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Lord Shutt of Greetland: My Lords, I am having great difficulty with the amendment. It has always been the case that turning assets into charitable assets is a one-way track. There is no way back. Therefore it seems to me, if this were to be a right clause, that in the first instance a very substantial clause would be needed, explaining how a charity could become a non-charity. What is in front of us applies if it "ceases to be charitable". I do not believe that can possibly happen under what we understand as charitable law. If it were passed as such, I do not understand how that fundamental would come along at all.

I do not believe there is such a thing as a former charity. In the examples given, it seems to me that if somebody took the view that they have an asset that now has charitable status but felt that the asset could not be operated under charity law, it would be their duty to sell that asset. They could sell a school and, provided it was sold at proper value, no doubt the original charity could dispense bursaries and do all sorts of charitable activity. I would like it to be explained to me, if possible, whether there is a route back from charitable status. If there is a route back, it is not just about this; it is about the whole complex of charities.

Once you have taken a five pound note out of your pocket and handed it over, that is charitable money. As I understand it, there is no route back. If there is a route back, I would like to have it explained to me. If there is an intention that there should be a route back, it will need a lot of clauses beyond this and a heck of a lot of thinking about.

Lord Forsyth of Drumlean: My Lords, I support the amendment proposed by my noble friend, which seems very sensible. I say to the noble Lord who has just sat down that it is a bit rich to talk about how charitable assets can become non-charitable and how once you have gone one way that is the end of it. The Government are seeking to change the rules of the game. Up until now, certainly for most of my life, it has been understood and assumed that education in itself was a charitable purpose.

I do not wish to go back over the arguments that have taken place already on the Bill. However, some people are earnestly trying to provide—sometimes for many hundreds of years—a charitable, educational purpose, and the changes that this legislation will bring
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about, depending on the attitude of the commissioners, will put them in considerable difficulty. My noble friend has pointed—if I may say so, in his typical, reasonable way—to a way forward without embarking on what might be a rather more partisan view of what exactly is going on behind the Bill and the hardships that will be caused to organisations that are, to my mind, fulfilling a worthy purpose and that are being threatened by a change in the rules brought about by the Government and by narrow prejudice.

Lord Hodgson of Astley Abbotts: My Lords, like my noble friend, I have not had the problems that the noble Lord, Lord Shutt, has with the amendment. It may be defective in its precise drafting but not in the purpose behind it.

As has been said, we debated the matter extensively in February on an amendment proposed by the noble Lord, Lord Goodhart. I have a couple of points to add. First, recommendation 105 from the joint scrutiny committee, which the noble Lord, Lord Goodhart, quoted extensively in January, urged the Government to provide an answer to the conundrum that the amendment proposed by my noble friend now has to pick up on. It is not as though the Government have not had notification of the problem going back to the joint scrutiny committee's report, which was published over 12 months ago.

The issue for the noble Lord, Lord Shutt, as pointed out by my noble friend Lord Forsyth, is that we have removed the presumption. When you remove the presumption for charitable purposes, the charitable status of some schools and hospitals will be thrown into sharp relief and a few, as my noble friend has said, may fail the public benefit test. There will be a gap that we must address. My noble friend has made a reasonable proposition on how it could be done. The asset lock on the CIC, the community interest company, provides the sort of protection that the noble Lord, Lord Shutt, was looking for.

I hope that, if the Government are not prepared to accept the amendment, they will come forward with a proposal to address that gap. Whatever the rights and wrongs of it, there is a gap, and how many individual charities will be affected by it we cannot tell yet. It would be wrong for us to let the Bill leave this House without having put forward some coherent method of treating it, as the joint scrutiny committee recommended in its recommendation 105. I support the approach proposed by my noble friend.

Lord Phillips of Sudbury: My Lords, one cannot fail to understand what the noble Lord, Lord MacGregor of Pulham Market, is getting at. As the noble Lord, Lord Hodgson, has just said, the joint scrutiny committee report referred to this difficulty, and left it a bit in the air.

The answer to the dilemma described by the noble Lord, Lord MacGregor, is in the present law, which broadly says that once assets are charitable, they remain so. It is common enough for charities to find themselves in difficulties for one reason or another,
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and not uncommon for the trustees of a charity to decide that they will in effect cease to function as a charity, and function thereafter as a non-charity—maybe as a non-profit company, occasionally as a profit company. The charity's net assets are then ring-fenced, and are usually acquired by the profit-making or non-profit-making entity at a market price, so their value remains within the charity net, and can be used, in this instance, for educational purposes.

I do not, therefore, see why we need the amendment at all. There is a danger in the amendment. First, the noble Lord, Lord MacGregor, said that he is looking only at rare cases.

Lord Hodgson of Astley Abbotts: My Lords, I am sorry to interrupt the noble Lord's persuasive train of thought, but he was a member of the joint scrutiny committee. Paragraph 105 of its report states:

He thinks that is not necessary, despite the recommendation of the joint scrutiny committee of which he was a member.

Lord Phillips of Sudbury: My Lords, the noble Lord has got me with my trousers down. Basically, though, if the Bill were to clarify in the words of that recommendation, it would reiterate the present law. I believe that the present law is capable of dealing with this point.

To come back to what was put to us by the noble Lord, Lord MacGregor, he referred to very rare cases. I do not see how his assurance that every endeavour would have been made to try to run the school as a charitable school is in any way protected in the amendment. There is no reference whatever to that. It does not even say who decides whether the charity shall cease to be charitable, and who is going to judge when the practical difficulties are such that it is to be treated as no longer charitable.

Lord MacGregor of Pulham Market: My Lords, I made clear that I recognised that this way of getting the issue debated on the Floor of the House was not the ideal way of solving the problem. I remind the noble Lord that his own colleague, the noble Lord, Lord Goodhart, did not agree with him that the present law would deal with the situation. What I had in mind when talking about every reasonable endeavour was that the Charity Commission would take that into account in allowing it to pass the public benefit test—my third option.

Lord Phillips of Sudbury: My Lords, I still have to say that the situation is not sufficiently covered in the amendment, although I accept what the noble Lord said, that this is to get the issue into play, perhaps for Third Reading.

Although the charity interest company—the so-called "CIC"—puts a lock on the assets, it has a huge hole in it, which was raised when the Bill was passed, but the Government refused to do anything about it:
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there is no limit at all under that format for the remuneration that can paid, and the bonuses drawn out, by the directors of the entity.

The London Clinic, for example, is a charity, but I am not aware other than that it charges top whack for services it renders its patients, and that it remunerates top whack to consultants who perform operations there. I am not sure where the London Clinic would go under the noble Lord's formulation. At the moment, the only charitable endeavour that it seems to me to fulfil is based upon the assumption that anything done of a medical nature is ipso facto charitable. Indeed, the noble Lord, Lord Forsyth, was criticising the Government for moving to a public benefit test for education, although I do not agree with him.

I am trying to help the House and to get the noble Lord, Lord MacGregor, if and when he comes back with this, to take account of some of the points I have made. The provision could provide a coach and horses to drive through the net of charity assets, which is hugely important. I am sure he will agree that the public, if they have been donating regularly to a charity out of their own pockets, will not be impressed when after five years the trustees decide that it is no longer practicable to run the charity in the way they want and then shove the lot into a non-charitable entity and become paid trustees. There is no limit with a CIC on the payment of trustees so they could then remunerate themselves and do so handsomely.

4.15 pm

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