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Lord Bassam of Brighton: My Lords, I am grateful to the noble Lord, Lord MacGregor, for bringing this amendment back after such a long gap. It has provided a useful opportunity for Members who took part in debates in Committee to re-examine it. I hope that my comments will be helpful and will offer some reassurance to the noble Lord, Lord MacGregor. As the noble Lord, Lord Phillips, said, this is a tricky area and the law of unintended consequences may well be at work if we interfere with a fair settlement of the legislative position.

It will continue to be for the Charity Commission to ensure that organisations claiming charitable status satisfy the public benefit requirement as well as having purposes which are charitable. The commission—and the law—recognises that charities cover a diverse range of purposes. While every charity must be set up for the benefit of the public, the law does not adopt the same practical measures to assess public benefit in every type of case. This means that the ways in which public benefit can be demonstrated can differ for different charitable purposes, so there is flexibility.

The commission will of course be under a statutory duty, in performing its functions, to have regard to the principles of better regulation; that is, the principles under which the regulatory activities must be proportionate, accountable, consistent, transparent and properly and effectively targeted. Its functions to which these principles apply include consulting on
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public benefit guidance and determining whether the public benefit that particular organisations deliver is enough to satisfy the public benefit requirement.

There might, however, be some charities which the Charity Commission, in carrying out public benefit checks, finds are not meeting the public benefit requirements. That is what the amendment identifies and what the noble Lord, Lord Shutt, was thinking through in his contribution.

The clear majorities of charities found not to be meeting the public benefit requirement would be likely to be capable of meeting that requirement if they changed the way they operated. We all understand that. The Charity Commission would, to the extent of its powers, facilitate the making of such changes by the charity's trustees. But other charities—and a small number, we believe—might be, as it were, institutionally incapable of meeting the public benefit requirement however they sought to operate. It is these few cases with which the noble Lord, Lord MacGregor, is concerned.

What happens to a charity's assets if it ceases to be a charity? The current law is based on the notion that, once assets have entered the domain of charity, it is desirable to keep them there so that they can be used in perpetuity for charitable purposes. The rule that gives effect to this position is the cy-près rule and we have discussed that on a number of occasions. It allows the court or the Charity Commission to alter the purposes for which assets are held once those purposes have ceased to be charitable. In altering purposes in those circumstances, the court or the commission would ensure that the altered purposes were charitable ones very similar to the original ones that had ceased to be charitable. I stress "very similar" to reassure the noble Lord that the assets of an educational charity would always have to be used for educational purposes. Therefore it would have that necessary and important constraint.

So in those few cases the Charity Commission could make a legal scheme changing the charity's purposes in the way that I have described. The assets would remain within the realm of the charity, either in the hands of the same trustees or, if the scheme transferred the property to another charity, in the hands of different trustees. That would be the preferable outcome. The effect of the amendment of the noble Lord, Lord MacGregor, would, by contrast, be to remove the assets from the realm of charity, since a community interest company can—even if its purposes are wholly charitable and it meets the public benefit requirement—never be a charity. A community interest company does not receive the favourable tax treatment that a charity receives, so there would be a real financial disadvantage as well.

It is for those reasons that we believe that the amendment of the noble Lord, Lord MacGregor, would be counter-productive. That is not to say that it
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has not been useful in enabling us to flesh out some of our thinking and raising some of the awkward issues that might arise if—

Lord Forsyth of Drumlean: My Lords, I would like to ask a question. In the case, say, of a school which could not meet the public interest test for reasons that we understand, he is saying that the assets could be transferred for an educational purpose. I understand that. But what I find very difficult is, if the trustees who are running a school cannot make it work because they have lost their charitable status, how on earth could someone else come along and use these assets? If the answer is that they have to buy the buildings, given that these schools are run marginally, surely the effect would be that we will end up with a black hole, with nobody able to deal with it. Could he explain to us what he meant when he said that this transfer would be possible because I cannot see in practical terms how that could come about?

Lord Bassam of Brighton: My Lords, the noble Lord is right. Of course it would be possible for the trustees to sell the school as a going concern to a private company, and one's expectation would be that that would be done in the knowledge that adjacent charitable purposes would take effect. Otherwise the disposal of the assets would not work. That is how we see it in operation. One would expect that anybody taking on those assets would do so in the knowledge that they had a workable scheme. I am sure it is not unknown—the noble Lord, Lord Phillips, will know more about this than I—for such situations to arise and for there to be have been a useful transfer of assets and a continuing and effective charitable purpose.

I think instances of this sort will be very few in number, but the noble Lord, Lord MacGregor, and the Committee session in particular made a very persuasive case for some consideration to be given to this point, and we have given it very careful consideration. The noble Lord, Lord Phillips, is right that the law as it is should work and should be effective, and should enable the continuation of a useful and valuable charitable purpose even where an organisation can no longer operate in the way it was originally intended, but with the adoption of a new scheme can give effect to the broad thrust of the original charitable intent.

Lord MacGregor of Pulham Market: My Lords, I thank my noble friends Lord Hodgson and Lord Forsyth for their support. I would say to the noble Lord, Lord Phillips, that I think that we are in agreement that the solution that I have put forward for the purposes of the debate today has a lot of defects. Indeed, I say so myself and I fully recognise the wider consequences. I tabled the amendment in order to have the debate. I am not completely satisfied that the Minister's answer, that it can be dealt with under the existing law, is correct to deal with those situations. But I am most grateful to the Minister for the further explanation he gave.
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I briefly referred to the point that my noble friend Lord Forsyth raised in his question to the Minister. That is the nub of the problem and it is a question of seeing whether his answer deals with the problem adequately. It has been helpful to have this debate. We will study the Minister's words with great care. I am grateful to him for the sympathetic way in which he is approaching the problem. I beg leave to withdraw the amendment.

Amendment by leave withdrawn.

Clause 4 [Guidance as to operation of public benefit requirement]:

Lord Phillips of Sudbury moved Amendment No. 7:

Page 3, line 40, at end insert—

"( ) In carrying out consultation under subsection (4), the Commission shall, inter alia, consider the effect on public benefit of the charging policy of any charity."

The noble Lord said: My Lords, I hesitate to bring this amendment back again. I do so because I believe it is very important. I promise that, although I need to speak at some length on this, I shall curtail my contributions henceforward. But there are Members present today who were not present on 9 February or 28 June when we last discussed the amendment. It is therefore necessary to run through the reasons why I put the amendment forward and the justification for it. The noble Lord, Lord Best, and the noble Baroness, Lady Pitkeathley, added their names to the amendment previously, but, given the holiday we have so recently finished, it was not possible to organise their addition to it today, but they still support the amendment.

The point is that public benefit reform is at the heart of the Bill. I suppose that one could say that with the charity tribunal it is the most important reform—one is the reform of law, public interest, and the other is a reform of mechanics, the tribunal. They are both hugely important. I have persisted with this amendment in the face of what I must call "government prevarication" because I think that it is essential to make good sense and good purpose of their own trumpeted reform; namely, that of public benefit. I would add, if it needs adding, that the National Council for Voluntary Organisations, as part of a consortium, has also persistently and to this moment supported a reform on the lines I am suggesting.

If there is to be meaningful advance and change in relation to public benefit then we need something of this sort. The problem is that the existing common law in relation to public benefit is so confused and sparse. That was vividly demonstrated before the joint scrutiny committee when the Home Office differed markedly from the Charity Commission in what it thought the present law was. The chairman of our committee was fairly fierce about that and told them to go away and to get their acts together. They came up with a joint statement.

That joint statement hung its hat, so to speak, on the case of Re: Resch. I hate to get into specific cases but I am afraid that public benefit under common law as it stands—as this Bill would be dependent upon—rests
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on the shoulders of that case of Re: Resch, which was a 1967 Privy Council case. Noble Lords will know that Privy Counsellors are made up of the House of Lords judicial bench. The case came to it from Australia and concerned a private hospital. I shall try briefly to demonstrate why the case of Re: Resch is, as I call it, a judicial blancmange and why the amendment is necessary.

The sole judgment for the whole court was given by Lord Wilberforce. First, he said:

and it could be a trust for any charitable purpose—

So that is quite clear. On that basis, a school which is very expensive and can be accessed only by people of some means is not by reason of that not to be charitable. He went on in another section to say:

and that was a case, do not forget, of a private hospital run by nuns which was adjacent to a public hospital run by the same nuns—

So the general hospital was plainly charitable and the private hospital charged high fees next door. The judge was saying that the benefit to the community, the public benefit in this circumstance, was sufficiently present because the private hospital, as he put it, relieved beds and medical staff in the general hospital; that is, it took the pressure off. Secondly, he said that the interchange of staff was of benefit to both."

Again, if one takes the case of an extremely antediluvian public school—one which has no interest in public benefit as we conceive it; no interest in extending its facilities to the state school system; no interest in sharing teachers, or anything else—it can say on the benefit of Re: Resch., "It is quite enough old boy, because we are taking pressure off the local comprehensive, saving you trouble". In the case of the antediluvian school, it cannot even say, as was said here, that there is of course the interchange of teachers between the two institutions, which is of benefit to both.

The third excerpt that I will read is this. The judge said, "Another reason" for setting up the private hospital alongside the public one,

Again, that is what would be said of many public school parents. They are certainly not willing to send little Johnny to the local comprehensive, but by Jove they are ready to send them to the independent school
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where, to use the language of Lord Wilberforce, it would not be accommodation and facilities that were better, but it would be the facilities and class sizes.

If we leave this Bill on the basis of the decision in Re: Resch. we are not implementing the Government's own stated intentions for this Bill and the intentions with which we, on this side of the House, firmly agree. In case noble Lords think that I am being partisan—I am sorry that the noble Lord, Lord Forsyth of Drumlean, has left the Chamber, because he made the point—I do not make this point in a partisan spirit at all. Indeed, I take the witnesses who came before the joint scrutiny committee at their word. We had evidence from the High Master of Manchester Grammar School and from Jonathan Shepherd, the general secretary of the Independent Schools Council. Both said, again and again and quite adamantly, that the independent school sector wishes to provide public benefit, is seeking to find ways of working with state schools, is making facilities available, and so on. Their thesis was that independent schools have changed, are changing and want to change and want to provide public benefit.

I do not for a minute accept that this amendment is remotely partisan—it should be supported by the vast bulk of the independent schools which are of this mind and which want public benefit to be available to the public at large, beyond the small circle of their own paying pupils.

I am content to rest my case on that basis. There is need for some bracing and some degree of certainty about what we mean in relation to public benefit. Somebody has said—I will not name names—that this amendment upsets the delicate balance. I would call what we have at the moment an indelicate fudge. If this Bill gets to the Commons without my very modest amendment in they will make mincemeat of it because there are gentlemen down the other end who are a great deal more partisan than I would ever dream of being. So I hope that this amendment will commend itself to the Government, even at this late stage, and to the House at large. I beg to move.

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