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House adjourned at twenty minutes before eleven o'clock.
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Official Report of the Grand Committee on the
Charities Bill [HL]
(Sixth Day) Monday, 14 March 2005.
The Committee met at half past three of the clock.
[The Deputy Chairman of Committees (Viscount Allenby of Megiddo) in the Chair.]
Clause 11 [Changes in exempt charities]:
Lord Hodgson of Astley Abbotts moved Amendment No. 113:
The noble Lord said: The amendment would reverse a proposal in the Bill to remove the Church Commissioners from the list of exempted institutions. I am not clear why the Government are proposing it, given their willingness to allow universities to remain exempt under the charitable and regulatory control of the Higher Education Funding Council for England, which is itself a funding rather than a regulatory organisation.
The Minister may argue that there is no regulator in place for the Church Commissioners, although it could equally well be argued that a surfeit of government departments and Secretaries of State are already built into the Church Commissioner structure. Of the 27 Church Commissioners, no fewer than six ex officio office holders represent senior posts in government and Parliament; namely, the Lord Chancellor, the Lord President of the Council, the Secretary of State for the Home Department, the Secretary of State for the Department for Culture, Media and Sport and the Speaker of the House of Commons. Could not one of those become the regulator? If the Government argue that none of the six office holders who are members of the Church Commissioners ex officio can act as the regulator because of a conflict of interest, there are obvious alternatives available, such as the Department for Constitutional Affairs.
Further, as regards governance, the arrangements within the Church Commissioners for proper governance appear extensive. I understand that there is a properly constituted audit committee to oversee compliance and, no less significant, there is an established procedure whereby, if the audit committee is not satisfied with the response to its reports by the general body of the Church Commissioners, a specific right of appeal is available to one of the six office holders whom I have already mentioned.
If the Government consider those procedures insufficiently rigorous to ensure compliance with the new Bill, perhaps the Minister could tell the Committee which
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specific procedures are in place at HEFCE to ensure university compliance with it. Presumably, the Government accept HEFCE's regulatory ability in the charity field, as it is already designated as the regulator for the higher education sector.
Finally, if the Government are determined to proceed on the basis of the Bill as drafted, it would be helpful if the Minister could let the Committee know what impact he believes the change will have on the nature of the relationship between the Church and state. Some might argue that for the Charity Commission to regulate the Church Commissioners is a subtle but nonetheless significant shift of emphasis in the relationship between the two. I beg to move.
Lord Bassam of Brighton: We have tried wherever possible to identify suitable main regulators to take on the role of monitoring basic charity law compliance, but for some exempt charities it has not proved possible. The Church Commissioners and the charities that they administer are among those for which it has not been possible to identify a main regulator and which, under the Bill, would have to register with and be regulated by the Charity Commission.
The noble Lord, Lord Hodgson, asked whether that might have a subtle impact on the relationship between Church and state. I tell him that there is no intention on the part of the Government that this proposition or any ensuing legislation will affect in any way the balance of the establishment of the Church of England in any way, shape or form.
So far as we are concerned, the amendment would make an already anomalous position even more anomalous. I am sure that the noble Lord would accept that it would be hard to justify to other charities and to the public why the Church Commissioners should be allowed to retain their exempt status when other charities will lose theirs. In the interests of being fair to all, it is only right that we proceed as we envisaged. I hope that the noble Lord will feel able to withdraw his amendment.
It is worth pointing out that, if we follow the approach put forward by the noble Lord, a member of the Church Commissioners would also be in an anomalous position. I do not see that the amendment follows the general overriding logic of the legislation.
Lord Hodgson of Astley Abbotts: I am grateful to the Minister for that reply. We wanted to explore the position of the Church Commissioners. I am not sure that their position is as unusual as his remarks suggest, but we want to make progress, so I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 114 not moved.]
Lord Hodgson of Astley Abbotts moved Amendment No. 115:
The noble Lord said: On Amendments Nos. 110 and 114, we had a fairly long debate about the position of service charities—non-public service funds. For the
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reasons then explained, we sought to add them to the list of exempt charities. We offered the Government the suggestion of a principal regulator for that group, as defined in the Bill.
I turn now to the position of other groups that may be considered eligible for addition to the exempt list. First, I want to address the position of foundation and voluntary schools. That group is the subject of recommendation 43 of the scrutiny committee. Paragraph 367 of the committee's report reads:
"We recommend that the Home Office should consider designating a principal regulator for foundation and voluntary schools so that they can retain exempt charitable status".
Paragraph 43 of the Government reply rejected that on the grounds that to be put on the exempt list, charities had to be,
"a 'principal regulator' that would be willing, and have the capacity, to ensure that those charities complied with the basic principles of charity law".
As no principal regulator could, at present, be found for foundation and voluntary schools, the Government would not accept the scrutiny committee's recommendation.
We accept the argument that, at present, there is no obvious principal regulator for foundation and voluntary schools but, equally, if they and other similar groups are to be permanently excluded from exempted status, the Government will have failed to think through the consequences for the sector.
The first two amendments, Amendments Nos. 115 and 116, would alter Clause 11(12) to give the Secretary of State power to add charities or groups of charities to the exempt list—not as, at present drafted, only to delete them. The third amendment, Amendment No. 116A, would enable individual charities to force the Secretary of State to consider their request for addition to the exempt list. He cannot just ignore their requests, so causing a withering on the vine. Accordingly, if in the future a principal regulator can be found, the Secretary of State would have the power to add foundation and voluntary schools to the exempt list.
Why should the Government worry about that? I shall refer to a briefing note. If I do so rather extensively it is because it is a complex subject and it will affect literally thousands of schools. There are believed to be over 4,000 aided schools; 2,500 controlled schools; and 1,000 foundation schools, a category that I understand the Labour Government wish to expand and increase.
As I understand it, the good news is that for school trustees the provisions of Section 3A of the 1993 Act, as substituted by Clause 9 of this Bill, will be neutral or beneficial. The new general registration threshold will be any charity whose gross income does not exceed £5,000. Of course, it ceases to be relevant to the threshold whether the charity owns land or has a permanent endowment. Therefore, school trustees will have to register only if their gross income exceeds £5,000 and for most of them it will not. Those receiving a substantial income from the letting out of a teacher's house would have to register, but often the rent from such houses is low. Trustees with small monetary
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endowments producing a few hundred pounds a year, who were previously required to register, would not now need to do so. So the Bill's proposals do not present any real problem for the Church school trustees. As it is a complex subject, perhaps the Minister will say whether I have been right in my supposition thus far.
The real problem is with the Church school governing bodies. The bulk of the money handled by most maintained school governing bodies is in their delegated budget, which they manage as agents of the local education authority. That would not count as their income for the purposes of the registration threshold. Governing bodies with voluntary funds where donations to the fund and interest on it exceed £5,000 would have to register; although most will probably be just over the threshold and would therefore be subject to the light-touch regime for accounting and reporting.
The real losers will be the voluntary-aided school governing bodies. Aided school governing bodies are responsible for meeting the capital cost of work done to school premises. They are entitled to claim grants from the department of up to 90 per cent of the cost of the work, but the grant money that they receive is their money, not delegated budget money. Therefore, in any year when an aided school governing body has a capital building project, not only will its income take it over the registration threshold but it is likely to be of a size that brings it into the most rigorous accounting and reporting regimes. So it will have to produce accrual accounts for that year and have them audited, notwithstanding that the money is for a single project and is closely monitored by the DfES, which is paying a 90 per cent grant for it. That will, therefore, impose a regulatory burden—a spasmodic regulatory burden—on voluntary-aided schools that is not imposed on other schools in the maintained sector.
There is a further and almost certainly unintended consequence of the loss of exempt status for, principally, foundation school governing bodies. Occasionally, maintained school governing bodies hold land not under some statutory regime under the Education Act but on charitable trusts. It is not unreasonable that dispositions of that land should be subject to the same controls as dispositions of land held by other charities. The problem comes with land that the governing body holds that is also subject to a statutory regime under the Education Acts. That principally affects foundation schools—the category designed to replace grant-maintained schools when the Labour Government abolished them. In such schools, it is normal for the governing body to hold all or part of the school premises.
In the case of a Church foundation school, the governing body is likely to hold the playing fields that were formerly owned by the local education authority, but, as with other Church schools, the trustees hold the school site. With foundation schools that are not former voluntary schools, the governing body is likely also to hold the whole of the school premises.
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The land that the governing body holds is subject to strict controls on its disposition because it is publicly funded land acquired from LEAs. The Secretary of State's consent must be given to any disposal of the land, and he can direct that the land or the proceeds of its sale are given back to the LEA or to some other body.
There will now be a system of dual control. Not only will the governing body have to obtain the Secretary of State's consent, but it will have to comply with the requirements of the Charities Act. Moreover, in some cases, the Education Acts regime envisages that, with the Secretary of State's consent, governing bodies can transfer the land free of charge. They will now require not only the consent of the Secretary of State for that but the consent of the Charity Commission.
That point emerged in discussions with the DfES about the Education Bill, which has been before the House, and in the light of the Government's wish to encourage an increase in the number of foundation schools. They want to give foundation schools the option of forming links with an existing charitable foundation to be a foundation for the school. The governing body will then be able to transfer its land to the foundation. However, if the governing body ceases to be an exempt charity, it will not be able to do that without the consent of the Charity Commission. It is not clear whether the DfES, in drafting the Education Bill, has considered the implications of the loss of exempt status. Our concern is that the department is unaware of the implications of its proposals.
To summarise, there is the danger of dual regulation—and complex regulation at that. That would be resolved if a regulator could be found and if the Bill then permitted groups to be added to the exempt list.
So much for the problem of schools. Lest the Minister tries to argue that this is a one-off, I move to my second example, which concerns the Church of England parishes. Parishes will continue to be outside registration procedures when income is less than £100,000, but, of course, as we heard from the Government during our debate on Amendment No. 109, in the course of time, the intention will be to cause them all to register, down to those with an annual income of probably no more than £5,000 or £10,000.
Bearing it in mind that there are somewhere between 13,000 and 17,000 Anglican churches, 70 per cent of which are Grade I or Grade II listed buildings and are the responsibility of the parishes, it is hard to conceive that many parishes would have an income of much less than £10,000 if they were responsible for the maintenance of such a building. Therefore, eventually, the vast majority of, if not all, the parishes will have to register. I invite the Committee to think what that will mean for all the parties involved—the Charity Commission and the parishes.
Bearing it in mind that the Church of England's accounting regulations, which are similar to those of the Charity Commission, stipulate that parishes have
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to deliver annual accounts to the diocesan board of finance, there is an argument that the possibility of adding Church of England parishes to the exempt list would be extremely useful and deregulatory.
Who could the regulator be? One answer would be for individual diocesan boards to decide whether they could cope with taking a regulatory role as an adjunct to their present role; that is, having collected the accounts from the parishes, seeking to obtain an exemption order from the Secretary of State for the parishes in their diocese.
Those are merely two, admittedly lengthy, examples of why some flexibility is needed in allowing additions to the exempt list, not merely in permitting deletions. There may be other groups that have not yet focused on what is proposed.
The summary position is that, unamended, the Bill would land a further 20,000 to 25,000 charities with the burden of regulation and the Charity Commission with the burden of regulating them. Moreover, those charities are local, low-risk and pose no danger to overall public confidence in the charity sector. That consequence would be quite at odds with the policy themes that underlie the proposed legislation. Our amendments would give the Secretary of State the flexibility to sort out the difficulty by encouraging the emergence of a principal regulator, following which he could add appropriate groups to the exempt list. I beg to move.
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