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Charity Commission

Volume 752: debated on Thursday 27 February 2014

Question for Short Debate

Asked by

To ask Her Majesty’s Government what assessment they have made of the effectiveness of the Charity Commission.

My Lords, I declare a few interests. I own a business called Third Sector Business and am a consultant with B&W Consulting, both of which are small organisations that work extensively with charities.

I thank all noble Lords who will take part in the debate. The Charity Commission was founded under the Charitable Trusts Act 1853, and I suspect that the first debate on the subject of its effectiveness probably took place in 1854. It is a subject upon which many people have an opinion and few, if any, are neutral, and it is one to which Parliament returns often in the light of difficult cases. So it is today.

The commission has been heavily criticised in a series of reports over the past 12 months and at the moment appears somewhat beleaguered. The reason for holding this debate today is simple. As long as England and Wales continue to have a large and diverse charitable sector, it is in the best interests of government, charities and, above all, the public that there is an effective regulator of charities. We had the welcome news this week from the Charity Commission that the income of charities in England and Wales has risen by almost £3 billion and now surpasses £61 billion. That is a lot of public money sitting in trust, and the organisations to which it is entrusted have the right to show that they are worthy of that trust.

Today’s debate is an opportunity for Members of your Lordships’ House, with their long and distinguished experience in these matters, to think about ways in which we can rebuild confidence in the Charity Commission’s regulation of charities. It is not an opportunity for another bout of the favourite sport of bashing the commission. Noble Lords will remember that last year the commission appeared before the Public Accounts Committee, which asked the National Audit Office to review the commission’s effectiveness as a regulator and report back. The PAC produced a report written in characteristically scathing terms. It is a shame that the precision and forcefulness of its forensic examination and questioning was followed by a set of rather unclear and unhelpful suggestions for the commission. It would have been more helpful if the PAC had given a clear indication of exactly how it wished the commission to fulfil its functions in future.

The NAO report, the Regulatory Effectiveness of the Charity Commission, was published on 4 December, along with its report on the commission’s handling of the Cup Trust. Those reports do not make for easy reading but they make plain that the problems that the commission now faces are longstanding and are not the fault of the current officers of the commission, or indeed their immediate predecessors.

It is helpful to look briefly at the history of this issue to understand why some of those underlying problems have arisen. In the mid-1990s, charities grew substantially as providers of public services under contract. In 1996 the NCVO produced the Deakin report, which stated that in order to have a vibrant voluntary sector there had to be robust regulation, a clear role for the regulator and a clear legal framework within which the regulator and charities could operate with confidence. In 2001 the NCVO returned to the issue and produced a report entitled For the Public Benefit?, which, again, stated the need for a clear legal framework and, in particular, for there to be clear guidance about what is and is not a charity. That led to the 2004 Charities Bill. Many of your Lordships sat in this room throughout 2005 during the passage of that Bill and had yet more discussions on key issues such as: what is public benefit? I have to say that the decision of Parliament to leave the matter of what is public benefit to be decided by case law presents the commission with an ongoing and enduring problem in delivering its role as a regulator.

Today we are back to the position where the commission has had its budget reduced by one-third and, as ever, there are arguments about the way in which it has gone about pursuing particular cases. However, it is clear that we need to help the commission to recover ground and confidence. I work with lots of organisations, and the best of them—it does not matter which sector they are in: public, private or voluntary—do three things: they have a clear vision of what they are trying to achieve, they have the information that they need to fulfil that vision, and they have excellent relationships with other organisations. Were we to look at the commission in terms of those three issues, that might help us, the Government and the commission to see our way forward.

At heart, there remains a lack of clarity about what the commission’s job is. Following the strategic review of the commission a couple of years ago, everyone has now agreed that its principal role is to be a regulator; that is the unique role that it can fulfil. However, what do we want it to regulate—simply charity law, compliance with charity law, or the increasingly individual charities? In certain parts of government, I think that there is a view that we should have a de minimis regulator along the lines of the FCA, which simply regulates compliance. I do not think that is right. We have the most advanced, complex and vibrant voluntary sector in the world, and we need a regulator that is much more proactive about setting standards of good governance and trust. We need the Charity Commission to regulate within that framework.

On the matter of relationships with other organisations, I have always had a feeling that the commission is a somewhat distant and aloof organisation. In these times of straitened economics, the commission needs to be far more adept at developing good strategic relationships with other organisations. It ought to proactively signpost charities and the million trustees who use its services to go to other organisations for top-quality information and advice. It has always been reticent about doing that in the past.

The principal issue on which there could be a steer from government is the relationship between the commission and other regulators. The report into the Cup Trust has shown clearly that HMRC was at fault. From the beginning, it was clearly an issue of tax evasion and should have been dealt with primarily by HMRC, with some assistance from the Charity Commission on its areas of specialism. In future, that is what the commission should do with all regulators. The onus should be on other regulators, and the Charity Commission should be a specialist back-up point.

In the very little time remaining, I want to say one thing. The budget of the commission has been cut; we all hear about that endlessly. The Government should make one piece of investment: in the commission’s digital strategy. I am sad enough that I use the Charity Commission’s register all the time. It is incredibly clunky; you have to really know what you are looking for. In this day and age, it does not answer the strategic needs of anyone—of government or of the sector. The single most important thing that could be done to encourage public trust in charities—that is what this has all really got to be about—is to require any organisation that calls itself a charity to have the most simple of websites, on which it must have its annual report, its governing document, its latest accounts and its statement of activities. If the Charity Commission were in a position to actively promote digital transparency throughout the sector, far fewer problems would end up at its door. The noble Lord, Lord Hodgson of Astley Abbotts, was absolutely right. There are 175,000 registered charities, and a greater number of very small organisations that call themselves charities but are not registered. The commission alone cannot police every one of them but, with the help of the Government, who are currently pursuing their own digital strategy, it can drive up standards of transparency and accountability. I hope that we will focus on that today.

My Lords, I must first declare an interest. Members of my family remain within the religious group which has been the subject of much controversy with the Charity Commission, namely the Exclusive Brethren. I thank my noble friend Lady Barker for securing this debate. It is clear that the future effectiveness of the Charity Commission will involve the investigation of charities such as this. This needs resources, and clearly £137 per charity is not sufficient. As one pays for the issue of court proceedings and to get a passport, I do not think that there is anything objectionable in the Charity Commission charging for the services it offers.

Under the new leadership of William Shawcross, I believe that the commission is more effective and a new day is dawning. In what may seem to colleagues like an Oscars speech, I thank him and Kenneth Dibble for their unique finding concerning the alleged group which I have mentioned. They found,

“on balance, that there were elements of detriment and harm which emanated from doctrine and practices of the Brethren and which had a negative impact on the wider community as well as individuals”.

The actual doctrines and harsh disciplinary practices were the issue this alleged church had to address. It was made to amend its trust deed, and will be reviewed in a year’s time to see if its behaviour has changed. This finding is an important acknowledgment of the mental, emotional and financial suffering of ex-members of this group, which is controlled from Australia by universal leader Bruce Hales. I thank ex-members of the group who bravely came to Parliament recently to tell their testimonies. The mental health implications were obvious to colleagues of living in a system where people are told, “We will do the thinking, you do the doing”. In this system people risk being separated from their family if they even own a phone from Carphone Warehouse, or go away to university. People work for a Brethren-owned company, so for some gaining their freedom meant losing their home and their job as well as members of their family, even their own children.

I previously called for a church-led inquiry, as I was aware of the wonderful pastoral support being given to ex-Brethren in many churches. However, I was naive. As my noble friend Lady Brinton and I stuck our heads above the parapet others ducked for cover, perhaps sensibly. Sadly, the Christian lobby fraternity have clearly brought this group under their umbrella, despite my repeated requests not to do so. I quote from the Evangelical Alliance in November 2012:

“This particular church has now become a test case for the 16,000 strong UK movement as a whole”.

In 2014, it was called a Brethren church by the Christian Institute. Neither of those groups has thanked the Charity Commission for exposing the victims’ stories, nor made them available for their many supporters to read. Nor are my speeches or those of my noble friend referenced. This does not reflect the Christians who support these groups, who I believe would give—even sacrificially—to help ex-members, particularly those who need legal fees to obtain contact with their children who remain in the group. Christians must always condemn groups such as this one, where there are allegations of racism, persecution of homosexuals and separation of families. They must never reserve criticism only for the Charity Commission’s assessment of the public benefit test.

However, a more effective Charity Commission will mean more work for the Government and for HMRC. The following issues arise from this effective investigation. Are the Government really content with a public benefit law which allows a group causing such detriment and harm to be a charity? Is this decision being considered by the Department for Communities and Local Government for its cohesion implications? Just imagine if there were allegations that imams dealt out such sanctions if their people did not purchase their mobile phone from a company whose directors were also the mosque committee, so that their calls could be monitored. I have seen such technology. Is evidence being sought by the Department of Health around the mental health implications for members of such a group?

Most chilling of all, this group runs its own schools. It does not recruit: you are born and educated into it. If this group is not a church—which I maintain strongly that it is not—then its nature is a matter of serious concern. As a friend of the Charity Commission, I believe that it needs to show that its annual review has teeth. As the right honourable Bernard Jenkin, chair of the Public Administration Select Committee, asked of Mr Shawcross, the changes for this group should be not superficial but substantive.

This group’s leadership is scary and intimidating. It is only because I am immune from legal proceedings in Parliament that these matters can be stated. This privilege of Parliament has been won by my predecessors, and I and the victims of this group could not be more grateful for it.

My Lords, I declare an interest as chair of the All-Party Group on Civil Society and Volunteering.

I congratulate the noble Baroness on securing this debate. She will not be surprised to see that the usual suspects are gathered here today—that is, those noble Lords with an interest in and commitment to the charitable sector. For most of us it is a commitment of many years’ standing. I certainly remember the Deakin review extremely well.

None of us can therefore deny that the way in which the Charity Commission has been operating in recent times has been a cause for concern. The series of reports mentioned by the noble Baroness, Lady Barker, make dismal reading. The PAC report of 5 February this year concludes in no uncertain terms that the commission continues to perform poorly and is failing to regulate charities effectively. The reasons for this have been well rehearsed. It has been too slow; too reactive rather than proactive; too narrow and legalistic in its approach to regulation; and, as the noble Baroness, Lady Barker, clearly stated, there has been confusion about its primary purpose. Is it there to support the voluntary sector or to protect the public interest?

In addition there has been a constant problem with resources. Is the commission being asked to do too much with too little? Undoubtedly the commission, like much of the charitable sector, has taken a severe financial hit in recent times and has had to reduce staff drastically.

Much controversy has surrounded the commission, not helped perhaps by changes of personnel at the top. The appointment of a new chief executive—which I understand will shortly be announced—will be of the utmost importance. It is vital that this person has the skills and experience to enable the commission to fulfil its important role, to be clear about its mission and to provide authoritative leadership, especially in developing strategic alliances.

It is certain that, in spite of the controversy, there is universal agreement within the sector that it needs an independent and effective regulator which focuses entirely on charities. For example, trusts and foundations which give grants to other charities have to give due diligence, and the less the Charity Commission does the more the trusts and foundations have to do. So there may be duplicated effort using donated money rather than the public money which enables the Charity Commission to do this kind of due diligence on which trusts and foundations and others who give money were habitually able to rely. It is vital that we continue with that.

Therefore the Charity Commission’s move to take firmer, swifter action with the few charities which offend—we should remember that, although there have been serious cases, few charities offend—and its desire to enhance further its legal powers has met with nothing but support from the charitable sector. Better use of data, as the noble Baroness reminded us, and closer working with HMRC are also moves in the right direction. The Government would be well advised to banish all thoughts of merger with HMRC, should they have such thoughts, which I hope they have not. If the Charity Commission continues with its programme of reform and delivers the changes it is promising, the Government must do their part to ensure that they provide realistic funding for this important—indeed vital—organisation.

My Lords, I congratulate my noble friend Lady Barker on securing this important debate. I welcome the fact that the Charity Commission is taking a more detailed look at charities’ activities, specifically under the public benefit rule, and challenging what in the past was almost a rubber-stamp approval for charitable status.

The noble Baroness, Lady Berridge, has already outlined the reason for the commission’s investigation into the Preston Down Trust but I want to add two or three more comments. For those who do not know, the Exclusive Brethren withdraws as much as it can from contact with the wider world. Its members will not eat or drink with worldlies, as they call us. They will not use TV, radio and computers that have not been approved by their Australian leaders, and its young people are banned from using Facebook. Their school books are heavily censored, with pages ripped out or stapled together.

The formal decision from the commission lists some of the evidence that it received from people who were members of the Exclusive Brethren, but who have left or been asked to leave—withdrawn or “cast out” in their parlance. Paragraph 89 of the decision says that it took evidence on:

“the impact of the doctrines and practices on those who leave PBCC; the exclusory effect on family life and relationships when members leave as a result of complete severing of ties; … absence of assistance and support to those who leave, including vulnerable children and young people; those who leave are ostracised and consequently treated differently from other members of the public; … loss of inheritance where relatives remain and leave their property to the Brethren which is encouraged; inability to participate in funeral arrangements and services of Brethren relatives; threats of legal action against those who speak out against the Brethren; and fear and anxiety of repercussions for themselves and family members who remain in the Brethren”.

I have met a number of people who have had to leave the Brethren because they are homosexual. One notable case, reported by the BBC in 2011, is that of Dario Silcock, who was bullied by the elders and the children in his church because he and they suspected that he was gay. He was asked to repent, as there is zero tolerance of homosexuality in the Brethren, and the teacher from whom he sought support and advice was suspended by the Brethren school. He said to the BBC then, aged 18, “I miss my family, but I have never been happier”.

Last year, a number of Parliamentarians heard evidence from another former member, who was abused by an elder when he was in his teens. He followed the advice that I think we hope all young people in his position would follow: he went to talk to another elder about the abuse. To his consternation, he was ordered on to his knees to ask God for repentance. As far as the EB was concerned, the rape was irrelevant. Because he had taken part in a homosexual act, he was guilty. It was not surprising that he left. He too has been allowed no contact with his family since he left.

I raise these two accounts with noble Lords because I have hope for these men and many others. The Charity Commission’s decision has made it clear in paragraph 98 that, if the Brethren does not comply with its undertakings to treat former members more fairly and differently from the list of its actions I cited earlier, the commission will review its charitable status again. The current public debate on disbelief, not just looking at public benefit, is very important and one reason why I am more positive than others that the new and more thorough approach of the commission will provide some real benefit.

However, what I really pray for is a change in culture where people who have left the Exclusive Brethren are allowed to have contact with their families with no pressure on them. If the Charity Commission can have achieved this, it will have made significant progress, but I am not holding my breath.

My Lords, I will not reiterate what has already been said about the levels of underfunding of the Charity Commission. There is great concern that the vital work that is going on needs proper support if we are going to develop this very important sector in our country. A number of noble Lords have spoken about the need for proper resourcing.

I want to comment briefly on the group of charities that are described by the Charity Commission as excepted charities. These include not just churches and chapels but charities that provide premises for some types of schools and Scout and Guide groups, and charitable service funds of the Armed Forces. It is very significant and helpful that Her Majesty’s Government have decided to extend exception from registration for a further seven years beyond 31 March 2014. It is unclear whether there are any plans afoot for an orderly transition to registration in the lead-up to 2021. Of course, to some extent inflation will reduce the number of excepted organisations and other charities as they reach that £100,000 registration threshold, but unless some queuing system is agreed in advance, at the end of the seven-year extension there is a real possibility of a logjam.

That is just one of the reasons why we need to ensure proper funding. The commission has the responsibility to offer, as well as regulation—which clearly is needed and for which we are very grateful—advice and support. There has been a question about the focus of the work. Certainly, my experience of being involved with many charities is that with increasing legislation and, indeed, litigation, many people are deeply worried about taking on trusteeships. If we are going to see this grow, surely we need to ensure that we have proper, adequate support.

Who do we turn to, from a charitable point of view, if we want authoritative advice? Expecting umbrella organisations such as the NCVO to replace the commission is simply unrealistic. None of them has sufficient clout to do the job. In my own sphere of work, the Churches’ Legislation Advisory Service tries very hard to provide sound advice to member churches but it can never have the detailed expertise and knowledge of the commission. In short, if we are to have proper regulation and guidance, it really is important that we get proper resourcing behind it.

Many of your Lordships will have been involved in the Transparency of Lobbying, Non-party Campaigning and Trade Union Administration Act 2014, and will be acutely aware of the concerns that were expressed by a number of churches about its provisions on non-partisan lobbying, particularly about churches organising hustings at election time. The church’s provision of venues plays a vital role in the democratic process. At each general election for many years now, my own cathedral in St Albans has hosted hustings. It is by far the largest hustings around: without exception, all the candidates turn up and a very large number of people gather for the event. Many people who take part say it is one of the few times that they come to a hustings in the traditional sense, where there is real cut and thrust and argument and so on. We are convinced that this is a major contribution to political involvement at a time when there is a worrying disengagement by many voters.

The Electoral Commission and Charity Commission are both working on guidance for charities on the effect the Act will have on their activities. I hope that they are being encouraged to speak to one another as they develop those guidelines. Specifically, it would be helpful if the Minister could reassure the church that the Act will not prevent it from providing hustings in the run-up to the general election in 2015.

My Lords, first, I declare an interest as a trustee of four different charities, ranging from Deaf Education to the British Lung Foundation, all of which are to be found in the register, and I have been a charity trustee for 30 years.

The Public Accounts Committee concluded that:

“The Charity Commission has not regulated the charity sector effectively”,

but I think the committee’s outlook is too bleak. There is a new team leading the Charity Commission now, with William Shawcross taking over from the “Quango Queen”.

The search is under way for a new chief executive as well. It takes a long time to change the ethos of an organisation, to make a bureaucratic elephant tap-dance, or even to make the elephant head in the right direction at any speed. I have made a change in the private sector, changing an inefficient, lazy monopoly supplier into a tiger, but it took a long time and I got support, not criticism, from stakeholders. I am not sure that everything done so far has been perfect. Shawcross’s comments on the pay of CEOs of charities could have been better.

The charity sector has changed, moving from the saintly amateur to the professional. The commission has to change from working on the chief assumption that all players in the sector are honest gentlemen to the reality that, hidden among those saints, are occasional sharks. All regulators rely in part on the integrity of their subjects, and integrity is harder to find now than 20 years ago. We should compare the Charity Commission’s failures in spotting the Cup Trust as a cracked vessel with a similar failure—that of the Bank of England and the FSA to spot the “crystal Methodist” as a bad banker. After all, some politicians could not even tell there was a problem with the affiliates of a charity, even when they were employed as full-time legal officers. Is not the percentage of imprisoned politicians from another place greater than the percentage of bent charities?

I think there is another, hugely important issue that the commission must combat with time and resources. That is taxpayer-funded political campaigning. The problem starts with the Government. Over the past few decades, they have given state support to an increasing number of charities. The intention might be good, but the result is not.

Christopher Snowdon of the Institute of Economic Affairs has carried out extensive work on this issue. His research has shown that some groups are being set up to champion certain pieces of legislation under the guise of a charity pursuing its objectives. He rightly calls such groups “sock puppets”. They prey on the good nature and trust of the British public because government departments and councils are camouflaging themselves as benefactors. Snowdon found that a shocking 27,000 charities are dependent on the Government—or, more accurately, on taxpayers—for more than 75% of their income. That has to have a big impact on the independence of charities and their ability to criticise the Government of the day.

What shall we do to tackle this evil? A lot of the responsibility for fixing the problem lies with the Government, not with the Charity Commission. Any statutory funding should be restricted and should not be used to lobby politicians or engage in other political activity. These charities should also be subject to freedom of information legislation. Much effort was needed to put together the Transparency of lobbying, non-party campaigning and trade union administration Act. Perhaps now we need a new “lobbying by sock puppets” Act to deal with this issue.

My Lords, I thank my noble friend Lady Barker for this debate. It is sad that it is so short. The issues that it seeks to cover are immense and deep, so I am going to have to be as selective as everyone else. I declare my interests, which are in the register: I have been a charity lawyer for 40 years, and I suppose I have had as many dealings with the Charity Commission in that time as anyone alive. I want to come to their aid, though it has many shortcomings. I have one point, which I know is a dangerous one to make but it is at the root of those shortcomings, of which I have been the victim over the years: it is grossly under-resourced.

The noble Lord, Lord Hodgson, made that point, as did the NAO. It is fruitless for any of us to go on saying, “They must do this better,” “They must do that better,” “There must be better inquiries, more inquiries, more of this and more of that”. In its report, the NAO says that in the past six years the commission’s income has declined by 40% in real terms. None the less—like everyone else—it makes a list of recommendations, more than half of which require greater resources of men and women. The lawyers in the Charity Commission oversee more than 330,000 charities. Half of those are registered, but more than half are below the levels for registration. They all have to be registered. They are ruled, governed and led by volunteers. I hope I do not misconstrue what the noble Lord, Lord Borwick, said, but the charity sector is essentially and at its heart a volunteer movement. That is its ethos. That is why altruism is still the central legal purpose of charity. You cannot conceivably do what it is asked to do.

As I was saying, the NAO made a huge number of recommendations, over half of which need extra resources. The legal department, where I was, has only 10 to 12 lawyers. My firm, one firm of solicitors, has over 10 to 12 charity lawyers. What sort of farce is that? They do their best and on the whole they are jolly good, but they are pathetically underpaid. Any good lawyer can go out of the Charity Commission any day of any week and get paid two to five times more than they are paid at the commission. How can we ensure that it can therefore recruit the people that it needs, let alone extra people, to do the job, which—I could not agree more—is so important?

I end by emphasising how important all this is, and that the funds that I am talking about—the actual resources—are but a drop in the bucket compared with what the voluntary and charity sector does. Frankly, without the charity sector, this country would be in a profound mess; it is in enough of a mess. We live now according to money, sex and celebrity. The charity sector is wonderful counterbalance to the phenomenal materialism that engulfs us now, with 1 million unpaid trustees. Think of that: over half the adult population giving of their time willingly and lovingly in a country that is parched of those characteristics. I therefore, like my noble friend Lady Barker, do not emphasise the shortcomings of the commission. Of course it has them—I could give your Lordships 10 things that it could do. However, it must have more support and help. Without those, it is a load of hot air.

My Lords, the question I am posing and attempting to answer in this debate is, “Are there lessons for the Charity Commission from the parallel activities for the regulation of non-profit housing associations, most of which are charities?”. The Homes and Communities Agency regulates so-called registered providers and nearly three-quarters of these are “exempt charities”, operating outside the Charity Commission’s regulatory powers

Two aspects of the arrangements for the voluntary housing sector seem worth considering for the wider charity sector. First, would it help to copy the model of having an ombudsman to resolve complaints from service users? Ombudsman services cover many industries—financial services, telecoms, electricity and water companies, and legal services—as well, of course, as most public services. However, only a minority of charities, like the charitable housing associations, are covered, because they come under a specialist ombudsman service. Just as the Housing Ombudsman takes a load off the shoulders of the HCA, I suggest that a charities ombudsman could relieve pressure on the Charity Commission by sorting out the everyday service disputes that can prove so arduous and time-consuming.

I declare my interest, at one remove, as chair of the council of the Property Ombudsman, which deals with private sector estate agents and managing and letting agents. This experience has led me to the view that ombudsman services—independent redress schemes, free to the consumer and service user—can be very valuable. An ombudsman has teeth in being able to make awards—usually financial compensation—when a complaint is upheld, in being able to publicise bad behaviour and, where appropriate, in passing on its findings to the regulator, in this case to the Charity Commission. Let us have a charities ombudsman.

My second proposition relates to the concept of co-regulation, which, I feel, the Homes and Communities Agency is taking to a more refined level than the Charity Commission. The co-regulation approach brings together the regulator and the regulated. It encourages the organisation that encounters a problem, which may be governance-related, to take it to its regulator as early as possible and to discuss a mutually acceptable way forward. In place of hoping that the regulator will never find out about the problematic issue, the board—the trustees—shares the burden and gets the advice of the regulator.

This is not a mechanism for discovering criminal intent or gross misconduct but, for those cases where things have gone wrong and the trustees are well intended, co-regulation can sort out difficulties in an atmosphere of mutual trust, not defensiveness and hostility. It requires the regulator to assist the organisation to take steps to put things right and to keep in close contact. This contrasts with the regulator standing back and not coming down from on high in a heavy-handed manner. Direct intervention need happen only in extreme cases. I believe that the Charity Commission is heading in this direction and, from experience of seeing how co-regulation can work, I commend an acceleration of that process. If the way for the Charity Commission to increase its effectiveness is by taking forward the two suggestions I am making here, perhaps by raising some part of the funding from an annual levy on the charities themselves, that might be a price worth paying for a better service for charity service users and for the charities themselves.

My Lords, I thank the noble Baroness, Lady Barker, for the debate on regulating what is one of society’s most valuable assets, charities, which are often described as,

“the very bedrock of our civil society”.

There are nearly 1 million trustees of charities, and I reckon that around 700 of them are in your Lordships’ House. I have set up and run various charities and I remain a trustee of two.

The regulator’s role in maintaining trust in this sector is key but, as we have heard, today’s debate comes after the NAO and PAC inquiries, the latter saying that the commission fails,

“to regulate charities effectively. The Commission is a reactive rather than proactive regulator, and has yet to use its powers properly … we are not convinced it has the leadership capability to tackle its significant failings and transform its culture”.

It goes on to say that the commission has “no coherent strategy” and that it is “buffeted by external events”. It is,

“too willing to accept what charities tell it”,

and has failed to tackle “poor performance” and to “implement recommendations”. Indeed, the Charity Commission itself has admitted that it was,

“weakest in identifying … deliberate wrongdoing”.

Furthermore, when asked whether it had,

“sufficient resources to effectively regulate the sector”,

Mr Younger’s answer was,

“very close to being no”.

So, should the commission and the Government begin to rethink what has become a near impossible job and consider even the issue, which has just been raised, of a levy on charities? The commission thinks that anyone who feels like it should be able to establish a charity. It gets 27 applications a day, but we have heard nothing about how those 7,000 concerns a year perform or whether all their trustees, who are often untried and untested, are actually capable of running a charity, given that,

“charity law is hard … especially … for trustees setting up small charities”,

and that, to quote the commission,

“in the overwhelming majority of cases where trustees are getting it wrong”,

it is “through ignorance” that sometimes seems to be “bordering on negligence”. Given this, why of all things did the chair of the commission promise to tackle “the politicisation of charities” or consider that the lobbying Act was broadly satisfactory to the sector, despite its “gagging” effect and despite the sector’s own view?

The Charity Commission’s report on investigations shows that fraud is one of the most common problems. Indeed, of its completed investigations, 39 were about fraud, accounting and crime, 33 were about trustee issues and only one was about political activities. Is there another agenda here, as I fear we have heard something of today?

We welcome many of the suggested new powers in the government consultation, especially broadening the range of offences for which trustees can be disqualified, but focusing on powers misses the point. The problem stems from being overly cautious, not from a lack of legal powers. Some of those suggested may go too far, such as giving the commission the pre-emptive power to block charities from holding certain events or inviting particular speakers. Preventing fraud, mismanagement, abuse and the funding of terrorism should be the priority, not gagging legitimate activities.

The Charity Commission has made progress. However, there is more to make, and the Government have a role in terms of thinking whether they are asking this small organisation to do far too much on far too little money.

My Lords, I welcome this debate. Given how important the charities sector is for the country, holding regular debates on aspects of charities law and charities regulation seems to be one role that the second Chamber might usefully consider as particularly valuable for itself. These are immensely complex issues, as we all know. We have inherited charities law as developed over the past 400 years, and it continues to adapt. I have spent some time looking at public benefit issues and think I am persuaded that if we were to define “public benefit” now, in statute form, we would find ourselves having even more legal cases about the edges of public benefit. I am therefore persuaded that allowing it to evolve through case law is very important, in particular, for those elements of charities which are concerned with religion. For the first 300 years of charities law, it was almost entirely concerned with charities associated with the Church of England or, after some time, with a number of non-conformist churches. That eventually included a small number of Jewish charities and, as we all know, it now extends over a much wider area, in which the questions of what religion and belief are have come to be very much part of where we all are.

I will take on the question of the Preston Down Trust case, which went before the tribunal. One of the things I think I have learnt is that using the charities tribunal, which was intended to save money and time, has now become a very expensive legal activity. It was felt more useful therefore to negotiate. We have negotiated an agreement which will be reviewed after a year and we will see where we are then. The noble Baroness is well aware of the intensive lobbying that there was on both sides, including by a number of MPs from within her own party—not always, I think, necessarily wisely. However, this is now in train, it will be continued, and a review will take place.

To come back to where my noble friend Lady Barker started, this is an important sector which has a gross income of £61 billion, although I suspect that contains a certain amount of double counting because some charities give money to other charities. It includes more than 160,000 different charities, although 1,000 are the most important and account for the largest amount of spending. As the noble Lord, Lord Borwick, said, the sector has become much more professional, and in certain ways some of the larger charities have become a good deal more ruthless, which is part of what I discovered in the extensive consultation I had with large charities over the transparency of lobbying Bill. It is a much more professional sector than it was. Reading through the evidence given to the PAC and others shows that the Charity Commission has been going through a change of culture from one in which you automatically assume that almost everyone in this sector is full of good will and altruism and that the role of the Charity Commission is to be helpful and offer advice, to one in which we recognise that a small number of charities, whether small or large, test the limits or are involved in actual fraud, and that the Charity Commission has therefore got to be a less trusting regulator. Questions have been raised by a number of noble Lords about whether it can do that and whether its resources are too small. Reading through the various reports and the evidence given, it is quite clear to me that if the new Charity Commission board and chief executive can make a strong and positive case for additional resources, the Government will look at it very carefully. Whether some element of charging for larger charities becomes part of that larger package may be for a further debate on another occasion, but we recognise that resources are now extremely stretched and that the clear regulation we need requires to be strengthened.

Digital transition is an important part of this, as the noble Baroness said. The Government have provided a further £500,000 of capital spending to the Charity Commission to assist in moving towards an easier digital openness strategy. As a trustee of a couple of musical education charities, I agree strongly with the noble Baroness that simple provision in digital form of accounts, declaration of public benefit and all the things that one needs to do, as well as advice to trustees, is exactly what one needs. When I went around the Charity Commission’s website last week looking for a simple definition of public benefit, it was not as easy to find as I had hoped and expected, so there are improvements to be made.

I reassure the Minister that he has not been deficient in his trawl of the website: it is just that there is no simple definition of public benefit. It is intrinsically complex.

That is one of the reasons why charity lawyers can make such a good living.

The Cup Trust, into which I have looked in detail, was raised. As has been said, clearly that was fundamentally a tax avoidance scheme. The Charity Commission decided that it could not take up the case. I am assured that HMRC has not paid out any money on the tax avoidance scheme. It issued guidance about such schemes at an early stage in the process and is now resisting paying the gift aid refunds that the scheme was set up to gain.

On the transparency of lobbying Act, I disagree with the noble Lord, Lord Borwick, on a number of issues, but I also disagree with the noble Baroness, Lady Hayter. I have learned a great deal about the shift in a number of big charities towards campaigning, but campaigning has always been part of what charities have done. One of the most impressive discussions I had was with the dementia trust, which has managed by campaigning to raise public awareness of the importance of the issue—to raise the quality of understanding of an extremely important public issue. That is entirely legitimate and desirable in the public debate. The idea that charities should not have a campaigning dimension is something that I hope we all accept is not appropriate. Let me reassure the right reverend Prelate that the Act in no way affects hustings in the run-up to the 2015 election. A great deal of exaggerated concern was put out during the passage of the then Bill about what it might do. If you read CC9—I must have read it 15 times in the last year—it is entirely clear that it is not affected by that Act, and that churches will continue in their extremely valuable role in public education in this respect.

I hope that I have now answered a number of the issues raised. Why not charge charities? The question is out in the open. Needless to say, charities do not respond with much enthusiasm to that suggestion. The Government are looking at the question of how we provide the resources needed for regulation. I have also discussed public benefit. We all have a concept of public benefit. Happily, no one today has mentioned public schools—that is out there as well. Public benefit can be provided in a range of different ways. Case by case, you look at the sort of public benefit being provided, but it has to be public. The noble Baroness will know that, in religious cases, those religious bodies that do not open some of their facilities to a broader public and do not provide wider benefit to a broader public are therefore not accepted as charities.

On the question of executive remuneration, the noble Lord, Lord Borwick, said that he regretted that the new chairman of the Charity Commission had offered some criticism. Charities are in the public sector and in the public view, so they need the respect of their members and people who give money. During the consultation on the transparency of lobbying Bill, I remember being told by representatives of a large charity that it is important that the charity should maintain its reputation because the people who give small sums of money need to know that it has that reputation. That is part of the reason why charities need to be aware of the dangers of becoming overly professional and corporate. Some of our big charities have edged a little far in that direction.

On the question of co-regulation, raised by the noble Lord, Lord Best, the Charity Commission now has a clear partnership strategy and works with a number of partners. Incidentally, we are aware of the question of accepted charities and how to move towards a different situation with them without swamping the Charity Commission.

The question of a charities ombudsman has also been discussed. The Government are not yet convinced that the case has been made. The Charity Commission does its best to respond to queries from charities. Part of the reason why the Charity Commission has been swamped in recent years is because many charities throw a lot of queries for advice at it which get in the way of its compliance activity.

I hope that I have answered most of the points raised. I encourage the noble Baroness and other noble Lords to return to this question regularly. This is a large and important part of our social fabric and economy, and we need to be sure that it continues to command the confidence and respect of the public, politicians, government and financial accountants.

Sitting suspended.