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Grand Committee

Wednesday, 1 July 2015.

Charities (Protection and Social Investment) Bill [HL]

Committee (3rd Day)

Relevant documents: 1st Report from the Delegated Powers Committee,2nd Report from the Constitution Committee

3.45 pm

The Deputy Chairman of Committees (Baroness Harris of Richmond) (LD): My Lords, if there is a Division in the Chamber while we are sitting, this Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.

Amendment 14

Moved by Baroness Hayter of Kentish Town

14: After Clause 12, insert the following new Clause—

“Power to make representations

(1) A charity may undertake political campaigning or political activity in the context of supporting the delivery of its charitable purposes.

(2) A charity may campaign to ensure support for, or to oppose, a change in the law, policy or decisions of central government, local authorities or other public bodies.”

Baroness Hayter of Kentish Town (Lab): My Lords, the amendment stands in the names of my noble friends Lord Watson of Invergowrie and Lord Lea as well as my own. It essentially restates the current legal position, as it is well established in charity law that campaigning and political activity can be legitimate, indeed valuable, for charities, provided that they are undertaken to achieve their charitable aims.

The Charity Commission’s guidelines on campaigning and political activities, known to us in the field as CC9—technically called “speaking out”—recognise that there may be situations where carrying out political activity is the best way for trustees to support the charity’s purposes. Indeed, charities have used the opportunity of elections to promote their charitable objectives for more than 100 years to raise concerns and gain attention for their charitable aims. It is clear that, although a charity cannot exist for political purposes, it can campaign for a change in the law or a change in policy, or on decisions where such a change would assist the charity’s objectives. Charities can also campaign to ensure that existing laws are observed.

However, following the transparency of lobbying Act—I am delighted to see here the noble Lord, Lord Wallace of Saltaire, whom we would say was the guilty party on that Act—we know that there is a very difficult interplay between charity law and electoral law, particularly over non-party campaigning rules. There is insufficient clarity now on whether and when awareness-raising on policy and legitimate non-partisan campaigning by charities would be regulated by the Electoral Commission, even where activities were not intended to have any electoral effect.

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The NCVO is therefore concerned that charities could be deterred from engaging in public policy and speaking out on behalf of beneficiaries during election periods. With local, European, devolved and general elections, we seem almost always to be in an election period.

The NCVO wants charities to have maximum clarity as to what comes within the scope of the non-party campaigning rules, so that legitimate campaigning is not inhibited. We share that aim. The problem is that the recent Act broadened the definition of what counted as political expression while reducing the threshold at which organisations caught by the new definition had to register with the Electoral Commission. They thus have to comply with more red tape than most businesses seem to have to do in a year.

Indeed, the Act represents a radical change to the regulatory environment for charities, and it has constrained, if only by a chill factor, charities’ legitimate activities. When the then Bill was in the House, the noble Earl, Lord Clancarty, feared that it would,

“put Westminster further into a bubble”,—[

Official Report

, 22/10/13; col. 923.]

by cutting out a much-needed source of intelligence to SW1. We think that this has happened.

More than that, the Act increases the imbalance between the controls on commercial lobbying and similar activities by charities on behalf of those with the least access to decision-makers. Not only can well-heeled drinks or defence companies have free rein to lobby, to campaign and to further their interests, so can groups, such as the TaxPayers’ Alliance, which has a clear campaigning rule. However, because they are not charities, they face no regulatory or transparency rules.

We wholly concur that a charity’s sole purpose should not be to campaign, must never be party political, nor involved in the electoral process, and that they should campaign only to achieve their charitable aims. The charities believe that they have been unfairly treated by the new Act and are genuinely bemused by such treatment, given that every political party, including that of the Minister, purports to support the work of charities. Indeed, many parliamentarians from across the political spectrum are actively involved in at least one charity.

The NCVO reports that confusion over the law is now widespread, leading to charities unduly self-censoring. For example, the charitable arms of two well-respected churches, which both provide an extensive network of social care and have advocated for policy change for over 150 years on behalf of the people they support, have come to different conclusions about what advocacy they can now undertake, how they do it and how to account for it. They are confused about what counts as controlled expenditure and are fearful that the new legislation means that almost anything that a charity or coalition does to advocate policies in the year before an election might be judged to impact on the success or failure of a particular party or candidate.

Indeed, trustees of some charities appear so scared of infringing the rules, as well as being bemused by the difficulties of calculating staff costs, particularly geographically, that they have stopped the charity from

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campaigning. Others have reached a different conclusion and have decided to risk running outspoken campaigns on the grounds that, as they make the same points to whoever is in government, they are not seeking to influence any one party.

What is most worrying for democracy is those other charities which feel that they cannot risk advocating on behalf of their charitable aims or their charitable beneficiaries. It is surely wrong and, due to the uncertainties created by the lobbying Act, some charities believe that they cannot speak up on behalf of their users or campaign to achieve their charitable objectives. Decision-makers lose that input and the voiceless lose their advocates, and this is in a democracy like ours, which is such a strong and vibrant civil society.

The intention of the amendment is clear; that is, to give confidence to trustees that the existing legal position remains untouched by the lobbying Act. They can undertake campaigning or political activity in furtherance of their charitable purposes. They can campaign to build support for, or oppose, a change in the law, the policy or the decisions of central government, local authorities or other public bodies. I beg to move.

Baroness Pitkeathley (Lab): My Lords, I support this amendment and speak as the former chief executive of Carers UK, a very successful campaigning organisation, which, arguably, could be credited with making caring and carers, once an entirely private matter, the public issue that we all recognise today. I submit that that came about almost entirely through the campaigning of the carers’ organisations. I very much agree with my noble friend that there is now confusion, since the lobbying Act, about what is legitimate and what is not so far as charities are concerned at election periods.

At present, we do not have the maximum clarity which my noble friend has called for. I draw the attention of your Lordships to the lack of profile which charities had in the recent general election. In the past, it was commonplace for charities or groups of charities to hold hustings at which all parties could set out their wares. We heard very little of that in the last general election.

I hope that the Minister will confirm that he supports the rights of charities to campaign for policy changes which will benefit their client group. Of course, that could be called political—changing policy is political—but it is very much small-“p” politics, not party politics, and charities are very much aware of that.

Lord Judd (Lab): My Lords, I am very glad that this amendment is before us but I noticed that in introducing it my noble friend emphasised very heavily that it was not endorsing in any way the concept of charities becoming involved in party-political activity. I was glad that my noble friend Lady Pitkeathley also made that point.

I want to speak very honestly as a former director of Oxfam in the 1980s, when we were campaigning very hard to get a change in charity law. We had quite a skirmish with the Charity Commission at the time. It was done in a gentlemanly way but very firmly by the commission, which was quite right, and in the end the

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laws on campaigning were rewritten and we could have almost dictated word for word what the new regulations said because they were exactly what we were after.

What was happening in Oxfam, as I saw it, was that the charity was maturing and growing up. It was saying, “We can’t go on simply alleviating poverty or whatever because in doing that we may be condoning the causes of what we are dealing with. We are repeatedly putting fingers in the dyke without seeing that it is the dyke itself that is crumbling or which is the problem”. There was a very strong feeling developing among staff and trustees—and the trustees held very firm on this, which I found very encouraging—that we were being dishonest: that in our work we were coming up against the real causes of the issues we were encountering and, in order to not just alleviate the consequences but deal with the causes, we had to spell out what we had come to see as the causes.

I think I have shared this personal anecdote with the Committee before so I hope I can be forgiven for mentioning it again. Once when I was on a visit to Latin America at a very difficult time to visit our programme there, I had a very long and interesting conversation with the Bishop of San Cristobal, who was bravely standing up for the Indians in Chiapas who were under terrible pressure. He was being denounced by the Government of the time and so on. It was quite ugly, with people disrupting his church services and standing outside his little house shouting all night, but he was just getting on with the job. He spoke fluent English; he was a really strong man. I asked him, “Have you got a message that you would like me to take back to the UK, to my staff colleagues and my trustees but also more widely in Britain?”. He said, “Yes, I have”. He made several points but the point I shall always remember is that he said, “In situations of this kind, you cannot be neutral. I believe that solidarity is the real meaning of charity”. If you are getting into a position of solidarity with the people you are trying to help, you must recognise that they are talked about a great deal, they are talked to a great deal, but in the major debates that are taking place that affect policy who talks for them? Of course, that is one step short of talking for themselves in those debates.

I was very privileged to have held that post in Oxfam. I came away from my time in it absolutely convinced intellectually and emotionally that if a charity was to be true to its purposes and was dealing with really severe social problems, one of its most important tasks and one thing it should never equivocate about was advocacy—to speak out about the issues that it had discovered in its work were the real issues. Of course, that is not always comfortable but it is absolutely essential to integrity. We received terrific support. We relied in those days on a widespread constituency support, and regular giving from the wider public increased while we were making this stand. Clearly many people in the country agreed with our position. It is a tremendous achievement and of great credit to the Charity Commission of the time that it took the point and amended the laws on campaigning. We must stand firmly by that because it could become easily eroded.

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4 pm

Perhaps I may make one other principal point. I always said to my colleagues in Oxfam—this is clearly a personal view but I hold it very dearly—that the great asset a charity brings to the public debate is that it speaks with the authority of engagement. This is absolutely crucial. I belong to a number of pressure groups of different kinds which are very important because, intellectually and in other ways, they bring a great deal of pressure and thought to bear on public debates. The real strength of a charity is that it speaks with the authority of its experience and we should find ways of underlining this in our deliberations. It is not just a legal or formal matter. The day a charity allows itself to drift away from demonstrably and transparently speaking with the authority of its engagement will undermine its role and it will become another intellectual influence group. The authority of its work and experience needs to be made absolutely clear in the representations that are made.

I am glad that my noble friend has tabled this important amendment but I wonder whether one or two points might be expressed more clearly at the next stage.

Lord Wallace of Saltaire (LD): My Lords, my name has been mentioned in this debate and perhaps I should intervene. I spent a good two months of my life much preoccupied with this issue and I came away from it content with the law as it stands. It is quite clear that there is a line between advocacy—which is an entirely appropriate and proper part of what charities should do—and moving too close to party-political campaigning. This is not purely a matter of, as it were, good-works charities on what one might describe as the left, but also about think tanks on the left and on the right. I can think of one or two think tanks which have got quite close to the line of moving from research to a highly partisan presentation of the research they provide. Having worked for 12 years in a think tank, I am conscious of the lines that one has to draw.

In speaking to 50 representatives of different charities, I certainly came across the advocacy point. Some first- class charities raised public awareness of mental or physical conditions, the problem of women unnecessarily in prison and so on—all of which are entirely within charity law. I also came across a small number of organisations which appeared to want to get a little too close to party campaigning, including on one splendid occasion meeting a group of rather large charities, one of which said, “We do not want to have to register for this because the little old ladies who give us money would not want to know that we were doing it”. That seemed to be a recognition that they were indeed moving towards a line that they should not be too close to.

I am happy with a restatement of the position as it stands. I think we all accept that advocacy is a part of what charities do in furtherance of their charitable purposes, but that they should not move too far into the party-political area. Anyone who has been involved in the think-tank world knows how conscious they have to be that that is a line they should not cross.

Lord Judd: Does the noble Lord agree that this is not altogether simple? He and I clearly agree on this important matter, but it is not simple because if a

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charity finds itself strongly advocating a position and a political party is doing the same, that is open to misinterpretation. We have to be absolutely clear that the way in which the law is administered is also transparent. There have been arguments that campaigning should be curbed in the last year before an election. It is absolute nonsense for a charity, which feels strongly, passionately and morally obliged to put forward a case because it wants policy change, to have to lay off in the year of a general election. That would be condoning something they believe is wrong and that is not what any of us would want to imagine happening in Britain. It is very important that the Charity Commission is held to account; that the whims of a particular commissioner are not prevailing and that, from an objective, analytical position, very strict rules are fairly observed.

Lord Lea of Crondall (Lab): My Lords, I am happy to be associated with this probing amendment. As I suspected, there is scope for talking at cross-purposes about the commission’s present understanding of “political”. I have been at the receiving end of an objection on the grounds of that word. The noble Lord, Lord Wallace of Saltaire, whose attention I do not have at the moment, equates “political” with “party-political”. As I understand it, that is not the Charity Commission’s feeling about the word. I have been at the receiving end of criticism that this is political, but when I speak to Amendment 15 no one would think there is anything party-political about it.

I will give one illustration from the press in the last six or nine months, to show why there is a need for a minimum of clarification on this question. We all get round-robin emails from organisations: we agree with some and disagree with others. This is one about a breakfast discussion to be held on Wednesday 15 October 2014, arranged by a Eurosceptic organisation concerned with EU regulatory issues called the CSFI; someone will probably know what this stands for. It said that the CSFI was,

“now accepting online donations via the Charities Aid Foundation (CAF). This is the most cost-effective way for the Centre to collect one-off donations online, which can also be GiftAided. To support the Centre, please click here”.

That clearly establishes that this is an all-singing and all-dancing registered charity as I understand it, or else it could not enjoy the benefits of the gift aid scheme. The first sentence by the director, Mr Andrew Hilton, states:

“As I am writing this, the Commission’s new gauleiter”—

being the European Commission—

“Mr. Juncker, is busy trimming the edges of the various portfolios he has offered individual Commissioners”.

Noble Lords who speak some German will know that, until 1933, “gauleiter” was a pretty everyday word, with “gau” meaning “area” and “leiter” meaning “leader”. But since 1933, no one would think that “gauleiter” was without very strong connotations and, I would say, strong political connotations. On the basis of what I have come across, this should be viewed by the Charity Commission as being out of bounds because it is political.

The Minister has a very sharp brain, so my question to him is this: does he acknowledge that there is an issue here? How should the commission go about its

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business if an organisation which can get gift aid refers to the President of the European Commission as the new gauleiter, while in other areas it says, “You cannot get Charity Commission registration because you are political”? That is my question.

Lord Hodgson of Astley Abbotts (Con): My Lords, the noble Baroness and some other noble Lords know that I have been asked by the Government to review the operation of Part 2 of the transparency of lobbying Act, which is the part referred to by the noble Baroness in her amendment and is about third-party campaigning. I am doing so on a strictly non party-political basis and the review is going to be evidence-based, as was my review of the Charities Act. I have been working hard to make sure that as much evidence as possible from right across the political spectrum is gathered in. I have been to all the devolved Administrations and have ensured, with the team at the Cabinet Office which is helping me—it is a terrific team whose members are working hard, so I shall place that on the record now—that every candidate in the general election has received a questionnaire, that every returning officer has received one, and that we had a question for the public on our website which we publicised as far as we could through bodies like the NCVO and the CBI.

We now have an outstanding call for evidence that is more detailed in its questioning and will run until the end of July. Moreover, I have had a great many face-to-face meetings with people from all parts of the political spectrum and our commercial life. I have to tried to ensure that, as far as possible, all the leading interested parties in this area have had a chance to put their point of view and have it recorded. We have tried to do a lot of the meetings on the basis of Chatham House rules so that people can speak frankly. We say, “Tell us what you really feel and later on, when we make a call for evidence, we shall want you to go public and on the record”. However, in order to amplify and get the colour and context of these things, at this first stage we will treat their remarks in confidence.

The report is due by the end of the year, subject to the figures on actual spending that we need from the Electoral Commission. The commission’s second set of returns is due around the middle of November, so we will be a bit pushed, but I hope that we can do it. As I say, my report will be evidence based. So however my noble friend is going to answer this debate now, I say to the noble Baroness, the noble Lord, Lord Lea, and anyone else in the Committee—indeed, everyone in the House—that if they have information they think would be helpful and should be consulted on and included in the review, please get in touch. Firm factual evidence is a good basis for making recommendations, while rumour and myth are a bad one, and I am anxious to ensure that we get down to a hard evidence base. Obviously people can then debate the conclusions that can be drawn from it.

I shall not comment on the noble Baroness’s amendment this afternoon; I am not going to run before my horse to market. I want to collect the evidence, I am sure that Members of your Lordships’ House have a great deal of it, and I hope that they will ensure that I get it.

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4.15 pm

Lord Leigh of Hurley (Con): My Lords, I declare my interest as a trustee of a number of charities, national and local, a former trustee of a care charity and, of course, as a senior treasurer of the Conservative Party. I broadly agree with the remarks made by the noble Lord, Lord Wallace of Saltaire. I remember the arguments on the then transparency of lobbying Bill; I was fairly new to Parliament, and I found myself for the first and only time being lobbied—on a lobbying Bill, as it transpired—by charities. However, I take issue with his remark, unless I misunderstood it, about the charities doing good works being broadly on the left. In the charities that I see, the donors’ register broadly replicates that of the Conservative Party, and there are many good-works charities on the right that are helping people to help themselves. I may have misunderstood.

Lord Wallace of Saltaire: As the chair of trustees of a musical charity, I would welcome the further conversation that we might have on that.

Lord Leigh of Hurley: I thank the noble Lord. I also think that I may have misunderstood the noble Baroness, Lady Hayter, when she talked about some charities not solely campaigning. My experience is that some charities are solely campaigning ones; in fact, I had personal experience of that only two weeks ago when a raven bird got stuck in my basement. In a moment of panic, and prompted by my young children, I was too frightened to address the issue myself so I rang the RSPB, thinking that that was a logical solution. The RSPB informed me that under no circumstances does it actually go out to assist birds in distress or in danger of damage; no, it is a lobbying charity. I was to either ring another charity or do it myself. In the event, I passed the buck to my wife.

My point is that there are charities that have evolved—some quite rightly, but some perhaps worryingly—into pure campaigning. The charities with which I am involved found the transparency of lobbying Bill helpful, in that it was clear that during the election we had to keep on the straight and narrow. On the boards of the charities with which I am involved sat a broad-array spectrum of political opinions, and it helped to ensure that we all abided by the Act and did not engage in political advocacy during the election.

I am particularly heartened by the comments from my noble friend Lord Hodgson of Astley Abbotts that he is taking further evidence on this issue. I rather hope that this can still be discussed at a later stage with that evidence, and I ask for the Minister’s comments on that.

The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con): My Lords, I very much welcome this debate. It is exactly the kind of debate that we need to have on these issues. I am grateful for all the contributions made by a number of your Lordships, especially the noble Lord, Lord Judd, who made a very eloquent contribution.

I make it categorically clear that the Government support charities’ right to campaign within the law. Many charities use campaigning and advocacy effectively and legitimately to support their charitable purposes

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and beneficiaries. This role is important to charities’ independence and is certainly of value to society. Campaigning for changes to the law or policy that would support a charity’s purposes is a legitimate activity for charities, and one in which charities in this country have a long and proud tradition, as we have heard from the noble Lord, Lord Judd, and the noble Baroness, Lady Pitkeathley. The position that they occupy is largely derived from case law, and the Charity Commission’s CC9 guidance is clear on what charities can and cannot do. Its view of case law is clear: political activity by charities is an acceptable means of supporting their charitable purposes but it cannot be the sole and continuing activity of the charity, as that would indicate a political rather than a charitable purpose. So charities can undertake political campaigning or political activity that seeks to support the delivery of their charitable purposes where trustees consider it an effective use of their charity’s resources, but charities must never engage in political activity or support for a political party or candidate.

In response to the point made by the noble Lord, Lord Judd, about neutrality, I say that a charity can campaign strongly on an issue linked to its purpose, as long as it is not endorsing or supporting a particular party. As I said, political campaigning or activity cannot be the sole and continuing activity of a charity, and charity trustees need to ensure that political activity remains a means to an end and does not become the reason for that charity’s existence. Charities must, when undertaking political activity, seek to retain their independence from political parties. As the Charity Commission’s guidance makes clear, in the political arena, a charity must stress its independence and ensure that any involvement it has with political parties on the particular views of the parties is balanced. Trustees also need to ensure that any political activity is an effective use of the charity’s resources. In response to the question of the noble Lord, Lord Lea, about gauleiters, I am sorry, but I am not going to get into individual cases and words used in particular literature. It would be wrong for me to offer a view on whether a charity is on the right or the wrong side of the rules. That is rightly a question for the Charity Commission on the basis of the evidence it receives.

I turn to the amendment. Attempting to put into statute law a provision of case law risks changing the boundaries of what is permitted. Even if the boundaries of the law were not shifted by a statutory definition, one would still expect legal challenges to test the “new” boundaries of the law. Further, putting it in the Bill risks politicising charities’ right to campaign. Cabinet Office Ministers are responsible for charity law and would be responsible for this provision. That would leave it open to political interference over time—not that I am suggesting that any such interference would take place, but the risk would be there. I would argue that instead it is much better to have a case-law provision firmly in the realm of the independent regulator and courts.

One might question whether Amendment 14 permitted charities to support political parties—for example, by allowing charities to undertake political campaigning—without defining exactly what that means. The Charity Commission’s CC9 guidance runs to 31 pages. Trying to

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condense the legal underpinning into a short statutory provision that is five lines long, while attractive from the point of view of simplicity, would not properly reflect the current case-law position and could have unintended consequences.

In recent years, there has been a similar debate about whether the meaning of “public debate” could be distilled into a statutory definition. This is another area where the Government believe that we are better served by a long-standing case-law position supported by clear guidance than by attempting to define a solution in statute.

There has been discussion of the transparency of lobbying et cetera Act. It was not the Government’s intention that the changes to the rules for third parties campaigning at elections made by the Act should prevent charities and campaigning groups from supporting, engaging or influencing public policy. The Act is designed to ensure that campaigning by third parties to influence an electoral outcome is properly regulated, and there are few circumstances in which legitimate charity campaigning on policy would be caught. Very few charities registered with the Electoral Commission for the 2015 general election. It is worth noting that the test for “controlled expenditure” provided for in the Act is the same as was in operation for the 2005 and 2010 general elections: namely, only expenditure which,

“can reasonably be regarded as intended to promote or procure electoral success of a party or candidates”.

The Electoral Commission published guidance for third parties and engaged with a range of third parties in formulating this guidance. As my noble friend Lord Hodgson of Astley Abbotts said, he is currently undertaking a statutory review of the rules for third-party campaigners at elections. He is taking evidence, and I certainly encourage all your Lordships who are interested in this matter to respond to and engage with him. We look forward to his recommendations later in the year.

I turn briefly to the Charity Commission guidance. The commission has also monitored charities’ political activity and observance of its guidance during the election campaign, and is considering the findings from that monitoring and other issues relating to its current guidance. The commission will, I am sure, study the findings of my noble friend’s statutory review; I know that it has been engaging throughout. As I said at Second Reading, the Charity Commission has said that it keeps all its guidance under review to ensure that it remains relevant and up to date. If the commission considers that revisions need to be made to its CC9 guidance later, it has committed to saying so publicly and to consulting widely.

As has been said, there have been cases where charities have overstepped the mark of what is allowed under charity law or have failed to protect their independence by undertaking political activity that gives or risks the impression of being party political. In general, the numbers of cases that the commission takes on that are related to campaigning and political activity are low—in 2013-14, there was only one inquiry and a handful of operational compliance cases. However, where they occur they are often high profile and have significant impact. In the run-up to the election,

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for example, there were some clear cases where charities overstepped the line. For example, some charities signed a letter in support of Conservative policy and another painted a political slogan on its roof. These are clear cases of a breach in the law and the commission’s guidance. People with concerns about political activity are able to question whether or not a charity has stuck to the rules on campaigning and political activity, and an independent regulator in the Charity Commission can look at the facts and will reach a judgment in each case on the basis of the evidence provided. That is absolutely right and proper.

To conclude, the Charity Commission’s guidance CC9 makes it clear that charity law recognises that campaigning can be a legitimate activity for charities and sets out the general principles. Charities can campaign to raise awareness and understanding of an issue or to secure or oppose a change in the law or government policy or decisions, as long as the campaigning relates directly to a charity’s purposes and beneficiaries. Charities must retain independence and political neutrality, must never engage in any form of party-political activity and must avoid adverse perceptions of their independence and political neutrality. In addition, they must not embark on campaigning to such an extent that it compromises their legal status as a charity. I firmly believe that the existing case law and guidance serve us well and that there are major risks in attempting a statutory provision. I therefore invite the noble Baroness to withdraw her amendment.

Baroness Hayter of Kentish Town: My Lords, I thank my noble friend and other noble Lords who have spoken in this debate. The Minister is right that this is an important issue to discuss. I disagree only with his conclusion, as it seems to me that he has endorsed the amendment—he agrees with every word in it and his only argument against it seems to be that it should be not in law but in 31 pages of Charity Commission guidelines. That is exactly the problem for trustees. However well written 31 pages of guidance are, it is not a great comfort blanket to trustees. I take a different view, which is that a clear statement that trustees can read is a much better way of ensuring that they know the law.

The Minister and I are as one on the content; the law as it stands is fine and we are both content with it. The issue is that the transparency Act reads differently and is constraining. The Minister was not quite right to say that the position was the same in the previous election, because in that election only printed documents were covered and it is easy to see whether they support a particular party. The range of activities now covered includes meetings, press conferences and possibly hustings. Indeed, the church raised the issue of hustings with the Minister at the time, as a number of churches had traditionally had hustings. It is interesting to note how many fewer hustings there were this year, owing to the fact that the definition of the sort of activities that would be covered was expanded so much. The Minister has not quite got the descriptor right in saying that the position was the same as before. I was also sorry that the Minister did not give us a slightly more thoughtful response to the point made by my noble friend Lord

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Lea. Perhaps he will consult the Charity Commission because clearly some important issues were raised and I hope he will follow them up.

4.30 pm

The noble Lord, Lord Leigh, and I agree on other issues. I think he said he has children who do not like birds. If I am right that he has children, if he takes them to any park or open area he will see that the RSPB does some extraordinary work; it does not just lobby. I was on Richmond Hill recently and saw a lot of the safeguarding that it was putting in there for birds. I am sure he did not mean to say that it only lobbies because it certainly does not and is out and about in a number of woods putting up special nesting boxes and all sorts of things to help preserve birds.

The examples that my noble friends Lady Pitkeathley and Lord Judd gave are important ones but the question is: would chief executives, which both of them have been, find as ready a response from their trustees today to do that sort of work, given the transparency of lobbying Act? That is why we will look again at whether this should be written in law because the law changed this year. Had it not, we would not have needed to bring forward this amendment. It is because one bit has changed that we feel the balance is not there. But for the moment, we will consider the wording of that and how we might take this forward. I beg leave to withdraw the amendment.

Amendment 14 withdrawn.

Amendment 15

Moved by Lord Lea of Crondall

15: After Clause 12, insert the following new Clause—

“Charity Commission annual report to refer to principles of best regulatory practice

(1) Schedule 1 to the Charities Act 2011 is amended as follows.

(2) In paragraph 11(c), after “16)” insert “including the extent to which, in its opinion, it acted in a proportionate, accountable, consistent, transparent and targeted manner (see section 16(4))”.”

Lord Lea of Crondall: My Lords, Section 16(4) of the Charities Act 2011 sets out the commission’s general duties and Schedule 1 provides that it should have regard to and report annually on its performance on accountability, consistency and transparency. I will present a case from my own experience for why we need to strengthen this section to require the Charity Commission to report on the extent or degree to which it has actually done so. As I say, I am influenced by a particular case and, whether or not I technically need to declare this as an interest, I certainly do so.

The case in question arises from the fact that I have had a long-standing interest in why the then Secretary-General of the United Nations, Dag Hammarskjöld, died in a plane crash, or immediately afterwards, in Northern Rhodesia in 1961 on his way to meet the leader of the breakaway Congolese province of Katanga, Moise Tshombe, and the British Under-Secretary of State, Lord Lansdowne, along with the British high commissioner to the Central African Federation, Lord Alport, and his private secretary, Sir Brian Unwin.

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There was immediate and widespread speculation as to whether or not it was an accident. The United Nations carried out an internal inquiry, which reported in 1962, with an interim verdict of not proven—as they would say in Scotland—but the United Nations General Assembly then resolved that, if cogent new evidence came forward, the Secretary-General was empowered to draw it to its attention.

Fast-forward to 2011 and a book was published by Dr Susan Williams which produced some cogent new evidence. I, with others, established in 2012 the Hammarskjöld Inquiry Trust, a legal trust. I do not need to explain to everybody here that lawyers will distinguish a legal trust, which anyone can establish just like that, from a registered trust, which is registered by the Charity Commission. Its purposes were:

“To advance public knowledge and understanding, by seeking to ascertain first the true circumstances of the death of the Secretary General of the United Nations, Dag Hammarskjöld, in 1961 and secondly the true circumstances leading thereto; to make available the results thereof to the United Nations and more widely as the Trustees shall determine”.

This was in the preliminary submission of the purposes of the trust, of which I have a copy, but more of that in a few moments. Suffice to say that it was the start of my experience over the past three years with the Charity Commission.

The modus operandi was that having first appointed a group of trustees of good standing from Europe and Africa, our first job was to appoint an “international commission of jurists”—I use the phrase descriptively—to carry out, over a 12-month period, an examination of new evidence on this matter of national and international importance; and to put together the resources needed for it to carry out its work. I chaired the trust.

The commission of inquiry that we appointed was chaired by the right honourable Sir Stephen Sedley, a Lord Justice of Appeal from 1999 to 2011 and a member of the Judicial Committee of the Privy Council. Its members were Judge Richard Goldstone—inter alia the first chief prosecutor of the UN international criminal tribunals for the former Yugoslavia and Rwanda; Hans Corell from Sweden, a former deputy secretary-general for legal affairs of the United Nations; and, last but not least, Wilhelmina Thomassen, a judge in the Supreme Court in the Netherlands who had been a judge of the European Court of Human Rights.

We told the Charity Commission right from the start, very clearly, that this was a time-limited exercise. If there was cogent new evidence found, our idea was that the commission of inquiry would report by the autumn of 2013 and that there would be no need for the trust to carry on much longer than that once it had presented the report to the United Nations in New York.

In being time-limited it is perhaps an unusual trust—perhaps the Minister will comment on how unusual it is or is not—but it is none the worse for that. Again I stand to be corrected but there is certainly nothing in the legislation that states it is not possible to register a short-term trust. The significance of this consideration will become clear.

To cut a long story short, seemingly endless obstacles were put in our way. First was the contention I mentioned in the previous debate that the trust was “political”.

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I return to the point made by the noble Lord, Lord Wallace of Saltaire: no one would remotely say that there was anything party-political about it. However, inter alia, one of the objections raised was on the grounds that it was “political”. Secondly, there were various arcane discussions about the objectives and whether or not we would meet, for example, the test of promoting a sound administration of a law. Where that came from I do not quite recall.

Then we were told that the commission had ascertained that the United Nations was not interested. I will come back to that because it turned out to be not only untrue but the total opposite of the truth. In the background, there was a growing sense among the trustees that, as in a novel by Kafka, this process would never reach a conclusion. This is my answer to the tendentious explanation now given by the Charity Commission that we simply omitted to put in a formal application. I use “tendentious” because it had been made clear to us that, first, we had to satisfy a sequence of tests put to us before it was likely that we would get the green light. That was the process that it presented to us. It was the commission, which, when we had dealt with one objection in preregistration which would stand in the way of a successful application, simply came up with a new one. All that took place over 12 months from August 2012.

I fast-forward to the publication of the report in September 2013 from the commission that the trust appointed. The commissioners found that there was cogent new evidence that the crashed plane had been the subject of some form of attack as it circled Ndola airfield and that the key to this would be to access intercept records from the Cyprus listening post of the United States National Security Agency—likely to be held in its archives in Washington.

I presented the report to the United Nations in New York in October 2013. In the spring of 2014, the Secretary-General wrote a memorandum to the General Assembly recommending that it be an item for the agenda of the session of the General Assembly commencing last September. This was agreed and, in December 2014, a resolution drafted by the Swedish Government was adopted. It ultimately carried signatures of some 60 countries, including South Africa, and 35 European countries, including Germany, Italy, Spain and the Netherlands, but not the United Kingdom, France and Belgium. It decided inter alia that the UN should establish its own panel to carry out follow-up investigations. These have just concluded but its report and any further recommendations from the Secretary-General have not yet been published.

Despite all this, at no point in the last 18 months have we received—until yesterday and I am just coming to that—any acknowledgement, let alone an apology, from the Charity Commission, in terms of retracting its contention that there was no evidence of interest on the part of the United Nations. The importance of that is obvious: it has made that a sine qua non of continuing. Indeed, one of our colleagues, the noble Lord, Lord Malloch-Brown, a former Foreign Office Minister and a former deputy secretary-general of the

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United Nations, wrote on our behalf to the Charity Commission on this very point, with no substantive reply.

I shall complete the story. I wrote to the current chairman of the commission, Mr William Shawcross, on this aspect on 26 February this year and received no reply—until, surprise, surprise, I received a reply from him yesterday dated 25 June. He partially changed his tune by acknowledging the UN’s considerable interest, which was palpable, but still did not acknowledge that it had made a big deal out of this, that we had been right about it—and that the commission had certainly been wrong to be dogmatic about it, or that perhaps it had received its steer from biased sources.

In his letter, Mr Shawcross apologised for the delay in answering my letter—after four months; make of that what you will—but then went on to the now all-too-familiar routine along the line that the attitude of the United Nations to the work of the trust was only one aspect of its consideration and that there were others. However, even on the narrow point, how did it come about that we were advised that a positive message of support from the UN would be very significant for the commission’s decision? We have now, as a trust, given up chasing after the moonbeam of Charity Commission registration, so this is by way of a valedictory set of observations from me, regarding a time-limited trust which has now completed its work, given that the follow-up procedures within the UN are now well in hand.

4.45 pm

The Charity Commission’s commitment to the standards of probity referred to in the 2011 Act has, in our case, been seen in the breach rather than the observance. Indeed these standards have gone a long way to being replaced by their converse, such as arbitrariness, secrecy and economy with the truth. In practice, there is no accountability at all. It is a law unto itself. So how are we to make a difference? How are these required standards of behaviour to be benchmarked in practice? As provided in the amendment, the commission would need to elucidate how far it has, in its opinion, actually met these tests. Maybe an independent watchdog should play this role.

I have to underline the point that these procedures are a lot more difficult to meet, especially when a trust is on a short timescale. Trying to work out how to go through an appeals procedure is simply an invitation to throw good money after bad. In our case, we expended £6,000 in legal fees on the application costs; we could not afford any more. Our total costs were some £70,000, contributed mainly by the trustees, with about half expended on employing a full-time administrator for the 12 months in question, working directly to the chairman of the inquiry. Both the commissioners and the trustees worked pro bono.

It may be asked how far the experience of our trust is a more general one. Obviously, the answer is that we do not know. However, being in a somewhat privileged position as a Member of the House of Lords, I thought this a proper opportunity to put on the record the hurdles we encountered. Paradoxically, this may turn out to be one of the most productive trusts to have

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been established in recent years, but this is certainly with no thanks to the Charity Commission. The issues which currently arise are: first, the apparent inability of the commission and its staff to appreciate that a time-limited trust needs a procedure which sorts out any issues very quickly; secondly, the frequently changing nature of its requirements, which made the exercise of seeking registration a bit like Catch-22; and thirdly, the high degree of subjectiveness regarding whom the commission consulted about the application, which may reflect what I can describe only as bias in the system.

In addition to considering the merits of the 2011 Act being amended in the way I have suggested, will the noble Lord respond directly, on behalf of Her Majesty’s Government, to some issues? First, did they, through departments of state or any of the agencies, have any contact with the Charity Commission on the handling of our application? After all, it was the commission, not us, which has described the issues as “political”. Secondly, are they aware of the contacts between the Charity Commission and the United Nations itself? Even though my third and final question is not a matter for the Bill—and I am aware that a separate reply may need to be made on this point—it does follow on from what I have been explaining. Now that the United Nations General Assembly has asked all member states to co-operate on the follow-up to its resolutions, are Her Majesty’s Government actively supporting those steps? The noble Lord may wish to take away some of these issues and write to me, putting a copy in the Library. I trust this will be in good time before Report. I beg to move.

Baroness Hayter of Kentish Town: My Lords, I will not add to the case that has been made, but I would like to make a tiny point referred to by my noble friend about making complaints about the Charity Commission, which is quite hard to find on the website. The complaints procedure finally ends up with the Parliamentary and Health Service Ombudsman, which we welcome because that is an excellent ombudsman. From another part of the Government—although I think that it will be the Minister who will deal with this in due course—is an extremely welcome provision to bring about a merger of the Parliamentary and Health Service Ombudsman with the Local Government Ombudsman. That is something we will welcome when it comes here. However, perhaps the Minister can outline how that will facilitate complaints about any decisions made by the Charity Commission—not necessarily appeals because not every trustee will be able to raise the case, as we have just heard.

Lord Bridges of Headley: My Lords, I thank the noble Lord, Lord Lea, for the explanation behind his amendment. I shall pick up on the final point made by the noble Baroness, Lady Hayter. I will need to write to her as regards the complaints procedures and the changes to be made in respect of the Parliamentary and Health Service Ombudsman.

Perhaps I may begin by focusing on the actual words used by the noble Lord, Lord Lea, in his amendment,

“a proportionate, accountable, consistent, transparent and targeted manner”,

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and whether the annual report of the Charity Commission should refer to these. I draw the attention of noble Lords to the annual reports of the Charity Commission headed Tackling Abuse and Mismanagement in Charities, and the stand-alone case reports in which it applies the principles of best practice. However, I should add that the commission tends to frame this in terms of proportionality. The Charity Commission’s annual report for 2014-15 was published just yesterday—I am sure that noble Lords took it to bed with them last night to read. In the section on promoting compliance, the commission explains its approach:

“We use our powers proportionately according to the nature of the issue, the level of risk, and the potential of impact. However, even where we have regulatory concerns, it may not, in some instances, be proportionate for us to formally investigate a charity”.

The commission’s annual report also includes a paragraph specifically focused on how it is supporting the Government’s commitment to better regulation. There is furthermore an extensive section on enabling, which sets out not only the commission’s permissions casework—making schemes and so on—but also the work it has undertaken to prevent problems arising in the first place by making trustees aware of their duties and responsibilities, which is a key principle of proportionate regulation.

I turn now to the Tackling Abuse and Mismanagement in Charities reports. In these the commission is at pains to include some cases which show that it does not always have to make significant regulatory interventions, especially when the trustees who co-operate are either able to put the problems right themselves or can demonstrate that the initial concerns cannot be substantiated. For example, last year’s report set out the commission’s proportionate approach, stating that:

“As an independent, non-ministerial government department with quasi-judicial powers, we operate within a clear legal framework and follow published policies and procedures to ensure that we are proportional in our approach to tackling abuse and mismanagement”.

Finally, the commission’s published framework explains how it approaches all its work and helps to ensure that it continues to be proportionate, accountable, consistent, transparent and targeted. It sets out three questions that the commission answers before taking any action: first, does the commission need to be involved; secondly, if it decides that it does need to be involved, what is the nature and level of risk; and thirdly, what is the most effective way of responding? The commission prioritises issues that fall within three areas of strategic risk affecting charities: fraud, financial crime and abuse; safeguarding issues; and concerns about the terrorist abuse of charities. I hope that I have addressed the substance of the amendment, and furthermore these words are set out under Section 16 of the 2011 Act. The commission needs to abide by them in all it does.

Lastly, I want to address the specific case that may have given rise to the point made by the noble Lord, Lord Lea. As I hope he will understand, I am not able to go into the details of this case as it is an operational matter for the independent regulator, the Charity Commission. However, as the noble Lord said, he has been in correspondence with the commission and I understand that the chairman has replied and offered

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to meet him to discuss the case. I hope that the noble Lord will accept that offer. With regard to the specific questions that the noble Lord asked me directly, I will need to write to him in response.

I draw the Committee’s attention to the wider issue of registrations of charities. I point out that we know the number of registrations applied for and the numbers rejected. This year’s report sets it out in detail on, I think, page 41: last year there were 7,192 applications to register, 4,648 registration applications were approved, 2,248 charitable incorporated organisations were registered and 34 registration applications were formally refused.

I am concerned that the amendment that we are considering is not necessary. The commission already explains in its annual report how it is enacted in line with the principles of best regulatory practice. I therefore hope that I have been able to reassure the noble Lord, Lord Lea, somewhat, and that he will feel able to withdraw his amendment.

Lord Lea of Crondall: My Lords, I totally expected that the Minister would be unable to reply to my questions today; that is why I said, and he has confirmed, that he should write to me about the questions that I have raised—before Report, I think he said—and no doubt put a copy in the Library. I am slightly surprised that in the circumstances, since he is aware of the broad outlines of the case, he has had nothing to say about the special circumstances of a short-term trust. Is this a lacuna in the procedures of the Charity Commission, as I suspect?

I stretched the limits of the procedure in the time that I took when I made my opening speech, so I will leave it there at the moment and study the Minister’s reply. Incidentally, with no discourtesy to Mr William Shawcross, no, I have no wish to meet him, given the nature of the reply that he eventually gave to my letter. I beg leave to withdraw the amendment for the moment.

Amendment 15 withdrawn.

Amendment 15A

Moved by Lord Bew

15A: After Clause 12, insert the following new Clause—

“Damages for torts by trustees or their employees

Damages for torts by trustees of unincorporated charities or their employees

(1) The Charities Act 2011 is amended as follows.

(2) After section 284 (when and how section 282 resolution takes effect) insert—

“284A Damages for torts by trustees or their employees

(1) This section applies where—

(a) a trustee of an unincorporated charity is liable in tort by reason of his conduct in his capacity as a trustee of that charity; or

(b) a person employed by a trustee or trustees of an unincorporated charity is liable in tort by reason of his conduct in the course of that employment.

(2) Where this section applies, a person entitled to damages for the tort shall be entitled to recover those damages from the assets of the charity.

(3) Subsection (2) shall not affect the liability of any trustee, employee, or any other person.

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(4) Where a claim is made under subsection (2), the provisions of the Civil Liability (Contribution) Act 1978 shall apply as if the charity had legal personality.

(5) Where a claim is made under subsection (2), or a contribution is claimed from the assets of a charity under subsection (4), the charity may be named as a party and may be represented by its trustees or such other person as may be appointed by the court in any legal proceedings.””

Lord Bew (CB): My Lords, Amendment 15A is in my name and that of the noble Baroness, Lady Deech. The purpose of the amendment is to enable claims for compensation to be made against the assets of a charity where wrongful acts have been committed in the course of that charity’s activities. There is a gap in the current law, in that unincorporated charities are not liable since they have no legal personality, in contrast to incorporated charities or other companies or incorporated bodies.

It is clear from the Explanatory Notes to the Bill that the Government’s purpose with the Bill is in part to look at and perhaps clean up, if that is the right phrase, some unsatisfactory aspects of the charity/extremism nexus. The purpose of this probing amendment is simply to see if it is possible to add further gentle assistance in that project. However, I should add that the amendment is inspired not just by concerns about the relationship between charities and terrorism but also by concerns about certain cases of sexual exploitation.

In fact, it is best to start with that, as it is the best way to illustrate the key difference between incorporated and unincorporated charities. The Scout Association is a national body and, like many of the older charities, is in fact incorporated by royal charter. It has therefore been possible for victims of sexual abuse by scoutmasters to claim damages from the national body, the Scout Association. However, many local Scout associations—dozens of them, in fact—are unincorporated. Victims of sexual abuse therefore may well find it much more difficult or impossible to recover compensation. That creates an obvious unfairness and anomaly, and it is to that problem that proposed new Section 284A is directed.

5 pm

I return to the debate about charities and terrorism. In recent years, there have been a number of well-documented moments. In the case of the Tamil Tigers, it is eloquent enough simply to look at the Charity Commission’s actions. Some noble Lords will remember the controversy in 2009 about Interpal and Hamas, the debate which followed the work of John Ware for “Panorama”, the Charity Commission report on Interpal and the subsequent debate in public, among many different sources. In recent times, there has been mention of Boko Haram in this context. In April 2014, the Home Affairs Select Committee concluded:

“We are deeply concerned with the potential for ‘bogus’ charities to dupe members of the public into raising funds which are eventually used to support terrorist activity”.

I am well aware that the Government have made more material resources available to the Charity Commission to deal with that sort of problem. It is also clear, as I have said before, that the Bill in a number of its provisions is intended to deal with that difficulty, and that the Government are well aware of the problem. The amendment is simply an attempt to see whether

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something else can be done and whether it is possible to have a constructive debate about that. The essential point is that although individual employees and trustees of unincorporated charities can be made personally liable under current law, that is of little comfort to victims if, as is commonly the case, they have no significant assets. I acknowledge that it is possible under current law to claim indirectly from the charity’s assets via an indemnity to the trustees or from insurance covering the trustees. However, even where that is possible it is certainly cumbersome and expensive, and it is not possible where the trustees are themselves implicated in the wrongful conduct or have been reckless. In some ways, the irony is, the worse the governance of the charity, the less prospect of a remedy for the victim. I beg to move.

Baroness Deech (CB): I will speak briefly in support of my noble friend Lord Bew. I got interested in this area having had some experience of when things may go wrong. When you have a commune, for example, which takes all the assets of its members and something goes wrong, such as abuse, there ought to be recourse against those assets. The same applies to children’s clubs, after-school lessons, youth movements, and even student unions.

Our previous discussions show how far the charitable organisation has spread, reaching into every area of our life. It seems only right that there should be the same protection for those who may be adversely affected by an unincorporated charity as by an incorporated one. The main thrust of the amendment lies in proposed new subsection (2), which would enable a person entitled to damages to recover them from the assets of the charity. It is intended to be prospective and not retrospective in effect, applying only to torts committed after it comes into force.

In sum, the amendment would produce a small but useful improvement, making it practicable for victims to obtain compensation for wrongs committed in the course of the activities of unincorporated associations in circumstances where this is currently not practicable. It would remove disparity between unincorporated and incorporated charities; it would encourage the provision of additional resources to expose misuse of charities. It would strengthen compliance with the law and protect the reputation of legitimate charitable activities.

As my noble friend mentioned, the resources of the Charity Commission, which could be involved in this, are necessarily limited and it is only right to help the Charity Commission in its efforts. In sum, this is a good, useful amendment which seems capable only of doing good and certainly no harm.

Lord Gold (Con): My Lords, as the noble Lord, Lord Bew, has said, the purpose of the amendment is to remedy a deficiency in English charity law which prevents victims of wrongs committed in the course of the activities of an unincorporated charity being able to recover compensation from the charity’s assets. This is of particular concern when an unincorporated charity is used as a mask by those knowingly funding terrorism. Victims may have claims against individual staff or trustees of the charity, but if such individuals

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are men of straw or vanish from view then, unless the charity is obliged to provide an indemnity for its staff or trustees—and that can be uncertain—the claimant will lose out. Worse, the unincorporated charity can carry on just as before, while the victims or their families are cheated out of justice to which they are entitled.

As the House of Commons Home Affairs Committee stated in its report of 30 April 2014 on counterterrorism, bogus charities are being used as a means of funding terrorist activities. There is a serious risk therefore that, unless there is some redress to the assets of unincorporated charities, this anomaly will protect such charities, which will not be liable for the activities of their staff or trustees. The amendment would give victims of wrongs who have claims arising from the conduct of trustees or employed staff the right to bring a claim directly against the unincorporated charity, just as they can at present against an incorporated charity. This proposal does not affect any personal liability of trustees or employees, but the court would have power to determine what should be paid by the charity and what the wrongful individuals should pay.

For an unincorporated charity presently to be liable to indemnify staff members or trustees, it must be vicariously liable for the wrongful acts of its trustee or staff member. That will apply only if the tort or wrongdoing was committed by the staff member in the course of their employment or, in the case of a trustee, if they were not acting in breach of trust. Only in such a case would it be possible for the claimant to recover damages indirectly from the charity’s assets via this indemnity. Even so, the claimant in such a case would face uncertainty, delay and cost if he or she were to test the position, which would be made harder if the trustees were unco-operative. For example, it may suit the individual wrongdoer not to be able to call for an indemnity so that the charity’s assets are protected and can continue to be used to sponsor terrorist activity. Similarly, any insurance cover which the trustees may have is unlikely to apply where they deliberately or recklessly misapply or jeopardise the charity’s assets.

By supporting the amendment and giving claimants a more direct and certain way of gaining redress, we would also be making it far harder for those seeking to fund terrorism or other wrongdoing to do so while hiding behind a seemingly charitable veil.

Lord Leigh of Hurley: I congratulate the noble Lord, Lord Bew, the noble Baroness, Lady Deech, and my noble friend Lord Gold on highlighting this clear loophole; I think it has come as a surprise to many that it exists. I have tried to research this as best I can. I have read the Henry Jackson Society’s written submission to the Draft Protection of Charities Bill Joint Committee, which I found excellent and helpful. In trying to research it, though, I could not make out, and therefore I am not clear, whether there are any other legal remedies to resolve this problem. If that is the case, and if the Minister is not able to allow this amendment because of the necessary legal advice and argument that he must take, I very much hope that he, like me, can offer general support to the principle behind it.

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Baroness Barker (LD): My Lords, I am intrigued by the amendment. My response to it, on the basis of about 30 years of working with trustees of charities, many of which were unincorporated associations—some were not; some were incorporated—is that the prospect of losing one’s house as a consequence of a decision one made when acting as a trustee was one of the most sobering responsibilities of trusteeship. Indeed, were Lord Phillips with us today, he would explain how, throughout the history of charity law, even though charities have become much more complex as the areas in which they operate have become much more complicated, we have maintained the entity of an unincorporated association precisely to preserve the importance of trusteeship. That said, in my experience, trustees of unincorporated associations were always desperate either to try to get liability insurance, if they possibly could, or to incorporate, precisely to minimise their own risk.

We have kept unincorporated associations because they have an importance in the field of charity. It is important that we still have organisations in which individuals come together and are willing to put their own assets on the line in order to do good and to be judged as such. As with many of the arguments that I have listened to this afternoon, my response is that if there is a new body of evidence that this measure is required because a new form of abuse is going on, I am willing to look at it. However, I take issue with the noble Baroness, Lady Deech: this is not a simple tidying-up of a loophole but a rather large fundamental change to the law of trusteeship with regard to charities. She may be right and there may be a good reason why we should do that, but I would prefer to see a bit more than one briefing from a think tank—if that is not to damn today’s discussion—to say that this is necessary. It is actually a very big transformation of the way in which we organise charities.

5.15 pm

Baroness Deech: My Lords, I will of course defer to the noble Lord, Lord Gold, who is much more of a lawyer than I am, but I do not believe that the purpose of the amendment is to turn all charities into incorporated bodies. It is simply to ensure that when something does go terribly wrong, an example being sexual abuse, innocent trustees should not lose their houses. The other side of that coin is that the value of the innocent trustee’s house may not be nearly enough to cover the damages that ought to be paid to the victim. It is simply a question of protecting the innocent trustee while of course respecting and honouring the long history of trustees being very involved and feeling personally liable. However, when there is a serious issue in which a victim has been seriously harmed either physically or mentally, the assets of the trustee may be insufficient for the victim, while at the same time the wrong trustee is being punished. The damages should come out of the collective assets of the charity. However, in every other respect, the long-standing, noble notion of the unincorporated charity should of course remain.

Lord Watson of Invergowrie (Lab): My Lords, we support the amendment in the name of the noble Lord, Lord Bew. Change is needed because, as we have

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heard, many people who have suffered in a manner that would allow them to seek at least adequate redress against an unincorporated charity are currently in effect unable to achieve that. There are a lot of unincorporated charities. The Charity Commission has around 125,000 of them on its register, which gives some idea of the scope of those that may be covered by this amendment.

Surely there is a need for parity, because where a tort has been committed in the course of a charity’s activities, the remedy should not be different simply because of the charity’s status. An example of an unincorporated charity being able to escape the consequences of its actions arose a few years ago, and I had personal contact with it. Noble Lords may recall that a number of charities became involved in fundraising to assist countries in sub-Saharan Africa. Huge amounts of clothing, toys and other portable goods which had been donated by the public in the UK were transported by road to people in need in those countries. I had a friend who was involved in delivering those goods as part of one of the convoys. Sadly, during the journey his convoy met with an accident in which he suffered a serious leg injury. He is now unable to drive and has lost his job, because driving was an essential part of it. However, the charity was unincorporated so he had no effective means of redress in the form of compensation. He did receive some, but not nearly as much as he would have done had he been able to take action against an incorporated charity.

I do not think that there is any point in repeating the comments made by noble Lords in this debate. I simply wish to say that the amendment is a sensible one and I hope that the Minister will agree to bring forward an amendment on Report that incorporates its aims.

Lord Bridges of Headley: My Lords, I thank the noble Lord, Lord Bew, and the noble Baroness, Lady Deech, for their explanation of the amendment. This has indeed been an illuminating debate and I thank them for it. As has been alluded to, an amendment along these lines was first proposed by the Henry Jackson Society in its submission to the Joint Committee on the Bill, and the submission was published in the committee’s report on the evidence it received. It is worth pointing out that the Joint Committee did not recommend changing the law as proposed in that submission.

Perhaps I may briefly summarise our view around this point. As noble Lords will know, “charity” is a status rather than a legal structure. Organisations can choose from a range of different legal structures when establishing a charity. An unincorporated structure, as has been said, has no separate legal identity of its own, and so the trustees must hold the charity’s property and enter into contracts for the charity, where this is required, in a personal capacity. Unincorporated structures are usually simpler, and have fewer and less demanding reporting obligations than corporate structures, as the noble Baroness, Lady Barker, pointed out. The downside is that a trustee’s personal assets are at risk if the charity is sued and its assets cannot pay the debt. This personal liability is often a reason that many charities choose to adopt a corporate structure. Even so, many smaller organisations opt for an unincorporated form, such as a trust or unincorporated association, as the noble Lord just said.

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In a corporate structure, the charity itself has a legal identity enabling it to hold property and enter into contracts in its own name. As directors, the trustees act as agents of the charity. If they act properly, they and the charity’s other members have the benefit of limited liability, protecting their assets from being available to creditors in the event that the charity’s assets are exhausted. However, the accounting, reporting and insolvency requirements that apply to corporate structures are usually more demanding. Many charities choose the structure of a company limited by guarantee, and an increasing number of small and medium-sized charities are opting to incorporate as charitable incorporated organisations—a structure designed specifically for charities and implemented in 2012.

If an individual or entity commences litigation against an unincorporated charity, usually all the trustees of that charity would be named as parties. This is because an unincorporated charity has no separate legal identity. This would include proceedings for tortious liability against a charity trustee in his capacity as a trustee of that charity or an employee in the course of his employment. The trustees of an unincorporated charity are jointly and severally liable for their actions, where taken on behalf of an unincorporated charity. If damages were awarded against the trustees, they ordinarily would be entitled, if they have acted properly and reasonably, to indemnify themselves from the assets of the unincorporated charity under the charity’s governing document. They could, however, be jointly and severally liable for any shortfall where the charity’s assets are insufficient to meet the level of damages awarded.

As an employer, the trustees of an unincorporated charity would be vicariously liable for the actions of an employee if they were acting on behalf of the charity and the same principles would apply, enabling a claim to be paid out of the charity’s assets. Indeed, a person suing the trustees of an unincorporated charity could seek redress from the assets of the charity and the personal assets of the trustees. For an incorporated charity, in the absence of any charity assets, there is limited redress against the directors and members. If a third party reasonably believes a trustee is acting on behalf of a charity, it may sue all the charity’s trustees. Ordinarily, the trustees would be entitled to an indemnity from the funds of the charity under the charity’s governing document. However, a trustee in breach of trust or duty would be unlikely to be able to rely on this indemnity, so would remain personally liable. In either case of a trustee or employee acting on behalf of a charity, liability is not likely to be, nor should be, automatic, as the amendment seems to propose; it would still need to be established by the court where the liability should lie, based on the facts of the case.

In our view, the current legal position already supports the provisions within the amendment that damages may be recoverable from the assets of the charity, whether it is incorporated or unincorporated. Apportionment of liability between the trustees of an unincorporated charity is already possible under the Civil Liability (Contribution) Act 1978 if a claim is not brought against all of the trustees. The amendment would also run counter to the long-established principle that unincorporated associations do not have legal

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personality. I would be delighted to meet the noble Lord, Lord Bew, and the noble Baroness, Lady Deech, to discuss all this further, but, in the mean time, I invite the noble Lord, Lord Bew, to withdraw his amendment.

Lord Bew: I am very grateful to the Minister for his very full reply. My noble friend Lady Deech and I would be glad to take up the opportunity of further discussion with him on this subject. I beg leave to withdraw the amendment.

Amendment 15A withdrawn.

Amendment 15B

Moved by Baroness Pitkeathley

15B: After Clause 12, insert the following new Clause—

“Review of Charity Commission’s funding arrangements

The Secretary of State must order a review of the Charity Commission’s funding arrangements and look into different options for funding.”

Baroness Pitkeathley: My Lords, I again declare my interests as vice-president and patron of several charities, co-chair of the All-Party Group on Civil Society and Volunteering, a member of the advisory body of the NCVO and, especially in relation to this amendment, chair of the Professional Standards Authority, the overseeing authority for the nine health regulators, such as the GMC, the NMC and the GDC.

Throughout our deliberations on the Bill, concern has been expressed about giving more responsibility and powers to the Charity Commission while not providing any additional resource. Indeed, the commission has seen a considerable cut in its resources over the years. So this amendment, and I stress that it is very much a probing one, calls for a review of its funding. I am certain that we all—beneficiaries, government and charities themselves—want from the Charity Commission the assurance that it can do its job and, further, to be assured of its competence to do that job and its independence in the way that it carries out its functions.

In view of the cut in its funding and of the criticism, sometimes harsh, that it has faced about its competence, the Charity Commission has concentrated, perhaps understandably, on its core function: its regulatory or policing function. In my view, this is a pity since what is most valued by the charitable sector, particularly small charities—we have heard many times that most charities are indeed very small—is the commission’s advice and guidance as well as its regulation. The role of regulation, after all, is not just about policing but about maintaining professional standards in the interests of public protection. This is very familiar to me in my role as chair of the Professional Standards Authority.

This probing amendment seeks to encourage the Government to look at other ways of funding the Charity Commission in order to ensure that its role includes advice, information, support and other services that those regulated should be able to expect from a regulator. I start from the assumption that no further money will be forthcoming from the Government, which seems a safe enough one in this climate, though if the Minister would like to disabuse me of that idea I would be delighted; I would be very glad to be corrected if more money were coming from the Government.

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The review that I am suggesting would take the widest possible look at all the funding options, but I am going to concentrate here on one particular option. One other way to be considered could be for the regulated to contribute to the funding of their own regulator, which is how most other regulators get their income. My own organisation, the Professional Standards Authority, which provides not actual regulation but oversight of the nine health regulators, is shortly to be funded by a levy on the organisations that we oversee, based on a per-capita calculation of the number of registrants. I am aware that it is one thing to charge a nurse, doctor or dentist a fee for a registration that allows them to practise but quite another to take things from money raised from charitable donations. However, not all charitable income comes from charitable sources, and even the lowest-paid nurse knows that it is a condition of his or her practice to be registered, and that for that registration you have to pay a fee.

Let me be clear: I am not suggesting that paying fees to the Charity Commission should be a condition of regulation for all charities. The review that I am suggesting would of course have to look at exemptions from contribution, and I suggest that a very high threshold would have to be set. I think that the commission itself has suggested a £100,000 a year income, but in my view that is not nearly high enough and the threshold would have to be much higher—say, income of £1 million before any fees were charged, and then there would have to be a sliding scale.

Moreover, no Government could bring in such a scheme without significant quids pro quo being established if this suggestion were to be at all acceptable to the charitable sector. One of these would certainly be the guarantee of the independence of the commission, as all the regulators with which I am familiar have—they are guaranteed independence. We call the Charity Commission independent at present, but does it pass all the tests for an independent body? It is answerable to the Government of the day, not to Parliament; it is dependent for virtually all its funding on government; and the way in which it appoints and reappoints its trustees has been called into question, with the Government’s influence over that possibly being too strong. In my experience it is unusual, to say the least, for an independent body to have staff in the Box advising the Minister on a Bill of which it itself is the subject. So we would need more assurance about the independence of the Charity Commission if we were even to think about going down this road.

Another change which could and should be suggested about the governance of the Charity Commission in return for a change in the way it is funded is more connection with the beneficiaries of charities—the consumers of their services. The focus of all the other regulators with which I am connected in my role at the PSA has been radically altered in recent years and their governance has been changed to reflect this. The change has been to ensure that their primary role is protection of the public, not defence of their registrants. There is surely a case for making it similarly clear that the regulation of charities is a means to an end, not an end in itself. The end must be the protection of the beneficiaries—the receivers of the services of charities. Accordingly, along with contributing to the resources

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of the Charity Commission, the charities themselves should be assured that their beneficiaries would in some way be represented in the governance of the Charity Commission; if not on the board, then for example through an advisory or reference group.

5.30 pm

I am very well aware that these are controversial suggestions. I put them forward as a means of starting a discussion and as a consideration for the total review of funding that I am suggesting. I am also putting them forward in the interests of enabling the Charity Commission better to do the whole of its job, which will in turn benefit the whole charitable sector. Most importantly, it will benefit those who profit from and are the subjects of the excellent work of this sector, which is dear to my heart and, I know, to the hearts of all noble Lords. I beg to move.

Lord Hodgson of Astley Abbotts: My Lords, the Committee owes a debt of gratitude to the noble Baroness for giving us a chance to canter over this ground. As she says, this is controversial stuff but it is certainly worth the sort of creative thinking that she has just outlined.

There are a couple of public policy issues. The first is whether it is an issue for actual fundraising—a way to give more resources to the Charity Commission—but there are those charities for which you might have a second public policy idea; that is, if you made people pay they would behave better. You could use various policies to drive up standards of governance within charities. Some charities say, “What you don’t pay for, you don’t value”. Of course, as we know, a charity number is an exceptionally valuable thing to receive in the sense that it enables you to get local authority or central government funding or makes it possible for you to apply to grant-giving foundations that almost certainly will not even entertain an application from you unless you have a charity number. So there is the argument about how one might use an aspect of this issue to improve governance.

The challenge, of course, is how you levy it. We heard earlier today from the Minister that there were 7,192 new charities last year. Noble Lords can do the arithmetic, whether it is £10, £100 or £250. But unless it is going to be north of £100 for your initial registration you are not going to raise a significant sum of money. People will say that £100 is a great deal of money—maybe. Equally, you might say that if a charity starting out does not have £100 spare, its financial viability is a bit doubtful.

There is an argument about initial registration. I am less keen on things such as fines for late returns of stuff to the commission. If small charities do not do it, the problem of finding them and getting the money means that the administrative costs for the Charity Commission will almost certainly outweigh any money that is received. My particular issue, which came up in the evidence, was that if you set up a trust and you use a standard commissioning trust document, which is available on the website, that is fair enough; but if you want an all-singing, all-dancing trust deed because you are a wealthy bloke or a wealthy lady and you want a very specialised trust to reflect your own wishes,

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and you are going to send it down to Taunton to the Charity Commission to bless and it spends two or three days blessing it, I do not see why that should be paid for by the taxpayer. If you want your own special trust deed, that is fine—you are entitled to it—but there ought to be a cost-recovery basis for the Charity Commission to be able to get that paid back. That has a degree of fairness and equity that would be attractive and would raise a decent sum of money.

When I paid my visit to Taunton and talked to the people there, they said, “Well, you know, I get this telephone call from a law firm and they ask me a series of questions. I am virtually certain that they are writing down my words, putting it on their letterhead and sending it off to the client with a fee note attached”. There are issues there that need to be explored as part of the exercise that the noble Baroness was talking about. There is no reason why the taxpayer should subsidise the activities of law firms, however eminent and brilliant they may be.

My view is that in the end we shall move inexorably towards a hybrid funding model, under which the state will pay a basic amount for what one might say are the “must-have” tasks and the sector will pay for the “nice-to-have” tasks, such as help desks and the types of things to which the noble Baroness referred. If you talk to charities, there is a list of things that they think it would be helpful for the commission to provide. There might be a bit of argument about what is a “must have” and what is a “nice-to-have” but over time that could be sorted out by discussion and intellectual heavy lifting. The sector needs to show the way and that is a much better way for the sector to take charge and come up with some proposals.

That of course takes me to my last and most important point; namely, the attitude of the Treasury. It is no good my noble friend on the Front Bench thinking that this will happen, unless there is an absolutely cast-iron guarantee that the Treasury will keep its hands off it. If you raise a couple of million pounds or £3 million from the sector and the Treasury says, “That’s a brilliant idea. We will have £3 million off the grant”, the sector will be absolutely furious. How we get to the situation where the sector in good faith enters into a funding arrangement to help develop its own future and to have the right regulatory structure in which we all have trust and confidence, and how we get that level of commitment about which the sector can be assured—not just this year or next year but over time—is a very difficult issue, to which I am not sure that we have yet found the answer. For the sector to move forward with confidence and to think of new, creative ideas of the sort mentioned by the noble Baroness in her opening remarks, it will require us to find a way to unlock that problem.

Baroness Barker: My Lords, I too thank the noble Baroness, Lady Pitkeathley. The funding of the Charity Commission is a subject which anyone who has met its current chair for longer than about five minutes will have had raised. It is quite a complex issue. One of the most interesting points to arise from the investigation into the Cup Trust was the extent to which the Charity Commission was not, at that stage, aware of the cost of its own operation. At a time when every charity in

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the land has ruthlessly to look at the cost of its operation, it is only fair that the commission should do so, too.

I want to make three points. Clearly, the matter will not be resolved today but it is a useful contribution to the debate. First, the exercise of the commission’s powers is not in any way related to the number of charities which it has to regulate. In fact, it is rather disproportionate: a very small number of charities cause the most costs to the Charity Commission. Increasingly because of digitisation, most charities are dealt with in a low-cost and volume operation—there are just a few which are bigger.

Secondly, the noble Baroness, Lady Pitkeathley, was quite right when she said that it is the commission’s advice that is most valued. That is an area of work for which it receives no revenue at all. It is rather strange that this country has the most advanced charity legislation and regulation in the world, so much so that one would think we might be able to export it around the world to generate income. If I were setting up a charitable foundation in Russia, I would not want to register it there; I would want to do it here. Much as the previous Government set up an international commercial court in London, might the Charity Commission at some point look towards increasing its income by internationalising and commoditising what it does?

Finally, until the Charity Commission is willing to look to other regulators, such as the FCA, and to appreciate that it has common interests with them and to be less isolated in the way it pursues its function, it will inevitably always be running back to government asking for funding. As the commission has seen in the last few years, government funding is finite. The noble Baroness, Lady Pitkeathley, has raised some really interesting questions which the sector needs to think about but which the commission needs to start thinking about much more creatively than it has done before.

Baroness Hayter of Kentish Town: My Lords, all those who have spoken have made the case for the amendment moved by my noble friend Lady Pitkeathley: this review is clearly needed. The Charity Commission has itself published some interesting research, either this week or last week, which gives an interesting insight into the views of the public and charities themselves on the concept of charging for charity regulation. A significant proportion of charities do not presume that the costs of charity regulation should continue to be met entirely from public funds. The wider findings of the study indicate a public appetite for charities to be regulated effectively. This leads one to question whether the Charity Commission can do that without sufficient funding. However, the report also shows that charities and the public are rather split on how to fund regulation. As my noble friend has indicated and as the noble Baroness, Lady Barker, referred to, it is unusual for a regulator to be funded by taxpayers rather than the regulated community. We have the example of the FCA, but the Legal Services Board, the accountancy regime and the CQC are funded by their regulated communities.

The noble Baroness, Lady Barker, made the point about a regulator feeling part of the regulators’ community, sharing benchmarks and the whole of that attitude.

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She also drew on the point about user involvement. I have been a member of some regulators, and I chaired a consumer body of one of them. We benchmarked the different ombudsmen in various sectors. The Charity Commission is an ombudsman in that sense but this was a different issue. There was a feeling that it was a useful exercise not only in how they could compare themselves with each other, but also in how as their users we could influence how they were working for us. It would be nice if the commission could see itself in that environment.

5.45 pm

I turn to the Charity Commission’s published research. It is interesting that not 100% but two-thirds of charities want regulation to be funded entirely by taxation—no surprise there, except perhaps the fact that it was not 100% of them. However, only one-quarter of the public agreed, and I am afraid that says something about the relationship between charities and the public which we dealt with in the discussion on fundraising. In fact, two-thirds of the public support regulation being partly or fully funded by a charge to charities compared with under one-quarter of charities. Key stakeholders are similarly divided on this: there is some support for continued government funding while others are open to the idea mentioned by the noble Lord, Lord Hodgson, of a more mixed funding model. I think we hear his warnings about the Treasury getting its sticky hands on that.

For ourselves, we will be very interested to hear the Minister’s view on this. As my noble friend says, we worry about the lack of independence for the Charity Commission that the current funding model creates. We are concerned by the many complaints that we hear from charities about the cutbacks in the advice service offered by the commission and delays in dealing with correspondence and queries; it is not just about the letter to which my noble friend Lord Lea referred earlier, which was written in February and answered only in June. However, when I have picked up the phone to the Charity Commission there have been helpful staff who have made an effort to fast-forward things when I know that charities have been waiting for replies. Still, if you cut an organisation’s funding by 50%, that sort of fall-off in advice is not surprising. It is almost bound to happen.

We favour robust but flexible regulation, we want to see it effectively delivered, and we want to see the optimum use of resources. We are therefore very interested in the points made by my noble friend Lady Pitkeathley. As I am sure everyone knows, she probably has more experience with charities than the rest of the House of Lords put together, so we should listen seriously to the points she makes. Others have suggested different regimes —a percentage of gift tax, perhaps, or the fee for service plans referred to by the noble Lord, Lord Hodgson.

Following on from what the noble Lord said, in the earlier debate my noble friend Lord Lea mentioned that he had paid £6,000 for legal advice in putting an application together. We are talking about whether a charity could afford perhaps £100 to pay for its annual fee, but it may be paying £6,000 to lawyers. This is not an issue that will go away and my noble friend is right to ask for a review. We will be interested to hear the views of the Minister.

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Lord Bridges of Headley: My Lords, I welcome this debate, prompted by the amendment of the noble Baroness, Lady Pitkeathley, who, as the noble Baroness, Lady Hayter, has just said, has extensive experience of this sector. I also welcome, as did my noble friend Lord Hodgson, the chance to climb on my horse and canter around this terrain once again. It is important that we debate these issues and I can see that there are a number of them here. On the one hand there is the independence of the commission but on the other, much more fundamentally, there is the question of its funding.

Before I turn to the future, I shall talk first about the present and where we are today. It is important that we put the debate on funding in the context of recent history. As the Committee knows all too well, in its critical 2013 report on the Charity Commission the National Audit Office found that the commission had,

“no coherent strategy for delivering clearly defined priorities within its broad remit”,

and:

“The Commission does not know how much its activities cost and has not focused its resources on its priorities”.

Those are pretty damning words, as I am sure the Committee will agree. Under the leadership of William Shawcross and Paula Sussex, the Charity Commission is making good progress in addressing these weaknesses. I pay tribute to their leadership and that of the commission’s board. Equally important, I also recognise the commitment and hard work of the staff at the Charity Commission who strive, day in and day out, to ensure that charities are properly regulated and get the service they require.

The National Audit Office undertook a follow-up report on the Charity Commission which came out in January 2015. The report found that the commission has made good early progress in addressing all of the recommendations made by the NAO and the Public Accounts Committee and has put in place a credible programme for change. That said, it also pointed out that there is still some way to go.

The Charity Commission’s 2014-15 annual report, which was laid before your Lordships’ House yesterday, demonstrates some of the progress it has made in its compliance work, for example, and in a number of other areas. It reports that in 2014-15 the commission opened 103 new investigations and used its enforcement powers 1,060 times—up from 64 and 790 respectively in 2013-14. Equally as important, the commission also continues its enabling work through permissions casework, providing online services to charities, and through guidance and engagement to support trustees in fulfilling their legal duties when managing their charities. In the commission’s first contact alone, it dealt with over 57,000 calls, 55,000 emails and granted over 2,500 permissions last year. It continues to refine this work with an aim to provide an “efficient, fuss-free service to charities”. So we are seeing good and positive progress from the commission in becoming a more effective and efficient regulator.

However, as has been discussed, the question of funding is a valid one and I share the noble Baroness’s wish to ensure that the regulator is properly and sustainably funded. I am sorry to disappoint the noble

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Baroness but I am not able to shake a money tree and magic up a large cheque for the Charity Commission. This is because the Government remain committed to dealing with the record deficit and all parts of government need to contribute to efficiency, including the Charity Commission.

That said, the Government recognise the need for targeted additional resources for the Charity Commission. In October last year, my right honourable friend the Prime Minister announced an £8 million capital investment for the Charity Commission through to March 2017. On top of that, it also received an extra £1 million in funding for 2015-16. This £8 million capital investment will help the commission to refocus its regulatory activity on monitoring and enforcement in the highest risk areas—for example, the abuse of charities for terrorist and other criminal purposes such as tax avoidance and fraud. The commission has said that this significant investment will be spent on technology and frontline operations, allowing it to streamline lower risk work and deploy its resources more effectively to priority work.

So that is where we are. Looking to the future, the Charity Commission’s strategic plan for 2015-18, which was also published yesterday, sets out its four strategic priorities. These are, first, protecting charities from abuse or mismanagement; secondly, enabling trustees to run their charities effectively; thirdly, encouraging transparency and accountability; and, fourthly—this is the matter that concerns the Committee—operating as an efficient and expert regulator with sustainable funding. Under the heading of that fourth strategic priority, the commission has committed to consulting on proposals for alternative funding options, including an annual charge for registered charities.

The strategic plan also makes it clear that the Charity Commission cannot devote the same level of resource to each of its statutory objectives as it previously could. It accepts that means changing the way it operates, allocating resources by relative priority and risk, and working with partners. The commission is looking at various options. However, I should stress that there are no plans in place yet. The commission’s chairman, William Shawcross, has been meeting the chief executives of a number of charities to raise the idea with them and listen to their thoughts. Of course there are those who have concerns. The commission is listening to them and will consult more widely as its plans develop.

As the noble Baroness, Lady Hayter, has illustrated, there is a wide range of views on this subject already. The Populus research that she cited found that the majority of the public—69%, as noble Baroness said—believe that charity regulation should be partly or fully funded by charities themselves. A significant minority of charities—23%—agree with this, while the majority of charities believe that charity regulation should be funded entirely through general taxation. Clearly, therefore, discussions must continue with the sector to see where there is shared ground. Of course, Parliament would want and needs to be involved in any debate, and I know that some of your Lordships have already fed in your thoughts and have expressed them today. Section 19 of the Charities Act 2011 would enable charging to

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be brought in through secondary legislation, but importantly and crucially, it provides for parliamentary scrutiny of any charging proposals and requires the affirmative resolution procedure.

The issue of independence was raised and whether, if charities are to pay for their regulation, we can ensure that the Charity Commission is independent of government. This again raises questions about the commission’s independence. Its chairman, Mr Shawcross, explored the issue of sustainable funding for the regulator in a speech on 10 June, saying:

“There are indeed very real questions to answer—including how the Commission’s independence, which is so vital, would be protected under such an arrangement”.

We must ensure that the Charity Commission remains independent of government and the sector it regulates, however it is funded in the future.

The funding of the commission is just one strand of ensuring that it is able to be the modern, effective regulator that the public and we all expect. The powers in this Bill are another strand of that. I hope that my response begins to reassure the noble Baroness that we and the commission are committed to ensuring that the regulator has a sustainable funding solution to enable it to regulate charities effectively and efficiently, and that work is already under way to consider the options. With that, I hope that she will feel able to withdraw her amendment.

Baroness Pitkeathley: I thank the Minister for his thoughtful response and other noble Lords for their similarly valuable contributions to this short debate. I said that my amendment was controversial; it has also been illustrated that there are many complex issues within it. The debate about how the Charity Commission is funded did not start here and certainly will not finish here. It will be the subject of ongoing relationships. It seems to me that the relationship between the Charity Commission and the sector that it regulates is vital.

I have raised the issue—and the Minister has addressed it—of independence. My noble friend referred to consumer involvement and protection. Those issues will not go away as we look to the future of funding for the Charity Commission, but, for the moment, I am happy to withdraw the amendment.

Amendment 15B withdrawn.

Clause 13: Power to make social investments

Amendment 16

Moved by Baroness Barker

16: Clause 13, page 16, line 10, leave out “both” and insert “primarily”

Baroness Barker: My Lords, before we start to debate the matters related to social investment in Clause 13, I should declare an interest. I am one of the vice-chairs of the All-Party Parliamentary Group on Social Enterprise. The Committee will not be surprised to learn that many of the amendments that stand in my name have been put forward by Social Enterprise UK. It did so because it is the national body for social enterprise and has a direct interest in social investment.

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It conducts research on policy and Bill campaigns over the whole field of social enterprise, and social investment is very much at the heart of that. Social Enterprise UK chairs the Social Investment Forum, which is a network of social investment and finance intermediaries designed to keep money flowing around the social enterprise market. It therefore has a direct interest in the first ever legal definition of social investment. Perhaps because it is the first ever legal definition of social investment, there is considerable concern that the law should be right. That is not easy, because by its very nature social investment, as opposed to straight financial investment, is not easy to define.

6 pm

People in the world of social enterprise often talk about social finance in terms of social enterprises being entities that have triple bottom lines. In business, you have a single bottom line: you are either making a profit or you are not, and that is the basis on which all your activities are judged. In a social enterprise, that is not the case. Whether or not you are achieving the social or environmental purposes for which you have been established, the extent to which you have been doing that and how you measure whether you have been doing that are matters on which some of the greatest minds in the world have been exercising themselves in the past decade.

When we come to the matter of what is a social investment, as opposed to an ordinary financial investment that any charitable trustee might make, we are in similar territory of having to argue about definitions. The definition of social investment on which the Government alighted and put into the Bill—it was not in the draft Bill but, as noble Lords said on Second Reading, we are all delighted to see it here—was put forward by the Law Commission.

That is welcome, but there are some oddities within it that would at the very least benefit from debate in your Lordships’ House, if not some tidying and clarification. The first is a change under Clause 13 to Part 14A of the Charities Act 2011 in new Section 292A, which covers the “Meaning of ‘social investment’”. We on these Benches and the noble Lord, Lord Hodgson of Astley Abbots, have focused on subsection (2), which states:

“A social investment is made when a relevant act of a charity is carried out with a view to both—

(a) directly furthering the charity’s purposes; and

(b) achieving a financial return for the charity”.

There we are straight into the matter of judgment, because a trustee must show that they have pursued both those things, when in fact they may not follow one from another.

Social Enterprise UK has expressed concern that the clause as written would catch within it investments that the charity may make which are not social investments and that they would end up having to report to different types of investments together, when that may not be appropriate. It is entirely appropriate to report on one’s financial investments purely in terms of the amount of interest or return on investment. Social investment may be different and, as we know, may involve the charity making a loss, at least in the first stages of its investment. That is why we have tabled

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Amendments 16 and 18, which enable a social investment to be defined as an act where the purpose is not only directly to further the charity’s purpose. That may be primarily what it is about and there may well be an intention to achieve a financial return, but there could be an interplay between those two. This is in the nature of an amendment in Committee trying to probe exactly what we mean by the new definition of social investment. I beg to move.

Lord Hodgson of Astley Abbotts: My Lords, I have three amendments in the group, Amendments 18A, 18B and 20A, which follow the noble Baroness down the rabbit hole of definition. However, I have to say that the advice I am getting—I am not going to pretend that I drafted these amendments—is that the Bill as drafted does not do what it says on the tin. I should like to take a minute to explain why that is the case and why the Government should be considering amendments along the lines of these three. I am supported in this by members of the Charity Law Association.

Perhaps I may back up for a moment. We spent quite a lot of time in my review on social investment, which obviously presents tremendous opportunities if we can set it up right and make it work effectively. As I said at Second Reading, that is not just in terms of this country. We in the UK have done so much heavy lifting that we are in a world-leading position in this new area. We heard from my noble friend on the Front Bench at Second Reading that the Law Commission carried out a consultation on these and various other proposals to remove unnecessary impediments to the growth of social investment. That consultation ended in July 2014 and the commission’s final report underpins much of what lies in Clause 13. I do not doubt for a moment the Government’s good intentions regarding social investment, but there is a view held by specialists in this area that the current drafting of the clause—specifically, proposed new Section 292A—does not capture the results of the Law Commission’s consultation, which the Government have accepted and which I think this Bill was supposed to implement. It is worth quoting from the summary of its conclusions at paragraphs 6 to 8 of the report:

“6. We recommend that a new statutory power should be created, conferring on charity trustees the power to make social investments, so as to put the law beyond doubt.

“7. A social investment is any use of funds from which charity trustees seek both:

(1) to further one or more of their charity’s objects; and

(2) a financial return, which might include (i) income, (ii) capital growth, (iii) full or partial repayment, or (iv) avoiding incurring financial liability at a future date.

“8. We recommend that the new power should apply unless it has been expressly excluded or modified by the charity’s governing document”.

The consultation paper produced by the Law Commission contains a splendidly clear diagram of how this works and sheds light on what is a pretty technical area. At one end are the grants where the money is given and at the other end is investment where there is a financial return. But in between, close to a grant, there are what is known in the trade as programme-related investments, which support the

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charitable objectives of the charity but do not expect a financial return. As you inch towards financial investments by moving across the spectrum, you reach something known as mixed-motive investment, a title that I find quite appalling because a mixed motive sounds like an ulterior motive. I wanted to change it to “mixed-purpose investment”, but that was altogether a bridge too far and we are still stuck with the terrible title of mixed-motive investment. Never mind; we can leave that for another day.

There is concern among charity lawyers that the Bill permits programme-related investments but does not give an adequate statutory power to mixed-motive investment, which I like to call mixed-purpose investment. That is because of the general drafting, particularly the use of the word “directly”, of subsection (2)(a) of Section 292A to be inserted in the Charities Act 2011 under Clause 13. Charities may not always act directly to further their charitable purposes. They may do so through a third party, which may not be exclusively charitable.

I have received examples of how this might work. First, a diabetes charity seeks to invest in a company developing foods calculated to reduce the impact of diabetes on sufferers but which are available to the general public. The investment will achieve some mission benefit for the diabetes charity but the fact that the foods will be available more widely means that not all the activities of the investee will advance the objects of the charity because there is a commercial element. The object therefore will be advanced only in part, which is why we need to get the words “in part” in the rephrasing.

Secondly, a charity that has purposes to relieve unemployment wants to invest in a social firm in the construction industry that employs ex-offenders at risk of unemployment. Once employed, the individuals employed by the social firm are not charitable beneficiaries because they are employed. The investment by the charity and the social firm may in part relieve unemployment but it also, in part, advances other purposes and benefits individuals who are employed by the social firm.

The worry is that almost any situation in which a charity is investing in a non-charitable social enterprise—picking up the point made by the noble Baroness—such as co-operatives, community benefit societies or community interest companies, will likely involve mixed-motive investment and will likely advance the objects of the charity in part and not exclusively. Without adequate clarification of the power, the Government risk introducing a statutory power which fails to achieve the clarity and confirmation that they seek.

Quite simply, Amendment 16A deletes the phrase,

“directly furthering the charity’s purposes”,

and replaces it with,

“furthering one or more of the charity’s purposes in whole or in part”.

The examples that I have just given underline that. Amendment 18B would insert a new subsection at the end of what will become subsection (7). It would state:

“A relevant act of a charity may be carried out with a view to furthering one or more of the charity’s purposes in whole or in part for the purposes of this section even where the relevant act may not exclusively further one or more of the charity’s purposes”.

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Finally, Amendment 20A would make an amendment to new Section 292C, to which we will come later, headed “Charity trustees’ duties in relation to social investments”. At the end of subsection (2) it would insert,

“having had regard to the degree to which the relevant act is expected to further one or more of the charity’s purposes in whole or in part, and the expected financial return”.

That is all quite complicated, technical and difficult but it has important consequences. However, the charity law sector is concerned that we need to bottom this out. I am sure that the Government accept that, and I certainly believe that we want to put the ability of trustees to make mixed-purpose, mixed-motive investments beyond statutory doubt. I am sure that my noble friend will not be able answer all this today but I hope that he can take on board the concern about the technical details. I think that they have been raised elsewhere with the Treasury and so on, and it may be that we will need to have a discussion about it. I hope he can see what the sector is driving at. The sector is merely wishing to ensure that what the Government want to achieve can properly be achieved by the Bill. Currently, it does not think that the drafting achieves that.

Lord Wallace of Saltaire: My Lords, I agree with much of what the noble Lord has said. Perhaps I may remind him that when I first went to a tutorial with him on charity law history, he said that part of the glory of charity law was that so many definitions were left loose.

6.15 pm

Lord Watson of Invergowrie: My Lords, I am in favour of these amendments. It is important to ensure that the Bill is drafted as clearly and concisely as possible to enable charities to make the most of social investment in furthering their purposes.

In 2012, the noble Lord, Lord Hodgson of Astley Abbotts—who has, as ever, provided us with an insight into some of the work that led to the Bill before us today—said in his review of the Charities Act 2006 that while charity law did not actively prohibit social investment, it was,

“certainly not set up to support it”.

He went on to advocate a statutory power for charity trustees to engage in social investment and statutory clarification of just what social investment is and involves. That makes it all the more puzzling why the previous Government chose not to include the social investment aspects in the draft Bill that was the subject of pre-legislative scrutiny by a Joint Committee of both Houses. If social investment is suitable for inclusion in this Bill, why was it not suitable for the draft Bill? Is there an answer? Of course, it is not a new idea but we are where we are and it is certainly to be welcomed that we now have this clause in the Bill.

In preparing for this part of the Bill, I tried to answer the question: what is social investment? I am not alone in that. The term is often confusing to many, and a lack of transparency could undermine its potential. As I understand it, this is the first time that social investment has been defined in statute, although neither

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the Bill nor its Explanatory Notes are particularly helpful in their attempts to define it. Am I the only one to have read the Explanatory Notes on Clause 13, paragraph 80 in particular, and found myself little more aware of what social investment really is and how it might operate as a result?

According to the Big Society Capital website, social investment is,

“the use of repayable finance to achieve a social as well as a financial return”,

which certainly has the benefit of being both clear and concise. Big Society Capital was the first ever social institution of its kind, established by the coalition Government in 2012 as an independent organisation with an investment fund of some £600 million. However, the concept actually emerged under the Labour Government of 2005 to 2010, who established the Commission on Unclaimed Assets to examine how funds released from dormant bank accounts could be used to generate the maximum public benefit. The creation of a social investment bank was a key recommendation of the commission and, following a consultation, the Labour Government proposed naming it the Social Investment Wholesale Bank. Fast-forward to the arrival of the coalition Government, for whom the title was perhaps a tad too left-sounding, hence the incorporation of what I regard as the largely meaningless big society name—whatever became of that concept, I wonder?

Whether Big Society Capital is now succeeding in supporting the third sector in the way it was intended to do is open to question and there are arguments both for and against within the sector. Certainly, Big Society Capital should have a positive impact on the social investment market by facilitating the provision of funding capital to the third sector. It is also charged with increasing awareness of and confidence in social investment by promoting best practice and sharing information; improving links between the social investment and mainstream financial markets; and working with other investors to embed social impact assessment into the investment decision-making process.

A new social investment market is emerging, developing ways to connect socially motivated investors with social sector organisations that need capital so that they can grow and make a greater impact on society. All this is to be welcomed, and the fact that every organisation that has sent noble Lords a briefing has welcomed the addition of social investment to the Bill demonstrates that it is an idea whose time has come, certainly in the third sector. The key is to make sure that it is as effective as possible in enabling charities to further their stated purposes while achieving a financial return for them.

Clause 13 is, by consensus, necessary. Noble Lords have already referred to the Law Commission consultation, which highlighted that there are differences of opinion regarding the ability of charities to make social investment based on their existing charitable powers. Clause 13 removes any such doubts and will enable charities to undertake social investment more easily and without the need for legal advice, at least as to the principle of the investment.

It is self-evident that social investments should be made only after careful consideration of the risks of the investment and evaluation of the benefit that will

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accrue as a result of it. Trustees should also be clear as to how they will evaluate the social investment and how regularly the investment will be reviewed. Such reviews should consider the effect that the social investment may have on the rest their overall investment portfolio and other activities, such as grant-making. Social investments are not made in isolation and it is surely sensible for trustees to take this into account when making a decision.

We support the amendments in this group. As has been stated, there is a need for clarity on what social investment is and how it will operate. The noble Lord, Lord Hodgson of Astley Abbotts, made the important point that the current wording of new Sections 292A and 292C does not reflect adequately the suggestions made by the Law Commission in its report. It is important for the Bill to be as clear as possible and I hope the Minister will be open-minded on this broad point and that he will not dismiss the amendments but will undertake to look at them in the way they have been brought forward. I hope he will give an undertaking to bring forward his own rewording to improve this section on Report. We have a singular aim: to make this section of the Bill as effective as possible. It would be in the interests of everybody, not least the charities themselves, for the wording to be tightened up.

Lord Bridges of Headley: My Lords, I am grateful to the noble Baroness, Lady Barker, and my noble Friend, Lord Hodgson, for tabling these amendments. I entirely share the sentiments of many noble Lords that we need to examine the definitions in detail, although this might get very technical. This is clearly the first time that we have attempted to define social investment and set it out in statute. It is entirely right and proper that we take time to debate and define to make sure that what we are doing is fit for purpose.

I will pick up on what has been said about the definition of social investments. Traditionally, as your Lordships know, those charities that have money to invest have taken a two-pocket approach to pursuing their goal. On one side, they seek to maximise financial returns from their investments. On the other side, they distribute those returns to further their mission. Sometimes, but not always, they try to measure the impact they are having. I would argue that social investment is different, because it sits between these two pockets. It involves investments that further the charitable mission but also expect to generate a financial return. This means the capital can be recycled again and again, contributing to a sustainable model and reducing dependency on grants and donations. In the right conditions, it can enable a greater impact than the traditional model, and further benefits from the focus on measuring and reporting on the outcomes that have been generated.

Turning to the amendments, it may first be worth recognising that Clause 13 has been prepared by the Law Commission, as the noble Baroness, Lady Barker, said, in order to implement its recommendation for the creation of a new power, and associated duties, when making social investments. The Bill is not the Government’s interpretation of what the Law Commission recommended; rather, it is drafted by the Law Commission

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to reflect its own recommendations. In this way, the definition of social investment used for the purpose of this Bill has been deliberately drafted to be as wide as possible while retaining the distinctiveness of the “social” element. It covers a spectrum, from investments that are mostly intended to further charitable purposes but involve some return of capital, through to those that are primarily financial but have a small mission benefit. I think of these as the two poles at the extremes of the spectrum. At one end are social investments that look much like grants, with a very limited expected return of capital. At the other are social investments that look very similar to traditional financial investments, but have a small role in furthering a charitable purpose. Social investment must combine some aspect of each pole, but the nature of the combination is entirely flexible.

Neither the furtherance of the charity’s purposes nor the financial return should be required to take precedence. To hold one above the other would potentially restrict the breadth of investments that fall under the power, thereby making it less likely to be used. In order to maintain as wide a scope as possible for the power’s use, so that the power may have the largest possible impact, I hope the noble Baroness will withdraw her amendment.

On the other hand, the definition of social investment used here seeks to ensure that there is a direct relationship between the social investment and the charity’s purposes; in other words, there should be a clear causal connection between the act done by the charity and the charitable service ultimately provided. Allowing for indirect furthering of the charitable mission would mean that the power of social investment applied to investments that were purely financial but where the returns were used for charitable purposes. I thank my noble friend Lord Hodgson for raising this important consideration with me, but in order that the clear causal connection should be maintained I hope that he will be content to not move his amendment.

Turning to Amendments 16A, 18B and 20A, I thank my noble friend Lord Hodgson for the work that he has done and continues to do in this area. His input is of great help and has been of real benefit to the charity sector. My understanding is that these amendments are intended to ensure that the definition of social investment is wide and can cover all potential situations, even those where the furtherance of the charity’s mission is slight or occurs piecemeal. In particular, I understand that the intention is to make explicit that mixed-motive investments, as described in Charity Commission guidance note CC14, are covered by the definition.

I take this opportunity to state explicitly that the Bill has been drafted by the Law Commission to include MMI as one aspect of social investment. Furthermore, officials have been in continued dialogue with the Law Commission on this and other points, and the commission is satisfied that the drafting properly reflects the intent. So long as some direct furthering of the charity’s purposes is intended, no matter how small or partial, along with some anticipated return of capital, no matter how minimal, the investment is covered by the definition. Mixed-motive investment

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clearly falls within this. It partly furthers charitable purposes and partly achieves a financial return. I hope that this provides assurance to my noble friend and that he will feel comfortable not moving the amendment. I know that we seek a similar destination here, and I hope I have shown that the vessel that we are embarking in stands good for the journey.

Lord Hodgson of Astley Abbotts: We are on to angels on the head of a pin, to be honest; this is very technical. When we have had a chance to go through what the Law Commission has said and what the Minister has said today, if the Charity Law Association still thinks that there is an issue to be thrashed out here, it would be helpful if we could have an understanding today that we could come to see him to talk about this and sort it out. We are going to get no further today because this is a very narrow point, but people feel strongly about it.

Lord Bridges of Headley: My noble friend takes words out of my mouth. I was about to invite him and the noble Baroness, Lady Barker, to meet so that we can discuss this point and dance on the head of a pin together. I understand that we need to get this right.

I confirm that the relevant guidance from the Charity Commission—CC14—will be revised following the passage of the Bill. The commission will take steps to make sure that charities that want to make social investments are clear about the scope of the power and what it would mean for them, as well as how the commission can and will monitor for abuse of the power. The commission will update its relevant guidance for trustees’ duties where needed. It will also consult stakeholders—a mix of legal advisers, investment bodies and charities—to ensure that any guidance produced is of practical use and widespread application. Any such guidance would be produced in time for the implementation of the power. I hope that that begins to address some of the Committee’s points but, as I said, I would be happy to meet my noble friend and the noble Baroness.

6.30 pm

Baroness Barker: I thank all noble Lords who took part in what was a very technical but extremely important discussion. It is important out in the field. It took me back several years to a discussion I had with a colleague who had been to visit a rather far-flung part of our charitable empire. We discussed whether or not the fact that some pensioners went on some of the holidays that were provided by the organisation was enough to make it so distinguishable from a travel agent that it might just be a charity. That is a flippant way of saying: it is very important for trustees to understand exactly what their powers are going to be. The intention of us all is to open up the social investment market and those who work in this field know that even the best of the social investment charities are very cautious and very conservative in the way in which they exercise their powers. We will not be doing the sector any favours if we allow there to be considerable doubt on the part of the trustees about where they are going to fall. So I very much

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welcome what the Minister said and, like the noble Lord, Lord Hodgson of Astley Abbotts—not my noble friend any more—I would be delighted to come and meet him, but we might be lawyered up when we do. I beg leave to withdraw the amendment.

Amendment 16 withdrawn.

Amendments 16A to 18 not moved.

Amendment 18A had been retabled as Amendment 16A.

Amendment 18B not moved.

Amendment 18C

Moved by Lord Lea of Crondall

18C: Clause 13, page 17, line 8, at end insert—

“( ) privately funded educational institutions, except universities;”

Lord Lea of Crondall: My Lords, I tabled this amendment to help clarify what Clause 13 is not, as much as what it is. I would like to ask the Minister how widely this clause can be interpreted. I do not want to wake up one morning and find that it means something quite different from what I thought it meant. I would like to clarify that it is not an opportunity to open up a further shift towards helping taxpayers invest, with socioecononomic income distributional consequences, in private education rather than public education. I do not think anyone would deny that that is a consequence of the charity status of public schools in this country. I repeat that my purpose is to ensure that we all put our cards on the table as to what is going on here and what may be open to interpretation. We do not want to wake up one morning in four years’ time and say, “Well, people kicked the ball through that goal and you did nothing about it. Are you stupid or something? You didn’t keep your eye on the ball”.

I do not know how we are going to avoid the spectre that I am talking about but I will put my question to the Minister in two parts. First, will he comment on my anxieties or analysis of what this may lead to? Secondly, if he wants to reassure me—not me, I am sure he does not wake up in the middle of the night and think, “I’d like to reassure the noble Lord, Lord Lea, of something”; but if he wanted to reassure people—that this does not have any wider consequences in the sphere that I am talking about, what is wrong with this amendment? The answer can only be that it is redundant or offensive. I would like to know which it is. Is it redundant or is it offensive and if so, why? I beg to move.

Lord Wallace of Saltaire: My Lords, the noble Lord, Lord Moynihan, and I both have amendments down for Monday’s Committee sitting which relate to the issue of public benefit and public schools, and specifically the provision of their facilities for use by others. We all know that this is a delicate and sometimes politically controversial issue. What I want to say on Monday—although I realise with horror that I am supposed to be speaking in a debate on Gaza at the

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same time—is that now that private schools in Britain with charitable status have some wonderful sports, music and drama facilities, the question of how far they make them available to their communities is one that we cannot entirely ignore.

It happens that a charity which I chair has benefited from very good partnerships with a small number of public schools which do this precisely because it demonstrates that there is a public benefit, and I am sure that the noble Lord, Lord Moynihan, will be saying much the same thing. We will return to this issue on Monday, but one has to be careful not to go on an all-out attack on schools with charitable status. Nevertheless one would wish to insist that public benefit does mean what it says in this and other areas. As I say, we will return to these matters on Monday.

Baroness Hayter of Kentish Town: My Lords, I want to add little to what my noble friend Lord Lea has said, but it is a question that needs a serious answer. It does not take much imagination to see how such investment could be used by certain facilities to further enhance the advantages they already have, and therefore a serious response is needed. We look forward to hearing it.

Lord Bridges of Headley: My Lords, I will certainly give this amendment a serious response, and I thank the noble Lord for the interest he has shown in the Bill. It is of course appropriate that we should consider the range of organisations to which social investment will apply, and I recognise that that range is huge and complex. Many different types of charitable organisations will apply for and use this power, but for many of them it may not be relevant. I should take this opportunity to point out that this was known from inception and that the drafting of the power has been undertaken with the intention of placing the minimum possible burden on those charities by which, at least in the first instance, it is unlikely to be used.

However, I want to set out the case for including as wide a diversity of charitable organisations as possible within the scope of the power. The power of social investment is a permissive one which is intended to encourage trustees who can see the potential of social investment but have lacked the confidence to take it further. By providing a framework in law, the power of social investment will give confidence to charity trustees to add social investment to their existing armoury. The Government intend the power to be available to the full spectrum of charities, subject to some technical exclusions around those established by legislation or royal charter. It is important to make the power as widely available as possible in order to encourage its use and the benefits that will flow from it.

Charitable independent schools fall within this spectrum of charities, and in their charitable activities they seek to further educational purposes for the public benefit in a wide range of ways. Many of them are providing significant support to their local communities across a range of actions. It would therefore be inconsistent to deny them the use of this social investment power. Indeed, to answer the point put by the noble Lord, Lord Lea, I think it would be wrong to do so. I see no

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valid argument for why charitable independent schools should be arbitrarily singled out for exclusion from this power, and that is even more the case given their valuable existing contribution, as I have said, and their potential to do even more. It simply does not make sense to deny them the use of this permissive power to stimulate social investments. Indeed, it is encapsulated by the debate on this point so far. On the one hand there are those who appear to be doubting charitable status for private schools overall as they do not do enough, while on the other hand there are some who are imploring private schools with charitable status to do more.

I would argue that the social investment power would enable them to do more. Therefore it is entirely justified that they should be able to use it. We should give charitable independent schools every opportunity to increase their contribution to public benefit, and using the power of social investment represents such an opportunity.

That is my serious contribution to this debate and, on that basis, I hope the noble Lord will be willing to withdraw his amendment.

Baroness Hayter of Kentish Town: Can the Minister outline the checks that will be made to ensure that the social investment that, say, Eton makes will be for the wider public benefit of local schools in the area, rather than being used only for even more educational buildings for its existing pupils? What will be the checks on that?

Lord Bridges of Headley: The noble Baroness makes a good point. The overarching check will be that it meets the twin ends of the social investment to make some financial return and ensures that—the noble Baroness mentioned Eton—its charitable mission is fulfilled. We will have to make sure that it does.

Lord Lea of Crondall: My Lords, it would be going a bit far for me to say that I do not believe a word of this and that I have got the t-shirt—but not very far.

To caricature—although not a lot—the purpose of the Charity Commission is to do with tax relief. The bigger the tax rate, the bigger the tax relief. That is why it is good for public schools and good for the socioeconomic distribution of income and wealth in favour of the rich. It is not only me saying this: every study that has been carried out for the OECD, through to Milburn and so on proves that. The Minister may wish to caricature me as or put me in the category of a dinosaur from an earlier age—that is entirely his privilege. However, I am talking about what the analysis is today—and that is the analysis of today.

We have a growing problem in Britain in this regard and I would like to think how to move this issue forward before Report. We are obviously miles apart on the analysis—not the politics—of what these kinds of investment would do to the socioeconomic distribution. The answer is regressive. That is the analysis on which 99% of economists would agree.

There have to be safeguards. Things need to be said about this which have not been said so far. I see the noble Lord, Lord Hodgson, wants to say something useful on this.

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Lord Hodgson of Astley Abbotts: Probably not but I am grateful to the noble Lord for giving way. He is making a case for using charitable status for social engineering—fair enough, that is a perfectly good argument—but that is not what we are discussing in the Bill. Social engineering is a different issue. I have heard his callings and those of Members on the other side of the Committee on other occasions. There is nothing wrong with that but it is not what we are driving at on this occasion. We are talking about how to make charities more effective and how to widen the pool of money that is available for social investment.

Lord Lea of Crondall: Yes, I know the speech. I have great regard for the noble Lord, Lord Hodgson, but my truth is much more truthful than his truth, which is that charities are about socioeconomic distribution towards the regressive. If you put my caricature up against his caricature, the jury will ultimately decide. At the moment, I beg leave to withdraw the amendment.

Amendment 18C withdrawn.

6.45 pm

Amendment 19

Moved by Baroness Barker

19: Clause 1003, page 17, line 18, at end insert “including, where it is reasonable, from beneficiaries and other stakeholders”

Baroness Barker: My Lords, after that foray into the wider realms of charity law and purposes, we come back to the anorak stuff of social investment. As the noble Lord, Lord Hodgson of Astley Abbots, alluded to earlier, new Section 292C(2) sets out the considerations which charities must make before they exercise a power to make social investment, and it refers specifically to advice that they should take.

As we discussed in relation to the earlier amendments, there are two different sets of considerations which trustees will have to make. One is a straight financial assessment. I know that it is argued that some social investments are almost akin to the making of grants—they are very few, I would imagine—so a great deal of what most people involved in making decisions about giving assets to social investments are concerned with is the business case for doing so and the likelihood of return. It is therefore quite right that the subsection should place a strong requirement on trustees to obtain advice on that. I think that most trustees making a social investment would seek the advice of people who had relevant experience in business.

On how charities make a judgment as to what is a correct social investment, which is particularly relevant given what the Minister said in his response to the previous amendments, we are talking not only about charities being able to make investments which are seen to be socially good but about such investments being both socially good and in pursuit of their charitable objects. That brings an important level of complexity to this matter because many charities would see making an investment in the sort of work which they do as not only being desirable but having the potential to get them out of some of the financial deficits which

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charities are getting into. They would say that that was quite a complex thing to do, whether or not it fell under this legislation.

I understand what the Government are trying to do by saying that before trustees risk money, they should take early advice. There was some debate on subsection (2)(a), which states that before making a social investment charity trustees must,

“consider whether in all the circumstances any advice about the proposed social investment ought to be obtained”.

There was a fear on the part of some people that that might give people carte blanche to go ahead and make investments without taking advice at all. Perhaps the Minister might make clear whether the Government envisage that there will be circumstances in which charities go ahead and make social investments without taking any advice.

I turn to the point of my amendment. If the investment concerned is truly to be a social investment, an interested party ought to be the beneficiaries of a charity. That is so for two reasons. First, they ought to be the people who can talk about the social value of the investment being made. Secondly, for different reasons, the beneficiaries of a charity have a direct interest in determining whether or not a social investment would be the best use of the assets of the charity from which they would otherwise benefit. It is therefore not unreasonable for there to be a discussion that includes both them and other relevant stakeholders. In a way, this is supposed to add a bit of belt and braces to the social aspect of social investment. I beg to move.

Lord Cromwell (CB): We would all agree in principle that the beneficiaries of a charity should surely be involved as far as possible. My difficulty is where it is reasonable. Who decides, particularly if an investment goes wrong, whether or not it was reasonable to have consulted them?

I turn to Amendment 20, which is in my name and that of the noble and learned Lord, Lord Hope of Craighead, who cannot be with us today as he is required elsewhere: I am sure that the Committee, like me, will be happy to know that he was today confirmed as the new Convenor of the Cross Benches. I declare my interests: I have worked for and with a number of UK and international charities for much of my life. Latterly, in about the last eight years, I have moved much more into the investment world, where I look after some quite substantial investment portfolios for clients that include charities.

I am going to take a slightly different approach from some of the other speakers, which may or may not make me popular. I shall approach this amendment in three steps: first, what happens currently; secondly, what I think the Bill as it stands would mean for trustees; and, thirdly, why I think the amendment is needed. So what happens currently? Much of what is called social investment already probably happens in two ways. The first is that some charity investors seek to use various degrees of what we might call “ethical overlay” to their investment portfolios. At its simplest that is an ethical portfolio, and you can buy them off the shelf. It might involve avoiding certain companies or sectors, and tobacco and arms are obvious examples

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of that. These are available now; you can buy them online as a private investor if you wish to, or a charity could do the same. A common difficulty, of course, is the divergence of opinion about what is an ethical investment; I do not propose to dive into that today as I suspect we could spend most of the evening on it.

However, the provisions of the Bill go well beyond this type of investing. Moving perhaps closer to what the Bill envisages, some trustees invest in projects or activities where there is an expectation of some element of financial return beyond mission-related benefits. I agree about “mixed motive”; I prefer “mission-related”—it is a case of potayto/potahto. One might cite social enterprises, revolving credit funds, concessional lending to development projects or just models of work that require an element of repayment by the beneficiaries to recycle the money and ensure that they treat the money that they receive responsibly.

Last week I chaired a group in Birmingham for the Prince’s Trust, which advances modest sums to individuals seeking to start their own businesses. These loans are repayable to the trust to fund further such work, and that is made very clear to the beneficiaries when they receive these loans. My view, however, is that realistically these types of projects fall within the spending activities of that charity rather than being classed as investments, for reasons that I will come on to—the “two pockets” approach that the Minister referred to earlier. Nevertheless, the 2006 report of the noble Lord, Lord Hodgson, showed that there is anxiety among some trustees about how such activities fit within their responsibilities to invest charitable resources prudently. His report suggests specifically that a fear that social investments might not be within these rules is holding back and inhibiting investment into them and that it should be put into law that social investments are in line with trustees’ responsibilities—something that most of us have touched on already today. The Law Commission came to a very similar conclusion in its 2013 report and the wording of this section of the Bill follows very closely what it said. It comes as little surprise that the Minister told us that it had drafted this section. I am also glad to hear that better guidance, associated with that, is on its way, because my first instinct on reading the Bill was that this might be better dealt with through guidance than law. However, I bow to the far greater expertise that has been deployed on that matter than I have to offer.

So far, so good, but there are four other aspects of social investing that cause disquiet for trustees. Simply passing a Bill to say that they can make social investments does not sufficiently address those. First, social investing is poorly defined. It lies somewhere between charitable spending on worthwhile activities and investing for purely financial return. It is widely covered elsewhere, particularly in the Law Commission report, where one witness stated that it is,

“an unclear concept and capable of being used by a proponent to mean precisely what the proponent wants it to mean”.

The Bill seeks to define it; we have agreed to discuss that point separately, on the head of a pin, so I will not elaborate further today.

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The second issue is that the returns on a social investment can be extremely difficult to quantify. The old cliché that two economists in a room will give you three opinions multiplies exponentially in this sort of area. Measuring and attributing a numerical value to social benefits, which trustees are going to have to compare between, can produce a very wide dispersion of arguably equal returns, depending on which criteria you use, how you weight them and—let us be candid—how keen you are to promote that particular investment to whoever is listening to you on the other side of the table. The prospect of asking trustees to leave the realms of quantifiable financial return, which they could then use for good works, and enter the world of social, environmental and other forms of accounting puts off as many as the worries about whether they are entering into something they should not be doing. The whole idea ends up, very quickly, in the “too difficult” box or, as I suggested earlier, allocated to the spending committee, a topic touched on widely in the Law Commission report.

Thirdly, if social investing takes off as a significant asset class—and it is already well on its way—it is, inevitably, going to attract an increasing number of purveyors and advisers who want to attract funds, recommend certain types of investments or manage funds within them. That is no bad thing in itself, but only if it is properly regulated. If it is not, whole new areas of mis-selling arise, where social investments could be knowingly or just irresponsibly hyped to investors and trustees. The danger in that is exacerbated by the difficulty in calculating, quantifying and comparing returns.

Finally, the Bill gives the power to make social investments, but it does not look at the possibility that some charities themselves may well want to use this as a fundraising opportunity and market them to other charities or the public. Add to this formula a situation where a trustee is involved both as a trustee of a charity marketing a social investment and as a trustee being invited to invest in it and you can see the complexities. I have not put forward a specific amendment on that point but I urge the Minister to think about whether we could address it at the next stage in terms of enabling charities to use social investments to raise much-needed funds, without the hideous cost of compliance which will probably come with it, but at the same time restrain them from being overexuberant in doing so.

That brings me to my underlying concern and the reason for the amendment: in pretty much every case, charities that have traditional investment portfolios have highly regulated individuals managing those portfolios. I believe the noble Lord worked with the FCA—FSA as was—so he will have background on this but an individual recommending investments has to be very specific on the expected returns, the level of risk, the previous track record of this type of investment and the previous track record of the person, object or company providing it. You have to be able to evidence that you know your customers in great detail and that what you are recommending to them is suitable. That may not be the case in the world of social investment. Social investments may be more risky, more volatile, more concentrated and certainly

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less liquid—an important consideration for charity trustees with bills to pay—than what I might call mainstream financial investments. You can sell a blue-chip investment at the press of a button but if you are putting money into a 10-year health project in a developing country, pulling your money out halfway through because you need the cash is not only technically but reputationally and morally a very difficult place to be.

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Where does that leave us? My contention is that as soon as trustees are asked to put money into something that offers a financial return—rather than being, for example, a grant of money—they are entering the highly regulated world of financial investments. My concerns are not only that social investments end up being poorly understood but that there is a temptation to overegg the returns and underplay the risks, both of which would be offences in the world of regulated investing.

The first part of my amendment seeks to save both the providers and the trustees from themselves. It does not preclude them from making social investments, which would be completely perverse in a Bill that seeks to enable them, but it requires them to ascertain whether the investment they are going into is subject to the same scrutiny and reporting and FCA requirements as their financial investments are. If they are, that is a comfort to the trustees. If they are not, they may well wish to proceed anyway but they need to recognise what they are doing. My concern is that we make explicit to trustees the permissibility of social investment but that they are required to get clarity on the regulatory status of such investments.

The second part of the amendment, on which I will be far more brief, is linked to the first. The noble Lord, Lord Hodgson, referred in his report to trustees wanting to make social investments having to fight their way through the serried ranks of accountants, lawyers and investment managers for whom risk aversion is the default setting. I am not sure if that is a verbatim quote but I think it is pretty close. I sympathise with that a great deal but it arises directly from the fact that commercial investments are made in a highly regulated context and it is not clear from the definition in this Bill of social investments—however it emerges—that they are going to be so regulated. If that is the case, it is the role of those serried ranks of advisers to sound those notes of caution to trustees. As the number of providers specialising in social investment vehicles increases—and the Bill creates the opportunity for them—there is a risk, at least in an intervening period of a number of years, that trustees are going to be faced with conflicting advice from different advisers and they are going to have to reconcile that situation and record it in their decision-making processes.

This is a probing amendment. It seeks to encourage trustees to reflect transparently on what they are doing in making their decisions. I am grateful for your Lordships’ patience in letting me walk through it. I hope my comments have given a bit of colour to my concerns about this very exciting area of investment and the steps that need to be put in place to protect both the trustees and their beneficiaries.

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Lord Hodgson of Astley Abbotts: My Lords, perhaps it because it is the end of a long day or because I had a spat with the noble Lord, Lord Lea of Crondall, but I feel slightly scratchy about these two amendments and I feel bad about feeling scratchy about them because the noble Lord, Lord Cromwell, has sat patiently through a couple of days of our debates. But I do not find myself happy with what is being proposed.

If we take new Section 292C and what the trustees of a charity must do,

“before exercising a power to make a social investment”,

they must consider,

“whether in all the circumstances any advice … ought to be obtained”.

Having done that, they need to obtain and consider the advice they think ought to be obtained. Thirdly, they must satisfy themselves that it is in the interests of the charity to make the social investment. That seems to me to be about as simple, as dutiful and as clear as could be. If we are not careful, we will constrain trustees further and put them in a position where they say, “Ought we to be doing more?”. That absolutely lays it on the line: do you need to take advice? Have you taken the advice that you decided you needed to take, and does it all match up with your charity’s objectives?

I can live with Amendment 19, tabled by the noble Baroness, Lady Barker, but, as she said, any good charity would make sure that the beneficiaries were involved and it would take the stakeholder beneficiaries with it. Because I am a minimalist on these things, I do not think that it is necessary to put this into statute. Good charity trustees will do it anyway.

Amendment 20 is a different matter. I accept what the noble Lord, Lord Cromwell, has said about the social return on investment; there is a lot of work to be done on that. I accept what he says about suitability, knowing your customer and so on, but to suggest that social investment has to be undertaken in the same form as that undertaken in the regulated financial markets is actually to shoot the whole thing straight in the head. The whole purpose of social investment is that it is different: not better or worse, but different. To try to force social investment into the pattern of regulation that is available for financial investments is to hobble and cripple it.

Lord Cromwell: Will the noble Lord give way? I thank him for his patience because I could see that he was getting quite scratchy as I was speaking, so I am grateful to him for taking pity on me in that way, and for giving way. I think that we may have misunderstood each other. I am perfectly in support of, first, social investment, and secondly, social investment not necessarily being subject to the rigour of FCA supervision, as would be the case for financial investments. My proposition is that trustees, if they make such an investment, should be conscious that they are entering into an investment that is not so regulated. I hope that that closes the distance between us a little.