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Lord Phillips of Sudbury: As a member of the Joint Committee I am obliged to the noble Lord, Lord Hodgson, for reading out our recommendation which was one of several along those lines. We have said it many times before. However, I have a query on this amendment. It is somewhat akin to the one I raised on Amendment No. 117, which required consultation with the Charity Commission. My concern again is that one does not double up consideration. If we delete "relevant" from Clause 14(1), I fear that the Charity Commission would then be required, before doing anything at all, to consult with the charity's principal regulator. If the amendment were accepted, the clause would read:

The Charity Commission must be by definition exercising some power when it does anything in relation to any charity.

The consequences of the measure might not be as the noble Lord, Lord Hodgson, intends as it would create almost a mirror image of consideration by both the principal regulator and the Charity Commission. That in turn would necessarily increase the bureaucratic overlay. I do not enjoy arguing against amendments proposed by the noble Lord but I believe that this measure may have exactly the reverse effect from that which he intends.

Lord Bassam of Brighton: I certainly appreciate the point made by the noble Lord, Lord Phillips. However, I also appreciate the point that the noble Lord, Lord
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Hunt, wished to put forward through the amendment which the noble Lord, Lord Hodgson, ably moved. The point made by the noble Lord, Lord Hunt, in the amendment is that the principal regulator has an interest which goes rather wider than just those powers that might be described as enforcement powers, and that the consultation requirement should apply before the commission exercises any of its statutory powers over an exempt charity. We see some sense in that and we are willing to accept the noble Lord's amendment in principle.

In doing so, however, we note that requiring the commission to consult a principal regulator does not give a principal regulator the right to veto the commission's exercise of its powers. However, it gives the principal regulator the right to have its views listened to and—this is important—taken seriously by the commission before it acts. We believe that is no bad thing in itself. I see where the noble Lord, Lord Phillips, is coming from but we see some merit in the amendment. I believe that we can come up with something which will work. We would like to take the measure away, consider it and return at Report with an amendment which has the effect that the noble Lord, Lord Hunt, seeks, but also takes into account the point made by the noble Lord, Lord Phillips.

Lord Phillips of Sudbury: Before the noble Lord, Lord Hodgson, replies, if there were a crisis in relation to a charity, whereby the Charity Commission was having to exercise one or several of its many statutory powers to protect charitable assets, would that mean that every time it did anything it would have to consult the principal regulator? If there were an emergency situation, where swift action or a series of consecutive decisions have to be taken—snap, snap, snap—unless the construction of the phrase "before exercising any power" were to be confined to the initial exercise of the power, I can see a huge problem about doing the job. I hope that in considering the matter the Government will take full account of that. The last thing in the world that we want is to run into a situation in which there is an impediment to effective oversight of charity in extreme situations.

Lord Bassam of Brighton: I suppose we come back to that word that we often debate in Committee and elsewhere, "proportionately" and using the powers proportionately. Clearly, a judgment call has to be made about what is proportionate in the circumstances.

Lord Phillips of Sudbury: With respect to the noble Lord, I do not believe that these words will be left as such. There is no issue of proportionality. It says,

Lord Bassam of Brighton: Then we need to be clear what we mean by "any power" in those circumstances. We shall have to give that further thought.

Lord Hodgson of Astley Abbotts: I am grateful to the Minister. I am sure that my noble friend Lord Hunt will be grateful to the Minister for his positive response.

Lord Bassam of Brighton: Positive with qualifications.

Lord Hodgson of Astley Abbotts: Possibly. I shall turn to the torpedo launched by the noble Lord,
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Lord Phillips, into my port side. I do not believe that it was ever considered that there should be a veto on the power of the Charity Commission to take action, but there was a requirement for it to be listened to and consulted. I wonder about the urgency issue that the noble Lord, Lord Phillips, raises quite properly and whether that could be covered in some aspect of the memorandum of operational understanding. When there is real urgency, one could dispense with that, and the MOU might cover it.

Lord Bassam of Brighton: I made the point earlier that there will be a committee of principal regulators, and no doubt that will concern best practice in the circumstances.

Lord Hodgson of Astley Abbotts: I am sure we can tackle that issue. It is very positive. With that reassurance I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 120B not moved.]

Clause 14 agreed to.

Clauses 15 to 17 agreed to.

Clause 18 [Cy-près schemes]:

Lord Hodgson of Astley Abbotts moved Amendment No. 121:

The noble Lord said: Amendment No. 121 concerns Clause 18 and the cy-près schemes, which are described in this section of the Bill. The current law on cy-près schemes, set out in the Charities Act 1993 does not, in normal circumstances, allow the Charity Commission to create such schemes on its own initiative. Section 13(5) of the 1993 Act obliges trustees of charitable trusts to apply for a scheme in circumstances where,

In most cases, cy-près schemes are made only when charity trustees apply for one. Section 16(6) of the 1993 Act—it applies to schemes in general, not only to cy-près schemes—allows the commission to make a scheme of its own volition, but only if,

New Section 14B(2), beginning at line 27 on page 17, significantly widens that power, allowing the commission to make a cy-près scheme whenever charitable assets are applicable cy-près, "as it considers appropriate". That would allow the commission to override the wishes of the charity trustees, contrary to the principle stated in new Section 1E(2)(b)—page 7, lines three to four—that the commission should not,

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Amendment No. 121 seeks to rectify that by stipulating that the commission's power in new Section 14B may be exercised only with the consent of the charity trustees. I beg to move.

Lord Bassam of Brighton: I shall go through the matter carefully, because it affects the way in which we approach the whole area. New Section 14B(1) of the 1993 Act requires the commission and the court to act in accordance with the provisions of that section when exercising their powers to make schemes for applying property cy-près. As this is the first amendment concerned with the application of the cy-près rule, I shall take a little time to work through and explain it and the circumstances under which a scheme can be made to apply a charity's property cy-près in accordance with the rule.

Section 13 of the 1993 Act sets out the circumstances in which a charity's original purposes can be altered according to that rule. Those circumstances are, to paraphrase, where the original purposes have already been met or can no longer be fully met; where the purposes have ceased to be charitable purposes; or where the purposes no longer provide an effective means of using the charity's property. As a shorthand, the commission normally describes those circumstances as ones in which the charity purposes have failed.

The cy-près rule is the rule that requires the commission, where a charity's purpose has failed and the commission is making a scheme to alter a charity's purposes, to alter its purposes so that the new purposes are drawn as closely as reasonably possible to the failed purposes while, of course, avoiding the failure that afflicted the original purposes. There are two principles behind the operation of that rule. One is that once assets are held for charitable purposes, they should remain in perpetuity within the domain of charity. The failure of a charity's purposes is therefore met by a device—the cy-près scheme—to ensure that alternative charitable purposes are provided for the use of the assets, rather than allowing them to continue to be used for purposes which have ceased to be charitable.

The other principle is that the wishes of donors should as far as possible be respected. A donor of assets has given them for a particular purpose. If that purpose fails, the donor's expectation is reckoned to be that the donated assets will be used for something as similar as possible to the purposes for which the assets were given in the first place. To take an example, people who give money to a particular disaster relief fund do not expect, if the fund attracts more money than is required to relieve needs arising from the disaster, their money then to be diverted into, say, animal welfare or amateur sport. They would prefer it, I am sure, to be diverted into something very similar to the purpose that was oversubscribed, perhaps another similar disaster relief fund.

New Section 14B would slightly alter the way the cy-près rule can be applied. It will allow the commission to take into account not only the need to find a new purpose that is close to the failed purpose
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but the spirit of the original gift and the need to ensure that the charity can make a significant social or economic impact. In other words, proximity of purpose would not be the overriding imperative; equal consideration would be given to the spirit of the gift and the social or economic impact imperative.

I turn to the core of the noble Lord's amendment. The commission's power to make a cy-près scheme is contained in Section 16 of the 1993 Act. Subsection (4) of that section provides that the commission shall not exercise its jurisdiction to make a scheme except on the application of the charity or on an order of the court or, for a charity that is not an exempt charity, on the application of the Attorney-General. Subsection (5) allows the commission, in the case of a charity with an income of £500 a year or less, to consider an application from a wider range of people. Subsection (6) allows the commission, in certain specific circumstances, to make a scheme on its own initiative. I understand that it is extremely rare for the court to order a scheme or for the Attorney-General to apply for one, and the majority of schemes made under Section 16 were made because the trustees of the charity applied for one.

The only other circumstances in which the commission can make a scheme on its own initiative and, perhaps, against the trustees' wishes is if, in the course of a statutory investigation, it has found misconduct and mismanagement and considers that there is a continuing risk to the property of a charity. Such schemes are made under Section 18 of the 1993 Act and, again, are rare.

The commission normally, of course, gives every consideration to trustees' views on the nature of the purposes to be substituted when a cy-près scheme is made, but it is for the court or the commission, in the public interest, to exercise the discretions conferred by the section. That will not invariably coincide with the wishes of the trustees. It would not be appropriate to give the trustees an effective veto on a scheme of the court or the commission of which they did not approve. They will, of course have the right of appeal against the order that is made.

I hope that the noble Lord will have come to the conclusion from what I have said that, far from having wide discretion to make schemes out of its own thinking, the action of the commission is already pretty closely circumscribed and that it is only in rare and exceptional cases that a scheme can be made without its being sought and approved by the trustees of the charity concerned. That is how we want to see things work in the future.

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