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Baroness Cumberlege: My Lords, I thank my noble and learned friend Lord Lyell of Markyate for initiating the debate and for his clear introduction of the subject. I give him my full support in his quest for charitable remainder trusts.
Like so many Members of your Lordships' House, I am engaged in several charities. Charities deliver a huge number of services and on the whole deliver them very efficiently. Taking a charity such as Tomorrow's People, every pound spent by it is one and a half times more efficient at getting people into long-term employment than through the statutory services.
Cancer Research UK is the largest cancer charity in the world. We are bigger than any in the United States, but we need to generate £1 million every day of the year. We work steadfastly to beat this dread disease, increasing the chances of survival, prolonging time in remission and enhancing the number of cures.
At Chailey Heritage School, a Sussex charity, we have to generate £3.5 million a year to educate and care for the most severely physically and mentally disabled children. Despite their profound disabilities, we help to release their hidden talents, add to their skills and enhance their quality of life.
At St George's Medical School, we have raised just under £1 million in three years to turn a very grotty student reception and recreation area into a place of pride for future doctors who will cure, treat and care world-wide. That is a pretty diverse group of charities but they all have something very much in common. They all have to attract cash from the big philanthropic trusts, without which none of them could continue.
As a nation we have set up the National Lottery to provide for those efficient and effective charities. But, sadly, I am afraid that, like a honey pot, it has proved irresistible to the Government's sticky fingers. Charities rely on the generous public who give not only money, but also their time. There are 20 million people now involved in charitable work. They choose those charities which they see as important and those to which they want to give.
The Government have organised a good precedent in their creation of city academies. The donors are involved not only in taking a close interest in the school, but in keeping a close watch on their generosity, seeing that their money is well spent. But, of course, city academies are for the very rich and not many of us have such wealth. But we give of our time, we are interested and we put effort into fund raising. In fact, I do not think that I have got a friend left. They see me coming along the street and they cross over.
We talk so much about the health service being "patient led", about schools being "pupil oriented", about people "standing on their own feet" and being
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"given information so as to come to correct decisions". But these are mere government-generated clichés, which too often extol the virtue of doing what is on the current political agenda.
We must credit the people who have worked hard throughout their lives—people who have made decisions and have exercised initiatives—and who have generated albeit modest rewards. Surely, it is reasonable to suppose that they will know and care where their money will be best used, having spent time and energy to work with and for a charity during their life-time.
The Home Secretary recently stated:
"We have a vision of a society where voluntary activity flourishes (and where all are enabled to play a full part in civil society). To this end, the Government is determined to do all it can to make it as easy as possible for those who want to contribute to do so, and to help develop a culture in which charitable giving is a natural part of everyone's life".
Charitable remainder trusts will help to do just that. Does the Minister agree with that? Will he seek to influence the Chancellor and the Treasury to introduce CRTs, thereby helping Mr Clarke to turn his vision into a reality? He would be hugely popular, so would Mr Clarke and Mr Brown. That is a strong motivation for any government.
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Lord Best: My Lords, I declare my interest as the director of the Joseph Rowntree Foundation and the chair of the Giving Forum, a body which draws together key organisations concerned with increasing charitable giving in the UK. I am very grateful to the noble and learned Lord, Lord Lyell, for bringing forward this debate on charitable remainder trusts or, as we tend to call them in the Giving Forum, "lifetime legacies". I am grateful, too, to colleagues who have advised me on these matters; namely, Helen Donoghue from the Charities Tax Reform Group, Judith Hill from the solicitors, Farrer & Co and Michael Pattison from the Sainsbury Family Trusts.
We have heard tonight already of the benefits for charities and donors which could result from the creation of charitable remainder trusts. In my few minutes, I want to look at the possible grounds for anxiety about CRTs; namely, possible risks of abuse and the fear that rich people will use charitable remainder trusts for tax-dodging purposes. Of course, the very rich can already get good tax advantages from simply parting with income or capital assets here and now, claiming full tax relief on their gift against their present income, leaving the charity to get the same advantages in relation to capital gains tax without the more complicated arrangements of charitable remainder trusts. Rather, it is the not-quite-so-rich, often living on pensions or annuities, who need the comfort of continuing to receive income from the assets that they give away.
However, the question which the Treasury and Her Majesty's Revenue and Customs can rightly ask is whether there are subtle abuses which would allow donors to have their cake and to give it away. The first
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concern is that arrangements might be made which involve charities that do not fall under the jurisdiction of the Charity Commission and the regulation which that body can exercise. In particular, because there is no regulator equivalent to the Charity Commission in Northern Ireland—but the same tax regime applies there—charities could be established which escape any public oversight. This problem would seem easy to avoid: legislation could ensure that only charities subject to regulation by the Charity Commission or comparable body could be recipients of donations through charitable remainder trusts. Since it is likely that Northern Ireland will be covered by such regulation in the not-too-distant future, charities there could then come into the system.
The second hazard is that the donor might interfere with the trust—for example, investing proceeds only in those investments that produced a high income; that is, with the greater risk that the capital value is not maintained and that the charity eventually receives less than the original gift in real terms. Such difficulties would be overcome by simple rules requiring a separation of interests between the donor and the administrators of the trust. For example, only a trust administered by an approved body, required to handle the investments in a prescribed manner, would be permitted. It would seem relatively straightforward to require that trust deeds follow a prescribed format, which could include prohibition on donors being involved in any way in the administration of the trust and could even require that at least one trustee must be a corporate trustee regulated by the Financial Services Authority to reinforce the position.
I suppose that there are always risks of abuse associated with the affairs of charities, but these would not seem to be increased where formally constituted charitable remainder trusts are involved; indeed, these provide an opportunity to incorporate features which are not possible in the generality of charitable giving.
Therefore, would the Minister be willing to meet with members of the Giving Forum, including the Institute for Philanthropy, the Institute of Fundraising, the Charities Aid Foundation and the Charities Tax Reform Group to see whether any remaining obstacles can be overcome to introduce opportunities for lifetime legacies—for charitable remainder trusts—as proposed by the noble and learned Lord, Lord Lyell? There could be a very big prize in tapping into the capital assets of those not in the very rich category but in the less secure middle ground where incentives for giving capital, but not income, could unleash substantial resources for important charitable causes, such as those listed by the noble Baroness, Lady Cumberlege.
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Lord Hodgson of Astley Abbotts: My Lords, the whole House should be grateful to my noble and learned friend for raising this important topic and for giving us a chance to debate it today—not just this House, but also the whole charitable and voluntary sector. This is a very important potential component
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of the future funding of the sector. I hope that the debate will help to bring a little global warming to the historic glacial attitude of the Treasury to this topic.
I first came across this issue during the recent passage of the Charities Bill through your Lordships' House. However, I must make it clear that although I led for the Opposition on that Bill, I have no such responsibilities today. The official response lies in the capable hands of my noble friend Lady Noakes. I speak for myself from the Back Benches.
Perhaps it is worthwhile looking at the Government's policy towards charities. At Second Reading of the Charities Bill, the noble Baroness, Lady Scotland, said:
"The Government's three aims for the Bill are: first, to provide a legal and regulatory environment that will enable all charities . . . to realise their potential as a force for good . . . secondly, to encourage a vibrant and diverse sector independent of government; and thirdly, to sustain high levels of public confidence in charities".—[Official Report, 20/1/06; col. 883.]
There is little doubt that the first two of these—enabling all charities,
would be enormously helped if charitable remainder trusts became a regular feature of the charity landscape.
The debate that night and our debates in Committee were much illuminated by the contributions of my noble friend Lord Sainsbury of Preston Candover. I hope very much that the Minister's officials will find the time to look through the debates that we held and read the speeches of my noble friend. He has a distinguished record as a philanthropist and has established his own foundation, the Linbury Trust. So he speaks with great authority and experience.
His experience is that the establishment of a personal foundation, often suggested as an alternative to a CRT, has become increasingly unattractive because of the regulatory framework, in particular the charity accounting SORP, the statement of recommended practice. In the same debate he said:
"Last year, research was published by Philanthropy UK which suggested that a fifth of wealthy people considering establishing a grant making trust decided not to do so because of the bureaucracy it involved . . . A senior QC tells me he now advises his clients only to give out of income rather than endowing a grant making charity because of what he calls unwarranted interference by the authorities".—[Official Report, 20/1/06; col. 904.]
By contrast, studies made of the experience in other countries show that CRTs are a valuable vehicle for encouraging donations from individuals who are unable or unwilling to release assets immediately because they offer the security of an assured income. As my noble and learned friend said in his opening remarks, they are attractive to a significant group of relatively affluent individuals, in particular a category called the mass affluent. For such people, existing tax breaks really do not provide sufficient incentive to give. The noble Lord, Lord Best, made some extremely compelling remarks about the fallibility of and
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fallacies in the tax evasion argument, and I hope the Minister will be able to take up the invitation and invite the noble Lord to the conference he seeks.
I urge the Government to encourage the use of CRTs because they address the question of people's insecurity about giving away capital from which they might need income in the future. This is of particular significance in view of the worries many harbour over pension provision, longer life expectancy and the increasing costs of care in old age. They are also an effective way for the Government to work in partnership with the charitable sector and to enhance the scope for philanthropic activity among groups that have been identified as relatively reluctant givers in terms of their wealth and disposable income. The Government talked a lot about encouraging philanthropy during the passage of the Charities Bill. This is a practical example of how they could move from talk to action.
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