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Charities Act 2006 (Changes in Exempt Charities) Order 2010

Volume 716: debated on Tuesday 26 January 2010

Motion to Approve

Moved By Baroness Crawley

To move that the draft order laid before the House on 18 November 2009 be approved.

Relevant Document: First Report from the Joint Committee on Statutory Instruments.

Baroness Crawley: My Lords, the two statutory instruments before us today form part of a package of changes to the regulation of exempt charities, following on from the Charities Act 2006. While the general law of charity applies to exempt charities, they, unlike other charities, are exempt from many provisions of the Charities Act 1993. Notably, they cannot register with the Charity Commission and are outside the scope of its supervisory powers. There is currently no specific regulatory mechanism in force to promote or ensure their compliance with charity law.

The 2002 Strategy Unit Review on charities and not-for-profits found that the position of exempt charities was anomalous, confusing for the public and a threat to the integrity of charitable status. It made recommendations for improving the regulation of exempt charities as charities—including the proposal that existing “main regulators” should be sought where possible to take on a charity oversight role in addition to their existing regulatory role.

On public consultation, the majority of respondents agreed with the principle that exempt charities should be regulated as charities. The Government considered it appropriate that in return for the significant benefits of charitable status all charities should be regulated as charities. The key issue was how to achieve this while recognising that many exempt charities were already sufficiently regulated in one way or another—albeit not as charities.

In accepting the Strategy Unit’s recommendation, the Government set out their aim of establishing arrangements that would impose the minimum of extra bureaucracy, but at the same time secure greater accountability of, and charity law compliance by, exempt charities. We sought, in line with the Strategy Unit’s recommendation, to do this by identifying for each group of exempt charities an existing main regulator that could become principal regulator. The principal regulator would be under a new duty to promote charity law compliance by those charities.

Some have questioned the principal regulator approach, suggesting instead that all exempt charities should lose exempt status and come directly under the Charity Commission’s regulation. However, we need to balance this view against the additional regulatory burden that would result—many consultation responses were from exempt charities which were concerned about being over-burdened by regulation, or answering to multiple regulators. Most of the concerns raised during debate on the exempt charities provisions of the Charities Bill were seeking to minimise the burden of regulation of exempt charities. The principal regulator approach was well supported as a means of doing this. That is why we have pursued the principal regulator approach.

Where a suitable principal regulator could not be identified, exempt status would be removed from the relevant charities. These charities would be required to register with the commission if their gross annual income exceeded a specified financial threshold—currently £100,000. Parliament agreed to the making of these changes by passing the Charities Act 2006.

In the 2006 Act, Parliament also agreed to increase the Charity Commission’s powers in respect of exempt charities. Importantly, the Charity Commission must consult the relevant principal regulator before exercising any regulatory powers in relation to an exempt charity.

These provisions of the 2006 Act will be implemented and changes made under them in several tranches. The two SIs being debated tonight form part of the first of those tranches. The provisions are being implemented in tranches to recognise the readiness of different groups of exempt charities and principal regulators, and to help the Charity Commission manage the registration of charities ceasing to be exempt.

The draft Charities Act 2006 (Changes in Exempt Charities) Order will remove exempt status from certain groups of exempt charity. The groups affected are: the colleges and halls in the Universities of Cambridge and Durham; the colleges in the University of Oxford; higher education institutions in Wales which are currently exempt charities; charitable institutions connected with the institutions that I have just mentioned which are currently exempt charities; and the Board of Governors of the Museum of London. These changes are made because a suitable principal regulator could not been identified. The changes do not affect the charitable status of these institutions. Separate regulations will be made to ensure that, subject to the £100,000 threshold, they are exempted from the requirement to register with the Charity Commission.

The order will also confer exempt status on certain charities connected with the British Library Board. This change is considered desirable to ensure that they are appropriately regulated for charity law compliance. It will mean that their charity law compliance will be promoted by the same person who promotes it for the British Library Board; namely, the Secretary of State for Culture, Media and Sport.

I hope that we have already been able to provide the noble Viscount, Lord Eccles, with some reassurances about the impact of these instruments on the Eccles Centre for American Studies in the British Library. In 2003, at the request of several charities closely associated with the British Library, the Charity Commission made a uniting direction to help simplify their administration and regulation. The result of this direction is that they are treated as part of the British Library Board and thus within the scope of its exempt status. The charities are, as a result, currently out of scope of the Charity Commission’s regulation. As far as the charities covered by the uniting direction are concerned, we would expect some or all of them to become exempt charities in their own right as a result of the amendment to paragraph (za) of Schedule 2 to the 1993 Act proposed in Article 2(7) of the draft order. We do not expect this change to have any significant practical effect for the charities concerned.

We cannot provide such a cast-iron guarantee that other charities apparently connected to the British Library Board will not be affected by this provision. However, the Charity Commission has said that charities governed independently from the British Library Board and able to make their own decisions about what projects or activities they will fund or support will not be considered by it to be exempt and will still be required to register with the commission.

The draft order also makes a number of minor provisions to ensure a smooth transition from one status to another. They deal for example with the preparation of accounts for the current financial year and ongoing charity proceedings and land transactions.

The draft Charities Act 2006 (Principal Regulators of Exempt Charities) Regulations prescribe principal regulators for three groups of exempt charities: the Higher Education Funding Council for England for higher education institutions in England and their connected institutions; the Secretary of State for Culture Media and Sport for the boards of trustees of the museums and galleries and their connected institutions; and the Secretary of State for the Environment, Food and Rural Affairs for the board of trustees of the Royal Botanic Gardens, Kew, and its connected institutions.

The regulations do not give the principal regulators any new powers to intervene in the affairs of the charities for which they are responsible. If charity law problems arise, it will be for the Charity Commission to exercise its regulatory powers at the invitation of the principal regulator. Some have questioned whether proposed principal regulators that are also funders may be too conflicted to take on the principal regulator role. We have considered this carefully with the proposed principal regulators. These bodies have existing oversight roles alongside their funding roles. The fact that these bodies already have this oversight role complements the role of principal regulator. We do not believe there is an inherent conflict between the two roles. However, if a conflict of interest were to arise, it could be effectively identified and managed by the relevant principal regulator, with advice from the Charity Commission.

The duty of the principal regulators will be forward-looking. They will be required only to promote compliance with the charity trustees’ charity law obligations arising on, after, or ongoing at, the commencement date. The Charity Commission will be in a similar position.

The Office of the Third Sector, the Home Office and the Charity Commission have been closely engaged with stakeholders on these issues since 2003, when discussions began with the various groups of exempt charities and their existing regulators to identify potential principal regulators. This resulted in a list of proposed principal regulators being published alongside the draft Charities Bill in May 2004. Since then, discussions have continued and, for the purposes of this tranche, the Office of the Third Sector and the commission have consulted with the proposed principal regulators and bodies representing the groups of charities that will be affected by the SIs and, in many cases, the individual charities themselves. Early drafts of the SIs were shared with these bodies for comment last year.

There is expected to be little, if any, noticeable impact on those exempt charities for which a principal regulator is appointed. Their existing regulatory regime will continue, but with their regulator also promoting charity law compliance. For example, they will account and report as now without any duplication of reporting to the Charity Commission. An impact is likely to be felt only if something seriously goes wrong and the principal regulator needs to call on the Charity Commission to intervene. However, charities under the principal regulator regime are likely to benefit from guidance on charity law issues, including guidance tailored for sector-specific issues.

There will, however, be some costs for charities that cease to be exempt and have to register with the Charity Commission. We and the commission have worked to minimise any additional burden of regulation. The commission does not charge fees for its services and, to make the registration process as straightforward as possible, has already started working with charities that will cease to be exempt. However, we accept that there could be some indirect one-off costs for the charities that have to register.

There will also be additional one-off costs for all charities that cease to be exempt and own registered land, or for which such land is held on trust. This is because they will need to pay for Land Registry records to be updated to reflect the restrictions on their ability to dispose of that land. These restrictions do not apply to exempt charities. These costs were not anticipated at the time of the original impact assessment and have come to our attention since the SIs were laid in draft. As a result, it is not possible to give an exact costing arising for each charity. I understand, however, that the fees currently payable to update the register are £50 for the first three registered titles affected, and £25 per subsequent title affected. We have discussed with the Land Registry the possibility of these fees being waived or reduced. However, the Land Registry depends upon the fees it charges customers to cover its costs and these applications will be treated in the normal way.

There will also be some annual costs for charities that cease to be exempt. Registered charities must submit an annual return to the Charity Commission. The cost of preparing this is estimated to be £32 in the first year and up to £23 in subsequent years, or up to £124 for charities with incomes over £1 million which have to provide a more detailed summary information return. These can all be completed online. No extra costs are anticipated in relation to the preparation or scrutiny of accounts, but these will have to be sent to the commission each year—again something which can be done online to simplify the process.

Charities ceasing to be exempt will, like other non-exempt charities, have to prepare a trustees’ annual report. The commission has estimated the annual cost to formerly exempt charities required to register as ranging from £287 to £534, depending on the size of the charity. No other costs are anticipated for charities which cease to be exempt.

The Charity Commission has developed memoranda of understanding with each of the principal regulators to be appointed in this tranche, and is also establishing a committee of principal regulators which will meet regularly to share best practice and ensure consistency. The commission also publishes guidance on its website about the forthcoming changes in relation to the regulation of the exempt charities, including guidance on registration for those charities that will be required to register.

The effectiveness of these provisions, and the impact of the changes on exempt charities, will be evaluated as part of the statutory review of the Charities Act, due to begin next year. These SIs will in part bring about changes that were initially approved by Parliament during the passage of the Charities Bill 2006. I believe they will achieve the balance of improving the accountability of, and charity law compliance by, exempt charities while keeping the regulatory burden to a minimum. I expect these measures will increase public confidence in exempt charities, and in the sector as a whole. I therefore strongly commend them to the House. I beg to move.

My Lords, I am very grateful to the Minister for setting out these two instruments. In speaking to these and to my Motion I will concentrate on the major issues. I do not believe the House will be particularly interested, or indeed particularly troubled, by some of the minor issues to which the Minister referred.

First, I must declare interests. I was at Magdalen College, Oxford, which will willingly give up its exemption under the changes order, and until recently was a trustee of Magdalen’s development foundation, which is a registered charity. I was, some years ago, the chairman of the trustees of Kew Gardens and on the board of Kew’s foundation and friends. I am a founder friend of Kew. I am a member of the advisory council to the Eccles Centre for American Studies at the British Library, as was mentioned by the Minister, and a member of the British Library’s friends. I have no particular problems with the consolidating arrangement that was made by, and with the approval of, the Charity Commission for those charities at the British Library. There are, however, issues which arise out of the friends of the British Library which I think are quite important. All of those charities are affected by one or other or both of these instruments, and I am also a member of the friends of several others of those affected institutions.

I would say straight away that I fully accept that Parliament passed the 2006 Act and that it enabled Ministers to do the things they are proposing. However, Parliament did not agree to this particular solution. There were options and they remain in the 2006 Act and in my view, and I hope to develop this argument, there was a much more elegant solution or series of solutions. I would also say that although I am no longer a member of the Merits Committee, I was when these instruments were first laid in July. They were then withdrawn and we are now considering their replacements.

They need to be seen in context. The number of charities affected is quite small even though the Charity Commission is the regulator of 160,000 charities, in fact some estimates are even larger than that. Whatever is done with these instruments, we need to remember that the primary responsibility for the regulation of the sector rests with the Charity Commission. The issues raised by these instruments are complex and significant and it is their importance and complexity which makes me so critical of the decision recorded in the bald statement in paragraphs 8 of each explanatory memorandum. They state that the regulations,

“have not been the subject of formal public consultation”.

In her summary of the position, the Minister referred to the Strategy Unit and to the discussions and the recommendations that were made in the pre-legislative period up to 2004 and perhaps, in the final analysis, a revision of the documents in 2005. That is a long time ago, and I know of no precedent where the implementation of an Act through statutory instruments is dependent on the pre-legislative scrutiny and the processes that were undertaken at that time. It is this that makes me so critical of the decision not to hold a formal public consultation. At the time, the Cabinet Office had responsibility for the better regulation agenda. It is inexcusable that it broke its own rules. Public consultation was a necessity under those rules. Instead, the explanatory memoranda continue to rely on the work done between 2001 and 2004. This was incomplete, and at the time revealed sharply differing opinions among the 60 respondents, whose responses clearly showed that both exemption and the possibility that sponsoring departments could become charity law regulators were highly contentious issues. There was then, as there is now, a compelling case for further consultation.

There is also a compelling case for an up-to-the-minute regulatory impact assessment, based on the data accumulated since the passing of the 2006 Act. Of course there are some registration costs that can be calculated; but if we are changing the regulatory responsibilities of significant bodies, it behoves us to have a sensitivity analysis. I doubt whether the Charity Commission has had any experience of dealing with charities such as the Oxford colleges, some of which have been going for rather a long time and have statutes and ways of doing things that are quite particular. I have heard that there are already issues between the Charity Commission and an Oxford college or two.

The need for a regulatory impact assessment based on the data for the 2006 Act also leads to needing the data on the Companies Act 2006. I will return to this point, because many registered charities—indeed, nearly all the large ones—are also companies limited by guarantee. Therefore, they come under two regimes and must satisfy both. Many institutions affected by these orders have related companies limited by guarantee. Any change in regime is likely to cost money, even if it is only fees for prudent legal and accounting advice. This is another matter that has gone unmentioned in the explanatory memoranda.

It has been equally clear for the past three years that there were bodies—for example, the NCVO, the Charity Law Association and leading firms of accountants and lawyers—with far greater knowledge of the voluntary and charitable sector than the newly formed Office of the Third Sector. It was forgotten that the issues that arise when changes are made to charity law are always complex. Well presented evidence needs to be explained, most notably evidence from the Charity Commission, which is the most involved and experienced adviser available. We lack that evidence. Instead, we have draft regulations, sketchily explained and unilaterally imposed by the Cabinet Office on behalf of the Office of the Third Sector, without public consultation or regulatory impact assessment.

It is not too late for the important issues that arise to be properly and publicly discussed, because two further steps are needed before the instruments come into effect. A 2006 commencement order is needed, as is a further set of regulations under Section 3A of the 1993 Act, as set out in paragraph 4.6 of the explanatory memorandum. There is time for further consideration.

The first important issue to consider is that of regulation itself. The 2006 Act makes it possible to opt for more than one way forward. While it enables the appointment of regulators other than the Charity Commission, it is equally possible to make the commission the sole regulator. The sole regulator option was preferred, for example, by national museums directors—who are pretty directly involved in what is happening with these instruments—by the Museums Association and by the Charity Law Association. One strong argument that they made was that since the public well understood the role of the Charity Commission, it would be confusing, and thus damaging to public confidence, were other regulators to become involved. I agree strongly with the proposition that bringing in Secretaries of State as regulators is not good for public confidence. These witnesses volunteered their views: there has never been public consultation, with targeted questions aimed at discovering the response either to Secretaries of State or to the Higher Education Funding Council for England becoming principal regulators. Nor has there been a formal response to the simplifying suggestion that all charities should be registered with the Charity Commission. The Minister has not given us an answer to that tonight either. It remains unclear why the Government have not followed up that suggestion and I shall return to that later when discussing Kew Gardens. Although I shall now note that simplification and a level playing field are the principal arguments made, and convincingly made, for removing exemption from university colleges and thus bringing them within regulation by the Charity Commission, to argue that something is good here but bad there smacks of cherry picking.

The second issue is the complex one of friends' organisations. I shall be brief. They are most commonly companies limited by guarantee and registered charities. There is a question mark over their heads when the institution with which they are friends becomes exempt and is regulated by someone other than the Charity Commission. Given the combination of primary charity and company law with the secondary legislation which attaches to both, the question is whether a particular friends’ organisation is legally exempt. If it were, it would be required to de-register from the Charity Commission under the terms of the 1993 Act, as amended by the 2006 Act. That loss of its charity number would raise all kinds of questions with the members of the friends. For example, what happens to gift aid? Again, public confidence will be damaged. I was hoping to be able to welcome the Minister's assurance that it is government policy that friends' organisations will, without doubt, remain registered charities. I would welcome a further assurance that if, by some unintended consequence, present legislation, including these orders, determines that a friends’ organisation—for example, the Friends of the British Library—had no choice but to become exempt, will the Government agree to take steps to introduce measures which ensure that present policy prevails and registration with the Charity Commission is maintained?

Thirdly, I shall refer to Kew in more detail. Kew is to be an exempt charity, with Defra as its principal regulator. Defra provides Kew with its annual grant from public funds under Treasury rules. Since way back in 2002-03, objections have been raised to the principle involved in a sponsoring department also being a Charities Act regulator. I really do not think that the Minister gave us an adequate justification for dealing with the argument that there will be a conflict of interest. These representations in any public sense have gone unanswered. Is there a better answer?

Matters become more complicated if we move on to consider the Foundation and Friends of the Royal Botanic Gardens Kew. As it is a registered charity—No. 803428—the Charity Commission is the regulator and will remain so. The foundation and friends’ organisation is incredibly important to Kew and I think it transferred £10 million to the Royal Botanic Gardens last year. The commission will also have rights and duties toward Defra, the other regulator, as the Minister mentioned under Schedule 5 to the 2006 Act. Furthermore, the board of Kew, members of which also serve on the foundation board, will be in a triangular relationship: Defra, the Charity Commission and themselves in two guises, which is likely to be a recipe for trouble. Those who favour the commission as the regulator of all charities certainly have a point. There are other institutions on the list in similar situations.

Consideration of this point leads to a question to Ministers. Under the provisions of Section 11(12) of the 2006 Act, the Minister can only—the “only” is there—make an order if she is satisfied that it is desirable in the interests of ensuring appropriate or effective regulation. No evidence has been included in the explanatory material to show how that test of appropriateness or effectiveness is met. If there were consultation, I guess that there would be a school of thought saying “inappropriate”, and surely there is effectiveness already. What is the case for saying that the test is met?

Finally, I believe that the Office of the Third Sector has shown a fine disregard for Parliament's amendments to the Bill. The office’s case for these orders depends on work done when the Home Office was responsible and its reliance on that work ignores Parliament’s decision during the passage of the Bill to include Section 6(4) which states:

“In the exercise of its functions the Commission shall not be subject to the direction or control of any Minister of the Crown or other government department”.

In laying these orders, which alter the Commission’s responsibilities without securing the Commission’s expressed agreement, the Government must be sailing close to the Section 6(4) wind and thus not meeting Parliament’s decision that the Commission should be truly and unusually independent. Will the Minister assure us that due regard will be paid to Section 6(4)?

However, there may be more to it than this. My impression is that in some version of turf war between the Office of the Third Sector and the Commission, it is no surprise that the Commission is in the middle of 5 per cent cuts in its annual expenditure. Its resources are already slim and it carries a heavy responsibility, and, as Jane Austen knew, it is hard to be independent if you have no money. It may well be convenient for the Office of the Third Sector to forge ahead with its transformation role in support of public services, urged on by the Prime Minister, while sidelining the Commission, despite Parliament. This would go a long way to explaining a preference for other regulators, however inexperienced or inappropriate. It would also explain the absence of a regulatory impact assessment.

A great deal has changed since the 2001 Strategy Unit started on this story. We have a different Prime Minister, the Home Office has given way to the Office of the Third Sector in the Cabinet Office, the Cabinet Office has lost its regulatory responsibilities to BIS, and the re-established Charity Commission has had three years’ experience of the widely welcomed 2006 Act. Everything tells us that it is time for fully open and compliant orders. These two instruments have been withdrawn once. They need to be withdrawn once more.

My Lords, I declare two interests: first, I am chair of the Third Sector Advisory Body, and someone who has spent most of her working life working in or with the charitable sector. Secondly, I am chair of the Council for Healthcare Regulatory Excellence. Wearing both these hats, I support the proposals made by the Government in these instruments. At the Council for Healthcare Regulatory Excellence and with the regulatory bodies which regulate the health professions, we always refer to regulation being done with the “right” touch, not a “light” touch, although the right touch often is a light one.

Overall we try to apply the following test to regulations. Are they focused on the protection of patients and the public? Are they concerned with their safety? That is the prime reason for their existence. Is regulation fair? It must be seen to be fair or it will be resisted. Is it proportionate? It must not be heavy-handed or overburdensome. Is it transparent? It needs to be open in its operation and structures, and consultation plays a very important role in that. Is it agile and flexible? Can it adapt to changing circumstances? Finally, is it good value? We must be aware of pressures on the public purse, especially at times like these.

I feel that the proposals before us tonight for regulating the exempt charities meet these criteria. Moreover, the proposals were widely consulted on and approved by most of those affected, although of course, that consultation took place some time ago. I should emphasise that if any discrepancy or bad practice is found, the regulators will have the power to refer to the Charity Commission, as my noble friend has told us, which will take the matter up.

I remind your Lordships that regulators liaise on matters affecting their client groups. They share best practice to ensure that there is no duplication. Such co-operation does not depend on legislation or on statutory instruments, but on the common-sense approach taken by regulators who know very well that the last thing we need is to have any activity regulated twice over if we are to avoid the bureaucracy which has concerned so many of us. Far from their sidelining the Charity Commission, it seems to me that these are sensible proposals, accepted by the Charity Commission. It is the beneficiaries—the public who use the institutions—whom we should have in mind. In my view, the proposals meet their needs.

My Lords, I, too, thank the noble Baroness for presenting the orders, and the noble Viscount, Lord Eccles, for his contribution, which I have been trying to bottom and fathom—I have some difficulties. Nevertheless, he has ferreted away at his concerns, and it is right that we try to understand them to see if they can be answered. From what he said, I am not certain about the specific disaster that he sees occurring because of the proposed changes.

I reiterate things as I see them. Clearly, we are being presented with two different types of charity. There is the registered charity, which, as everyone knows, has the Charity Commission umbrella. That umbrella gives comfort to trustees of charities. They know year by year, or when they make any requests of the Charity Commission, that they are on the right lines—assuming that they are. It also gives comfort to everyone else in the land to know that that umbrella is there. We then have the exempt charities. The reason that we are here is that they have not had that umbrella. Under the regulations, they will be lent the Charity Commission umbrella. The Charity Commission will take it back unto itself only if there are severe problems that need real investigation.

Movement between the regimes is clearly suggested in the instruments, but the result is that exempt charities will be regulated with only one relationship. It seems to me that having only the one relationship with the Secretary of State, rather than also having an additional relationship, ought to be helpful and simplifying.

I have a specific question. Under the regulations is the role of the responsible person, who is the new regulator. Can the Minister confirm that the only new responsibilities of that responsible person are to cover the Charity Commission-type responsibilities, and that they do not bring with them any further form of interference that the trustees may not welcome?

I listened carefully to the noble Viscount talk about the organisations and friends he belonged to. I should have thought that they would be under the Charity Commission. It seems to me that no one would be in that position unless there was a present relationship with the department. They have no other business to be there. The reason is that the department has a relationship with them, and it is sensible to lend to them the Charity Commissioner’s relationship so that there is not another set of relationships, further accounts to be sent in, and so on.

It is important that the regulations are agreed, in the sense that it is always important for the public to understand that charities are properly and clearly regulated. We only need one hiccup with a charity to affect other charities which have nothing to do with it with regard to the confidence that people have when giving money to charities and having a real understanding as to what charitable activity is. I believe, therefore, that these regulations will give further comfort in that the charitable sector—both the exempt and the registered charities—has the formal backstop of the Charity Commission, and I am happy to support the measures that have been put forward today.

My Lords, as I rise to speak to these measures and also to the Motion before us, I put on record my charitable interests which are listed in the Register, although they are not specifically related to the organisations mentioned here.

I thank the Minister for the thorough and comprehensive way in which she presented the case for the proposals to the House, for the assistance of her team and also for helping us to understand some of the details and the workings of these measures. I also pay tribute to my noble friend Lord Eccles for his efforts and research in this area and I support him in his forensic analysis of the instruments before the House. Indeed, I venture to suggest that his expertise in this field, not only in terms of parliamentary draftsmanship, regulation and operation but also in charities as a whole, has helped all sides of the House in understanding the true nature, impact and reach of the measures before us. We have explored already the need for better consultation and the Government would do well to consult with my noble friend in these matters as often as possible as he clearly has significant expertise.

I, too, have some reservations in regard to the processes of the regulation and the potential conflict of interest. I will mention these briefly as they have already been expressed by other speakers. But before I do it would be remiss of me if I did not put on record the admiration we have on all sides of the House for the charitable sector in this country and the enormous contribution it makes to the social capital of this nation. The British public can always be counted on to respond generously to the needs of others. We are one of the most generous and giving countries in the world and that makes me very proud. Even in the depths of the recession last year, people gave £10 billion to charitable causes, down just £1 billion from the previous peak.

The current response to the Disasters Emergency Committee appeal in Haiti has already produced £31.5 million, with £25 million given in one week. There is also the wonderful story of that seven year-old boy, Charlie Simpson, who went on a bike ride to raise £155,000. This is a hugely important sector. It is part of who we are and everybody who is involved in it needs appropriate tribute paid to their efforts. It behoves us, therefore, as has already been said, that this extraordinary generosity is underpinned with robust regulation of the way in which these funds are managed and spent so that confidence can be retained by the British public in the charities they give to.

My first question refers to the Explanatory Memorandum and the results of the consultation. Under the Government’s own initiatives in the better regulation proposals, legislation has to pass a 12-week consultation period. This has not taken place in this case. The consultation can sometimes be used by this Government as a kind of warm, inclusive phrase devoid of any real meaning and which has little or no influence on the eventual regulation itself. We can produce better regulation only if we engage substantively and meaningfully with those who have a better understanding, better experience and better knowledge of the legislation under consideration.

These instruments act in the public interest. It is the public whom we should seek to protect, and many stakeholders will be affected by this decision. I therefore wonder why the formal public consultation has been rejected in this context. Will the Minister explain that when she responds? This is especially important as there have been murmurs from those in the field that these government proposals are not wholly agreed with, despite evidence to the contrary. I do not have all the evidence. It is not presented because there has not been the degree of consultation that perhaps there should have been.

The arguments about funding arrangements have been technical, and I have been trying to think how they might be represented in a scenario. I ask the Minister to bear with me for a second while I present the scenario of the board of the British Library. I happen to be a passionate believer that the moment cannot come soon enough when the Lindisfarne Gospels, which were stolen from Durham Cathedral during the dissolution of the monasteries—by the Clerk of the Parliaments—and then sold for pecuniary gain to the British Library, are returned forthwith to their home with the great St Cuthbert in Durham Cathedral. That passionate belief is shared by a number of Members of this House. The noble Baroness, Lady Quin, has been very involved in this campaign, as has the noble Lord, Lord Foster. Should one of us at some stage in the future happen to become Secretary of State for Culture, Media and Sport and still hold passionately that that egregious error should be corrected at the earliest possible opportunity, as the principal regulator of the British Library, could not pressure be brought to bear on the situation? That might be a hopeful scenario.

My noble friend Lord Eccles talked about independence and sailing close to the wind in the context of new Section 1A(4) in Section 6(1) of the Charities Act. Surely no one would want to enact legislation that threatened or even steadily eroded the integrity of charities by creating a system that confused the public or caused anomalies. The evidence that has been presented suggests that the order and the regulations could do just that, so there might be a case for further reflection and thought on the questions that have been asked and the points that have been raised. I very much look forward to the Minister’s response to this debate.

My Lords, I think we would all agree that this has been a very interesting debate. We have had the benefit of the very great experience of the noble Viscount, Lord Eccles, in the charities sector. His CV is a bit like a Who’s Who of the charities sector, and the debate has been fascinating in that sense.

I thank noble Lords around the House, particularly my noble friend Lady Pitkeathley, for the support that has been given in principle to the order and the regulations, with certain caveats; I was quite rightly asked certain questions to which I have been asked to respond.

I may be able to give the noble Viscount, Lord Eccles, some comfort on the Friends of the British Library, which he mentioned. I would like to provide further assurances to the noble Viscount. I know that he has concerns about the impact of the instruments on charities which are connected to exempt charities. With the exemption of charities connected to the British Library, these statutory instruments will not change the exempt or registered status of any charities connected to or associated with other exempt charities. For example, the Foundation and Friends of the Royal Botanic Gardens, Kew, a registered charity, will be unaffected by these instruments and will remain a registered charity under the Charity Commission’s regulatory supervision. Charities which are exempt because they are connected to an exempt charity will remain exempt. Like their parent exempt charities, they will come under the relevant principal regulator.

Regulation 2 of the principal regulator regulations in no way extends the scope of the definition of a connected charity. That definition is in paragraph (w) of Schedule 2 of the Charities Act 1993 and remains unchanged. Whether a charity falls within that definition is entirely a matter of charity law and company law is not relevant in this context. For connected charities that are currently exempt by virtue of paragraph (w) of Schedule 2, Regulation 2 of the principal regulations simply ensures that they come under the same principal regulator as their parent exempt charities.

I know that the noble Lord is concerned about the status of the Friends of the British Library, which is a registered charity. The view of the Charity Commission is that if it is governed independently from the British Library Board and therefore able to make its own decisions about what projects and activities it will fund or support, it will not become exempt and will still be required to be registered separately with the commission. It is not clear which of any of the British Library Board’s associated charities would be caught by the connected charity definition. The Charity Commission has said that it would be prepared to work with the British Library Board and its associated charities, including the friends, if asked to, to identify whether any of the associated charities would become exempt by virtue of their connection to the British Library Board and identify options for the relevant charities going forward.

If a charity associated with the board would become exempt by virtue of the order in front of us and the charity’s trustees felt that this should not be the case, the commission could consider the circumstances further and advise the trustees and, if appropriate, the board about what steps they might take to clarify the independence of the charity concerned. Tonight, I want to go further and say that in order to allow more time for this consideration to take place, we would put commencement of these provisions back from 1 April—the planned commencement date—to 1 June 2010. I hope that that has given some comfort to the noble Viscount, Lord Eccles.

I turn to some of the points raised by the noble Viscount and other noble Lords. The noble Viscount asked about advice and comment from the Charity Commission on these orders and about infringing the commission’s independence. The commission and the Government have worked together to develop the Charities Act and subsequent secondary legislation. The commission has shaped and informed this legislation and fully supports the draft SIs being considered, as it has indicated to several noble Lords present with its briefing.

The noble Viscount and the noble Lord, Lord Bates, referred to what they consider to be insufficient consultation. They asked why there has been no public consultation on who the principal regulators will be. The strategy unit first proposed the principal regulatory regime, or main regulator, as it was put then, in its 2002 report, Private Action, Public Benefit following public consultation. The Government accepted the recommendation and set about discussions with the various groups of charities likely to be affected. The aim of the discussions was to identify whether a suitable principal regulator existed for those relevant exempt charities.

The outcome of these discussions was published in May 2004 in the regulatory impact assessment that accompanied the draft Charities Bill. The Bill itself had pre-legislative scrutiny and it was then subject to parliamentary scrutiny during its passage through Parliament. During that time there were discussions about the exempt charities provision. Most of the concerns raised in the debate about the exempt charities provisions were seeking to minimise the burden of regulation of exempt charities. Discussions still continue right through from before the passage of the Act in 2006 until now, with the proposed principal regulators and representative bodies of the exempt charities. I take the point made by the noble Viscount that some of this has been private discussion, not necessarily in the public domain, but I am trying to give a linear example of the public discussion in 2002 right through to continuing discussion with those charities that may be affected by these orders.

There is no statutory requirement for consultation. We have, as I said, consulted the relevant charities directly and the proposed principal regulators. The bodies representing these charities and the principal regulators have said that they are content with the proposals.

The noble Viscount asked why there was no impact assessment specifically on the orders before the House today. An impact assessment was published alongside the draft Charities Bill in May 2004 and updated as necessary when the Bill was introduced into Parliament. That impact assessment considered the costs and benefits of appointing principal regulators and listed the proposed principal regulators for each group of exempt charities where one had been identified, including for example, the Secretary of State for Culture, Media and Sport for that department’s sponsored exempt charities. We accept that the original impact assessment could not provide the detailed costs of all aspects of the proposals, and therefore included in the Explanatory Memorandum to these statutory instruments is more information about the likely costs that will apply. We did not consider that there will be any significant costs for charities that remain exempt subject to a principal regulator. There will be additional costs for those charities that cease to be exempt and, where possible, we have set out those costs and the costs that we expect.

The noble Viscount also asked whether the commission has experience of regulating colleges as in Oxford and Cambridge. I take his point about the intricate, detailed and complex systems that can be set up in colleges of great history, as those are. The commission regulates 180,000 registered charities that are hugely diverse in terms of size, legal framework and purpose. We have more than 40 years’ experience of this and we are in dialogue with these colleges to enable a smooth transition to being registered, providing advice and support when needed.

The noble Viscount and the noble Lord, Lord Bates—with special reference in the case of the noble Lord to St Cuthbert—talked about the inherent conflict of interest between the role of the department and the Secretary of State as a funder, and that of principal regulator, and asked whether there be a circumstance when the duty of promoting charitable law compliance could tip over if the Secretary of State was passionate enough. We considered this carefully with the proposed principal regulators and concluded that the principal regulator role can coexist with the funding role. We do not believe that there is an inherent conflict of interest between the role of funder and that of promoting compliance with charity law. If a conflict were to arise, we consider that it could be identified and managed within the department, and a fallback position would be to call upon the Charity Commission for its input.

The noble Viscount, Lord Eccles, talked about the independence of the Charity Commission. It was an independent non-ministerial department before the Charities Act 2006, which reinforced its independence. It has been involved in the development of both the Charities Act and its secondary legislation and fully supports them. My noble friend Lady Pitkeathley, whom I thank for her contribution, asked some important questions about “right touch” legislation and gave us the benefit of her experience. I agree strongly with her conclusions.

I thank the noble Lord, Lord Shutt, for his support for these statutory instruments. He spoke of how important it is to simplify the procedures for charities as much as possible so that they do not have to complete two sets of accounts and write two annual reports. He asked whether Ministers who act as principal regulators would be able to interfere with the running of their exempt charities. I reassure him that these instruments do not confer any powers on principal regulators that would enable them to interfere with the administration of the exempt charities for which they are responsible. The only duty imposed on a principal regulator is to promote its exempt charity’s compliance with charity law.

I thank the noble Lord, Lord Bates, who rightly spoke of the wonderful and extraordinary generosity of the British public and the tremendous work of the charity sector. He made the point quite movingly that, in a time of deep recession and when people’s backs are against the wall, there has still been an enormous outpouring of charitable giving. The noble Viscount, Lord Eccles, and the noble Lord, Lord Bates, talked about conflict of interest. I hope that I have covered that.

With those remarks, perhaps I may say in conclusion that it has been over six years since the Government accepted the strategy unit’s recommendations relating to exempt charities. We now need to make progress with the implementation of these provisions of the Charities Act 2006 on which there has been much debate over several years. The Charity Commission is ready, the principal regulators are ready and the exempt charities that will be affected by these instruments are ready. We have committed to further work with the British Library Board and the charities connected with it before these instruments come into force. I hope that this gives the noble Viscount the assurances that he is looking for. I am confident that these changes will improve the regulation of exempt charities as charities in a way that meets the criteria of best regulatory practice and avoids excessive regulation.

Motion agreed.