That the draft Order laid before the House on 7 September be approved.
My Lords, the order forms a very small part of a package of secondary legislation that will enable charities that have adopted the company structure, or a community interest company, to use a simple process to convert into a charitable incorporated organisation —CIO—should they so wish, and makes some consequential amendments. The order provides a right of appeal against a decision of the Charity Commission not to permit a community interest company to convert into a CIO. This mirrors the right of appeal that already exists in statute in Schedule 6 to the Charities Act 2011 for a charitable company.
It may help the House if I explain the overall package of which the order forms a small part. If approved by Parliament, the two negative resolution regulations that complete the package will also be made. The first sets out the detail of the conversion process for community interest companies and supplements the provision for charitable companies. The second adds CIOs and Scottish CIOs to the index of company names to prevent the registration of new companies with names that are the same as, or too similar to, existing CIOs and Scottish CIOs on the index. This will help charities to protect their corporate identity. To assist in understanding the package of secondary legislation, my honourable friend the Minister for Sport and Civil Society has deposited draft versions of the two other statutory instruments in the House Library.
The CIO, available since 2013, is the first and only legal structure designed specifically for charities. It has the benefits of legal personality and limited liability for its members and trustees, but, unlike the company structure, it is subject to a single regulatory regime under the Charity Commission rather than a dual regime under both the Charity Commission and Companies House. It has proved popular, with more than 12,000 CIOs set up so far.
Some charities that had already chosen the company structure may want to change to become CIOs, and some community interest companies may want to become CIOs. That is the purpose of this package of legislation: to enable a smooth conversion process that makes it simple for charitable companies and community interest companies to convert if they want to. These changes have been developed in close consultation with the Charity Commission, Companies House and the Scottish Government. Consultation feedback showed overwhelming support, 95%, for establishing a statutory conversion process.
That is the background. The draft order before us today merely provides a right of appeal for community interest companies. I commend it to the House and beg to move.
My Lords, before we wave this goodbye, I wonder whether I could raise a couple of brief points with my noble friend. The CIO is clearly a very welcome new corporate form. As my noble friend explained, it offers trustees of charities the opportunity to obtain limited liability, where there had been a major disincentive for them in the past, as well as the alternative conversion features that he referred to.
As my noble friend also said, there is now a single statutory regulator for CIOs, the Charity Commission. Its workload will increase as these conversions take place and the number of CIOs increases. I know that it has been proposed to phase in the introduction of CIOs to minimise that additional burden; nevertheless, additional burden there must be. My noble friend will be well aware of the pressure the Charity Commission’s budget has been under as a result of past cuts. I hope he can reassure me and the House that the Government are aware of the additional pressures created by this very welcome new form, which we do not oppose at all; but these are additional straws on the camel’s back and the Government need to bear this in mind as we proceed with giving the Charity Commission further powers and responsibilities.
My Lords, I am grateful to the Minister for introducing the order. It may appear slight and not leave much of a shadow, but it is an important step forward on a path that has been charted for the past three or four years. The noble Lord, Lord Hodgson of Astley Abbotts, who knows a thing or two about charities, has kept his light quite well hidden under a bushel, but I am sure he could speak at length about the reasons and thinking behind the measure should it be required. As the Minister said, the order is very narrow, but the next two that come down the track set out slightly wider issues, and it is useful to have the context.
I have only one point to make in general, because having read the documentation and listened to the Minister, I think the regulation has been brought forward in an exemplary way. The department should be congratulated on what it has done and how it has done it, and the Explanatory Memorandum is clear about what we are doing and why.
Our country’s long tradition of charitable bodies being established under trustees who are forbidden from taking any benefit from the work they do is a noble one and should be cherished, and it has served us well in the past. However, it is interesting that the figures provided in the Explanatory Memorandum seem to suggest that that model is not as popular as it was. There may be some regulatory or other issues behind this, but it is striking that some 30,000 charities have chosen to incorporate as a company limited by guarantee and that a large proportion of new charities are choosing this new CIO operation. I should declare an interest, having worked for most of my professional life in charities and run a couple of small ones as well as being involved in large ones.
I can well understand why a CIO structure, with its benefit of limited liability and a corporate personality, is attractive, rather than the individual trustees being involved. However, I wonder whether there is a story behind this. There is a shift away from traditional routes, which may well be appropriate for small charities, particularly ones with a local focus; the bigger risks, the larger fund flows and the worries about public liability suggest that the corporate structures are now the ones to take. This is all by way of introduction to suggesting a closer look at what is happening in the charitable sector regarding structure, and whether there are good reasons for the changes we are observing. I do not expect a response today, but it would helpful at some point to receive a letter, or perhaps have a short debate or discussion of a report. These may be perfectly good and unthreatening reasons, but we should know what they are before we rush towards one model or another.
It might be helpful if my noble friend on the Front Bench could tell us when we are to have a response to the report by the Select Committee on Charities chaired by the noble Baroness, Lady Pitkeathley, because that would provide a vehicle for the sort of discussion that the noble Lord, Lord Stevenson, is suggesting.
Indeed—my final point was to be that we have something waiting in the wings which presumably is the answer and I thank the noble Lord for raising it. That is my main point and there are two minor points around it. The first concerns paragraph 8.6 of the Explanatory Memorandum, which suggests that minor amendments were made as a result of the consultation, which I felt was well handled. Only one is given, which is that this order does not include,
“the requirement for charitable companies to have filed their most recent accounts or reports with Companies House before an application is granted”.
On the other hand, it states:
“We will retain the requirement to refuse an application if a charity is in default”.
This seems to me to be the same thing. Has the Minister any light to throw on it? If a charity has not completed its formal registration, then it will be in default, so I do not know what this adds. I may be misreading it; if so, I will be grateful to be corrected on it.
Finally, those who have followed my long and extensive career in quizzing statutory instruments will know that I am fixated on dates. The date for the introduction of this does not fall within the common commencement dates. I accept that this does not affect business, so it is not necessarily caught by that, but to choose 1 January, a public holiday, for implementation seems a little perverse and I would be grateful for any comments.
My Lords, I thank both noble Lords for their comments. I shall start with my noble friend. Of course we are aware that there will be some work involved in this for the Charity Commission, and we also acknowledge that it has limited resources. That is why we have agreed with the commission a phased approach to implementation. It has been planning for this for a number of years and has IT processes and support systems in place. I remind noble Lords that the Charity Commission received an £8 million investment in 2015 to support its transition into a modern, effective regulator and we believe that it has made very good progress. Work is under way within government to explore future funding options, including bringing the Charity Commission more into line with the model of other regulators. All options regarding the future funding model will be properly considered by the Government and will be subject to public consultation before any changes are made.
I am grateful to the noble Lord, Lord Stevenson, for his kind words about the preparation of this order, for which I take no credit, but the DCMS team, which does, will be very pleased: I think it is merited. I take his point about the issues more generally about charities. I agree with my noble friend Lord Hodgson that the report by your Lordships’ Committee on Charities, Stronger Charities for a Stronger Society, is awaiting a response. I can say that that will be coming soon, and soon means soon in this case.
Soon never means soon.
I have spent a long time at this Dispatch Box debating what “soon” means, and “very soon” and “imminent”, but in this case it is soon. My noble friend Lord Hodgson said there are opportunities in that response. I think it will be worth reading. I am sure that in due course the business managers will arrange a debate on the report.
My noble friend did not mention, but the noble Lord, Lord Stevenson, did, that he was responsible for the statutory review of the Charities Act 2006. The Law Commission’s report, which was published in September, examined a range of technical changes in charity law, many of which my noble friend posited in his statutory review. We welcome the Law Commission’s report and we will respond formally in due course. I expect, but cannot guarantee, that our response will be positive. The challenge is likely to be securing a legislative slot, which may take some time.
The noble Lord, Lord Stevenson, asked why we chose 1 January. I can only assume—if I am wrong on this, I will confirm it—that it was because it is the beginning of the new year and we decided that would be a good time. He asked one more, rather technical, question, and I do not have an answer to it. I will certainly write to him.
As I explained, the order provides a right of appeal for community interest companies. The rest of the package will be laid if the order is agreed to. I commend it to the House.
Motion to Approve