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This order is welcomed in general terms across the charitable sector because it goes a long way to help simplify things and make life easier for some charities. That is an enormous benefit. Like the noble Lord, Lord De Mauley, I like to see the money that is given get to where it should to do the job that it should do. The thing that irritates me most on a personal level is when I find out that so much money that has been given gets absorbed and soaked up by unnecessary regulation and unnecessary bureaucracy. That is a common irritation.
The noble Lord, Lord De Mauley, asked a number of questions that I shall try to work through. One was whether charities that are companies will be treated the same as non-company charities. Charities that are companies will be required to have their accounts scrutinised as a matter of charity law if they are not required to do so as a matter of company law. He also asked about group accounts. Charities already have to prepare group accounts. It is already sector practice for group accounts to be prepared. The commission looked at a sample of 70 sets of accounts where group accounts are now expected as good practice and in all but one case they had been prepared. Therefore, in our view and in the view of the sector, these changes do not create any significant new costs. Separate regulations will provide for content and scrutiny requirements and will also consider any additional regulatory costs that separate provisions might create.
The noble Lord also asked whether company charities that have subsidiaries will be required to prepare consolidated accounts under the Charities Act 1993. The answer is yes, if they are not required to prepare them as a matter of company law. Another question related to who will have to prepare consolidated accounts. All charities will have to prepare consolidated accounts, but only above a certain threshold. Consultation suggested that a threshold of an income of £500,000 was generally supported.
The noble Lord made a point about charities ending up paying more given the lower threshold for independent examination. Charity Commission
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The cost of examination was another issue. The impact assessment indicates that independent examination costs only about £213. The noble Lord thought that was rather low and asked where we got the figure from. In essence, the figure of £213 for the cost of independent examination was derived from the administrative burdens reduction programme, which used a robust and consistent methodology to measure the cost of all government regulation of businesses and charities. The figure is relatively low because it takes account of volunteer independent examiners as well as professionally qualified examiners undertaking such work on fully commercial terms. Volunteers would have been costed, but at a lower rate than professional fees. I am sure we all know charities that use such volunteer labour, which is of tremendous benefit to them.
Lord De Mauley: My assumption would be that under the new rules an audit ought to be carried out by someone who holds a practising certificate. That is not normally held by someone who may be a chartered accountant or another form of accountant and audits charities on a voluntary basis.
Lord Bassam of Brighton: I am not sure that that is necessarily the case. I shall reflect on the point, but a lot of the auditors that get involved get involved precisely because they have some expertise. At any event, no qualification is required below the £250,000 threshold. That has a beneficial effect because it reduces costs. When a qualified person undertakes an examination on a commercial basis, anecdotal evidence strongly suggests that the costs could rise to between £400 and £500 for charities in the income range of £10,000 to £90,000.
The noble Lord made some other points about changes in thresholds. There are 6,234 company charities with an income of between £10,000 and £90,000, of which data suggest that 85 per cent—some 5,300—undergo some form of independent scrutiny as a matter of best practice. We justify the figure by saying that somewhat less than 1,000—934 company charities—will probably have to go through a process that they have not previously undertaken but, as a matter of best practice, probably should have done.
The noble Lord, Lord Maclennan, rightly asked about the current thresholds review and suggested that we might want to wait for it. We think that it would be wrong to delay the important provisions contained in this order; the sector wants the changes, and if we delayed it beyond 1 April many charities would effectively have to wait a further year for them and lose the benefit of their introduction. They would effectively be waiting until 31 March 2010, which I do
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The thresholds review, published in December 2007, is important. It fulfils a promise that we made to look at thresholds at the time of the Bill being passed. The public consultation on the recommendations runs until the end of March. The thresholds for group accounts were consulted on last year as part of the consultation on separate regulations and, as I said earlier, an income threshold of £500,000 for audit and preparation of group accounts received considerable support. The other scrutiny thresholds that apply to charities are the product of extensive consultation undertaken during production of the 2002 Cabinet Office review, to which the noble Lord, Lord Hodgson of Astley Abbotts, made reference.
The noble Lord, Lord Maclennan, raised the issue of consolidation and whether it would be a better approach to group accounts. Single-line consolidation has some disadvantages. We need to be able to see the variety of activities that charity and its subsidiaries undertake. The noble Lord made a reasonable point about simplifying legislation and making it more accessible. It is a sad story that we try to encourage a broad range of giving from people from all walks of life and ranges of income, but understanding how charities work is something that comes largely through and is mediated by professionals. Perhaps that is unavoidable, but we do our best to try to make these things as accessible as possible. The Office of the Third Sector and the Charity Commission have done valuable work in trying to ensure that that is the case and last year published a plain language guide to the Charities Act 2006 that was aimed at trustees, who have found it very useful. It has become a very popular publication.
The point was also made about SORP being too complex and lengthy for charities. It is fair to say that it does not apply to all small charities—those with an income under £100,000 that choose to produce simple receipts and payments accounts, which would be the majority of charities. The SORP has the difficult job of interpreting and applying the complex financial reporting standards to charities. Standards are developed independently of government by the Accounting Standards Board and in future by the international financing reporting board. While this gives independence in the development of standards, it creates an onus for the SORP to address and interpret all relevant standards for the sector. That said, last year saw the formation of a new SORP committee, and early indications from that group are that the needs of small charities and the relevant information required by the SORP will be very much at the top of the agenda.
I think that I was also asked whether we had properly consulted the ACIE—the examiners. It was very supportive of the approach that we have
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The noble Lord, Lord Hodgson, made a point about the variations between the devolved Administrations. The position, certainly for Northern Ireland, is that the existing reporting accountant regime will be preserved by the Companies Act commencement order that BERR is preparing. The order will result in the partial commencement of Section 1175 for Great Britain only, the saving for Northern Ireland and the special rules for the audit of small charitable companies, including the provisions on reporting accountants.
As to cross-border regulation, it is fair to say that there have been some difficulties for some English and Welsh charities that operate in Scotland, particularly in registering with the charity regulator. As charity law and regulations are devolved, responsibility must rest with the OSCR and the Scottish Government. However, we have consistently stressed the importance of minimising regulatory burdens arising from the different regulatory regimes that charities operate in across the UK. These issues have been raised by both the Charity Commission and the Office of the Third Sector with their Scottish counterparts, and I think that that dialogue is proving to be very useful. Of course, there is the UK regulators’ forum, which I know came up as part of the discussion during the passage of the Bill.
The noble Lord, Lord Hodgson, asked about a couple of other points relating to the timetable for the consolidation of charity law. I cannot give a straight answer, although I should like to, or provide the noble Lord with a timetable. It is a matter outwith our control and is very much in the hands of the Law Commission. I would not wish to damn the Law Commission with faint praise, but it believes in doing a thorough job and that means that things inevitably take their time. However, we are in what are described as “positive discussions” with the Law Commission about consolidation and those have been very helpful.
I think that the noble Lord asked one other question about Article 8.2. I cannot remember exactly what it was but I shall write to him on that point.
I hope that I have covered most of the issues that were raised. If I have not, I shall check carefully in Hansard—and I am sure that the officials will check even more carefully—and we will respond in writing. Again, I thank the three noble Lords who have participated in this debate. The charity sector is well served by their diligence, and I hope that the order brings about the beneficial changes that we all anticipate and expect from it.
On Question, Motion agreed to.
The Deputy Chairman of Committees (Baroness Pitkeathley): That concludes the business before the Grand Committee this evening. The Committee stands adjourned.
- The Committee adjourned at 7.29 pm.
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