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Revised Funding Code prepared by the Legal Services Commission

Lord Evans of Temple Guiting: My Lords, I beg to move the third Motion standing in my name on the Order Paper.

Moved, That the Revised Funding Code laid before the House on 19 October be approved [6th Report from the Joint Committee].—(Lord Evans of Temple Guiting.)

On Question, Motion agreed to.

Baroness Royall of Blaisdon: My Lords, I beg to move that the House do now adjourn during pleasure.

Moved accordingly, and, on Question, Motion agreed to.

[The Sitting was suspended from 7.52 to 8.12 pm]

Charities Bill [HL]

Proceedings after Third Reading resumed.

Lord Swinfen moved Amendment No. 7:

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In section 19(6)(b) of the 1993 Act, for "the income of the charities concerned" substitute "the Charity Commission for England and Wales"."

The noble Lord said: My Lords, the purpose of the amendment is to make the Charity Commission responsible for paying its own receivers and managers and not the charity on which they are imposed. There are cases, such as the Little Gidding Trust case, where the commission initially refused to appoint a receiver and manager when the trustees requested it because it was believed that the charity did not have sufficient liquid funds to pay. The amendment runs counter to the arrangements for commercial companies, but the situation in charities is very different.

First, funds to be used are not private commercial money of companies whose management has been incompetent. In charities, the funds are donations given by the public for charitable purposes. As I understand it—perhaps the Minister will confirm it—by law those donations must be used for the purposes for which they were given, not for spending on receivers and managers. Secondly, the commission has too often shown itself to be grossly irresponsible with charity funds in appointing receivers and managers.

I shall give only one example today as I have given several in the past. That is the recently published case of the Kings Ministry Trust, also known as the Kingsway International Christian Church or KICC. This unincorporated trust has for some years been remunerating its trustees for various services and doing so quite openly. It made the mistake of not realising that it should have altered its constitution explicitly to allow that to be done. If something needs the commission's permission, that is routine and not a large hurdle.

I am told that the commission's inquiry lasted nearly three years and has cost the charity £1.2 million for the receiver and manager and his eight consultants as well as considerable damage to its charitable work. The practical result is that this trust has been turned into a charitable company. Token restitution is to be paid by one of the trustees and some new trustees have been brought on to the board. With some advice from the commission and the use of the charity lawyer, the trustees of this charity could have affected these changes for some £12,000—one-hundredth of the sum the commission has already spent. Even if the trustees had been wildly extravagant, they could not conceivably have spent more than £120,000—one-tenth of the sum squandered by the Charity Commission.

On 18 October, at col. 688 of Hansard, the Minister, the noble Lord, Lord Bassam, said that the Charity Commission had secured charity assets to the tune of almost £20 million for the seven cases which concluded in 2004–05. However, he did not mention, and probably does not know, that nearly the whole of the seven charities' £20 million was the assets of the KICC, much of which I am told was quite safe in the form of the church's buildings and land in Hackney. The Charity Commission did not therefore secure or protect £20 million of charitable assets—most of it was
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not under any discernable threat. Or at least it was not until the commission decided to blow £1.2 million of charity funds on some expensive City consultants.

When we last met, the Minister also told us,

He later said:

Noble Lords may be interested to learn that the commission gave such careful consideration and supervision that under the receiver and manager it appointed to the Little Gidding Trust the quoted price rose from £10,000 to £25,000 by the time the inquiry closed. At the Cancer and Leukaemia in Childhood charity the receiver and manager was appointed for the price of £22,000, which had risen to £65,000 by the end of his investigation. At Iran Aid the contract price was £97,000, but when the receiver and manager left the charity was poorer by £470,000. In the KICC case, the quoted and contracted price was £140,000, which, as we have heard, rose to £1.2 million under the careful supervision of the Charity Commission—nine times the original price.

The Minister invited the House to agree with the basic principle that it should not fall to public funds to pay for the cost of a receiver and manager. I put it to noble Lords that there is an overriding principle that funds donated for charitable purposes should not be made available to a regulator which has demonstrated time and again its ability to lose control of its own consultants and squander funds held in trust by charities for their beneficiaries.

The amendment will have the practical effect of encouraging the commission to take considerably more care in its use of consultants than has hitherto been the case. I suggest that it will cause an immediate fall in the sums paid to receivers and managers and that this can only have a beneficial effect for the charities.

When considering the remuneration of receivers and managers, Section 19(6)(b) of the 1993 Act states that the regulations made by the Secretary of State may make provision with respect to,

Can the Minister confirm that in the cases I have mentioned—and in all cases—the remuneration of receivers and managers is paid out of the income of charities and not out of their capital assets? I beg to move.

Lord Bassam of Brighton: My Lords, it will be best if I repeat the key points that I made on Report, when the noble Lord moved an identical amendment. I say that because they still represent the Government's view.

In practice, the appointment of an interim manager is usually a last resort for the commission when it considers that it is essential to secure the assets of a charity where it has found evidence of serious
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misconduct or mismanagement in the administration of a charity, or where it is clear that assets are at risk. A formal inquiry into the charity must also be under way under Section 8 of the Charities Act 1993.

Before taking the serious step of appointing an interim manager the commission will have considered all other options. In the majority of cases appointments are made after a tender exercise to get the right person for the job at value for money. We still believe that in these circumstances it is usually appropriate that the charity pays for the cost of the interim manager. Charities must be responsible for their own affairs and responsible for the consequences of their decisions and actions. This includes the consequences of mismanagement. In most cases public funds should not be used to pay the costs of an interim manager appointed to a charity because of the actions of the trustees.

I also mentioned on the previous occasion that the cost of the appointment of an interim manager should be weighed up against the benefits to charities. In the seven cases which concluded in 2004–05, as the noble Lord, Lord Swinfen, acknowledged, £20 million-worth of charity assets were secured.

The commission has the power, where appropriate, to meet the fees and expenses of an interim manager from public funds. In its recent letter to Peers who spoke on Report, the commission gave details of two occasions during the past two years when this happened. The first was in the case of Lincoln Council for Voluntary Service, where a receiver and manager was appointed from July 2003 until November of that year. The cost was £3,500 plus VAT. The second case is a case in progress. The commission's letter states that this is where,

However, we would expect the use of public funds to be in exceptional cases.

The commission has a statutory responsibility to supervise all receiver and manager appointments, which it discharges in all cases. In some cases, the costs of professional advice incurred by the interim manager would be incurred by the trustees were the interim manager not in place. The commission is very aware of the sensitivities involved in appointing an interim manager, and particularly of the resultant costs to the charity. It has recently started publishing the costs of interim managers.

In July this year it published the costs of receiver cases concluded in 2004–05, and the details are still available on its website. The commission, when publishing the details, said:

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I will also add that the new powers to give directions to be conferred on the commission under Clauses 20 and 21 may lead to a reduction in such appointments as they will provide an alternative and simpler route to dealing with some of the concerns that currently give rise to appointments.

The noble Lord, Lord Swinfen, referred to the Kingsway International Christian Centres appointment and receiver managers. A recently published report of an interim manager appointment related to the Kings Ministries, where the actions of the interim managers appointed by the commission secured charitable funds of more than £19 million. KICC took over the running and management of it on 23 March, having been appointed sole corporate trustee of the Kings Ministries. The Kings Ministries' financial performance during the period of the appointment was very impressive. The charity's income grew to more than £8.5 million in its financial year ending March 2004, and the interim managers made gift aid claims to the value of £3.3 million for the financial years 2000–2004. The commission believes, understandably, that the future success of this charity is assured by the charity having new trustees, a new senior management team, an extremely strong financial performance and a new incorporated structure. That demonstrates the benefits of such appointments.

The noble Lord, Lord Swinfen, asked whether the receiver's remuneration always comes out of a charity's income rather than its capital. As far as I can be certain, that is the case.

We have covered the issue several times, and I think that we have the legislation and the framework right. The type of intervention that I have described is a good example of what can be achieved through the right sort of appointment when a charity in the past has perhaps operated below par or inappropriately. I trust that the noble Lord will withdraw his amendment.

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