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Lord Sainsbury of Preston Candover: My Lords, I put my name to the amendment for three reasons. First, as my noble friend Lord Hodgson said, the accounting regulations encompassed by SORP have grown and grown. They have become a serious burden to charities, especially small charities. I suggest that the only gainers of that proliferation of regulation are the accountants. In the opinion of those in the charity sector whom I have consulted, the regulations have not resulted in clearer accounts than those that existed in charities five or more years ago.

The amendment should be a real help to charities. Requiring minimum regulations commensurate with giving a true and fair view of the charity's financial position should reduce significantly the number of paragraphs in the SORP. Ending the "one size fits all" regulations should result in appropriate regulations that take account of charities of different size and type, and thus, I suggest, provide a more meaningful account.

My second reason for supporting the amendment is that the current regime of SORP is a serious disincentive to some potential large benefactors considering establishing a grant-making trust as an alternative to channelling their charity giving via gift aid, which they might do. It is obviously in the interests of the charity sector that grant-making trusts be established for the long-term benefit of charities rather than the valuable gift aid, which is the immediate way to help. The shorter, simpler and more appropriate the regulations the less likely that potential benefactors will be discouraged.

My third reason for supporting the amendment is my belief that under the present regime the accounts of some charities are actually forced to be misleading. That is a serious allegation, and I feel that I must justify it by explaining exactly why it is the case. The existing regulations require charities to report expenditure made in one year and what is committed for the following year against the income that is received in the first year and reserves. That in itself is certainly entirely sensible. However, the definition of "reserves" specifically excludes capital of a grant-making charity. In the case of many endowed grant-making trusts, the charity's governance document specifically makes endowment expendable if required for grant-making.

In logic therefore, the so-called endowment is obviously part of the reserves. I know of cases where existing regulations, SORP 2005, require such trusts to
 
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post a deficit of several million pounds where in practice it has an endowment of several hundred million pounds on which it can draw to make its grants. If trustees comply with the current legally enforceable practice, they will not be providing a true and fair view of the charity's financial position.

A further example of the inappropriateness of the current SORP regime is the regulations concerning endowed trusts or foundations, which in many cases are set up solely to pursue what are defined as "general charitable objects". In practice, that means that they exist to give grants to other charities. In the latest accounting regulations applying to all UK charities, those charities are required to make a more detailed statement of their activities. However, grant-giving is specifically excluded from the definition of charities. Therefore, current regulations deny trusts in that position the scope to report simply and precisely what they exist to do. There are hundreds of charities in this country giving well over £2 billion together to charity every year. Surely that anomaly—that extraordinary situation—is in itself enough to justify the amendment, which will ensure that in future we are not limited to a single type of statement.

5.45 pm

Lord Phillips of Sudbury: My Lords, I strongly support the tenor of the amendment. We spent a lot of time earlier in the Bill's passage trying to decide by what principles the Charity Commission should undertake its general duties. The House will remember that we came up with an amendment that talked about the Charity Commission operating in a proportionate, accountable, consistent, transparent and targeted way. However, none of that applies to the regulations issued by the Secretary of State under Section 42 of the Charities Act 1993, which is being amended. It seems to me for all the reasons so ably set out by the noble Lords, Lord Hodgson and Lord Sainsbury, that we need something very like this amendment. I urge the Government to be sympathetic to it, because it affects every charity of any size and causes huge headache, frustration and extra cost if the SORP regulations are disproportionate.

The Earl of Caithness: My Lords, this was discussed at various meetings of the pre-legislative scrutiny committee. I see that there are five of us in your Lordships' Chamber who sat on that committee, so if I am wrong I know that I will be taken to task immediately. Two things in particular struck us: first, the number of small charities—the great proportion of charities are small—and, secondly, the huge difference between a recipient charity and a donor charity. When we came to examine evidence from the Charity Commission and the Home Office, I was not sure that they had fully understood the significance of that. That is why I support my noble friend.

What my noble friend Lord Sainsbury is of great concern. As a trustee of a heritage charity, I would much prefer to receive my money from a grant-giving charity than from gift aid because, as my noble friend said, there is a continuity there which there is not with
 
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gift aid. With a small charity, fund raising is slightly easier when you know that you can go to certain charities and where their interests are listed in the charity books rather than going to specific donors for gift aid. If, following the logic of what my noble friend said, the SORP regulations and other regulations that have been introduced are reducing the willingness of people who have the ability—thank goodness that this country has people with the ability to create grant-giving trusts—to stop them doing so would be a hugely detrimental step.

I go back to that evidence that we received. It was not encouraging that there was sufficient flexibility in the commission and the Home Office to take account of those big differences. That is why it is so important to have something like this in the Bill and I support my noble friend's amendment.

Lord Bassam of Brighton: My Lords, I am grateful to the noble Lord, Lord Hodgson, for moving the amendment and to other noble Lords—in particular the noble Lord, Lord Sainsbury—for their involvement in the debate. The noble Lords speak with great experience, and few, I would wager, have the great experience that the noble Lord, Lord Sainsbury, has in charity matters. That said, we take a different view. Although I understand the mischief that has been traced down here, we cannot agree with the analysis that is offered, in particular with regard to the way in which the current law operates.

There are two elements to the amendment tabled by the noble Lord, Lord Hodgson. One is his new paragraph (c) of subsection (2), which would allow the Home Secretary's regulations on the form and content of accounts to prescribe different forms of accounts for different sizes and types of charity. I deal with that matter quickly by saying that it is not necessary. Section 86 of the Charities Act 1993, which applies to all regulations made under the Act, already allows the Home Secretary to make different provision for different cases. Indeed, the current regulations do exactly that, by making different provision for common investment fund charities and for some housing and some educational charities. That element of the noble Lord's amendment adds nothing to what is already possible in legislation that was enacted by his party's government back in 1993, when they had the foresight to put in that flexibility.

The other element of the amendment would, in summary, require the regulations to make only the minimum prescription needed to ensure that the accounts gave "a true and fair view" of the charity's financial position. That is misconceived. The amendment proposes that the Charities Act 1993 generally requires charities' accounts to give a true and fair view, an expression well known and understood by those in the accountancy trade. However, the Act—I am looking at the noble Baroness, Lady Noakes, on the Benches opposite—does not in fact do so. The concept of a true and fair view has no statutory definition.
 
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The amendment would, in the absence of a statutory yardstick for what is a true and fair view, create an unworkable system. Currently, the Charity Commission and charities and their auditors rely on the methods and principles set out in the statement of recommended practice on charity accounting to provide the interpretation of what true and fair means in the context of charities. That statement is not part of the law, except to the extent that regulations under the 1993 Act import some specific provisions of it into the law. The amendment could force regulations directly to import a whole raft of further accounting standards into law, which would create problems of interpretation that SORP was designed to solve. Furthermore, the amendment would prevent the regulations requiring disclosures that were relevant to stakeholders or the public interest but were possibly not relevant to the criterion of true and fair. An example might be the disclosure of salaries of a charity's highest paid employees, in which there was a justified public interest.

In summary, the amendment would have the opposite of the effect that the noble Lord intends. It seeks to import into the legislation the notion of true and fair in a way that could complicate matters and make the application of SORP more involved. It also seeks to import something into the legislation that is already there, which is the flexibility that the Home Secretary has to vary the form and content of the accounting rules and regulations so far as they apply to different sizes and shapes of charities. For those reasons, I continue to resist the amendment.

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