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Lord Glentoran: In no way am I or my party anti-devolution. We strongly support it.
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Baroness Morgan of Drefelin: I thank the noble Lord for that intervention. I am delighted to hear it. He asked how many local authorities are taking up decriminalisation of parking enforcement. According to my advice, seven local authorities operate DPE in Wales. Local authorities with DPE will become CPE authorities on 31 March. Local authorities without DPE will need to apply to the Welsh Assembly Government to become CPE. The noble Lord asked what measures will encourage local authorities to do that. Successful implementation by the seven will encourage them, with other local authorities seeing a benefit to their communities. It is up to the local authorities to come to the Welsh Assembly Government if they so wish.
The noble Lord asked also about cross-border level playing fields. My experience in Cardigan was that playing fields are not always very level—there are very different gradients. As the noble Lord, Lord Livsey, identified, there is a level playing field between Wales and England, though obviously not with regard to rugby at the moment. An important point was made about the joint appeals committee for England and Wales. Such a committee is very important.
The noble Lord, Lord Livsey, asked about the level of charges. There will be two levels of charging, depending on the seriousness of the contravention: £40 plus £60, or £50 plus £70. I hope that that helps answer the noble Lord’s question.
The noble Lord asked whether the Government felt that local authorities would be ready. This is obviously a matter for local authorities. They have known about these proposals since January 2007, because time for them to train staff and to ensure that road signs and markings are correct and ready for any changeover was needed. The noble Lord asked also about a reduction in clamping time from 60 to 30 minutes. I am advised that this was changed following wide public consultation.
My noble friend Lord Jones asked about local authorities and who responded. I am afraid that I do not have sight of that information, so I shall follow up the matter with him.
The noble Lord, Lord Livsey, asked about rural Wales. I share his frustration about the difficulties of travelling in rural Wales, but I stress that this is very much about local authorities serving their local communities as best they see fit. I hope that any changes in regulations will be proportionate. I hope that noble Lords will support the regulations.
On Question, Motion agreed to.
Charities Act 2006 (Charitable Companies Audit and Group Accounts Provisions) Order 2008
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Lord Bassam of Brighton rose to move, That the Grand Committee do report to the House that it has considered the Charities Act 2006 (Charitable Companies Audit and Group Accounts Provisions) Order 2008.
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The noble Lord said: The order represents the culmination of a process that started during the passages of the Charities Bill and Companies Bill through your Lordships’ House during 2005 and 2006. It is a rather technical order—I make no apologies for that because it needs to be—and the process is also somewhat technical. I shall take us through the explanation as carefully as I can so that the Committee can understand the order better.
The object is to provide more a straightforward scrutiny regime for smaller charities. While saying that, I would like to record my thanks to the noble Lord, Lord Hodgson of Astley Abbotts, because during the passage of the Charities Bill through this House not once but twice—some 70 hours of scrutiny—he played a blinder and made an important contribution to ensuring that this order came about. During the passage of the Charities Bill and Companies Bill in 2005 the noble Lord proposed amendments to both Bills to bring about the alignment of the accounts scrutiny requirements for charities that are companies, which are currently scrutinised under company law, and those of non-company charities, which are currently scrutinised as a matter of charity law. We were receptive to the idea and sought the views of charity sector umbrella groups and relevant professional bodies, who also warmly welcomed the proposal, and amendments were made to both Bills.
The order sets out to achieve two main changes. The first change that the order will make is to amend the Charities Act 1993 to apply the charity law accounts scrutiny provisions in place of the existing company law reporting accountant and audit requirements that apply to small charitable companies. This will ensure that charities in company form that are below the company law audit threshold will become subject to the same accounts scrutiny requirements under charity law as non-company charities, creating the level playing field that has long been called for by the sector and its professional advisers.
Changes were made to the Companies Bill, in what are now Section 1175 of and Schedule 9 to the Companies Act 2006. They remove the current company law accounts scrutiny requirements that apply to charitable companies below the audit threshold. The Charities Bill was amended, in what is now Section 77 of the Charities Act 2006, to provide an order-making power to deal with the necessary changes required to be made to charity law following the removal of small charitable companies from the company law accounts scrutiny regime. The order we are examining today is made in the exercise of that power.
Instead of the reporting accountant scrutiny regime under company law, 14,000 or so charitable companies will instead be required to undergo independent examination under charity law. Independent examination is a low-cost alternative specifically designed for charities. It is a review engagement rather than audit and has proved popular with the sector. Of those charitable companies that will be affected by this change, most will see a slight cost saving under the independent examiner scrutiny regime under charity law. For charitable companies with an income between £10,000 and £90,000,
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The second change that this order makes relates to the preparation and scrutiny of group accounts by charities. It is already sector practice to prepare group accounts where a charity undertakes activities through subsidiaries. It is important to be able to understand the full range of activities and resources controlled by a charity not only directly, but indirectly through subsidiaries. Until new provisions were set out in the Charities Act 2006, there was no legal basis whatever for non-company charities to prepare such accounts.
This order applies the same group accounts provisions of the Charities Act 2006 to company charities where there is no requirement for small charitable company-headed groups to do so under the Companies Act. In 2007, we published for public consultation a draft of this order, along with draft Charities (Accounts and Reports) Regulations which will be required to support the implementation of the Charities Act 2006, and this order. The changes to be made by this order were well supported on consultation.
One of the concerns raised on consultation was about the complexity of the way in which the changes are being made to the legislation. Given that this order amends the Charities Act 1993, and that amendments to that Act will also be made by the commencement of provisions of the Charities Act 2006, the Office of the Third Sector will publish, on its website, an informal consolidation of Part 6 of, and Schedule 5A to, the Charities Act 1993, to show the changes that this order and the 2006 Act will make. We hope that this will be helpful to users of the legislation. We are also discussing consolidation of charity law with the Law Commission, with the aim of preparing a consolidation Bill. During the passage of the legislation, noble Lords made particular reference to that—and I think that noble Lords were right. In addition, the Charity Commission will issue updated guidance for charities and their professional advisers on the changes to the audit, accounting and reporting regime.
Our aim is for the provisions of this order to come into force for charities’ financial years beginning on or after 1 April 2008. This is to bring these changes in at the earliest opportunity so that charities can benefit from them, as many charities financial years begin on or shortly after 1 April. However, it does give charities and their professional advisers significant time to prepare, as in effect most of the provisions will not bite until charities are preparing accounts and arranging for their scrutiny towards the end of their accounting year, which will not be until April 2009.
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The order will bring about changes that were initially approved by Parliament during the passage of the Charities and Companies Acts. The changes will be welcomed by the sector and the majority of its professional advisers, and will support what charities are already doing as a matter of best practice. So we shall reap the benefits of those things. I commend the order to the House. I beg to move.
Moved, That the Grand Committee do report to the House that it has considered the Charities Act 2006 (Charitable Companies Audit and Group Accounts Provisions) Order 2008. 9th Report from the Joint Committee on Statutory Instruments.—(Lord Bassam of Brighton.)
Lord De Mauley: I thank the Minister for explaining the order. I echo his gratitude for the very thorough work done by my noble friend Lord Hodgson on the legislation when it passed through the House. I think that the noble Lord, Lord Davies of Oldham, was down to speak on this order today. We all know how busy he has been and I am grateful to the Minister for taking this on.
Can the Minister kindly confirm in simple terms that the order’s effect is, first, that charities that are companies will in future be treated the same as charities that are not so incorporated, and, secondly, that charity companies that own subsidiary companies will be required to prepare consolidated accounts? Assuming that that is correct, and while I am aware that the sector has broadly welcomed the provisions—and I agree that those who donate to charities deserve, of course, to know that their donations are properly dealt with—my prime concern is that of cost, particularly at the smaller end. Charities that are companies with turnovers of as little as £10,001 are now to be subject to audit. As a matter of detail—and the Minister may have referred to this—that is a more stringent procedure than that being applied to charities that are not companies.
Somewhere in the documentation, I see that the Government think that the average cost per charity will be the princely sum of £213. I practised once as an accountant and declare an interest as a member of the Institute of Chartered Accountants in England and Wales. I have to say that even I have never met an accountant who has charged as little as £213 for anything. Yet, having made this rather odd assumption, the Government go on in their analysis to say that they discount 85 per cent of the total cost to charities across the country on the grounds that many charities already have an audit. It is unclear what their justification for 85 per cent is. It may be that some percentage can fairly be applied, but I am worried about those conclusions in respect of smaller charities, which are surely less likely to have had an audit up to now. Perhaps the Minister can convince me.
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Is the preparation of consolidated accounts strictly necessary, again at the very low end? Accounting practice means that the balance sheets of companies that own other companies already include them in
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The big cost arises from the work in the first year to set up the consolidation. If some charities then, as I will mention in a moment, fall out of the requirement as a result of the threshold being raised, it really will have been a huge waste of their time and money.
Therefore, I ask the Minister whether the Government are not being a little hasty in implementing this order when the lower threshold stands a good chance of being raised as a result of the joint consultation on thresholds between the Office of the Third Sector and the Charity Commission. I think I am right in saying that this is likely to result in some charities becoming subject to the new, stricter rules in one year and then not so subject in the subsequent year. Is that not a complete nonsense? Perhaps the Minister can explain why this cannot be dovetailed properly? Is not the Office of the Third Sector charged with making things easier?
The Charities Act 2006 introduced the requirement for the preparation of group accounts by parent charities. It was to achieve that by inserting Schedule 5A into the 1993 Act. Can the Minister explain, therefore, why neither Part 6 nor Schedule 5A applied to charitable companies?
Lastly, respondents to the consultation on the draft order commented on the complexity of the legislation surrounding this whole area. I am aware that the Office of the Third Sector has stated its intention to prepare a consolidated version of Part 6 of the Charities Act 1993 prior to commencement, but does the Minister understand the importance of the vast majority of donations to charities, many of them small, going directly to the good causes they support rather than into advice from expensive lawyers—in addition to accountants, as we earlier discussed—on how to comply with complicated rules, and that hasty legislation followed by correction does nothing to help them? The Army has a phrase, “Order, counter order, disorder”, which I suggest rather aptly summarises the Government’s actions.
Lord Maclennan of Rogart: I can be brief due to the clear exposition that the Committee has had of the order and the fact that we on these Benches give it a broad welcome. We endorse the underlying objective trailed in the passage of the primary legislation, which seeks to unify the account scrutiny requirements for small charitable companies. That must be beneficial.
If the impact assessment is to be believed, it seems that the costs are minimal. In the light of what the noble Lord, Lord De Mauley, said, it is right to say that it is most distressing to those who support small charities if there is mismanagement and any kind of fraud. So I suppose that the balance of argument is in favour of scrutiny, and the simpler that external scrutiny is, the better.
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The Office of the Third Sector is to be congratulated on the clarity of its impact assessment statement. Admittedly, the facts are not supported by footnotes indicating precisely how they have been accumulated, but the facts are rather compelling. It is interesting that there has been a 10 per cent response to the proposed changes from the consultees and that that response has been entirely positive. I would also, however, like to hear from the Minister why it is that the timing of the order is as it is, in view of the consultation that is in train on raising the financial thresholds. It seems odd that the order should take effect the very day after the consultation is concluded. There has been no attempt to align the order with the outcome of the consultation, on the basis that the Government have put it forward. Broadly, however, the provisions are welcome.
The second part of the change—the proposal for group accounting—seems enormously sensible. However, it also conforms largely to existing practice, and it is, in a sense, ratifying a procedure that is almost universal. When one is talking about small charities, it is important to recognise that the clarity with which the rules are set out is of great importance. What the Minister said about the consolidation appearing on the website is welcome, but, when there is a consolidating Act—I understand that there may be—it will be worth asking parliamentary counsel to look closely at the simplification of language. I know that that is a difficult thing for Ministers to pursue, because they are dealing with legal draftsmen who are not only self-proclaimed but recognised experts. Speaking as someone who was, a long time ago, a consumer protection Minister, I think that we have not succeeded in making our consumer protection legislation and this kind of legislation as accessible to the lay reader as possible. The more accessible it is, the more the rubrics will be observed. The rubrics are not usually broken because of intent but because of lack of awareness. That fortifies the case for a simplification of the language when consolidation takes place. I welcome the order.
Lord Hodgson of Astley Abbotts: The noble Lord, Lord Bassam of Brighton, was kind enough to refer to my participation in the debates on the Charities Bill and the Companies Bill. It was a Kafkaesque experience. The Minister, reading from his brief, told us that we could not deal with accounting matters because we were dealing with company legislation. His colleague, the noble Lord, Lord Sainsbury of Turville, said, when we were dealing with the Companies Bill, that it was all to do with Home Office charity regulations. We were stuck in a situation where everybody was denying the possibility of cutting the Gordian knot. I was pleased that the Government saw the value of doing that and am even more pleased that they have put forward this order to give effect to the work that we did then.
The Minister had some good news for the sector. It is terrific to hear that the thresholds will be raised. The Committee may not be aware that the Government did not accept their own report about the basic threshold level. The original Cabinet Office
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As these are complex matters, I applaud the proposal to make the website understandable and accessible. Is there a timetable for the consolidation plans? The Committee may not be aware that large chunks of the 1993 Act have never been brought into effect. The whole section on fundraising is still waiting for Godot. It would be kind if we made sure that Godot finally arrived and that the 1992, 1993 and 2006 Acts were put together.
I congratulate the Government on lightening the regulatory burden, which is increasingly needed in the light of the ever increasing length of the accounting SORP. We heard various Members of the Committee say that a couple of pages are added every year.
I have just three questions for the Minister. First, has consultation on the legislation taken place with the ACIE, the Association of Charity Independent Examiners, which is greatly affected by it? Is it happy with the way in which it is being brought into force? Does it think that it is being done in the most effective and practical way?
The second question deals with a matter of charity law which increasingly concerns me; that is, its applicability across the United Kingdom. As the Minister will recall, we had lengthy discussions about how Scotland would fit into it. Paragraph 2 of the Explanatory Note states that the order will not apply in Scotland because it is a devolved matter. Are conversations with OSCR, the Scottish charity regulator, taking place to ensure that companies of charities that operate on a cross-border basis are able to take advantage of the simplifications? It is frightfully important that proper attention is given to that, because we will not otherwise make the progress that we should in lightening the regulatory burden, which is the Government’s objective.
There is talk about a new charity law for Northern Ireland. It would be helpful, since the Explanatory Notes refer to Northern Ireland, if the Minister updated us with any information that he may have about progress there, and say whether efforts will be made to correlate the provisions in this legislation with what is proposed for the Province.
My third question relates to the final paragraph but two of the Explanatory Notes, which begins:
- “the duty to prepare group accounts will apply to a parent charity which is a company if the charity is not required to prepare consolidated accounts ... The duty will continue to apply even if the charity chooses to prepare consolidated accounts”.
I am not quite clear about which duty is being applied, if the company is already preparing the consolidated accounts in line with the duty referred to earlier in the paragraph. It may be difficult for the Minister to answer that even more technical and detailed question immediately, but if he cannot,
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The Government are to be congratulated on bringing the order forward. It is helpful legislation. I congratulate the Minister on fulfilling the commitments that he made at the Committee stage of the Bill so many months ago.
Lord Bassam of Brighton: I am grateful to all three noble Lords who have joined in this deliberation. I congratulate them as ever on their attention to detail, in particular the noble Lord, Lord Hodgson of Astley Abbotts. It was very kind of the noble Lord, Lord De Mauley, to thank me for stepping in—it is part of the brief; one has to be generic. I was greatly amused by the Kafkaesque description from the noble Lord, Lord Hodgson of Astley Abbotts. He had a good point. I try not to be in denial in those moments, but sometimes it is a parliamentary convenience.
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