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Lord Whitty: My Lords, the noble Lord acknowledged that this is not a matter for the national parks. I have no knowledge of the grant application to which he refers: I would probably be precluded from
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interfering if I had. However, I doubt whether that was the only ground for deciding priorities among competing applications for government grants.
I take issue with the noble Lord for saying that there should not be some general guidance to both voluntary bodies, which depend partially on public funds, and public authorities, that some of our deprived communities should benefit more from our national assets in terms of the countryside as in other respects. To reverse the argument and call that ludicrously politically correct is a misunderstanding of the situation which would not be appreciated by people in voluntary organisations or who give a great deal of their time voluntarily and professionally to the national parks and other worthy organisations.
We need to cater for all walks of life and that includes making special efforts for those least advantaged by the present system.
Business
Lord Davies of Oldham: My Lords, the House will have noticed the extensive speakers' list for today's debates. If Back-Bench speeches are restricted to about 10 minutes the House will rise at 7 p.m.
Charities Bill [HL]
The Minister of State, Home Office (Baroness Scotland of Asthal): My Lords, I beg to move that the Bill be now read a second time.
One of the most important contributions that the Government can make to facilitating and promoting activities of the charitable sector is to create a modern legislative framework for it. That is what the Charities Bill is for. The Government's three aims for the Bill are: first, to provide a legal and regulatory environment that will enable all charities, however they work, to realise their potential as a force for good in society; secondly, to encourage a vibrant and diverse sector independent of government; and thirdly, to sustain high levels of public confidence in charities through effective regulation.
By reforming the legal and regulatory framework for charities the Government will enable people to use charities as a means to make a difference. The Bill will help existing charities to thrive, grow and to realise their full potential.
The Bill will make improvements in several areas of the law and regulation of charity. The most important improvements are: first, the definition of charity and the public benefit requirement; secondly, the Charity Commission's constitution and functions, and the creation of a new tribunal to hear appeals against commission decisions; thirdly, the creation of a new corporate legal form for charities, called the charitable incorporated organisation; fourthly, changes to ensure that effective and proportionate regulation applies
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right across the charity sector, including those charities that are not required to register with the Charity Commission; and fifthly, the regulation of charitable collections. I will return to each of those in more detail later.
This Bill is the result of a thorough process, including extensive consultation. During the process, a high level of support for the Bill has been evident. I know that many noble Lords are involved as trustees and patrons of charities, and they will be well aware of the widespread support for the Bill across the charity sector. The National Council for Voluntary Organisations encapsulated this when it said:
"There is a real need for legislation to modernise charity law. In order for charities to operate effectively and for charities to retain public trust and confidence, charity law needs to be seen to be relevant and effective".
The process began with the work on public benefit undertaken by the National Council for Voluntary Organisations in the mid-1990s. This was taken up by the Prime Minister's Strategy Unit in its review published in 2002, on which there was public consultation. The responses to this review, whose proposals form the meat of the Bill now, showed strong support for a great majority of its proposals. The Government accepted all but one of the Prime Minister's Strategy Unit's recommendations. The Bill was published in draft in May 2004, and it received pre-legislative scrutiny by a Joint Committee of your Lordships' House and another place. The Government are very grateful for the excellent report of the Joint Committee. We have accepted over three-quarters of the Joint Committee's recommendations.
It has been over a decade since any significant changes were made to charity law, and many aspects of current law are considerably older in origin. As a result, charity law has not kept pace with changes in society and within the diverse voluntary sector. The Charities Bill has been drafted in the light of the responses to the Prime Minister's Strategy Unit review, and it aims to promote a dynamic voluntary sector that continues to enjoy the high levels of public confidence on which the sector depends.
There will also be charity law reform in Scotland. Charity law and regulation is devolved there. The Scottish Executive introduced its own Bill in November 2004 to the Scottish Parliament, and the parliamentary process is likely to continue well into 2005. Continued co-operation between the Executive and the UK Government, and the Charity Commission and its Scottish counterpart OSCR, will aim to ensure that in key areas—such as the definition of charity—the two Bills are fully compatible. Charity law is also devolved in Northern Ireland, and it is likely that there will be reforms there too, although proposals are in the early stages.
Now that I have set the context for the Bill, I will describe to noble Lords the detail of its content. Part 1 covers the meaning of "charity" and "charitable purpose". It sets out a general statutory definition of charity for the first time. It then lists 11 specific descriptions of charity and one general description. No purpose that is currently charitable will cease to be
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charitable under this Bill. All but one of the recommendations made by the Joint Committee have been taken up by the Government in this Bill, for example, the inclusion of "culture" in the charitable purpose of,
as a charitable purpose. The Government's intention is to clarify and codify the law, rather than to extend it significantly. The recommendation that we have not taken up is the proposal to redefine "religion", which we do not believe to be necessary to achieve what the Joint Committee sought. It will remain for the Charity Commission, and ultimately the courts, to decide by reference to the law what is and is not charitable in the coming years.
Part 1 also introduces the public benefit test. Under the existing law, there is a presumption that charities established for the relief of poverty, the advancement of education or the advancement of religion are for the public benefit. However, charities established for all other purposes do not benefit from this presumption, and Clause 3 abolishes this presumption. Under the Bill, all charities must show that they are for the public benefit, irrespective of the purpose for which they are established. In addition, Clause 4 requires the Charity Commission to issue guidance on public benefit following consultation. We have made this change in response to the report of the Joint Committee, which recommended that the basic principles of public benefit should be set out either in the Bill or in guidance issued by the Secretary of State.
The Government do not believe that it would be practicable to deal adequately in the Bill with what is a complex legal issue. We have accordingly adopted a variation on the alternative approach recommended by the Joint Committee. We believe that any guidance should be issued not by the Secretary of State but by the independent regulator, which is not under ministerial control and which is accountable to the courts. The commission has today published an illustrative draft of its public benefit guidance, which I hope will assist your Lordships in considering the impact of these provisions.
I hope that it will be helpful if at this point I clarify the position of the Bill on the charitable status of independent schools. The Bill has been criticised both for failing to remove the charitable status of independent schools and for failing to protect the charitable status of independent schools. However, the Bill does not single out independent schools in any way. In common with all other charities, independent schools will have to show that they provide a public benefit. The Prime Minister's Strategy Unit recommended that the Charity Commission carry out a review of the public benefit provided by high fee-charging charities once the Bill is enacted, and the commission has agreed to carry out such a review. This would include not only schools but all other fee-charging charities, including private hospitals, arts organisations, and others. The commission's draft
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guidance will indicate how it proposes to set about this task. The commission's monitoring of the financial and other affairs of all but the smallest charities will also continue. Both tasks will be carried out under the commission's existing statutory powers and for that reason no provision is made for them in the Bill.
Part 2 covers the regulation of charities. Chapter 1 forms the Charity Commission into a body corporate; currently its functions are personally held by the Charity Commissioners themselves. This chapter also contains reforms to the commission that will modernise its constitution, governance and powers in order to build on its current effectiveness. It gives the commission a new set of five statutory objectives, which we have revised to take account of the Joint Committee's recommendations, as well as six general functions in support of those objectives and four general duties. A new Charity Appeal Tribunal is created, which will mean that the Charity Commission's decisions are challengeable without recourse to the High Court, which is a costly and difficult process.
The commission is, and will remain, a non-ministerial department. Under the Bill it will remain an independent regulator, completely free from any form of ministerial direction or control. This Bill does not change this position at all. The Government believe that the commission's independence in that respect is of paramount importance for the proper regulation of charities and for the public's confidence in charities. It is important for me to make that clear before we proceed any further.
Chapter 3 of Part 2 of the Bill deals with the registration of charities. There are three main changes. First, the Bill raises from £1,000 to £5,000 the income threshold above which a charity must register with the Charity Commission. However, charities whose income falls below the threshold will be able to register with the commission if they so wish. Secondly, the Bill brings the arrangements for the so-called excepted charities—which include those Armed Forces and church charities and which are not at present required to register with the commission—into line with other charities by requiring them also to register starting with those having an annual income of £100,000 or more.
Since excepted charities are already within the commission's supervisory powers, this will not significantly increase the regulatory burden. It will increase the transparency and accountability of these charities as we believe there is no principled justification for keeping these charities outside registration with the commission.
Thirdly, the Bill introduces new arrangements for the so-called "exempt charities", which include the universities, other places of further and higher education, schools, museums and galleries. Exempt charities are those which are currently specifically excluded from the Charity Commission's supervisory and monitoring powers although they are defined as charities. They enjoy the status and the fiscal benefits
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accorded to other charities, but there is currently no mechanism for monitoring their compliance with charity law. The Bill changes this position.
Where a regulator is already in place, for example, in the case of the universities, which are regulated by HEFCE, that regulator will take on the responsibility of monitoring compliance with charity law. Where there is no regulator, as in the case of foundation and voluntary schools, the Charity Commission will take on this responsibility. The proposed new regulators have been identified following extensive discussion with the relevant regulators and charities. The purpose of these changes is to ensure that modern and effective regulation extends right across the charity sector and not just to some parts of it.
Chapter 4 of Part 2 of the Bill will allow the commission or the court to give charities permission to change charitable purposes for which charitable property was given. This is an amendment to what is known as the "cy-près" rule. Currently, as many noble Lords will know, the law is rather inflexible in this area: purposes must be as close as practicable to the original purposes. Complying with the current legal position can frustrate trustees and the outcome is not always necessarily the best for the charity's beneficiaries. By also allowing the social and economic circumstances within which the charity operates to be taken into account when changing charitable purposes, the Bill will help more effective use to be made of charitable resources. That is a change which has been long awaited and very much welcomed.
Chapter 5 of Part 2 of the Bill modernises the Charity Commission's regulatory powers. This chapter includes new powers for the commission to suspend or remove trustees and employees from membership of their charity; to determine who are the members of a charity; and, in the course of a statutory investigation, to enter premises and take possession of information and documents. We are confident that these new powers strike the right balance between enabling the commission to operate effectively and the need for independence of charities from the control of the regulator.
Chapter 6 of Part 2 raises the income level at which unincorporated charities must have their accounts audited and contains some other reforms to the accounting regime. Chapter 7 of Part 2 makes the same changes for charitable companies.
A provision I particularly commend is the creation, under Chapter 8 of Part 2, of a new legal form specifically for charities, called the charitable incorporated organisation, or CIO. It is designed to avoid the need for charities which take a corporate form to register as companies and be liable to regulation under company law as well as by the Charity Commission. The Joint Committee expressed some concerns about the potential complexity of the provisions. I am afraid that complexity is inevitable when one is creating a new type of corporation, but we will do all we can to simplify things as an aid to understanding. The Home Office is today issuing a model form of regulation to show how we plan to fill
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in the detail of the CIO's administration, and there will be plain English guidance for anyone wanting to set up a new CIO or convert from their existing form to a CIO.
Chapter 9 of Part 2 contains provisions relating to trustees. The Bill contains a power for trustees to be paid for certain types of service provided to the charity, subject to certain conditions designed to ensure that this is proportionate, protects against conflict of interest and is in the best interests of the charity. I emphasise that the Bill will not allow payment for carrying out the duties of trusteeship; nor will it allow a charity's paid employees to be trustees at the same time. It preserves the essence of the voluntary principle of trusteeship.
Clause 36 would allow charity trustees to apply directly to the Charity Commission, as well as to the courts, for relief from personal liability for breach of trust in instances where they have acted honestly and reasonably. This is intended to encourage more people to act as trustees, giving them confidence that they will not have to pay money out of their own pockets if things go wrong after they have made an honest mistake. Of course, trustees found to have acted dishonestly or unreasonably would still face personal liability.
Trustees' existing power to spend small amounts of permanent endowment will be made easier and less bureaucratic, and technical obstacles to mergers will be removed. Decisions on mergers will of course remain for charities themselves: it is not the Government's role to procure mergers between charities or to put pressure on charities to merge.
An important part of the Bill, Part 3, is the reforms to the regulation of public charitable collections. The present arrangements do not work as well as they could, because different types of collection are subject to different sets of licensing rules, and because the rules are applied differently from one local authority to another. Through the Charities Act 1992 it was intended to introduce a new scheme for the regulation of fundraising, but the relevant part of the 1992 Act was never introduced because the proposed scheme was found to be unworkable.
We propose in Part 3 of the Bill a new, unified licensing scheme to iron out the inconsistencies. In response to the Joint Committee's report, the Charity Commission will be given the role of determining the eligibility of organisations to undertake public collections. Charities and other bodies proposing to undertake public collections will be able to apply to the Charity Commission for a public collections certificate lasting for up to five years. Street collections will continue to require a permit from the local authority. For house-to-house collections the requirement is simply to notify the local authority. I am sure that noble Lords will be relieved to hear that purely local, short-term collections, such as those by carol singers, will be completely exempt. The Bill will also ensure that face-to-face collections, where members of the public are asked to sign direct debit forms in the street, will be brought within the statutory licensing scheme for the first time.
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The remainder of Part 3 deals with fundraising. Clause 65 introduces a reserve power for my right honourable friend the Home Secretary to introduce a statutory scheme for the regulation of fundraising. The Government welcome and support the sector's work in developing the self-regulation of fundraising, led by the Institute of Fundraising and the Buse Commission. The Government hope and expect that self-regulation will be effective. However, the powers in the Bill will be available should self-regulation fail. Work is very well advanced on a consultation paper on the broad principles for assessing the success of self-regulation. We hope this will be published very shortly.
The final chapters of Part 3 include provisions to put beyond doubt the Government's power to fund charities and other benevolent and philanthropic organisations. This responds to the concern that the Home Affairs Select Committee expressed in another place about the lack of a proper statutory power for the Home Secretary to fund such organisations. The Bill gives the National Assembly for Wales the same funding power as it gives to the Secretary of State.
I will say a few words about charities and trading, an issue which is not covered in the Bill. The Joint Committee recommended that the trading turnover threshold above which charities are obliged to set up a trading company in order to trade should be raised to allow more charities to trade within the charity itself. If this change were introduced, considerably more trading could be carried out by charities tax free. We have rejected that recommendation—which in any event would be for the Finance Bill, not this Bill, because it would give charities an unfair competitive advantage over small businesses, which are taxed on their profit.
The Bill will support the work of thousands of people and organisations across the country to make a real impact on their community, through a variety of measures designed to improve the ways in which charities are run and regulated. It has been a long and thorough journey towards the Bill that we have today, with many individuals and organisations involved in ensuring that it is as good a Bill as we can make it. The Bill rightly enjoys a high level of support in the voluntary and community sector. Therefore, it gives me considerable pleasure to commend it to the House.
Moved, That the Bill be now read a second time.—(Baroness Scotland of Asthal.)
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