the CIC in 2002 and, subsequently, on more detailed proposals set out by the Government in March last year.
Consultation responses demonstrated that the CIC proposal will answer a real need. Current arrangements are not satisfactory for the many social enterprises that do not want to be charities but wish to use the company form as a vehicle for benefiting the community. It can be expensive to set up a company with a watertight asset lock, and such asset locks are not transparent to the users and funders of social enterprises.
As I said at Second Reading, many companies have expressed an interest in setting up CICs. For example, only last week it was announced in the London Social Enterprise Network newsletter that ECT—the Ealing Community Transport Group—which responded favourably to the consultation, has announced its intention to become one of the first CICs. The ECT Group is a well established social enterprise which, among other activities, runs recycling projects and bus services, and provides community transport. This week, we received a letter from a new company, Get Well UK, which intends to use the CIC form when the option becomes available. Throughout the consultation process and since, our officials have received correspondence from a wide range of organisations that have shown interest in using the CIC form.
Subsection (2) sets out how CICs may be created. It will be possible to incorporate as a CIC from scratch, using the company limited by guarantee or company limited by share forms. Existing companies may also become CICs, including companies limited by guarantee with share capital. This last company form has been unavailable as a form for new companies since 1980 but any existing company having this form will be able to become a CIC.
Subsection (3) prevents CICs being treated as charities in England and Wales and being recognised as charities in Scotland, even where their purposes are charitable. We have discussed this provision in the context of amendments Nos. 101 and 102, and I do not propose to detail the Government's position again. I simply repeat that we have carefully considered whether CICs should have access to charitable status. We have concluded that the value of the CIC is that it
offers a clear alternative to charitable status, offering greater flexibility and freedom to trade, and, in return, forgoing tax relief available to charities.Perhaps I may say that I thought the noble Lord, Lord Glentoran, wanted to have things both ways. He found the array of institutions confusing, but put forward a proposal in the last amendment to make it more confusing by having CICs which also have charitable status. He also said that there will be many charities that want CIC status, then queried under clause stand part whether anyone wants CIC status.
One has to choose between these two situations. We think that there will be a definable number of people who want CIC status, and the evidence suggests that they will do so. At the same time, we want to keep the situation as simple as possible so that there is no confusion.
As I said, many consultation responses indicate that many charities might find the CIC form attractive as a trading arm for some of their more commercial activities. There will be no barrier to charities using CICs for this purpose.
Clause 23 lays the foundations for Part 2 of the Bill and for the creation of the CIC. I hope that I have explained clearly our thinking behind the clause.
4.15 p.m.
Lord Glentoran moved Amendment No. 103:
- Page 26, line 33, leave out subsection (2).
The noble Lord said: In moving Amendment No. 103, I shall also speak to Amendments Nos. 107 and 108. Amendment No. 103 is purely a probing amendment. Clause 24 introduces the role of the regulator and some further details contained in Schedule 3. The regulator has a highly important role within the framework of the new CIC model. I hope noble Lords will forgive me if I list the possible functions of a regulator, as set out in the Bill. I will go through these quickly—they will be in Hansard.
The functions include: the provision of guidance and assistance; the setting of caps and limits on distributions and interest—although the Secretary of State appears to have quite broad powers to intervene; the determination of the eligibility of bodies to become, or cease to be, CICs; investigating the affairs of a CIC or appointing another to do so on his behalf; requiring a CIC to submit its accounts to an auditor appointed by the regulator; bringing civil proceedings in the name and on behalf of the CIC, for which he must indemnify the CIC against costs; appointing a director of a CIC by order, which cannot be removed by the company; removing or suspending a director of a CIC; appointing a manager of a CIC and supervising him; transferring CIC property to the official property holder or requiring a CIC to do so; preventing disposals of CIC assets; preventing debtors making payments to CICs; restricting by order the transactions which may be entered into by a CIC and
the nature and amount of payments they may make, including the ability to inhibit any payment or transaction made without the consent of the regulator; transferring shares in a CIC by order; removing members of a CIC company limited by guarantee, or appointing new ones; petitioning for the winding up of a CIC; applying to have a dissolution or striking-off in relation to a CIC withdrawn; and releasing any information received to any other public authority for use in connection with its duties. That is 18, which we have listed. The exercise of powers 4 to 18 is limited by the requirement that the regulator should make use of them,
- "only to the extent necessary to maintain confidence in CICs".
There is an additional restriction on the use of powers 7 to 13, which can be used only when the CIC has met "the company default condition". That is, first, that there has been misconduct or mismanagement; secondly, the CIC's property, or its proper application, must be secured; thirdly, the CIC is not satisfying community interest tests, or if the company has community interest objects but is not carrying them out; and, finally, powers 14 and 15 may be used only when the CIC appears to the regulator to be an excluded company, ie ineligible for the status of CIC.
I borrowed this synopsis of the regulator's role from a briefing I received from the Millennium Commission. I declared an interest, before Second Reading, as a member of the Millennium Commission.
That is a massive amount of responsibility and involvement. I might even go so far as to say that the success or failure of CICs is based on the competence of the regulator in steering the right course between light-touch regulation and unwarranted interference. There may be reference to good regulatory practice under Clause 24(4) when describing how the regulator should discharge his functions, but there is no mention of the sort of proportionality which I believe is at the heart of the regulator's role.
I turn to the exercise of the regulator's power under Clauses 39 to 48. Under Clause 38(1) there is the provision that the regulator must exercise his powers,
- "only to the extent necessary to maintain confidence in community interest companies".
I tabled the amendment because I was seriously concerned about the failure in the Bill to provide criteria by which the Secretary of State should appoint someone to the role of regulator. We do not even have regulations which will set out such criteria. As the Bill is currently drafted, anyone could be appointed at the discretion of the Secretary of State. They do not have to have any particular experience or qualification. Can the Minister give some guidance on how the person to be appointed regulator will be chosen and what sort of selection process there will be? Can the Minister give details of what the salary bracket will be for the
regulator? If it is too low it will not attract the type of candidates we would expect. Given the responsibility of the role, that is a real worry. If it is intended to be quite substantial, has that been worked into the cost of the regulator as estimated in the Explanatory Notes?My other two amendments in this group deal with the two specific areas of detail in Schedule 2. First, there is no provision for how long the terms of office will be for the regulator; it is left to the discretion of the Secretary of State. The Government claim that it will be in line with Nolan requirements; that is, one three-year period with one additional further term as the norm, not two. If that is the case, why not state that explicitly on the face of the Bill as our amendment would? That would allay many of our concerns.
There is a precedent for putting the details in Schedule 1 of the Children Bill, which states explicitly the length of the term for which the children's commissioner will be appointed and his eligibility for reappointment.
We have a few problems with paragraph 1(2) of Schedule 3. That makes provision for the resignation and removal of the regulator. Paragraph 1(2)(a) states that he may resign by writing to the Secretary of State. Paragraph 1(2)(b) states:
- "the Secretary of State may at any time remove the Regulator on the ground of incapacity or misbehaviour".
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