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Public Administration Committee Report (Charity Commission)

Volume 563: debated on Thursday 6 June 2013

I beg to move,

That this House has considered the matter of the publication of the Third Report of the Public Administration Select Committee, The role of the Charity Commission and “public benefit”: Post-legislative scrutiny of the Charities Act 2006, HC 76.

I am grateful to the Backbench Business Committee for the opportunity to launch the Public Administration Committee’s third report of this Session. This is, in many ways, one of the Committee’s most important reports. The charitable sector is at the heart of British society, involving millions of people and with £9.3 billion received in donations last year. About 25 new applications for charitable status are received by the Charity Commission every working day.

The first UK charity was established in the year 597: the King's school, Canterbury, which still thrives today. The regulation of charities in England and Wales started under Queen Elizabeth I, with the 1601 Statute of Charitable Uses, which set out the first definition of a charity in English law and the purposes for which a charity could be established. The definition of a charity has remained largely unchanged from that time. Page 8 of our report carries a useful timeline of the development of charity law since then.

The subject of the Committee’s inquiry was the Charities Act 2006. Our inquiry followed the Government’s own review of the Act, carried out by Lord Hodgson of Astley Abbotts. I hope the House will join me in thanking my noble Friend for his valuable and meticulous work.

The Committee’s inquiry came at a challenging time for the Charity Commission. Its budget is being reduced by 33% in real terms over five years. The Charity Commission has also become involved in some protracted legal battles. It lost a case with the Independent Schools Council and its decision last year to decline an application for charitable status from the Preston Down Trust, part of what is called the Plymouth Brethren Christian Church or, formerly, the Exclusive Brethren—

I will give way at the end of my remarks.

That decision was challenged and taken to the charity tribunal—

On a point of order, Madam Deputy Speaker. The hon. Gentleman said that he will give way at the end of his remarks. I understand that the debate is time limited, so can he give us some idea of when he is likely to finish? I am the only other member of the Committee in the Chamber and I profoundly disagree with this very poor report. If I am to be gagged and not allowed to speak by the Chair—

Order. I am sure that that is not the intention, Mr Flynn. Under this procedure, Mr Jenkin can take up to 20 minutes to present his report but he will take interventions as he is going along.

I think we should interpret his remarks, as I did, to mean that he wanted to finish the point he was making before he took an intervention. I am sure that that was what you meant, Mr Jenkin, was it not?

I will give way to the hon. Member for Newport West (Paul Flynn) and I can assure the House that I have never been able to gag him, try as I might. I can assure him that my speech will by no means fill the 20 minutes available; I hope it will fill no more than half that.

Order. I want to make sure that we are both clear on the procedure. If you make your remarks and sit down, that is the end, so we need you to take interventions during your speech.

I quite understand.

We received firm advice from the Attorney-General that we should treat the Preston Down case as sub judice to avoid prejudging any future tribunal decisions. In any case, it is not for PASC to determine the charitable status of individual cases.

The impact of the 2006 Act on the issue of public benefit and charitable status was at the centre of the inquiry. It has always been the case that charities must be established for charitable purposes only and that a charitable purpose must be “for the public benefit”, but the 2006 Act is said to have removed the presumption of public benefit from the list of headings that has historically existed, although case law prompts the question whether there ever was in fact such a presumption. However, the Act also placed a duty on the commission to publish guidance on public benefit, even though Parliament failed to define “public benefit” in the Act.

That aspect of the Act has been an administrative and financial disaster for the Charity Commission and for the charities involved, absorbing vast amounts of energy and commitment. Lord Hodgson describes the public benefit aspect of the Act as “a hospital pass”, inviting the commission to become involved in matters such as the charitable status of independent schools, which have long been a matter of political controversy.

We criticise the Charity Commission’s interpretation of the Act in some cases, but ultimately find that

“the Charities Act 2006 is critically flawed on the question of public benefit and should be revisited by Parliament”.

I will give way to my hon. Friend when I am close to the end of my remarks.

We recommend that the presumption of public benefit in the 2006 Act should be repealed along with the Charity Commission’s statutory public benefit objective. The situation must be rectified with a new Act to allow the commission to focus on its proper job. Parliament, not the Charity Commission, should determine the criteria for charitable status and should not delegate them to an executive body.

We concluded that the other objectives for the Charity Commission set by the 2006 Act are also far too vague and aspirational in character—an all-too-frequent shortcoming of modern legislative drafting—to determine what the Charity Commission should do, given the limitations on its resources, to fulfil its statutory objectives.

The Cabinet Office must consider how to prioritise what is expected of the Charity Commission, so that it can function with its reduced budget. That must enable it to renew its focus on regulation as its core task. The commission is not resourced, for example,

“to promote the effective use of charitable resources”

or, for that matter, to oversee a reappraisal of what is meant by “public benefit”; nor is it ever likely to be.

PASC’s report also makes recommendations on the issue of chugging—that is, the face-to-face fundraising whereby many feel pressured by chuggers.

I will give way to the hon. Gentleman in a moment.

The chair of the Charity Commission, William Shawcross, described chugging as

“a blight on the charitable sector”.

Self-regulation has failed so far to address that. The case for statutory regulation of fundraising is compelling, but what about the cost, whether to the taxpayer or to charities themselves? Self-regulation has made some progress, but we recommend that it is placed on notice and reviewed in five years’ time.

Lord Hodgson proposed a rise in the threshold for compulsory registration with the Charity Commission to £25,000 a year to reduce red tape for smaller charities. We rejected that on the basis of the overwhelming majority of the evidence we received.

We also recommended against any relaxation of the rules on political campaigning by charities. Moreover, charities should publish their spending on campaigning and political activity to boost transparency. That is relevant to the question of lobbying, which Parliament is shortly to consider.

As for the question whether public funds should be used by charities involved with political campaigns, again transparency is the answer. Ministers should inform Parliament whenever a decision is made to provide Government support by direct grant to a charity that is involved in political campaigning.

Earlier this week, the Public Accounts Committee reported on the case of the Cup Trust and the specific issue of sham charities and tax avoidance. We welcome its report and the Charity Commission should learn from that scandal. We question whether the commission’s legal advice was too cautious and whether they should have acted more boldly. If the commission feels that it lacks necessary powers, it should tell us. Generally, however, the abuse of charitable status to obtain tax relief is intolerable and should be uncovered by Her Majesty’s Revenue and Customs and the Charity Commission working more closely together.

I want first to give way to my fellow member of the Committee, the hon. Member for Newport West.

The report does nothing to add to the reputation of this House. It is an atrocious report and it is a bad reflection on our systems that the Chairman of the Committee can take up the entire time devoted to its consideration.

Let me take the hon. Gentleman back to the point about the situation with independent public schools. It was hoped that the 2006 Act would change the unfairness whereby Eton and Harrow get a handout from taxpayers whereas ordinary schools in poor areas do not. The Act tried to change that, but a perverse decision taken by the law stated that the status of a charity depends on what it was established for, not on what it does. Two charities—one in Wales that exists to give petticoats to fallen women and another that exists to give education to the orphans of the Napoleonic wars—are more important than the fact that ordinary schools are deprived of charity status whereas public schools for the rich and privileged continue to enjoy that status and the related handouts.

I am grateful to the hon. Gentleman for his intervention, because he demonstrates the diversity of view on the question of the charitable status of independent schools. That shows why that matter should be decided by this House and Parliament, rather than simply being passed to the Charity Commission to determine. It is too controversial and we should not be delegating legislative functions to an executive body.

I am obviously not a member of the hon. Gentleman’s Committee, but I am a trustee and chair of a number of charities. Can he comment at all on the well-known whistleblower who worked for the Charity Commission but said that the weakness of the commission is that it has absolutely no power to investigate what is known to be widespread fraud in the charitable world? The commission is ineffective at doing that and does not have the necessary staff. Even the staff it does have are not directed to that large-scale fraud, which the whistleblower who came to see me told me is going on and must be stopped.

I am mindful of the hon. Gentleman’s point. We did not major on that during this inquiry, but it might be something to which we return. We recommend in our report that the Charity Commission and HMRC should work much more closely together. In fact, HMRC has the resource to investigate, penetrate and demand information about charities and their tax affairs and donors. In my personal opinion, it is as much a failure of HMRC as of the Charity Commission, but we recommend they work together more closely. What we have to be absolutely clear about is that the Charity Commission cannot start to conduct extensive investigations into the tax affairs of charities and their donors; it simply is not resourced to do so.

Madam Deputy Speaker, the suggestions being made from a sedentary position that I have not read the report are outrageous.

Mr Bone, I quite agree. Mr Sheerman, Mr Flynn, you have made your contributions, and shouting across the Chamber is not helpful.

Well, the next time he shouts across the Chamber when I am in the Chair, I can assure you I will pick him up, as I do everyone. Mr Bone, you may continue.

May I refer to a different aspect of the report, on charitable status for religious institutions? Many such institutions feel that there has been creep by the Charity Commission in defining public benefit or, worse still, going to the tribunal to define it. From what the Chair of the Committee is saying, I gather that he thinks this is something that Parliament should revisit.

That is exactly right. The legal advice we received on this question is quite clear: in the 1949 case of Gilmour v. Coats, the House of Lords made it clear that a cloistered religious order is not charitable, as any benefit is restricted to its members, who are a private class and not a sufficient section of the public. It has never been the case that every religious organisation is automatically charitable. However, the judgments in two other cases—Neville Estates v. Madden in 1962 and Re Banfield in 1968—were that a private religious group that is not wholly shut off from the world at large may be charitable.

The 2006 Act was not intended to introduce anything new, and it may have introduced some instability by requiring the commission to think up guidance on public benefit. That is what we feel was the real mistake—the apparent removal of the presumption and the requirement to produce guidance. If Parliament wants public benefit to be defined, it should define public benefit or it should leave the matter to the courts. Making the Charity Commission use its intervening judgment is what Lord Hodgson of Astley Abbotts described as the hospital pass.

I thank my hon. Friend and his Committee for their report. I look forward to reading it in more detail, but I will be honest and say that I have only had a chance to skim through it. I want to concentrate on conclusion 28, on the payment of trustees. Does he agree with me that in cases where there are voluntary trustees who are willing to replace expensive paid-for corporate trustees, that should be encouraged, welcomed and, indeed, facilitated by the Charity Commission?

I am grateful to my hon. Friend for that question, because we were presented by my noble Friend Lord Hodgson with a recommendation that it should be made much easier for trustees to be paid officials. I have to say that there was a strong reaction against that proposal, which has a bearing on the point my hon. Friend raises because the whole point about charities is that trustees are not paid. There may be quite highly paid executives in charities, but the job of a trustee is not to benefit financially from being a trustee. There are exceptions, but the Charity Commission has to approve them. I believe my hon. Friend is suggesting that the commission should be prepared to withdraw that consent in the event of a person offering to do the job for nothing. I invite the commission to consider that matter, which we may revisit in a future inquiry.

Following the remark by the hon. Member for Wellingborough (Mr Bone) that a number of Christian denominations have been under pressure from the Charity Commission, will the Chair of the Committee remind the House that 1,176 Christian and other religious associations were awarded charity status, but only one tiny and oppressive sect was turned down, and that was Hales Exclusive Brethren? Is it not appropriate to remind the House that we were subjected to the most intensive lobbying on this matter? Two million pounds was spent and I was personally approached—face to face—more than 50 times, including at my party conference. Around every corner in this House, there were members of that very unpleasant sect waiting to accost us. The Committee made a point about the control of bodies that lobby in that way. It was not about religion or charitable status; it was about money.

I hear what the hon. Gentleman says and he made his views clear in the Committee. I just re-emphasise that we declined to express a view one way or the other on the merits of that case on the advice of the Attorney-General.

My hon. Friend is being generous in giving way. The point I was trying to make is that there are religious organisations of all faiths that are concerned about what is happening and what might happen in the future.

That is certainly correct. There has been widespread fear among many colleagues that the case presages a crackdown on religious groups by the Charity Commission. I believe the consistent message in our report is that we believe that too much has been laid at the door of the commission to determine. If Parliament wishes to legislate to provide additional restrictions against religious organisations, it is for Parliament to do that, but there is established case law, which I quoted earlier, that should determine whether or not a religious organisation becomes a charity. It is unfortunate that that particular case became so adversarial. It has to be said that the charity tribunal has not reduced the costs of litigation as was hoped, and there is scope to improve the practices of the commission in handling such disputes, so that vast amounts of the time and resources of the commission and charities, or potential charities, is not absorbed in paying lawyers to argue about how many angels there are on the head of a pin.

Does the hon. Gentleman agree that that particular sect has been involved in lobbying in other countries—including paying politicians, although I am not saying that that has happened here—and that the resulting disquiet among other religious groups was entirely because of the propaganda of Hales Exclusive Brethren? This is not a religion; it is a very nasty sect that treats its members very badly. We had people giving evidence in this House that they were threatened with losing their job, their home or their mortgage because they bought the wrong computer—not the one that Exclusive Brethren have, which, rather like what happens in North Korea, can only pick up the group’s website. This is an exceptional group of people, and the Charity Commission took no action that was disreputable or wrong. The commission did the right thing in identifying that group and allowing 1,176 other religious groups to have charitable status.

I am sure the whole House has heard the hon. Gentleman’s strong opinions on that matter. He will know that the Committee as a whole declined to express a definitive view on the matter on the advice of the Attorney-General. My understanding is that we all agreed that such matters would be best settled by Parliament laying down more clearly the meaning of public benefit or by returning to the previous position in which it was left to the courts to decide, rather than by requiring the Charity Commission to produce guidance on the meaning of public benefit, which has been the source of much dispute.

If there are no more interventions—I should be happy to give way to either Front Bencher—I will conclude by stating our belief that the implementation of our recommendations is essential to restore and to maintain public trust in charities and in the Charity Commission, which in turn is essential to promote the good work done by charitable organisations in communities across the country. I hope that the House will join me in thanking the charity commissioners and everyone who works for the commission. They are dealing with a vast work load with diminishing resources—like much of the public sector, they have had to suffer extensive redundancies, with more to come—and we rely on their devoted service. We should thank them for everything they do for charities in this country.

Question put and agreed to.