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I shall deal briefly with those concerns in order. The first is on the Government’s policy towards charities. At Second Reading of the Charities Bill on 20 January 2005, the Minister’s colleague, the noble and learned Baroness, Lady Scotland of Asthal, said:

“The Government's three aims for the Bill are: first, to provide a legal and regulatory environment that will enable all charities, however they work, to realise their potential as a force for good in society; secondly, to encourage a vibrant and diverse sector independent of government; and thirdly, to sustain high levels of public confidence in charities through effective regulation”.—[Official Report, 20/1/05; col. 883.]

I call that a ringing endorsement of a charity and voluntary sector. I shall not bore the Chamber by quoting more extensively from the noble and learned Baroness’s speech, nor from the Minister who did most of the detailed work during the passage of the Bill, the Captain of the Gentleman-at-Arms, the noble Lord, Lord Bassam of Brighton. In the light of what the noble and learned Baroness, Lady Scotland, said, government Amendment No. 437C is an apology for an amendment, with many weasel words and carefully phrased let-out clauses. If the Government really believe that the voluntary and charity sector is important, as they said it was, they should allow a full exemption now.

Secondly, I turn to the practical implications, some of which were dealt with by the noble Lord, Lord Cameron. In essence, many charities are fixed-asset rich and liquid-asset poor; that is, their assets are tied up in a building—it may be a school or housing. They have relatively little cash apart from working capital. Indeed, we want them to have relatively little cash because we do not want them to be sitting on piles of money, but to use their resources for the society in which they operate.

From time to time, they will need to upgrade their assets. They might wish to put a language laboratory into a school or upgrade sheltered housing with ramps, new alarm systems or some new provision of health and safety. To do this, they will probably have to sell part of their assets—it may be a bit of their land—and they may wish to maximise their return by doing so with planning permission. If CIL is to be imposed on them, either they will have, as the noble Lord said, to raise money to pay the tax—it is not attractive to go rattling the bucket and saying, “Will you give me some money to pay some tax to the Government?”; I am not sure that the Government would wish to be portrayed in that light either—or they will have to skimp on the project, or they will have to sell at a lower price to reflect the impact of CIL.

What about gifts that are not directly linked to the charity? An example might be a well run charitable school in London, meeting all the targets and doing a really good job in its community. It has many supporters, one of whom has, let us say, a weekend cottage in Norfolk with a garden of two acres. He decides because he has supported the charity for many years to leave the cottage and its grounds to the charity in his will. When he dies, the charity will be faced with three

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options. The first is to sell as is. Secondly, it might be advised that it is in a village where the infrastructure plan suggests that development could take place and that if it applied for planning permission for four houses in the garden, it could then sell at a better price. Thirdly, it will have just to pass it on without getting the full benefit of the enhancement in value. In each case the funds will have to be—not may be—deployed for the educational charity back in London which received the gift. I say to my noble friend Lord Dixon-Smith that I am not sure that his Amendments Nos. 438A and 438B cover charities receiving gifts that are not linked to the original site. Therefore, if CIL is proceeded with, people may be deterred from giving because why give money if the Government are going to garner part of the gain in the form of tax, or the charity has to sell without maximising the full potential return.

Finally, I tackle the special role and position of charities. The 1601 Act presumed charitable purposes for three activities—the relief of poverty, the advancement of religion and the advancement of education. The Government’s 2006 Bill removed that presumption. No longer could you presume that you were charitable because you carried out one of those functions. Now you have to be within one of the 12 purposes laid out in that Act. So every charity has to go through two threshold tests. First, are they charitable? Do they fit into one of those categories? Secondly, and most importantly, do they provide a public benefit? The Charity Commission now has increased powers to ensure that those two tests are being met. So a charity must always deploy its funds in pursuance of its charitable objects, and these must have a benefit for the public. If it fails to do so, its trustees—and, indeed, it—are liable under the law. Therefore, the idea that somehow huge windfalls for private companies or individuals involved with charities might take place if CIL is not imposed is fanciful. If the Government really want to do what they say they wish to do—to enable charities to realise their full potential as a force for good in society—then they will not seek to impose CIL on the sector. I understand, although I am no expert in these matters, that there are in any case the backstop powers in the Town and Country Planning Act to deal with extreme cases.

I have not seen the noble Baroness’s speaking notes but I can probably guess what they are going to say. First, there will be honeyed words about how important the charitable sector is, how the Government believe they are doing a wonderful job, the many things that the Government have done to encourage the charitable sector, and how indeed they have produced a whole Charities Act to show that they mean that the charity sector is very important to them. So we will have, I am sure, a deluge of honey.

After the deluge of honey we will then have a further enticement about regulations. We had the demolition of the regulation argument from the noble Lord, Lord Goodhart, in the Second Reading debate. Indeed, the words of the Minister’s colleague, John Healey, in the Committee stage in the House of Commons caused one to have further doubts about what might lie down the road because, as people have pointed out in several debates earlier today, we do not know what

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the regulations are going to be. The second thing to be said about regulations, of course, is that when we get them they are unamendable, so we are stuck with what we get at that particular time.

Baroness Andrews: As the noble Lord is representing the NCVO, which is a hugely reputable national organisation, I presume that he has already been involved in discussions at some length with us about these regulations and will continue to want to have those discussions with us as we work through the very complex difficulties that this poses and the need not to create unintended consequences in legislation.

Lord Hodgson of Astley Abbotts: I am grateful to the noble Baroness. I am sorry if she is taking my remarks amiss. Of course I am well aware that discussions have been going on, but the Bill is now passing through the House, and if we do not make these changes now we will be left only with statutory instruments to deal with. We are not yet clear how the charitable sector is going to be dealt with. Indeed, as I pointed out, the Government’s amendment has several lacunae in it.

The noble Baroness and I have debated many times in the past and her responses have always been very sympathetic. I suspect that she feels that she is put in a very unenviable position in trying to force the CIL on to the charitable sector. I suspect that the hidden hand—the elephant in the corner of the room—is the Treasury with its persistence and everlasting concern about tax leakage. I hope that she will understand that there is very strong feeling about this in the charitable and voluntary sector. The amendment has support from all corners of the Committee. I hope therefore that she will be able to commit the Government later today to bringing back a full exemption by means of amendment on Report—no ifs, no buts and no maybes.

Lord Shutt of Greetland: I find myself in a similar position to that of the noble Lord, Lord Hodgson, in that I was unable to be present at the Second Reading debate, and have been unable to take part in the Bill so far. However, I have listened a lot today and am attracted to the Bill in many respects, but dearie me, we seem to be dealing with the convoluted infrastructure levy. I am trustee of several charities. I am unconvinced that any of them is likely to be involved in what may happen, but they are listed in the register of interests. Perhaps the Historic Chapels Trust and Pennine Heritage are two, as they own buildings.

“Charity” is a precious word; it is a good word and held in high esteem. It is certainly not mentioned in the same breath as tax in the Bill. It might be mentioned in the same breath as “tax rebate” or “tax payment”, but not tax. I have been looking. Is this a tax or is it a specific sharing of a necessary cost? The introduction to the executive summary, which I just happened to pick up from the Printed Paper Office, says:

“The proceeds of the levy will be spent on local and sub-regional infrastructure to support the development of the area”.

Those seem to be the same sorts of things that income tax, capital gains tax and corporation tax are spent on.

I have been wondering how real this will be. What do charities do? How could it come to pass that this gets serious? I say to myself that a charity will not build a supermarket. What are they going to do? I

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look no further than where I live, in Calderdale, where our present mayor’s mayoral appeal is for a children’s hospice. That was also the mayoral appeal last year for the adjacent authority of Kirklees. Those promoting the hospice believe it right to have this place built to cover children of both geographical areas. I wonder whether somebody else could do it; perhaps some public sector body could build something of that nature. However, it is being done by a charity. I wonder whether those involved in endeavouring to raise that money will at some point ask whether there is more to raise because of a levy to pay.

They might then be told that, because of highway problems, more money must be raised. They would be rattling the tin or running bring-and-buy sales, or whatever, to pay for highway improvements that it is suggested their project makes necessary. Yet everybody knows that those highway improvements are needed anyway, and it is an excuse.

I mention the hospice being built for two local authority areas because they have chosen a site not in Calderdale, but in Kirklees. If we look carefully at the clause, however, we find that, under the Bill, and even under the Minister’s amendment, there can be different policies in each local authority area. These people have the site but, in future circumstances, would they have to have been scratting about to see what sort of levy proposals there are in this or that authority, to determine where to put this much needed service? So we want none of that, looking at the whole business of charity, its precious nature and people endeavouring to do good in this way.

The government amendment adds yet more doubt. The whole provision introduces doubt. Clause 198 states that the Secretary of State may introduce CIL. An amendment that was agreed states that a charging authority may introduce CIL. Therefore, the Secretary of State and a charging authority may introduce it. Further, government Amendment No. 437C states that,

“regulations must either ... provide”,

exemptions or reductions for charitable purposes or “permit” them. That introduces further doubt. We want to get rid of doubt. I hope that, at least as regards the charitable sector, there can be certainty in the legislation. However, if the government amendment were accepted, there would be more doubt.

Clearly, much work has been done on this matter and people have expressed their concerns about it. However, much more could be done, and I encourage the Minister to make certain that it is.

The Lord Bishop of Southwell and Nottingham: I declare the interests that are recorded in the House of Lords Register of Interests. I give tempered support to the noble Lord, Lord Cameron of Dillington. I echo what he said about our gratitude to the noble Baroness for her tireless, accommodating manner and that of her officials in trying to work through tricky, sensitive issues. I am sure that the Government do not wish to impose additional burdens on charities, especially at a time in our nation’s and world’s history when there are likely to be increased demands placed on their services. Therefore, I am grateful for the concessions in government Amendment No. 437C.

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I do not want to duplicate what has been said, but rather to underline it and give it a little added emphasis. What still worries us is not the Government’s intention but its possible execution, particularly given the fact that the wording of Amendment No. 437C is largely permissive. We are worried about the power to specify a description of a charity in the regulations, which might mean that some charities will qualify for an exemption while others will not. That would be invidious for the charitable sector. Equally, permitting,

“charging authorities to make arrangements for exemptions”

rather than requiring them to do so opens up the possibility of some charging authorities being generous to charities while others might make no concession at all. Again, that would be very invidious. I believe that point was made earlier by the noble Lord, Lord Dixon-Smith.

We certainly do not want a situation in which individual charities have to negotiate with individual charging authorities. There is also the danger that adjacent charging authorities might adopt different policies or exemptions or reductions. Charities might vote with their feet and decide not to develop the areas they were going to because of a bad deal on CIL, yet those might be precisely the areas that the voluntary sector ought to develop for the good of the community.

It ought to be remembered that many charitable developments constitute infrastructure. The most obvious example that comes to mind is that of voluntary aided schools. Indeed, earlier the Minister referred to schools as part of the infrastructure. Communities need decent schools if they are to function properly, and it makes no sense to operate a planning system in a way that discourages new school building and school refurbishment. To cut to the quick, we hope very much that the Government intend that charities should be given a general exemption, but we would prefer to see that in the Bill.

4.15 pm

Lord Best: I have two amendments in this group, Amendments Nos. 437AA and 444A, which were most helpfully prepared by the National Housing Federation, Shelter and the Chartered Institute of Housing. Both these amendments concern the relationship between CIL and affordable, so-called social, housing. It would be a disastrous unintended consequence of the provisions for CIL if this levy led to a sharp reduction in the number of homes built for those unable to buy or rent on the open market.

We are now discussing the levy against a backdrop of very little new house-building of any kind. Ambitious targets for affordable housing now look painfully vulnerable. The Government have set their target as 70,000 extra affordable homes annually and, if CIL was levied at the kind of level that we think it might be, say, £20,000 per home, CIL would require payment of something like £1.4 billion per annum from the affordable housing sector. At a time when numbers of repossessions are rising, and waiting lists for housing association and council homes are growing rapidly, surely CIL must help, not hinder, the flow of more affordable housing.

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Housing associations struggle to make the sums add up and the books balance at present. Adding extra expense is bound to push many projects over the line of viability and affordability. Perhaps the Government will be willing to reimburse any extra cost attributable to producing a housing development to which CIL is added. Unless the Government are prepared to increase the scale of funding overall for social housing, higher grants per home would simply mean fewer homes from the total available. Can it be argued that the imposition of CIL will not lead to a much higher cost of production for each home, because planning conditions already require payments for comparable purposes which, in the future, will simply be absorbed in the CIL?

The hope must be that CIL will raise more for infrastructure and related costs than do the current arrangements. Some of the extra will come from the levy being charged on commercial developments and on smaller scale developments that currently escape planning, but the housing associations would still be affected by CIL being imposed on some of the smaller developments that they currently pay nothing on, because they are below the level at which obligations kick in. Indeed, on their larger developments, it seems certain that schemes will have to pay a major contribution towards increasing the resources available overall towards infrastructure costs.

I hugely welcome the idea of exemptions from CIL for charities and for developments for charitable purposes. I look forward to hearing more about those plans from the Minister. There may be improvements to the Minister’s proposals, as my colleagues are suggesting today, but it is clear that once again the noble Baroness is prepared to bring forward amendments to the Committee that will greatly improve the legislation that we are scrutinising.

Nevertheless, even if those exemptions prove to cover charitable activities adequately, they may not reach much of the affordable social housing created by the housing associations, the local authority arm’s-length management organisations—ALMOs—and the new local housing companies envisaged in the Housing and Regeneration Act. Many housing associations are charities, from the older trusts such as Peabody and Joseph Rowntree, to the newer organisations of the 1960s, such as the Notting Hill Housing Trust, and the one in which I declare an interest as its chair, the Hanover Housing Association. In order to obtain funding from the GLC in the 1970s, when I was secretary to the London Housing Association’s council, it was necessary for a housing association to be registered as a charity, to provide greater reassurance to the GLC as supplier of funds. That rule did not apply in other parts of the UK. Many of the housing associations, for example, most of the bigger ones in the north of England, have never been charitable bodies, even though they are non-profit social enterprises.

Could the work of all these organisations be regarded as—I quote the amendment tabled by the noble Baroness, Lady Andrews—“development for charitable purposes”? Will this be the basis of the description to be specified by regulations? Is it the Government's intention that all affordable housing will be exempt from CIL? As

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these are murky waters surrounded by uncertainty, my Amendment No. 437AA seeks to put that exemption beyond doubt by ensuring that CIL is not levied on any development of social housing, as clearly defined by Section 68 of the Housing and Regeneration Act 2008. My amendment is clearer and more straightforward than the new charity exemption clause.

My second amendment, Amendment No. 444A, comes at the problem from a different angle. Nowadays, as your Lordships will know, affordable housing is often secured through the planning system. In order to obtain planning consent for what is hoped to be profitable housing for sale, housebuilders and developers are required through a Section 106 agreement to produce a percentage of the homes as affordable social housing. This arrangement counts for some three-quarters of all new affordable housing. Usually, these homes are sold immediately, at a pre-agreed price, to a housing association which will own and manage those homes. To pay the developer’s price, the housing association may need to draw down some social housing grant from the Housing Corporation or, in future, from the Homes and Communities Agency. The developer must also contribute towards the cost at the very least by forgoing some of the profit that it could have made if the homes had been sold on the open market, rather than as affordable housing.

Negotiations on just how much affordable housing can be extracted from a development are often tortuous. The local authority will usually have set a target—say, 35 per cent of all new homes, or 50 per cent in some high-demand areas. Site-by-site reductions will be subject of negotiation. A brownfield site with heavy remediation costs may be unable to absorb the same level of affordable housing as is feasible for a straightforward greenfield site. The local authorities need to have considerable sophistication when dealing with the negotiations. Housing associations are sometimes innocent bystanders when these arguments are raging between councils and housebuilders. Sometimes associations are responsible for the whole development, including sales and affordable housing, and they are the ones who negotiate directly. I have been in this position at the Joseph Rowntree Housing Trust, and I know how delicately the balancing act must be handled between the viability of the whole project and the percentage of social housing that can be including within the scheme.

Amendment No. 444A seeks to ensure that those negotiations are not thrown out of kilter by the arrival of CIL. If the levy increases the cost of the scheme and reduces its profitability for a developer, or its viability for a housing association, it is very likely that affordable housing will take the first hit. My amendment avoids this hazard by ensuring that CIL is not the first call upon the developer’s resources, but affordable housing is. CIL might, therefore, have to take the strain, but not the quantum of affordable housing, if there is not enough in the kitty for both.

I hope that the Minister will once again help us to improve the Bill and protect the affordable homes that will be desperately needed in years to come.

Lord Berkeley: I shall speak to Amendment No. 438 in my name and that of the noble Lord, Lord Bradshaw, who has apologised for not being here. I am afraid that

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the amendment adds to the list of pleas for exemption from CIL—in my case, the railways.

Some people might think that Network Rail is a charity; it is, in fact, a not-for-profit distribution company—in the private sector, according to the Treasury, although most of its money comes from government in one shape or form. I tabled the amendment before I read my noble friend’s Amendment No. 437A, and it rather looks as if developments of railway infrastructure will be exempt. I would be grateful if my noble friend confirmed that.

However, that leaves stations. They are part of a regulated railway. Network Rail calculates that if it has to pay CIL on station developments, it will cost about £250 million a year. It may have to pay CIL, but it may be that the train operators, which have been given franchises by the Government, will have to pay Network Rail. One is likely to have a virtual circle of train operators bidding for franchises, not knowing how much CIL they will have to pay if they wish to propose upgrades to stations. There will be added risk and uncertainty. I suspect that it will end up with stations not being developed. What normally happens with many station developments is that local authorities contribute to them. We see that in many places around the country. We will go from a situation in which local authorities are contributing to rebuilding station buildings, better platforms or better car parks, to one in which they will tax Network Rail so that it will pay. One does not need a PhD to understand that the consequence will be that station developments will not happen. I hope that the Minister can give me some assurance on this because it is a classic case of the law of unintended consequences.

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