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I hope that we have already been able to provide the noble Viscount, Lord Eccles, with some reassurances about the impact of these instruments on the Eccles Centre for American Studies in the British Library. In 2003, at the request of several charities closely associated with the British Library, the Charity Commission made a uniting direction to help simplify their administration and regulation. The result of this direction is that they are treated as part of the British Library Board and thus within the scope of its exempt status. The charities are, as a result, currently out of scope of the Charity Commission's regulation. As far as the charities covered by the uniting direction are concerned, we would expect some or all of them to become exempt charities in their own right as a result of the amendment to paragraph (za) of Schedule 2 to the 1993 Act proposed in Article 2(7) of the draft order. We do not expect this change to have any significant practical effect for the charities concerned.
We cannot provide such a cast-iron guarantee that other charities apparently connected to the British Library Board will not be affected by this provision. However, the Charity Commission has said that charities governed independently from the British Library Board and able to make their own decisions about what projects or activities they will fund or support will not be considered by it to be exempt and will still be required to register with the commission.
The draft order also makes a number of minor provisions to ensure a smooth transition from one status to another. They deal for example with the preparation of accounts for the current financial year and ongoing charity proceedings and land transactions.
The draft Charities Act 2006 (Principal Regulators of Exempt Charities) Regulations prescribe principal regulators for three groups of exempt charities: the Higher Education Funding Council for England for higher education institutions in England and their connected institutions; the Secretary of State for Culture Media and Sport for the boards of trustees of the museums and galleries and their connected institutions; and the Secretary of State for the Environment, Food and Rural Affairs for the board of trustees of the Royal Botanic Gardens, Kew, and its connected institutions.
The regulations do not give the principal regulators any new powers to intervene in the affairs of the charities for which they are responsible. If charity law problems arise, it will be for the Charity Commission to exercise its regulatory powers at the invitation of the principal regulator. Some have questioned whether proposed principal regulators that are also funders may be too conflicted to take on the principal regulator role. We have considered this carefully with the proposed principal regulators. These bodies have existing oversight roles alongside their funding roles. The fact that these bodies already have this oversight role complements the role of principal regulator. We do not believe there is an inherent conflict between the two roles. However, if a conflict of interest were to arise, it could be effectively identified and managed by the relevant principal regulator, with advice from the Charity Commission.
The duty of the principal regulators will be forward-looking. They will be required only to promote compliance
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The Office of the Third Sector, the Home Office and the Charity Commission have been closely engaged with stakeholders on these issues since 2003, when discussions began with the various groups of exempt charities and their existing regulators to identify potential principal regulators. This resulted in a list of proposed principal regulators being published alongside the draft Charities Bill in May 2004. Since then, discussions have continued and, for the purposes of this tranche, the Office of the Third Sector and the commission have consulted with the proposed principal regulators and bodies representing the groups of charities that will be affected by the SIs and, in many cases, the individual charities themselves. Early drafts of the SIs were shared with these bodies for comment last year.
There is expected to be little, if any, noticeable impact on those exempt charities for which a principal regulator is appointed. Their existing regulatory regime will continue, but with their regulator also promoting charity law compliance. For example, they will account and report as now without any duplication of reporting to the Charity Commission. An impact is likely to be felt only if something seriously goes wrong and the principal regulator needs to call on the Charity Commission to intervene. However, charities under the principal regulator regime are likely to benefit from guidance on charity law issues, including guidance tailored for sector-specific issues.
There will, however, be some costs for charities that cease to be exempt and have to register with the Charity Commission. We and the commission have worked to minimise any additional burden of regulation. The commission does not charge fees for its services and, to make the registration process as straightforward as possible, has already started working with charities that will cease to be exempt. However, we accept that there could be some indirect one-off costs for the charities that have to register.
There will also be additional one-off costs for all charities that cease to be exempt and own registered land, or for which such land is held on trust. This is because they will need to pay for Land Registry records to be updated to reflect the restrictions on their ability to dispose of that land. These restrictions do not apply to exempt charities. These costs were not anticipated at the time of the original impact assessment and have come to our attention since the SIs were laid in draft. As a result, it is not possible to give an exact costing arising for each charity. I understand, however, that the fees currently payable to update the register are £50 for the first three registered titles affected, and £25 per subsequent title affected. We have discussed with the Land Registry the possibility of these fees being waived or reduced. However, the Land Registry depends upon the fees it charges customers to cover its costs and these applications will be treated in the normal way.
There will also be some annual costs for charities that cease to be exempt. Registered charities must submit an annual return to the Charity Commission. The cost of preparing this is estimated to be £32 in the
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Charities ceasing to be exempt will, like other non-exempt charities, have to prepare a trustees' annual report. The commission has estimated the annual cost to formerly exempt charities required to register as ranging from £287 to £534, depending on the size of the charity. No other costs are anticipated for charities which cease to be exempt.
The Charity Commission has developed memoranda of understanding with each of the principal regulators to be appointed in this tranche, and is also establishing a committee of principal regulators which will meet regularly to share best practice and ensure consistency. The commission also publishes guidance on its website about the forthcoming changes in relation to the regulation of the exempt charities, including guidance on registration for those charities that will be required to register.
The effectiveness of these provisions, and the impact of the changes on exempt charities, will be evaluated as part of the statutory review of the Charities Act, due to begin next year. These SIs will in part bring about changes that were initially approved by Parliament during the passage of the Charities Bill 2006. I believe they will achieve the balance of improving the accountability of, and charity law compliance by, exempt charities while keeping the regulatory burden to a minimum. I expect these measures will increase public confidence in exempt charities, and in the sector as a whole. I therefore strongly commend them to the House. I beg to move.
Viscount Eccles: My Lords, I am very grateful to the Minister for setting out these two instruments. In speaking to these and to my Motion I will concentrate on the major issues. I do not believe the House will be particularly interested, or indeed particularly troubled, by some of the minor issues to which the Minister referred.
First, I must declare interests. I was at Magdalen College, Oxford, which will willingly give up its exemption under the changes order, and until recently was a trustee of Magdalen's development foundation, which is a registered charity. I was, some years ago, the chairman of the trustees of Kew Gardens and on the board of Kew's foundation and friends. I am a founder friend of Kew. I am a member of the advisory council to the Eccles Centre for American Studies at the British Library, as was mentioned by the Minister, and a member of the British Library's friends. I have no particular problems with the consolidating arrangement that was made by, and with the approval of, the Charity Commission for those charities at the British Library. There are, however, issues which arise out of the friends of the British Library which I think are quite important. All of those charities are affected by one or other or both of these instruments, and I am also a member of the friends of several others of those affected institutions.
I would say straight away that I fully accept that Parliament passed the 2006 Act and that it enabled Ministers to do the things they are proposing. However, Parliament did not agree to this particular solution. There were options and they remain in the 2006 Act and in my view, and I hope to develop this argument, there was a much more elegant solution or series of solutions. I would also say that although I am no longer a member of the Merits Committee, I was when these instruments were first laid in July. They were then withdrawn and we are now considering their replacements.
They need to be seen in context. The number of charities affected is quite small even though the Charity Commission is the regulator of 160,000 charities, in fact some estimates are even larger than that. Whatever is done with these instruments, we need to remember that the primary responsibility for the regulation of the sector rests with the Charity Commission. The issues raised by these instruments are complex and significant and it is their importance and complexity which makes me so critical of the decision recorded in the bald statement in paragraphs 8 of each explanatory memorandum. They state that the regulations,
In her summary of the position, the Minister referred to the Strategy Unit and to the discussions and the recommendations that were made in the pre-legislative period up to 2004 and perhaps, in the final analysis, a revision of the documents in 2005. That is a long time ago, and I know of no precedent where the implementation of an Act through statutory instruments is dependent on the pre-legislative scrutiny and the processes that were undertaken at that time. It is this that makes me so critical of the decision not to hold a formal public consultation. At the time, the Cabinet Office had responsibility for the better regulation agenda. It is inexcusable that it broke its own rules. Public consultation was a necessity under those rules. Instead, the explanatory memoranda continue to rely on the work done between 2001 and 2004. This was incomplete, and at the time revealed sharply differing opinions among the 60 respondents, whose responses clearly showed that both exemption and the possibility that sponsoring departments could become charity law regulators were highly contentious issues. There was then, as there is now, a compelling case for further consultation.
There is also a compelling case for an up-to-the-minute regulatory impact assessment, based on the data accumulated since the passing of the 2006 Act. Of course there are some registration costs that can be calculated; but if we are changing the regulatory responsibilities of significant bodies, it behoves us to have a sensitivity analysis. I doubt whether the Charity Commission has had any experience of dealing with charities such as the Oxford colleges, some of which have been going for rather a long time and have statutes and ways of doing things that are quite particular. I have heard that there are already issues between the Charity Commission and an Oxford college or two.
The need for a regulatory impact assessment based on the data for the 2006 Act also leads to needing the data on the Companies Act 2006. I will return to this
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It has been equally clear for the past three years that there were bodies-for example, the NCVO, the Charity Law Association and leading firms of accountants and lawyers-with far greater knowledge of the voluntary and charitable sector than the newly formed Office of the Third Sector. It was forgotten that the issues that arise when changes are made to charity law are always complex. Well presented evidence needs to be explained, most notably evidence from the Charity Commission, which is the most involved and experienced adviser available. We lack that evidence. Instead, we have draft regulations, sketchily explained and unilaterally imposed by the Cabinet Office on behalf of the Office of the Third Sector, without public consultation or regulatory impact assessment.
It is not too late for the important issues that arise to be properly and publicly discussed, because two further steps are needed before the instruments come into effect. A 2006 commencement order is needed, as is a further set of regulations under Section 3A of the 1993 Act, as set out in paragraph 4.6 of the explanatory memorandum. There is time for further consideration.
The first important issue to consider is that of regulation itself. The 2006 Act makes it possible to opt for more than one way forward. While it enables the appointment of regulators other than the Charity Commission, it is equally possible to make the commission the sole regulator. The sole regulator option was preferred, for example, by national museums directors-who are pretty directly involved in what is happening with these instruments-by the Museums Association and by the Charity Law Association. One strong argument that they made was that since the public well understood the role of the Charity Commission, it would be confusing, and thus damaging to public confidence, were other regulators to become involved. I agree strongly with the proposition that bringing in Secretaries of State as regulators is not good for public confidence. These witnesses volunteered their views: there has never been public consultation, with targeted questions aimed at discovering the response either to Secretaries of State or to the Higher Education Funding Council for England becoming principal regulators. Nor has there been a formal response to the simplifying suggestion that all charities should be registered with the Charity Commission. The Minister has not given us an answer to that tonight either. It remains unclear why the Government have not followed up that suggestion and I shall return to that later when discussing Kew Gardens. Although I shall now note that simplification and a level playing field are the principal arguments made, and convincingly made, for removing exemption from university colleges and thus bringing them within regulation by the Charity Commission, to argue that something is good here but bad there smacks of cherry picking.
The second issue is the complex one of friends' organisations. I shall be brief. They are most commonly companies limited by guarantee and registered charities. There is a question mark over their heads when the institution with which they are friends becomes exempt and is regulated by someone other than the Charity Commission. Given the combination of primary charity and company law with the secondary legislation which attaches to both, the question is whether a particular friends' organisation is legally exempt. If it were, it would be required to de-register from the Charity Commission under the terms of the 1993 Act, as amended by the 2006 Act. That loss of its charity number would raise all kinds of questions with the members of the friends. For example, what happens to gift aid? Again, public confidence will be damaged. I was hoping to be able to welcome the Minister's assurance that it is government policy that friends' organisations will, without doubt, remain registered charities. I would welcome a further assurance that if, by some unintended consequence, present legislation, including these orders, determines that a friends' organisation-for example, the Friends of the British Library-had no choice but to become exempt, will the Government agree to take steps to introduce measures which ensure that present policy prevails and registration with the Charity Commission is maintained?
Thirdly, I shall refer to Kew in more detail. Kew is to be an exempt charity, with Defra as its principal regulator. Defra provides Kew with its annual grant from public funds under Treasury rules. Since way back in 2002-03, objections have been raised to the principle involved in a sponsoring department also being a Charities Act regulator. I really do not think that the Minister gave us an adequate justification for dealing with the argument that there will be a conflict of interest. These representations in any public sense have gone unanswered. Is there a better answer?
Matters become more complicated if we move on to consider the Foundation and Friends of the Royal Botanic Gardens Kew. As it is a registered charity-No. 803428-the Charity Commission is the regulator and will remain so. The foundation and friends' organisation is incredibly important to Kew and I think it transferred £10 million to the Royal Botanic Gardens last year. The commission will also have rights and duties toward Defra, the other regulator, as the Minister mentioned under Schedule 5 to the 2006 Act. Furthermore, the board of Kew, members of which also serve on the foundation board, will be in a triangular relationship: Defra, the Charity Commission and themselves in two guises, which is likely to be a recipe for trouble. Those who favour the commission as the regulator of all charities certainly have a point. There are other institutions on the list in similar situations.
Consideration of this point leads to a question to Ministers. Under the provisions of Section 11(12) of the 2006 Act, the Minister can only-the "only" is there-make an order if she is satisfied that it is desirable in the interests of ensuring appropriate or effective regulation. No evidence has been included in the explanatory material to show how that test of appropriateness or effectiveness is met. If there were consultation, I guess that there would be a school of
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Finally, I believe that the Office of the Third Sector has shown a fine disregard for Parliament's amendments to the Bill. The office's case for these orders depends on work done when the Home Office was responsible and its reliance on that work ignores Parliament's decision during the passage of the Bill to include Section 6(4) which states:
In laying these orders, which alter the Commission's responsibilities without securing the Commission's expressed agreement, the Government must be sailing close to the Section 6(4) wind and thus not meeting Parliament's decision that the Commission should be truly and unusually independent. Will the Minister assure us that due regard will be paid to Section 6(4)?
However, there may be more to it than this. My impression is that in some version of turf war between the Office of the Third Sector and the Commission, it is no surprise that the Commission is in the middle of 5 per cent cuts in its annual expenditure. Its resources are already slim and it carries a heavy responsibility, and, as Jane Austen knew, it is hard to be independent if you have no money. It may well be convenient for the Office of the Third Sector to forge ahead with its transformation role in support of public services, urged on by the Prime Minister, while sidelining the Commission, despite Parliament. This would go a long way to explaining a preference for other regulators, however inexperienced or inappropriate. It would also explain the absence of a regulatory impact assessment.
A great deal has changed since the 2001 Strategy Unit started on this story. We have a different Prime Minister, the Home Office has given way to the Office of the Third Sector in the Cabinet Office, the Cabinet Office has lost its regulatory responsibilities to BIS, and the re-established Charity Commission has had three years' experience of the widely welcomed 2006 Act. Everything tells us that it is time for fully open and compliant orders. These two instruments have been withdrawn once. They need to be withdrawn once more.
Baroness Pitkeathley: My Lords, I declare two interests: first, I am chair of the Third Sector Advisory Body, and someone who has spent most of her working life working in or with the charitable sector. Secondly, I am chair of the Council for Healthcare Regulatory Excellence. Wearing both these hats, I support the proposals made by the Government in these instruments. At the Council for Healthcare Regulatory Excellence and with the regulatory bodies which regulate the health professions, we always refer to regulation being done with the "right" touch, not a "light" touch, although the right touch often is a light one.
Overall we try to apply the following test to regulations. Are they focused on the protection of patients and the public? Are they concerned with their safety? That is the prime reason for their existence. Is regulation fair? It must be seen to be fair or it will be resisted. Is it proportionate? It must not be heavy-handed or
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I feel that the proposals before us tonight for regulating the exempt charities meet these criteria. Moreover, the proposals were widely consulted on and approved by most of those affected, although of course, that consultation took place some time ago. I should emphasise that if any discrepancy or bad practice is found, the regulators will have the power to refer to the Charity Commission, as my noble friend has told us, which will take the matter up.
I remind your Lordships that regulators liaise on matters affecting their client groups. They share best practice to ensure that there is no duplication. Such co-operation does not depend on legislation or on statutory instruments, but on the common-sense approach taken by regulators who know very well that the last thing we need is to have any activity regulated twice over if we are to avoid the bureaucracy which has concerned so many of us. Far from their sidelining the Charity Commission, it seems to me that these are sensible proposals, accepted by the Charity Commission. It is the beneficiaries-the public who use the institutions-whom we should have in mind. In my view, the proposals meet their needs.
Lord Shutt of Greetland: My Lords, I, too, thank the noble Baroness for presenting the orders, and the noble Viscount, Lord Eccles, for his contribution, which I have been trying to bottom and fathom-I have some difficulties. Nevertheless, he has ferreted away at his concerns, and it is right that we try to understand them to see if they can be answered. From what he said, I am not certain about the specific disaster that he sees occurring because of the proposed changes.
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