Monday, 6 July 2015.
Charities (Protection and Social Investment) Bill [HL]
Committee (4th Day)
Relevant documents: 1st Report from the Delegated Powers Committee, 2nd Report from the Constitution Committee.
My Lords, if there is a Division in the Chamber while we are sitting, this Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.
Clause 13: Power to make social investments
20B: Clause 13, page 17, line 23, leave out “from time to time”
My Lords, Amendments 20B and 22ZA are complementary and seek simply to bring some rigour to the duty of charity trustees to review their charity’s social investments. Amendment 21, in the names of the noble Baroness, Lady Barker, and the noble Lord, Lord Wallace of Saltaire, seek to broaden that to cover all investments, and we see no reason why that should not be supported.
The term “from time to time” seems, and I have to say sounds, oddly vague wording to form part of legislation. After all, what does it mean? I suspect that, if you asked 100 people for their understanding of the term, you would almost certainly receive not far short of 100 different answers. Finding a definition to fit those four words would be comparable to attempting to answer the conundrum, “How long is a piece of string?”. Throughout the consideration of this Bill, there have been numerous occasions where noble Lords have sought to introduce greater clarity to its wording. I could not find any other line of this Bill where greater clarity is more necessary, and I believe that the wording must be changed.
To a significant extent, charities will enter uncharted territory when this Bill becomes law and they gain the new power to make social investments. Some will adopt and adapt quickly, and others less so, but it will be essential that all of them keep a close eye on how their social investments are progressing and how they are influencing the work of the charity, not least alongside their traditional investments. For that to happen, at least initially the social investments should surely be maintained under constant review, until they settle down and become an accepted and established part of the charity’s wider activities.
We believe that charities should be as open and transparent as possible about their investments—and not just social investments—and how these investments further the purposes of the charity. There is at least a possibility that the general public could be concerned about their donations being used for social investment, particularly if they are not clear just what social investment is and what it involves or, indeed, where the investment might go in terms of the companies involved. It is important that such concerns are acknowledged and are met with a willingness on the part of charities to be fully open as to what they are doing in terms of social investments. Those donating have a right to be certain that they are not giving their money, however indirectly, to companies that undertake activities of which they may disapprove and may not wish to support.
Also, there would be a double benefit here, we believe, because it is surely the case that the social investment market itself would benefit from greater information being made publicly available as charities begin to delve into it. That is what informs the first provision in Amendment 22ZA, together with an assessment of how the investments further the charity’s purposes. It is difficult, I suggest, to envisage an argument against the amendment, although I suspect that the Minister will have been provided with one by those sitting behind him.
Finally, we believe that the term “from time to time” should be replaced with a requirement to publish charities’ reviews of their social investments after the first three years of this Bill becoming law. I have already referred to the uncharted territories in which all charities that choose to make use of social investment provisions will be sailing. For that reason, we believe that it will require an early assessment to identify any difficulties, how these were resolved and what lessons have been learnt. Publication of these reviews will enable charities then to benefit from each other’s experiences. Thereafter, we believe that reviews at five-yearly intervals would be quite appropriate. I beg to move.
My Lords, it may be useful if I speak to Amendments 21 and 22. Like the noble Lord, Lord Watson of Invergowrie, we are seeking to make the concept of social investment clear in legislation. Part of the aim of doing so is to make sure that social investment policies sit alongside the overall investment policies of a charity and are treated in much the same way.
Our first amendment, Amendment 21, seeks to delete “social” in subsection (3) of new Section 292C. This is one of those cases where a deletion is meant to lead to more inclusivity, so in fact we are suggesting that all a charity’s investments should be the subject of a periodic review. Amendment 22 seeks to ensure that trustees are under an explicit duty to make their investment policy available publicly to their donors and beneficiaries.
One of the big challenges of social investment is that, by its very nature, most of the time it is unlikely to bring about significant financial return. For example, if a charity invests in a business to be carried out by its beneficiaries—for example, former prisoners and so on—any such business is unlikely to turn a profit in the first few years of its existence. Therefore, it is doubly important that charities are able to do double accounting—that is, they have to be able to explain to the public what has happened to the financial return and also how they have calculated the social return or the return in terms of the benefits to them in furthering their charitable objects.
I happen to be of the school that says that there ought to be a greater degree of transparency overall regarding charity investments. Sometimes in our sector, charities can be somewhat fearful of being attacked for the sorts of investments they have to make in order to obtain a financial return. With the development of social investment, there is a need for charities to up their game across the board, and therefore such transparency would be helpful.
I also agree with some of the points made by the noble Lord, Lord Watson of Invergowrie. The term “from time to time” is probably a well-understood legal phrase: it is something that should happen but it is difficult to put an exact timeframe on it. Some investments will take place over a long time, and therefore an accounting period of three years would not make sense for charities. Equally, the point made by the noble Lord, Lord Watson, that they must be reviewed stands. Therefore I, too, shall be interested to hear the Minister’s reply, and I hope that between us we can flesh this out to make it just a bit clearer.
My Lords, I support all these amendments because they encourage trustees to focus more attention on the progress of social investments and to review them regularly. I, too, think that “from time to time” is a bit vague, although I understand that it has a legal meaning.
There are two reasons why I support the amendments. The first is that I think they will make the position of trustees and their responsibilities clearer. Social investment is a fairly new concept and trustees on the whole are not very familiar with it. We are trying to encourage them to be more so, and I believe that these amendments would help in that. The second reason—and here I declare an interest as chair of the Big Society Trust—is that I agree with the noble Baroness, Lady Barker, that the financial return on these social investments is often not realised for some time, although the social return may be obvious at an earlier stage. To some extent, charities and trustees are learning as they go in this area, so any further guidance or direction we can give them would be of benefit.
My Lords, I thank noble Lords for tabling these amendments, which raise interesting points, and I hope that I will be forgiven for going into a little detail on our thinking around them.
Once again, I think we agree on the need for transparency and accountability. It is important to ensure that charities take the opportunity to review all their actions from time to time with the intention of ascertaining how effective those actions have been. This should apply to their grant-making activities no less than their financial investments. It is also desirable for charities to be suitably transparent in reporting. Public-facing organisations should aim to explain how they operate, and I share your Lordships’ wish to encourage as much openness and information sharing as is practicable.
However, while I support these intentions, we must be careful not to overburden charities by mandating the collection and publication of information to an extent that could distract from their core activities. This must be the case in particular for the large number of charities that are small and may not have the requisite capacity or capability—the “little platoons” I referred to on Second Reading. Charity trustees have overall responsibility for the investment of their charity’s funds. They must make the strategic decisions about how to use a charity’s assets to achieve its aims.
In relation to financial investments, charity trustees are already under a legal duty to keep their investment portfolio under regular review. Those reviews must cover how their investments are performing, and if an investment manager is used, the service provided by that investment manager. Trustees should also monitor and review their internal arrangements for managing the charity’s investments. In terms of the regularity of the review, the trustees may decide to hold reviews at specific intervals or they may decide to hold a review in response to a specific event, for example if there was evidence of inadequate performance of an investment or if there was a sudden change in the economic outlook. This seems appropriate and allows charities to respond flexibly to circumstances rather than impose a rigid timetable.
The phrase “from time to time” is indeed understood among the legal profession and is explained in case law. The commission’s guidance on investments covers what it means. Given the existing requirements to review financial investments regularly, it would be beyond the scope of this Bill to impose duties to review social investments on the far wider range and greater number of investments in the general sense. Furthermore, in addition to requirements to review investments, there are also a number of disclosure requirements in relation to financial reporting by charities. Any charity with a gross income greater than £25,000 must submit its audited or independently examined accounts to the Charity Commission on an annual basis.
In addition, there is the charities SORP—a nice word—contained in Accounting and Reporting by Charities: Statement of Recommended Practice, which, as I am sure noble Lords know well, sets out the recommended practice for the purpose of preparing the trustees’ annual report and for preparing the accounts. The recommendations of SORP supplement accounting standards, thereby providing an even stronger basis for reporting. The statement of recommended practice deals expressly with the reporting of social investments. As social investments are different from financial investments, the reporting criteria should not and cannot be equated; they should instead be tailored.
While I am extremely keen to see charities taking greater steps towards impact assessment, thereby enabling them to think about their total impact in the round, imposing specific new rules via statute would seem too blunt an approach and potentially a highly burdensome one. It would seem to place a greater requirement for assessing the impact of social investments than currently exists for grants, spending or financial investments. This might have the unintended consequence of making charities less likely to make use of social investment—the opposite of what we are trying to achieve, particularly at this early stage of market development.
I reiterate that I am strongly in favour of charities taking stock of their activities and doing so in a regular and systematic way, taking account of factors both internal and external as appropriate. For charities, as for ourselves, regular reflection on objectives and the means of achieving them can lead only to improvement. As entities that exist for the public benefit, charities more than most must be clear and transparent about their objectives, activities and achievements. I am pleased that we already have an accounting and reporting regime that requires transparency and enables the public easily to check on a charity’s annual report as well as the health of the finances in its accounts.
I thank noble Lords for raising these important points, but I hope that I have persuaded them that the appropriate review and reporting measures already exist, and that the noble Lord will be content to withdraw his amendment in the light of such considerations.
My Lords, I thank the Minister for that response. I welcome the fact that he joined the noble Baroness, Lady Barker, and my noble friend Lady Pitkeathley in supporting the need for that.
It is important that charities are as open and transparent as possible. There have been examples of this involving charities: one within the remit of the Charities Commission—after a “Panorama” investigation when some of Comic Relief’s investments were revealed, it was somewhat embarrassed and rowed back from them—and one outside the Charity Commission’s remit. As noble Lords may remember, when it was discovered that the Church of England was investing in Wonga, that was pretty hastily stepped back from. At this stage we do not know what other charities may or may not have in their investment portfolios, and I think that that is to be regretted. People giving money to charities have a right to know not just that the money is going to the charity’s stated purposes but how the money that they give could be used for investment, whether for social investments or traditional investments.
For that reason, I find it hard to take on board the Minister’s comment that we do not want to overburden charities; of course we do not, but we want things to be done properly. We are going into an area where charities have not previously been, and social investments are going to take some time to become widely accepted. During that period, charities being as open as possible and saying exactly whom they were investing in would help with the public identification of social investments as an aspect of charity life that they were comfortable with when making their investments. So I do not find it a convincing argument on the Minister’s part that the burden placed on charities would be a reason for not accepting these amendments.
On the question of “from time to time”, I was not quick enough on my feet and the Minister had moved on to something else before I could ask him about it. The phrase “from time to time” may be a legal term, but I still do not know what it means. How long should the Charity Commission wait before it says to a charity, “It’s now been five, 10 or even 15 years and you’ve never yet reviewed your social investment”? There has to be some cut-off point, whether that be decided by the size of the charity, the field in which it is involved or whatever. Surely charities have to have some idea and it cannot just be a case of saying, “Well, this has been a bit of a quiet year, so let’s just put out a review”—or, even worse, “We’ve had a busy year, so let’s not put out a review”, which would perhaps be open to misinterpretation.
So there is a looseness to this part of the Bill that I do not think the charities themselves will particularly welcome. Nevertheless, I have heard what the Minister has said. There are issues here that we could return to on Report, but for the moment I beg leave to withdraw the amendment.
Amendment 20B withdrawn.
Amendments 21 to 22ZA not moved.
22A: Clause 13, page 17, line 38, at end insert—
“292D Marketing of social investments
(1) Any financial promotion which is communicated by a charity shall not be subject to the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005.
(2) The Treasury may by regulations set out rules for the communication of financial promotions by charities.
(3) In making any such regulations, the Treasury shall have regard to—
(a) the desirability of creating rules which are proportionate to the nature, scale and capacity of different charities and which are easy to understand and follow;(b) the desirability of creating rules which support the growth, development and financing of charities and which are enabling and facilitative;(c) the desirability of facilitating, where appropriate, direct investment on the part of consumers into charities, including charities which operate locally to the consumer;(d) the desirability of consistency of approach in the regulatory treatment of communications made by different forms of charities;(e) the differing expectations that consumers may have in relation to different kinds of investment or other transaction and, in particular, the fact that many when investing in charities do so for a variety of non-financial reasons; and(f) the desirability, where appropriate, of the Financial Conduct Authority exercising its functions in a way that recognises differences in the nature of, and objectives of, charities as compared to other organisations which are subject to the requirements of the Financial Services and Markets Act 2000.”
My Lords, in our meeting last week, following on from the group headed by Amendment 16, which was moved by the noble Baroness, Lady Barker, we discussed the challenges of facilitating social investment by charities and the implications for trustees; indeed, that issue came up in the debate that we have just had. We went through the intricacies of programme-related investment and mixed-motive or, in my words, mixed-purpose investment. As I said then, I felt that my noble friend did not give us an entirely satisfactory answer. However, I am grateful for his agreement to have a meeting, if necessary. I also know that he has managed to fix up a meeting to let the lawyers argue it out—a mere mortal probably cannot contribute much to that debate.
This amendment is designed to move the discussion forward to a parallel, but important, development of a social investment market involving new people from among the public. I am sorry that the noble Lord, Lord Cromwell, is not here, as I am sure that he would be horrified by this. So far, we have been dealing only with committees, trustees or people who are well caught up in the charity world. What we must try to do is to find people who are interested in supporting charities but are not yet committed to doing so. As I said last week, and say again now, it must be counterintuitive to enable people only to give money but not invest it. However small the chances may be of getting your money back, no matter how meagre the rewards may be, it must be better, and people must be more likely to give money, if they have a chance of seeing a return on it.
After we finished our debate last Tuesday, by a happy coincidence I received a 61-page booklet, Developing A Global Financial Centre for Social Impact Investment, which contained some interesting research carried out by the City of London. I will not read out the 61 pages, but the booklet’s conclusion states:
“A number of major financial centres, largely national capitals, have been at the forefront of driving change so far, with London pre-eminent among them. Our research suggests that London has certain features that it must address—not least in relation to ensuring a supportive regulatory environment, accreditation, enabling greater retail investment, developing its skills base and technical assistance models—if it is to be a global financial centre for social impact investment”.
I wish to focus on enabling retail investment—one of the proposals that the City of London document suggests is important and which Amendment 22A addresses. What stands in the way of developing a wider retail base? It is essentially the financial promotion regime. The document further states:
“The Financial Promotion Regime is particularly relevant to the UK social investment market. Though 90% of lending to this market was in the form of secured loans in 2011/12, social enterprises are increasingly in need of unsecured debt capital. Projections by Boston Consulting Group suggest that by 2015, demand for investment into the market will reach £750m, 58% of which will be in the form of unsecured debt and 15% in equity-like capital. The role of the retail investor in helping to provide this capital is as yet untapped, although there is survey evidence of an appetite among retail investors to make social investments. The creation of a Social Investment Tax Relief (‘SITR’), as announced in the 2014 Budget, is also designed to encourage a wider individual social investor base in the UK”.
So all appears set fair, but what then are the problems? One of them is, of course, that the total amount being invested by investors is small. The document continues:
“The Financial Promotion Regime does not distinguish between large investments and small investments. Where small investments are being made”—
“the risk of loss will be less but this is not acknowledged. In the social investment market, most investments are likely to be relatively small in size. The total amount being raised as part of the offer is small: social enterprises typically seek to raise”,
“of less than £100k. Ordinary retail investors therefore provide a good ‘match’ for social investments in terms of the size of the investment opportunities available. However, the Financial Promotion Regime treats all investment raises beneath €5m in the same way and does not make it any easier for social enterprises to raise small amounts of money”.
Another issue is that the investor is investing with certain significant non-financial goals. Social investment may often be considered by investors as an alternative to philanthropic donations, as I have just explained. Although the Financial Services Act recognises that investors may invest with non-financial goals, the financial promotion regime does not yet expressly recognise this possibility. There are no exemptions or any lighter-touch regulatory requirements where investors are investing primarily with non-financial goals or with significant non-financial goals in mind, such as the desire to support the cause being furthered by a social enterprise. Finally, does the investor live locally in the community of the investee seeking the investment?
Those are some of the difficulties that are currently being faced. So what is the answer? We have gone a certain distance of the way, because the Financial Conduct Authority recognises an experienced investor. That is to say that, if someone has a certain knowledge and a certain amount of wealth, they do not have to go through all the hoops that one does if one wishes to offer it to the man on the street. That is quite right. We should be trying to promote a social investor—a social investor who has a different approach. That is what my amendment seeks to do.
This is a permissive amendment. The Treasury may, by regulations, set out rules. They must be proportionate and easy to understand and follow and they must be enabling and facilitative. They must also take particular regard of charities that operate locally to the consumer, the desirability of consistency of approach, the difference of expectation and, last but not least, the desirability where appropriate of the Financial Conduct Authority exercising its functions in a way that recognises differences in the nature and objectives of charities as compared to other organisations that are subject to the requirements of the Financial Services and Markets Act 2000. Regulators are always risk-averse; they are always terrified that they are going to end up with egg on their face. Therefore, if we do not find a way to make them understand that this is different, we will have a very long, difficult uphill road. I say to my noble friend—and, in his absence, to the noble Lord, Lord Cromwell, given what he has said before—that this is not a better or worse investor regulatory regime; it is a different one. It is trying to deal with different sorts of situations.
There is a final anomaly, which the Committee should be aware of. There is a loophole in the financial promotion regulations for industrial and provident societies such as co-ops and community benefit societies. Provided that they are offering non-transferable debt instruments or non-transferable shares, the financial promotions regime does not apply, only the general law—that is the point made by my noble friend Lord Borwick at Second Reading. Non-transferrable means illiquid; it means that, once bought, the purchaser is stuck with it for ever. Both the noble Lord, Lord Cromwell, and, I think, the noble Lord, Lord Watson of Invergowrie, expressed concerns in our earlier debate about general social investment for charities having unquantifiable risks and the need for diversification and liquidity. This is a real challenge. If we do not rebalance the regulatory regime to put social investment generally on the same footing, the investment market will gradually tilt itself towards IPSs, co-ops and community benefit societies. I have nothing against that form of organisation—I am sure that they do a very worthy job—but this does restrict the growth of a wider social investment market.
To conclude, I am sure that my noble friend will say—my X-ray eyes can see what is on his notes—that this is one for the Treasury. That is fair enough, but in 2012 a number of us in Committee bashed away at the passing of the Financial Services Act. His colleague on the Front Bench, the then Treasury Minister, the noble Lord, Lord Sassoon, said that this was very interesting but one for the Charity Commission. We are never quite in the right place at the right time. To be fair, I recognise the increased specialist attention being given by the FCA, but we need another incremental step forward to help the growth of retail investment and this amendment will provide it. I beg to move.
My Lords, my noble friend Lady Kramer was one of that small band of people banging away during the passage of the Financial Services Bill, and if she were here, she would be very strongly in favour of this. She is one of the very few people in your Lordships’ House who has had the experience of running a bank in her time, in the United States, and makes the simple point that it is wrong that individual people can only give grants or money to a social entity in their community and cannot invest in it. That is because of the restrictions that apply to soliciting such investments. It is perfectly possible, as the noble Lord, Lord Hodgson of Astley Abbotts, set out in such detail, to make a distinction between a strict financial investment, which has to have with it all the safeguards which the noble Lord, Lord Cromwell, set out for us so clearly last week, and a social investment. If the Government were willing to stop throwing this proposal around like a hot potato between departments and move on with it, it could bring about not only a new source of investment for small charities but, at the same time, an increase in the skills level of small organisations to build business cases. That is something the charitable sector has not traditionally been good at but which it will need to be increasingly able to do in future. There is a lot to commend in this proposal.
My Lords, this amendment would enable charities to market social investments to individual investors but exempt charities from the restrictions of the financial promotions regime. It would provide rules for the development of a regulatory regime for marketing by charities and allow the Treasury to set out rules for the communication of financial promotions by charities through regulations, if it chose to do so.
From our point of view, three of those sound quite reasonable, but I have to ask the noble Lord, Lord Hodgson, whether an exemption from the Financial Services and Markets Act 2000 and the 2005 order means less protection for consumers—by which of course I mean investors. Would the new rules specifically for social investments come into force at the same time as social investments were no longer required to meet the demands of the 2000 Act? In my view, the noble Lord, Lord Hodgson, did not spell out in sufficient detail why exemption from the Act is necessary. We believe there are potential difficulties in freeing up charities from those laws.
It is perfectly possible, although it is exceptionally expensive, to have a financial promotion involving an authorised offer of shares because it goes to everybody. Such an offer has to deal with people who are quite unsophisticated and therefore it must be done carefully: the process is lengthy and expensive, and hundreds of thousands of pounds have to be spent in preparing a prospectus that is fit for the general public. That is quite right and entirely appropriate—I am not complaining about that.
What we have here is people who might be interested in making a social investment and who would understand—I am sure the Treasury rules and regulations would make this clear—that the primary purpose was not to have a financial return and that they should act accordingly. This is designed to enable social companies such as charities to raise relatively small sums of money without the commensurately high costs that would be required if you were offering the promotion to the general public. This would be a new category of investor, and if the noble Lord were to ask whether that was better or worse, I would answer that it is different—not better or worse. This would be designed, or purpose made, for this particular area.
I thank the noble Lord for that clarification. However, again, are we to constrain the development of social investments on the grounds of cost? Obviously there is no maximum or upper limit as to what a charity will or will not be able to afford when trying to pursue the provisions of the Bill in relation to social investment, and that is part of the problem. I certainly do not want to see that restrained at all; I would like to see all charities, even smaller ones, feel that they can enter this field with confidence. I think that is what all noble Lords present in this debate would want to see.
However, we have some fears. It would not require too great a leap of the imagination to arrive at a situation where, for example, a charity working for older people might devise a product that offered attractive-sounding investment opportunities to the elderly, showing how they would do great good for the cause even if the return was not quite what other products might have produced. That could be fraught with potential pitfalls that could make telephone cold calling, which noble Lords will recall we discussed in Committee last week, seem quite innocuous, and I would want to make sure that such difficulties did not arise. It might also be possible for cold calling to be used to market those bonds or whatever the products on sale were to be termed. I do not want to overdramatise such possible scenarios, but we have to be aware that they could arise. Certainly in the early days of social investment for charities, it will not all be plain sailing.
I want to ask the noble Lord why the amendment states that the Treasury “may” set out rules for the communication of financial promotions by charities. Again, that seems a little loose. If it is thought that such rules are necessary, I would have thought that “may” should have been replaced by “must”. It might be thought that the need for such rules would be paramount at the start, when the whole area of social investment is introduced, with many charities being less than absolutely clear about what is required of them.
By some alchemy of draftsmanship, “may” equals “shall” in drafting legislation. Do not ask me how it comes about, but they mean the same. We have had this discussion many times in these Committees. “May” and “shall” are the same word for a parliamentary draftsman.
Alchemy, the noble Lord says. I am not a chemist, but that still seems rather opaque to me.
To return to the rules, it may not be necessary for them to be compulsory further down the line, but if there are to be such rules, they should apply right from the start and to everybody if we want to ensure that social investment takes off smoothly. Further, how might any rules proposed by the Treasury be consulted on? It is an important aspect whether the sector would have an opportunity to feed in and have its views given appropriate weight.
We are largely in agreement with the amendment proposed by the noble Lord. Some of the clarification that he has provided is helpful. I look forward to the Minister’s response.
My Lords, I pay tribute to my noble friend Lord Hodgson for his determination, if not doggedness, on this issue and in seeing it being addressed. I should pay tribute also to his excellent eyesight for being able to read my brief and especially my handwriting, which is a first.
Before I go into the detail, let me take a step back and put this debate in a little context. We recognise that, increasingly, the public are looking to invest their money socially in a range of social investment sector organisations, including charities. This is a growing area of activity alongside areas that we are already familiar with, such as donations to charities, which of course remain significant.
In particular, we know that there is an increase in the number of members of the public making small, direct investments in charities and social enterprises. Specifically, we know that there has been an increase both in the value of investment offers—the market was worth £249 million in 2014, up 78% from 2013—and in the number of participants. More than 15,000 individuals invested in co-operatives, to which my noble friend referred, and community benefit societies in 2014—up 33% from 2013—so this is a growing market.
Such investments might take the form of shares in community enterprises, such as the more than 3,000 people who recently bought shares in Hastings Pier Charity, or they may take the form of bonds in charities. As my noble friend alludes to in his amendment, we know that for such investors the decision to make an investment in the charity or the social enterprise is often motivated by factors other than, or in addition to, the prospect of financial returns.
A recent study found that doing social or environmental good was an important factor in deciding to invest for 90% of investors in community shares, such as those in the Hastings pier project. I understand, however, that the effect of the financial promotion regime is an increasingly important issue for charities and social enterprises looking to raise funds from the public in this particular way. These financial promotion rules, which are designed to protect consumers, apply to many of these deals. Where they do not apply there are emerging voluntary regimes, such as the community shares mark, which was launched last week.
I understand that the aim of today’s amendment is prompted by concerns around the appropriateness of these rules for charities which want to raise investment funds from members of the public, just as they might ask for donations. These concerns indeed reflect reports from the social investment sector that issues around inconsistent treatment for the different types of social enterprises under these rules lead to disproportionate costs and unnecessary complexity. I also understand, as my noble friend said, that this is not the first time that these issues have been raised.
I want to assure noble Lords that the Government are indeed aware of these issues and, in response to interventions from your Lordships during the passage of the Financial Services Bill, the Government made very valuable changes to ensure that the FCA had the proper incentives to take into account the differing needs of different types of organisations that it regulates, including those of charities and social enterprises. Since then, the Government and the FCA have been working with the sector to consider evidence about the effectiveness of the regime, particularly in light of the report Marketing Social Investments—An Outline of the UK Financial Promotion Regime, which was published by the Social Investment Research Council last year. These discussions between the sector and the Treasury are live and ongoing, but I believe—indeed I am told—that real progress is being made in understanding the challenges faced by charities and social enterprises.
I also think that it is important that the issue of changes to the scope and substance of regulation raised today should be considered as part of those discussions between industry representatives, the FCA and the Treasury. I have, therefore, written to the Treasury to make it aware of the issues that have been raised to ensure that they are given full consideration. I will be meeting my right honourable friend the Economic Secretary to the Treasury to discuss them.
I am sorry to say that this is one of those issues that is a large hot potato—as the noble Baroness, Lady Barker, said—that sits both in the lap of the Cabinet Office and in the Treasury, but I am grasping my end of it with both hands and trying to ensure that action is taken. It is, of course, in all our interests that any regulation is proportionate, consistent and clear. Protection of consumers must be paramount, as the noble Lord, Lord Watson, said—a point with which I entirely agree. We also need to be careful that investors understand what they are investing in, as the noble Lord said, and that the reputation of the growing social investment market is protected. That is why the Treasury is engaging with key stakeholders and interested parties on these issues.
In addition to looking at suggestions, including in this amendment and what has been said in the debate, the Treasury will explore whether there are other non-legislative ways of mitigating burdens or costs to social investment offerings. Obviously there will need to be consultation on this point if further action needs to be taken. I warmly welcome my noble friend’s input to the Treasury on these points and, as I said, I am meeting my right honourable friend the Economic Secretary to the Treasury to discuss them. I invite my noble friend to withdraw his amendment.
I am grateful to my noble friend. Of course, I recognise that there has been progress. As I said earlier, the FCA has begun to move—the tectonic plates have begun to shift. I absolutely accept the strictures of the noble Lord, Lord Watson, about the need to protect consumers. I am sorry that I got so excited that I jumped up to interrupt him twice, for which I apologise. He is right that what we do not want to happen is too much weight being put on this new idea too early, where there is a scandal and it is all set back because obviously things that go wrong get more publicity than things that go right. I accept that.
I am grateful to my noble friend. I am happy to withdraw the amendment for the time being. I hope that we can perhaps have some further news from the Treasury side of the hot potato—do hot potatoes have sides?—or the other end of the hot potato before Report. This is an interesting issue and, to be honest and being candid with the Committee, it is only at times like this that we are able to push matters over the line. This is the moment. Once the Bill is gone the next opportunity to do this will be some way away. It would be a pity not to find something that we can coalesce around to make sure that the joint objectives that we have of a new social investment regime, proper consumer protection and a different type of regulation can be achieved. In the mean time I beg leave to withdraw the amendment.
Amendment 22A withdrawn.
Clause 13 agreed.
22B: After Clause 13, insert the following new Clause—
“Appeals and applications to Charity Appeal Tribunal
(1) The Charities Act 2011 is amended as follows.
(2) For section 319 (appeals: general) substitute—
“319 Appeals: general
(1) Except in the case of a reviewable matter (see section 322) an appeal may be brought to the Tribunal against any decision, order or direction made by the Commission or any decision on the part of the Commission not to make any decision, order or direction.
(2) Such an appeal may be brought by the following—
(a) the Attorney General;(b) the charity trustees of the charity subject to the relevant decision, order or direction;(c) (if a body corporate) the charity subject to the relevant decision, order or direction;(d) any other person who is the subject of the relevant decision, order or direction or who is significantly interested in and affected by the relevant decision, order or direction.(3) The Commission is to be the respondent to such an appeal.
(4) In determining such an appeal the Tribunal—
(a) must consider afresh the legal decision, order, direction or decision not to act (as the case may be), and(b) may take into account evidence which is not available to the Commission.(5) The Tribunal may—
(a) dismiss the appeal; or(b) if it allows the appeal, exercise any of the following powers—(i) to quash (in whole or in part) the decision, order or direction and (if appropriate) remit the matter to the Commission;(ii) to substitute for the decision, order or direction any other decision, order or direction which could have been made or given by the Commission;(iii) to add to the decision, order or direction anything which could have been contained in a decision, order or direction of the Commission;(iv) to give such direction to the Commission as it considers appropriate; and(v) where appropriate, to make any decision, order or direction which the Commission could have made.”(3) For section 321(2) substitute—
“(2) Such an application may be brought by—
(a) the Attorney General;(b) the charity trustees of the charity subject to the relevant reviewable matter;(c) (if a body corporate) the charity subject to the relevant reviewable matter; or(d) any other person who is the subject of the relevant reviewable matter or who is significantly interested in and affected by the relevant reviewable matter.”(4) For section 323 (remission of matters to Commission) substitute—
“323 Remission of matters to Commission
The reference in section 319(5)(b)(i) to “remit the matter to the Commission” means the power to remit the matter—(a) generally, or(b) for determination in accordance with a finding made or direction given by the Tribunal.”(5) Omit section 324 (power to amend provisions relating to appeals and applications to Tribunal).
(6) Omit Schedule 6 (appeals and applications to Tribunal).”
I am afraid that this is another of my long-standing quarrels. It is about the Charity Tribunal. Before the 2006 Act, the only appeal against the Charity Commission was to the High Court. That was expensive, slow and difficult to achieve. The then Labour Government, to their credit, introduced the Charity Tribunal in the 2006 Act. The plan was that it would improve access to justice: it would be quick, low-cost, user-friendly and non-adversarial. There was a subsidiary aspect to that, which I am not sure that the designers of the 2006 Act quite recognised, which was about helping more charity law precedents to emerge. Much of what charities are guided by now is quite old and backward-looking—we have discussed the tin-rattling regulations covering cash collections, which date from 1916. Re Resch, the big case about public benefit—an issue that we shall come to later this afternoon—concerning a private Australian hospital in the grounds of a state one dates from the 1920s. We were hoping that the Charity Tribunal would act to help bring charity law forward into the 20th and 21st centuries but the early experiences were a bit disappointing. As is too often the case, everybody reached for their lawyers—as they are entitled to do. I was not present at the end of the independent schools case that came before the tribunal, but I am told that nine QCs were present, which must have cost a bit of money.
However, although it has been slow, there has been progress. There has been more determination on the papers, which means that the tribunal does not require people to attend. More litigants have been appearing in person, which I think is also a good thing. During my review, a lot of evidence was received about the operations of the tribunal and ways they could be improved.
Some of these issues are being addressed by the Law Commission in its current consultation—which I think will be the escape hatch that my noble friend uses in a minute or two—but the Committee might like to be aware of a couple of extraordinary features. In order to appeal against the Charity Commission, a charity has to go to the commission to ask its permission as to whether the use of its funds to make the application is charitable. That seems to be entirely perverse. There is an inherent conflict of interest if the Charity Commission is on one side, the charity is on the other and the charity has to ask, “Is it fair to use this to attack you?”. That does not lead me to believe that there will be an even-handed decision. I hope that the Law Commission will move responsibility for this to the Charity Tribunal.
The second issue worth drawing to the Committee’s attention is that the Charity Commission cannot apply to the tribunal without the permission of the Attorney-General. It seems to me extraordinary that the top regulator in this sector does not have that freedom of action. It must be a threat to its independence if it has to go to a law officer of the Crown in order to be able to get determination of a case. I hope very much that the Law Commission will decide that the Charity Commission is free to act, even if it must of course still inform the Attorney-General. That would be a good way of bringing the law up to date.
There remains a major impediment to the effective working of the tribunal which the Law Commission has decided it cannot address, and that is the tribunal’s jurisdiction, which appears in Schedule 6 to the 2011 Act. There are 10 pages of it, with a series of headings about what the decision, direction or order is, who the applicants can be and what the tribunal’s powers are in response to a decision. That table was seen by the vast majority of contributors to my review as overly complicated and narrowly drawn. Even specialist charity lawyers complained of difficulty in understanding it. The list of cases brought before the tribunal also shows a large number being struck out for being outside the tribunal’s jurisdiction. That raises the question of whether its jurisdiction is sufficiently well defined to address the concerns people have about the commission’s work. Of course, with any forum there will always be cases that fall outside its jurisdiction, but in combination with the wider concerns about Schedule 6, the number of rejected cases raises questions.
The Schedule 6 table is focused on a specific range of formal legal decisions made by the commission. In some cases, but crucially not all of them, this includes the decision not to exercise a power, and the decision not to open a statutory inquiry into a charity is a frequently cited omission. Many of the decisions referred to in the schedule relate to the exercise of legal powers that the commission, as part of its more refined and focused approach to regulation, is choosing to make less frequent use of. Concern has therefore also been expressed that as the commission moves towards this lighter-touch regulatory regime, even more of its work will fall outside the scope of the tribunal’s jurisdiction.
Amendment 22B is designed to clarify the situation by providing a right of appeal against any legal decision of the Charity Commission and a right of review of any other decision by the commission. The new clause proposed in the amendment has two elements. The proposed changes to Section 319 of the 2011 Act deal with appeals and set out, very simply, who would be able to make the appeal: it can be any trustee or director of a charity or charitable company or,
“any other person who is the subject of the relevant decision”,
or is “significantly interested in” or “affected by” it. It lays out the powers the tribunal would have in responding to these appeals. The proposed changes to Section 321 deal with reviews. Finally, subsection (6) of the proposed new clause would delete the dreaded Schedule 6, which I hope will foreshorten and cut out the regulatory regime. This is not a complex issue. Access to the Charity Tribunal is unnecessarily complicated, particularly for smaller charities, and the charity world will appreciate and benefit from simplification. I beg to move.
My Lords, it is excellent to address another of my noble friend Lord Hodgson’s issues—I will not call it a bugbear. Obviously I am sympathetic to the aim of wanting to simplify the legislation because in many senses less is more. My noble friend advocated the approach taken in his amendment in his statutory report on the Charities Act 2006. I hope I will be forgiven for reminding noble Lords of the Government’s response:
“In principle the Government supports the rationalisation of the appeal rights in Schedule 6 to the Charities Act 2011, provided it can be done in a way that does not … expose the Charity Commission to challenges where it decides not to intervene in a charity in keeping with its risk and proportionality framework (this is already capable of Judicial Review); or … create any significant new appeal rights that would add to the jurisdiction’s case-load”.
I believe that this was a sensible position to take. We must remember that the Charity Commission has limited resources. We would not want to expose the commission to challenges where it decides not to intervene in a charity in keeping with its risk and proportionality framework. As I have said, this is already capable of judicial review. Providing a right of appeal to the tribunal could result in an unmanageable workload of cases for the Charity Commission, diverting its resources to defending proceedings in the tribunal, many of which may be spurious or vexatious. Appeal rights in the event of the commission not making a particular decision would in effect enable others to direct the use of commission powers and resources, rather than it being left to the good sense of the commission to decide such matters for itself within the scope of its objectives, functions, processes and duties.
We consider that the balance is about right under Schedule 6 as it currently stands. There is a right of appeal against the opening of a statutory inquiry but no right of appeal if the commission decides, for whatever reason, not to open one. We do not want to overburden the tribunal with significant new rights of appeal that are likely to generate a large number of cases where none had previously existed.
I am not sure that everyone shares my noble friend Lord Hodgson’s viewpoint on the difficulty of interpreting Schedule 6 to the Charities Act 2011. There are some who are attracted to the structure of Schedule 6 and find it easy to navigate. It allows one to look up a particular provision and quickly see who can appeal and what decisions are available to the tribunal. It is not something that has been raised with the Government as causing particular difficulty, other than by my noble friend.
Most of the Bill is about giving the Charity Commission the tools it needs to do its job, so I hope my noble friend will understand that, although I approve of his eye for simplification, I am very reluctant to consider anything that could divert its resources from its core functions. I hope that he will feel able to withdraw his amendment on that basis.
My Lords, I have not found many people who have said that Schedule 6 is easy to navigate. I did not get into too much of the detail but there is also the question of the timescales for making appeals. However, I can see that I am not going to make any progress with this.
I am disappointed that the Minister has fallen back on the issue of vexatious litigation. That suggests that the tribunal does not have the sense to strike out vexatious litigants by saying, “This isn’t a case”, and I do not find that that argument really holds water. What I think has happened is that small charities in particular are finding their legal position not as strong as it should be. I am sure that this will lead to additional casework for the Charity Commission but I do not mind about that: if the commission needs to be challenged, it needs to be challenged. If that happens unfairly then the Charity Tribunal will step in and say, “This is not a worthwhile case”, and strike it out. I understand that it has done so with other cases in the past. Still, that is as far as we are going to get today, so I beg leave to withdraw the amendment.
Amendment 22B withdrawn.
Amendment 23 had been withdrawn from the Marshalled List.
23A: After Clause 13, insert the following new Clause—
“Independent schools’ sports facilities: public benefit
In section 4 of the Charities Act 2011 (the public benefit requirement), after subsection (4) insert—“(5) Independent schools which are charities must engage fully with local communities and state schools with a view to sharing sports facilities and coaching expertise.
(6) The Charity Commission must publish guidance setting out the minimum that independent schools which are charities must do to comply with the duty in subsection (5).””
My Lords, the amendment is in my name and that of my noble friend Lord Glentoran. The principles behind the amendment are reflected in the amendment with which it is coupled, standing in the name of the noble Lord, Lord Wallace of Saltaire, in the context of music, drama and the arts. I support that amendment as well, not least because best practice by independent schools involves both sport and the arts in terms of engaging with the local community.
I was delighted to hear the Minister state, in response to an earlier amendment, that the key issue with regard to the Bill is to give the Charity Commission the tools with which to do the job. That is precisely what we intend in tabling these amendments. The core reason behind them is that there is very good practice by many independent schools in terms of engaging on the use of sports facilities, exchange of coaches and engagement with pupils from the independent sector and the state sector in their catchment area to improve the opportunities for young people in the totality of the catchment area. The problem is that this is not consistently applied. There are pockets—islands—of good practice. The lack of consistency of good practice is the result of the current structure of support that we have in legislation to date. I shall address that in a little more detail.
I say that there are some good examples. I will not rehearse many of them, as I did at Second Reading, but I shall focus on some, not least because of the amendment in the name of the noble Lord, Lord Wallace of Saltaire. Tonbridge School, for example, engages with the local community not only through sporting activities but in music, drama, dance, chess, art and design. Indeed, it brings them all together in true Olympian fashion—the vast majority of the history of the Olympic Games has been about engaging both through the arts and sport. It is good to see a school such as Tonbridge engaging so actively, not just once a year but throughout the year, to ensure that primary-age children in particular benefit from the facilities which the independent sector has and which primary schools and many secondary schools in the area do not.
There are outstanding examples of secondary schools with first-rate sports facilities, but the reality is that by comparison with the independent sector we have a long way to go, particularly in the cities, before we provide the opportunities for young people that those fortunate enough to go to many independent schools with outstanding facilities enjoy. That is reflected, as I made clear at Second Reading, in the statistics regarding the success of the independent sector, which represents some 7% of children who are educated in this country. Team GB had more than 50% of its medallists in Beijing coming from 7% of the children of this country. Think of the talent out there that is not being identified and developed, despite the good work which has been done to date by the Charity Commission and by government. That is simply not enough, and this amendment seeks to take it one step further with all schools by embedding best practice through stronger regulation.
The British Olympic Association—I declare a former interest as being its chair from 2005 to 2012 in the run-up to London 2012—worked on this. I congratulate Jan Paterson on endorsing the work done at Tonbridge School both in the arts and in sport. On one occasion, some 1,000 primary school students came along to a major event and were provided with Team GB T-shirts and pins, with an Olympian on hand to present the prizes at the end of the day. Those are inspirational moments, but too much of London 2012 was about generating inspiration and not capturing that inspiration for long-term participation. That is the opportunity that we must still grasp. We have an outstanding success rate at the highest level of sport in this country. We must take that inspiration, not just in Olympic sports but across the board, to encourage young people actively to participate. This amendment can help in that direction.
Why is the current legislation insufficient? It goes back to the Charities Act 2011 and the present public benefit requirement. Section 4(2) states:
“In determining whether the public benefit requirement is satisfied in relation to any purpose falling within section 3(1), it is not to be presumed that a purpose of a particular description is for the public benefit”.
In the interpretation of that provision, there was a lack of clarity which led to misunderstandings. It led to the Charity Commission having a different view from that of many independent schools; it led to case law coming forward—two specific examples ended up in the courts; it has led to continued misunderstanding; and it has led, I regret to say, to recalcitrant independent schools going for the lowest common denominator by ignoring the sports or arts element in favour of another element in order to meet the public benefit requirement, while still having outstanding sports or arts facilities with which they are not engaging with the local community.
I am seeking today to take forward the debate that we started at Second Reading and to see whether there is a way whereby we can move further in the direction of embedding best practice in every independent school that has outstanding sports facilities. In my view, the decline in local authority spending on sport and leisure is due to a lack of statutory duty and funding, and that makes it more important than ever that we utilise other sports facilities—which lie idle during the summer holidays, for example—with local communities.
We need to get young people active. We have seen a fall in participation in sport since London 2012. At the one point in our lifetime when we would have expected to see a substantial rise in the percentage of the population engaging in sport and recreation, we have actually seen a decline. That, to me, is a tragic reflection of a lack of effective policy and it is something we need to remedy. It is one reason why I tend to rise to my feet on occasions such as this. We need to ensure that we have a sports legacy from London 2012 to match the remarkable urban regeneration legacy which has transformed the East End in a very short space of time.
The press, I am glad to say, have taken an active interest in this as well. Those of your Lordships who read the Independent on Sunday yesterday will have seen prominence given to the importance of encouraging private schools to share sports facilities with local communities. The new chief executive of the Sport and Recreation Alliance, Emma Boggis, has written:
“I just wanted to add our support to the debate around private schools with charitable status sharing facilities with state schools and local communities. For many of our members having access to facilities is clearly important to help them deliver their participation targets and having a diverse range of options available is important particularly in an environment where the squeeze on local authority budgets does impact on”,
“investment in facilities”.
Again, she recognises that many schools are case studies in excellence in this context, but the current structure that we have in law, and the current structure with regard to the interpretation of public benefit and the Charity Commission’s work, has meant that there is no consistency. It is “consistency” that is foremost in my mind in proposing the amendment before the Committee today.
I conclude by referring to the Independent Schools Council’s work on this. An excellent report has shown that the vast majority of schools—in fact, nearly all of them—engage in some way with the local community through sport and recreation, either through hosting joint sporting events, inviting pupils to use the facilities of the school, inviting pupils to attend coaching sessions or seconding coaching staff. Hardly any of them second coaching staff—a maximum of 70 out of 1,073 who engage in sport in some way. Coaches are critical. They are absolutely key to the success of any initiative in sport. I would like to see consistency rather than a piecemeal approach. Very few do all but they should all do all if they are going to benefit from the public benefit status that they currently have.
I regret to say that the position is even worse in the arts. I am as strongly supportive of this initiative applying to the arts as I am of it applying to sport and recreation. Of the 1,073 schools in partnership with state schools, only 399 reach out to the local community through drama, and many of these schools have magnificent facilities, outstanding teachers and a real opportunity to engage. An independent school is not an island in a community; it is an inherent part of that community, and it is through the arts and sports and recreation that much more work can be done to engage with the local community.
I close by saying that I praise those schools where best practice is implemented. The current structure that we have in law and the current arrangement that we have with the Charity Commission creates a loophole through which those who do not wish to engage fully can move and still gain the benefits of charitable status. I want to close that loophole, explore with the Committee ways of doing so and potentially, as a result of the exchanges today, come back at a later stage with a proposal which has the support of the Government and, I hope, the support of the Labour Party, the Liberal Democrats and the Cross Benches. I know that the noble Baroness, Lady Grey-Thompson, is very supportive of the position that I have attempted to outline to the Committee today to take it forward at that stage. However, perhaps we will not need to get to that conclusion because, as I said at the outset, there is an opportunity here for the Minister to rise to his feet and give a very short answer, saying, “Thank you so much because you have given us the opportunity today to provide the commission with the tools with which to do its job”. I beg to move.
My Lords, I will follow the line of argument raised by the noble Lord, Lord Moynihan, which is that although we see islands of good practice within the charitable public schools community, we want consistency. Many public schools, as we all know, have origins as charitable institutions set up to provide facilities and education to their local communities. To some extent in recent years, links with their local communities have weakened; their facilities, however, have been transformed.
I fell out of state education by going to a choir school when my father’s employers very generously provided me with a scholarship to go to a school in north Oxford set up to educate the sons of the clergy. I remember practising my violin in what was then the school’s music wing, which was a bunch of wooden huts set up during the Second World War for some other purpose. St Edward’s School in Oxford now has a magnificent music wing, and a drama wing, funded by rising fees and contributions from grateful alumni over the years; so have, as we all know, a great many other private—or public, as we call them—schools across Britain. The facilities are there. However, facilities in many state schools have weakened. Specialised coaches and music and drama teachers are very often no longer on the staff. Sometimes the playing fields are not there; the specialised music and drama institutions are certainly not.
I declare an interest as the trustee of two musical education charities and the chair of Voces Cantabiles Music and the Gresham Centre. We have developed over the last 11 years partly through partnerships with a number of public schools: first, with Bedford School and the five schools of the Grey Coat foundation and, secondly, with Bradford College, Ardingly College and Rugby School. In all instances it has been a matter of providing access to the excellent facilities that these public schools have to primary schools and some secondary schools in the region—to bring people together, give them a different quality of experience and so expand their horizons and build their self-confidence. I place on the record our gratitude as a charity to the partnerships we have had with these public schools. However, as the noble Lord said, this is an island of good practice when what we want to see is consistency.
There are other areas of public benefit that some public schools provide very well but which others neglect. My son went to a state school and was a good enough mathematician to be entered in the maths olympiad. When he got into the last 20 of the British Mathematical Olympiad, he was one of only three state school pupils, because the quality of the teaching you get in public schools is so much better than in state schools. When they got down to the final six to go on to the International Mathematical Olympiad, all the pupils were from public schools rather than the state sector. That tells you something. He was then offered a place to study maths at the University of Cambridge, conditional on taking a further set of advanced papers that his state school was incapable of providing him with the coaching for. Happily, Westminster School provided a teacher from its excellent maths department who provided him with weekly tuition in the evenings for a full term, which got him through. That is anecdotal evidence of a partnership of this sort. Public schools that have a better-paid and better-staffed maths department should be thinking about key areas where they could be providing additional coaching for people from state schools at crucial periods in their careers. We are well aware that some public schools now sponsor academies: Wellington College has gone in that direction.
All that the amendment says is that public benefit is important and needs to be demonstrated. Where there are these excellent facilities, which have improved so enormously in recent years, they should be provided for these purposes wherever possible. We would like to see much more consistent advice given, and much more consistent expectation, that the privilege of charitable status should be reflected in the public benefit provided.
My Lords, I must take issue with the statement from the noble Lord, Lord Wallace of Saltaire, that the teaching in public schools is always better than that in state schools. I might well take issue with that but I certainly do not take issue with the fact that they have much better facilities, and that is what this is really all about.
We do not need to rehearse yet again the long-standing and tortuous arguments about what constitutes public benefit. In my intervention last week about funding the Charity Commission I talked about the quid pro quo that charities would expect in return for contributing to the funding of their regulator. Here we focus on another quid pro quo: in addition to the huge advantage that charitable status confers, independent schools are encouraged to further engage with local communities and make their facilities available for sports and arts purposes. Noble Lords have acknowledged that there is a lot of this about. There is some very good practice and it relates not only to the last Charities Bill. I remember that when I chaired the New Opportunities Fund, which did a great deal of work putting lottery money into schools, there were some excellent examples of co-operation between public and state schools. As we have heard, though, it is very patchy. Too many of the sharing facilities and projects that go on are dependent on the history of relationships between that school and its local community. Even more concerning is that they are sometimes dependent on relationships between individuals, usually teachers. This is not satisfactory.
Facilities and coaching are important, as we have heard, so far as sport, arts and music are concerned, and they are disproportionately available in the public school sector. Only this morning, we heard that the Olympic legacy has not been realised so far as participation is concerned, and too many independent schools think it sufficient to say that facilities are available to local communities whenever their own students do not need them or they are not in use. When one headmaster was asked when the facilities were available, he said, “Any evening after 9 pm or any bank holiday, but funnily enough no one seems to want them then”. Quite.
I very much support these amendments. The only anxiety I have is one that we have raised many times before in this Bill—the issue of giving the Charity Commission more responsibility without increasing its resources. This is quite a heavy policing function that would be placed on it, and that will need to be taken into consideration, but I support the amendment.
My Lords, I declare my interest as a former general secretary of the Independent Schools Council and as the current president of the Independent Schools Association and of the Council for Independent Education. As I recite these names, it perhaps gives an illustration of the diversity that exists in the independent sector, which, viewed from the outside, is often depicted as a rather monolithic affair determined to keep on its own side of a Berlin Wall. Nothing could be further from the truth, as this debate so far has indicated.
I am very glad indeed to hear the acknowledgements of the widespread support that is given by the Independent Schools Council to the growth of partnership activity. The results are summarised in a publication called the ISC Annual Census 2015. A great deal of detailed material is going to be made available in September on a website Schools Together, which will give a great wealth of case studies and examples of what schools are doing in sharing facilities with their local communities and state schools. It will be an extensive website because there is so much to record.
I think the issue comes to this: is there a role for the law in this matter? We are at one in acknowledging that much has been done. I stress the ISC’s continuing encouragement for the further expansion of such schemes and have very serious concerns about the implications of an attempt to specify how independent schools that are charities should demonstrate public benefit. All charities are of course required to provide public benefit. Would it be right to single out independent schools for specific guidance on what they should do? I also question whether this would be expedient because schemes for sharing facilities that are likely to succeed will do so when they reflect a deep and genuine desire on the part of state schools, local communities and independent schools to be involved in them.
Local wishes should determine what happens. It is important to remember that independent schools vary greatly in size and character. More than 50% have 350 pupils or fewer. Only a tiny minority have large endowments; the vast majority are wholly dependent on fee income. What they can do will vary from place to place depending on size and on how local communities and state schools wish to work with independent schools. I emphasise that the 1,200 schools belonging to the Independent Schools Council are keen to work with local schools and communities, contributing to the activities of local communities and work in state schools. These things are innate to them these days, forming part of the charitable ethos and purpose of the schools.
If partnership schemes are to deliver benefits to all involved—local communities, state schools and independent schools, which are enriched by partnership—I suggest that the best course is to give every encouragement to voluntary local arrangements and not seek to impose a set of requirements across the board, which I suppose would be known these days as a one-size-fits-all approach.
My Lords, while supporting the sentiments behind these two amendments, I have a small difficulty with the drafting. Surely in proposed new subsection (5) of both amendments, engaging fully implies aspirations towards an ideal. I feel that this does not lie easily with the word “minimum” in proposed subsection (6) of the two amendments. For example, a school that very reluctantly complies with the minimum requirements may be well aware that it is not engaging fully. The local community and, indeed, the Charity Commission, may feel the same way. Therefore, if these two amendments find favour with the Government, I suggest that they should be redrafted so that the two proposed subsections are absolutely compatible.
My Lords, these are well-meaning amendments. Who cannot be swayed by the brilliant call from my noble friend Lord Moynihan for consistency and for building on the memories of 2012, and, indeed, by the noble Lord, Lord Wallace of Saltaire, talking about the importance of music and the arts? However, my noble friend Lord Lexden has sounded a cautionary note. I fear that putting all this into statute may open a Pandora’s box. I am not against opening a Pandora’s box but, before doing so, let us be clear that that is what we are going to do and what may follow as a result.
Just to give some brief background, the Committee is aware that the roots of charity came from the dissolution of the monasteries. Before that, the church educated people, promoted religion and acted as, in modern terms, a social services department by looking after the sick, the destitute and the disabled. When that ceased to be done by the church, it was done by the private sector, if I may call it that. Those three purposes were presumed automatically to be charitable. There was a fourth category—such other activities as may be presumed to have a public benefit. That meant that for the vast majority of charities up to 2006 there was a presumption of public benefit. If one struck out every charity that had anything to do with education, religion and social services, a whole heap of charities would be removed and we would be left with a small number that depended on the definition of “public benefit”.
The public benefit test was introduced in 2006, when the Labour Government’s Bill removed presumption and made every charity show that it was providing a public benefit. I am not saying whether that was a good or a bad thing; it is just what happened. It meant that the public benefit test went from being concerned with a very small number of charities to being the keystone of the arch. Every single charity now had to live with that. That was a very big change and the question of how that public benefit test should be set and enforced occupied many hours of the debates on the Charities Bill, as it was in 2004 to 2005. I was a newcomer in the House at that time and I listened to lengthy speeches. The noble Lord, Lord Wedderburn, from the Labour Benches made a 45-minute speech on what is a religion, to the increasing worry of his Whip and his Minister, the noble Lord, Lord Bassam, who rightly thought that we were never going to leave that group of amendments. I promise that I shall not speak for 45 minutes this afternoon.
The conclusion reached was that there was no ideal solution and that the least worst option was to give responsibility to the Charity Commission and to keep charities as far as possible away from the political fray. Lord Phillips of Sudbury, who is no longer with us but who then led the charge on these things, was the Peer who introduced the amendment that now forms Section 13(4) of the 2011 Act, which reads:
“In the exercise of its functions the Commission is not subject to the direction or control of any Minister of the Crown or of another government department”.
The conclusion of that long debate was that the public benefit test should be put to the Charity Commission and that the commission should be given a wraparound of avoiding political interference.
I accept the point made by my noble friend Lord Moynihan that the initial public benefit guidance from the Charity Commission after the 2006 Act was unduly financially oriented. I think that everyone now recognises that there was too much emphasis on scholarships and bursaries and not enough on the hearts and minds that both these amendments are driving at—namely, the provision of sporting facilities, arts and music. Of course, following the independent schools tribunal, the guidance has now been revised and things are not quite as they were.
The Pandora’s box that could be opened is that if my noble friend were inclined to accept these amendments the Charity Commission would no longer be truly independent. You cannot be a little independent—you are either independent or you are not. Others might have their own ideas of what could be added to the list of things that the Charity Commission should consider and would have to take into account in considering the public benefit test. I need not remind the Committee that the OSCR—the Office of the Scottish Charity Regulator—has a different public benefit test. It requires that when the public benefit test is set, it should have particular regard to institutions that charge fees. That might be something to consider in this country in order to match the public benefit test in England with that in Scotland. I am concerned about how this might develop and, once the stitch is removed, how this theme might run through the charity sector. Slowly and inexorably, charities might find themselves moving towards the political stage, with all that that entails.
My noble friend made an important point about the uneven application of consistency. We have come across private schools that have been not unwilling but unable to provide the sorts of issues that my noble friend Lord Moynihan mentioned—a point also made by my noble friend Lord Lexden. A rural prep school that is badly endowed and has no local community is going to find it very hard to deal with the sorts of provisions that appear in these two amendments.
My conclusion to the movers of this amendment is: be careful what you wish for. There are those who argue strongly that the detail of the public benefit test should be set by Parliament. I myself do not agree with that, for various reasons. I do not think that charitable endeavour and the hurly-burly of political life sit well together, and I fear that if these amendments were accepted we would be drifting slowly in that direction.
My Lords, I must remind the noble Lord that on the previous day that this Committee sat he made a very powerful speech about the need to define rather more clearly some of the elements in the Bill. He now seems to be arguing in entirely the opposite direction.
I recognise that the public benefit test has to be left relatively broad, and indeed both these amendments say so. I also recognise, with regard to the use of the word “fully”, that there are ways in which this amendment might need to be reconsidered.
All that we are attempting to do here is to make it clear that there is an expectation of public benefit, as we have both said. Different schools demonstrate that in different ways, and we all expect them to do so. I have to say that many of us are a little worried about a small minority of schools that now seem to have a large proportion of overseas students, for example, and have raised their fees to such an extent that they are a very long way from the original charitable purposes for which they were founded. If we are nudging them—nudging is, after all, one of the things that this Government are extremely keen on—in the right direction, it is this sort of wording that seems to be pushing them in that direction, and that is what we wish to do. I do not think that we are going down the route of politicisation; we are, however, reminding them—and providing them with some examples—that charitable status is a privilege and public benefit is an expectation.
I entirely agree that charitable status is a privilege. The question is whether that status is better enhanced by statute or by guidance. I am saying that the test should be made clear but it should be a Charity Commission guidance test rather than be put in statute, with all the inflexibilities and ancillary problems that may flow from that.
My Lords, I feel that I could not have put the case for these two amendments better than the noble Lords, Lord Moynihan and Lord Wallace of Saltaire. I also echo the comments of my noble friend Lady Pitkeathley. Like them, we very much hope that the arguments will not fall on stony ground. Indeed, in a previous debate in this Room, the noble Lord, Lord Nash, agreed with our direction of travel, saying:
“It would be nice to see the independent and state sectors collaborating more”.—[Official Report, 27/11/14; col. 991.]
As we know, though, encouraging words are simply not enough in themselves. Despite being subsidised by the taxpayer to the tune of some £700 million over the course of a Parliament, only 3% of independent schools sponsor an academy, only 5% loan teaching staff to state schools and only one-third allow pupils to attend lessons on their premises. That is not sufficient to show that they are providing “public benefit”.
I agree with noble Lords that there are pockets of good practice but I also very much echo their view that it is not consistent. As Sir Michael Wilshaw, the head of Ofsted, has described it, it feels like public schools are offering the state sector only the “crumbs off your tables”. So independent schools with charitable status must do more to develop partnerships with state schools by sharing their resources and skills.
It is in all our interests, public and private, that every child has access to a first-class education with the skills to succeed in the global marketplace, and this is certainly one way of delivering that. We would envisage much deeper partnerships than has been the case in the past, not just by the sharing of sports, art and music facilities—important though they are, and an important case for that has been made in the debate—but also by the running of summer schools, mentoring schemes and giving access to networks for careers advice, work experience and internships. All these issues are equally important in a future partnership scheme.
It is important for independent schools to engage in these activities with the state sector as an equal partner rather than as a tokenistic gesture. I will give an example of this. I visited a school recently which on its website talked proudly of the relationship it had with the local public school. When I went to speak to the sixth form, I commented that the students must feel proud to have access to all the facilities in the school down the road, but I have to say that those students looked at me with completely blank faces. They did not know what I was talking about. An awful lot is said about this without it being acted upon on the ground in a way that young people feel is delivering for them. This is why we have called for a new schools partnership standard against which independent schools will be measured. Furthermore, we believe that the Local Government Act 1988 should be amended so that private schools’ business rate relief becomes conditional on passing that new standard.
Amendments 23A and 23B provide a start by identifying at least three areas, sports, drama and music, where facilities and expertise can be shared to the benefit of pupils from both sectors. I would say to the noble Lords, Lord Lexden and Lord Hodgson, that independent schools which are already involved in such initiatives have nothing to fear from these changes, while, quite frankly, those which have not kept up with the times will find it difficult to justify why they should continue to be subsidised on the pretence that they are providing a public benefit rather than a private benefit for just the few.
That brings me to the second part of the two amendments, where we totally concur with the view that the Charity Commission should be required to set out the minimum necessary for the public benefit test to be met. No other agency or individual is allowed to mark their own homework and decide for themselves what their standard is and whether they have met it. Without some kind of independent and transparent guidance, it is impossible for taxpayers or their representatives to review and test the standard, or to check that it has been met in each case. Even auditors cannot justify themselves that the requirement has been met since there is no standard against which they can benchmark any particular charity.
We have tolerated the corrosive effect of the divided school system for far too long. It cannot be right that public schools account for only 7% of all pupils in England yet provide more than 50% of our CEOs, Lords, barristers, judges, QCs, doctors and even journalists. We very much welcome the amendments and the analysis behind them as a first step towards a new model of accountability and partnership in education. It may well be that the wording does need to be finessed before Report, but I am sure that the proposers of the amendments will welcome any constructive suggestions in that regard. While I am sure that the Minister agrees with these sentiments, I hope he will also agree with our practical proposals, and I look forward to hearing his response.
My Lords, I should start by saying that I am very much on side with my noble friend Lord Moynihan and the noble Lord, Lord Wallace of Saltaire, in their intention to encourage more sharing of facilities and expertise between charitable independent schools and local communities, including state schools. Indeed, I pay tribute to my noble friend Lord Moynihan on all the excellent work that he has done on this, including during the Olympics. I have to say that I am not an accomplished sportsman myself—indeed, the words “accomplished sportsman” and “Bridges” do not go together. I try to pull myself around Battersea Park once a week, but that is as far as it goes, so I look with awe at what my noble friend has achieved in terms of encouraging more people to take part in sport.
As I said, I sympathise with the noble aim of these amendments. However, although we may agree on the aim, where I differ is on the way in which we achieve it. In direct response to what my noble friend has said, I would argue that the Charity Commission already has the tools to do this job and to do it consistently. Public benefit has long been a concept at the heart of the definition of charity, as all noble Lords know. It is not enough that charities have a charitable purpose; they must further their charitable purpose for the public benefit. However, how they do so is rightly a matter for a charity’s trustees—a point made eloquently and forcefully by my noble friend Lord Lexden?
The Charities Act 2006, now consolidated into the Charities Act 2011, gave the Charity Commission a statutory objective of promoting awareness and understanding of the operation of the public benefit requirement. It also required the commission to publish statutory guidance on the public benefit requirement, as noble Lords will know. The published guidance as it applied to charitable fee-charging independent schools was challenged in the Upper Tribunal and was found to be overprescriptive. I just want to remind your Lordships what the tribunal found.
The tribunal summarised the two strands to the public benefit test as follows: first, what is provided must be of benefit to the community; and, secondly, those who benefit must be sufficiently numerous and identified in such a manner as to constitute a “section of the public”. On the first point, the test was satisfied, in that the delivery of a standard curriculum to school-age children was for the benefit of the community. On the second point, providing that more than de minimis or token provision is made for the poor, there is a range of direct, indirect and identifiable wider benefits that schools provide to the community that can be taken into account. The test is to look at what a trustee, acting in the interests of the community as a whole, would do in all the circumstances of the particular school, and to ask what provision should be made, other than the provision of education to fee-paying students, over and beyond the de minimis or token threshold.
As with all charities, the trustees of charitable independent schools are required to report on their public benefit activities in their trustees’ annual report. It is worth pointing out that the Charity Commission provides guidance on how the public benefit requirement can be met by charities, including schools. As I am sure your Lordships know, this is set out in Public Benefit: The Public Benefit Requirement. I repeat that this matter should be left to the discretion of the charity’s trustees operating within the Charity Commission’s published guidance. In practice, charitable independent schools are likely to use a combination of ways of providing opportunities to benefit people who cannot afford the fees. Such schools have widely varying circumstances and assets which can affect what benefits, other than an education for pupils at the school, they choose to give.
As my noble friend Lord Moynihan alluded to, much is being done in terms of partnership. According to the Independent Schools Council, 93% of ISC schools are in mutually beneficial partnerships with state schools and local communities, sharing expertise, best practice and facilities to the benefit of children in all the schools involved. However, as the noble Lord, Lord Wallace, said, we need to encourage them to do more. The ISC states:
“The best partnerships develop between Heads or teachers really wanting to work together, out of genuine local relationships and enthusiasms, not dictated from the top”.
In addition to sharing expertise or facilities as set out in the noble Lord’s amendment, other examples might include allowing pupils from local state schools to attend certain lessons or other educational events; collaboration between independent schools and state schools, including academies—a point that has been referred to—an independent school working in partnership with a non-fee-charging school overseas to share knowledge; the formal secondment of teaching staff to other state schools or colleges—for example, in specialist subjects such as individual sciences or modern languages—and supporting state schools to help them prepare A-level students for entry to universities. Those are just a flavour of the different ways in which a charitable independent school can work with the wider community and the state education sector to further its charitable purposes for the public benefit.
However, I wish to return to my main point, which has been made before, which is that charities are independent and their trustees must be able to make decisions in the best interests of the charity, taking into account the needs of their beneficiaries and individual circumstances of their charity. We must be careful not to fetter their discretion with prescriptive requirements that will not be appropriate in all circumstances.
As my noble friend Lord Lexden eloquently argued, we need to avoid a one-size-fits-all approach. Therefore, I entirely share the sentiment behind this amendment and the view of my noble friend Lord Moynihan that we need to do more to raise standards in the teaching of sport and music in state schools while encouraging independent schools to do their bit.
The noble Baroness, Lady Jones, referred to Ofsted. Indeed, Ofsted has looked into this matter, as I am sure she knows. I remind your Lordships what was said in its report Going the Extra Mile, which was published in June last year. It states:
“Of course, many independent schools enjoy financial advantages not available to their state-funded cousins. As this report makes clear, it is not resource that is the key to independent school success but attitude. Children are expected to compete, train and practise secure in the knowledge that teachers will go the extra mile to help them. … As things stand, many state schools treat competitive sport as an optional extra or fail to offer it any meaningful way. They get on the bus but fail to turn up on the pitch”.
The report goes on to say:
“The time that PE staff, other teachers and coaches dedicate to organising sport before, during and after school and at weekends is one of”,
the “fundamental reasons” why some maintained schools and academies match what independent schools do.
An Ofsted music report said that, as regards the provision of music:
“The root of the problem lay in a lack of understanding, and low expectations in music, among the schools’ senior leaders and their consequent inability to challenge their own staff, and visiting teachers, to bring about improvement. More often than not, they evaluated the quality of music in their schools too optimistically”.
I am not for one instant saying that we should not encourage independent schools to do their bit and to do more. Clearly, we need to do that and clearly there is work to be done. I know that my noble friend Lord Moynihan is encouraging us to do a lot of work in the state sector, but there is a lot of work to be done on both fronts. However, while the activities covered in these amendments are worthy, there may be many others which have equal value or may be more appropriate in the particular circumstances of the school. Trustees will want to take into account the needs of their beneficiaries and be able to develop innovative responses to such needs. It would be wrong to restrict their discretion in the way proposed by the amendments. I look forward to meeting my noble friend Lord Moynihan before Report to discuss his proposals in more detail. However, on the basis of what I have said, I hope that he will feel able to withdraw the amendment.
My Lords, I tread carefully in areas of disagreement with my noble friends Lord Lexden and Lord Hodgson and, indeed, my noble friend the Minister. However, I wish to make one or two observations in response to their comments. The Minister referred to Sir Michael Wilshaw’s Going the Extra Mile report. This was an indictment of sport in schools in this country. It was stated without any equivocal reticence:
“The survey reveals unacceptable discrepancies between the proportion of pupils attending state schools and their representation in elite sport”.
Clearly, that is not simply a function of the relationship between independent schools and state schools but raises a major question about how we support the development of both primary and secondary schoolchildren in sport and recreation and indeed, I would argue, in the wider context of the arts as well.
I agree with my noble friend Lord Lexden that best practice and the encouragement of voluntary local arrangements is ideally the best way forward. However, I have to say to him that I would not be standing in front of this Committee today if those voluntary arrangements were working. The reality is—he has the report in front of him, from which he quoted—that only one-quarter of the schools in partnership with state schools invite pupils to use their music facilities, only one-tenth invite pupils to use their drama facilities and only 6% second coaching staff. Regrettably, these figures strengthen my argument that if we consistently come back year after year and say, “Leave it to voluntary agreements because this is not an area for political involvement”, we are letting down a generation.
We sit in your Lordships’ House in part to look at legislation, balance wholly reasonable points about the non-politicisation of the Charity Commission’s objectives and ensure that guidance takes precedence. Indeed, the amendment before the Committee today, in terms of the arts and sport, emphasises the publication of guidance as the key criterion. It does not require or seek the Charity Commission to publish regulations that then are subject to either affirmative or negative resolution of this House. It seeks to continue through guidance. It seeks a very light-touch statement that, in publishing that guidance, it is wholly reasonable and, I would argue, non-political to ask independent schools—which through their own guidance have been directed in the area of engagement on sport and recreation activities between their schools and the public—to engage fully with those local communities and state schools. That is as far as we would wish to go in legislation, and then we would look to the Charity Commission to publish appropriate guidance.
Of course every school differs, but the statistics I have just quoted—I welcome that they will be published more widely on a website this autumn—are a sign. They are a clear example that the wholly voluntary approach towards best practice, which ideally we would all like to support, is not working.
We need look no further than local authorities. Parliament determined that there should be a voluntary approach by local authorities to support sport and recreation activities in this country and that it should be a discretionary spend item, not a mandatory spend item. What is the consequence of that? A lack of investment in local sport and recreation facilities, a lack of opportunity for girls and women to engage in those facilities because there simply are not the facilities for so many women to participate in sport at a local level, and, frankly, a collapse of opportunity around this country, all because we have left this to voluntary local arrangements—unlike, by the way, Scotland, which has taken a mandatory approach.
My argument with my noble friend Lord Lexden is that although the voluntary approach and the encouragement of voluntary local arrangements has, in part, been outstanding—I am not for a moment arguing that all schools have failed to deliver close working relationships with the local community over sport and recreation and the arts—the reality is that it is a patchwork quilt in this country. Wherever we do not deliver best practice, we let down local communities. We have a very light-touch opportunity in this legislation to rectify that. I simply say to my noble friend that if we take it, we might move from 6% of schools seconding coaching staff to the local communities and in the direction of the outstanding chief master of King Edward’s School in Birmingham, John Claughton, who shares the vision that I am talking about and has come up with some excellent ideas, but there will be no impetus behind that if we simply leave schools to current practice.
We have to change our approach to this if we are going to maximise the opportunities for young people in our society to engage and not walk past independent schools with which they have little to no relationship—I am not talking about best practice; I am, regrettably, talking about the 1,002 schools out of 1,073 that do not second coaching staff. That cannot be acceptable to your Lordships’ House and it cannot be acceptable, sadly, in the wake of the hugely inspirational Olympic Games in London in 2012. We should be engaging with all able-bodied and disabled kids in the locality on where independent schools can play a major role in achieving that objective, rather than, three years on, to have these statistics in front of me, which were published by the ISC and demonstrate, in my view, that the Charity Commission needs to have greater vision to drive forward change in the interests of all young people in this country.
I predict that the proportion of our medallists from the independent sector in Rio 2016 will be even higher than the proportion from London 2012. The proportion of the total team that we take will certainly be higher, not least because it looks highly unlikely that we will take a football team. Football is one sport in this country where you have a pretty perfect relationship between the numbers of independent and state school kids going to play at the national level, with the proportion from state schools being of the order of 93%. That is what you would hope for in every sport, but it exists only in football and not elsewhere. By the look of it we are not going to be sending a men’s or a women’s team from GB, so you can expect the percentages to fall back to closer to where they were in Beijing in 2008.
I conclude by wishing that I was in a position to agree with my noble friend Lord Lexden. I am sensitive to the arguments that my noble friend Lord Hodgson made about politicisation. We need to look at that carefully as we reconsider the amendments that we have tabled. I absolutely understand that there would appear to be a discrepancy between, on the one hand, publishing guidance setting out minimum standards and, on the other, taking into account engaging fully with local communities and state schools. I would argue that there should be a minimum standard, so I do not actually see the discrepancy myself, but I see that it is open to a different understanding. It is something that I am sure the noble Lord, Lord Wallace, and I will review in the light of that excellent intervention when it comes to taking this idea forward to the next stage.
For the time being, I will of course withdraw the amendment standing in my name and could not be more grateful to your Lordships from both sides of the House. This debate has taken an hour—I thought we were going very swiftly until this point, so I apologise for the fact that we have had a full hour—but it has been a quality hour and has been very helpful in identifying key areas that we need to consider between now and Report. In light of the interest and support that exists for taking this further, at this stage I beg leave to withdraw the amendment.
Amendment 23A withdrawn.
23B: After Clause 13, insert the following new Clause—
“Independent schools’ music and arts facilities: public benefit
In section 4 of the Charities Act 2011 (the public benefit requirement), after subsection (4) insert—“(5) Independent schools which are charities must engage fully with local communities and state schools with a view to sharing facilities for music, drama and arts.
(6) The Charity Commission must publish guidance setting out the minimum that independent schools which are charities must do to comply with the duty in subsection (5).””
Forgive me, but if the noble Lord is speaking, he must move his amendment at the end of his speech.
Amendment 23B not moved.
Amendments 24 and 25 had been withdrawn from the Marshalled List.
Clause 14: Reviews of the operation of this Act
26: Clause 14, page 18, line 6, at end insert—
“( ) The Chancellor of the Exchequer and the Minister for the Cabinet Office must carry out a review into the operation of this Act as it relates to social investment, including—
(a) the effectiveness of the social investment market;(b) public understanding of how funds are used by charities for the purposes of investment;(c) the interaction between grant-making and social investment.”
My Lords, Amendments 26 and 27 have been proposed by Social Enterprise UK. Many of us welcome the fact that we have Clause 14 as it stands in the Bill. The proposal that there should be a full review of the Act within five years and subsequent reviews every five years thereafter is important, not least because it should concentrate the mind of the Charity Commission, which is being given extensive new powers in the Bill. By including provision for a review, we might also move away from the traditional method of developing charity law in this country, which has often been to wait for some kind of scandal to happen, have a big inquiry into it and subsequently move forward into legislation. There will always be scandals in the charity world, just as there are in the world of business, and they will always be useful implements for change, but something rather more considered would be helpful.
For the first time in legislation, there is in this Bill a definition of social investment. Those of us who dream of reading charity legislation have a good understanding of what social investment is, but it is as yet a concept limited to very few people. The particular difficulty with social investment is that, if it is true social investment as opposed to grant-making, there will be failures and money will be lost. That is terribly hard to get across to the general public and sometimes to funders, who are horribly risk-averse. Social Enterprise UK has therefore proposed Amendments 26 and 27. Amendment 26 asks that there be an additional review carried out not only by the Minister for the Cabinet Office—who obviously has responsibility for charity legislation—but by the Chancellor, because social investment has a large financial element to it and such a review sits better within both the Cabinet Office and Treasury than just within the Cabinet Office. Clearly, the Minister for the Cabinet Office would have to retain responsibility for overseeing charity legislation, so having both departments involved in the review would be excellent. The second paragraph of the amendment proposes that, as part of that review, the Cabinet Office look at how the public understand how charitable funds are used.
Amendment 27 is rather an unusual amendment to come from an opposition Bench because it would widen the scope of a review to,
“any other areas deemed relevant by the Minister”.
That is because we think that the way in which the social investment provisions work out over the next five years—it is also a new market—may throw up different areas that need to be investigated by the Cabinet Office. It also opens up scope for the one thing to be done that is not in Clause 14: to review the performance of the Charity Commission in relation to the Bill. The Bill talks a lot about outcomes but it does not talk about reviewing the performance of the Charity Commission, which is the central, single most important factor in whether the legislation works. It is also for many of us one of the biggest concerns about this legislation. For that reason, it is not only wise but advisable that we include this additional provision to widen the scope of the review.
Having said that, I welcome Clause 14. However, if we are looking at the true purposes of the Bill, it should be widened in the ways that I am proposing. I beg to move.
My Lords, the Labour Party has no objection to Amendment 26, with the exception of the first six words. It does not seem appropriate to ask that the Chancellor become involved in a review such as this because it would seem unnecessarily to broaden the aegis of this part of the Bill relating to social investment, and we do not believe that it would be welcomed by charities.
I am aware that this amendment is supported by Social Enterprise UK and the Charity Finance Group, and I understand the rationale behind it, which is that the Treasury controls fiscal and regulatory levers with regard to investment and therefore should have a say in this area as well. However, at a stage in the process when some charities will remain sceptical of entering the field of social investment, the shadow of HM Treasury lurking in the background does not seem to us to create the kind of setting designed to assuage such concerns.
I wrote in my note of this speech that Amendment 27 is uncontentious, but I have just heard the noble Baroness, Lady Barker, outline why she has included it. She basically said that the amendment has been included to allow for the review of the activities of the Charity Commission. I do not think we necessarily disagree that that might be appropriate in some circumstances. I assume that behind the scenes it goes on anyway, but the amendment says,
“any other areas deemed relevant by the Minister”,
which leaves the door open for the Minister to say, as I imagine he might well do, “Well, I don’t deem it relevant for us to carry out a review of the Charity Commission—certainly not in this context”. By and large, we would not be unhappy with an open door in this situation. As the noble Baroness, Lady Barker, said, it is in many pieces of legislation that come before us.
That leaves only Amendment 29, which stands in my name and that of my noble friend Lady Hayter of Kentish Town. This is similar to Amendment 22ZA, in which we argued for the inclusion of an initial review of charities’ social investments after three years, with subsequent reviews at five-yearly intervals. The arguments in favour in Amendment 29 are similar too, mainly to the effect that, with a number of significant changes being introduced in this Bill, it will be important to review their effectiveness at an earlier stage to enable progress to be assessed and any difficulties encountered to be highlighted. Doing so will enable all charities to benefit from the experience of others, while the Cabinet Office might wish to seek to amend the Act in the light of experience. Each of the factors listed in paragraphs (1)(a) to (c) are easily measurable and will inform the reviews with the most up-to-date information available.
Publication of the reports of the reviews will also provide Parliament with an important opportunity to examine the impact of the Act at that point. A period of five years seems to us to be too long to await that kind of appraisal initially and for it to be laid before Parliament, and we believe that it would be in charities’ best interests to initiate the review after three years, with further reviews every five years.
My Lords, this has been an interesting contribution to the debate. Let me start by setting out the aim of the review provision in the Bill before commenting in detail on the amendments.
Clause 14 makes provision for the operation of the Act to be reviewed by the Minister at least every five years, in line with government policy on reviewing legislation that imposes a regulatory burden. I should add, on the point made by the noble Baroness, Lady Barker, about the Charity Commission per se, to which the noble Lord, Lord Watson, referred, that I am reminded that the Public Accounts Select Committee reviews the Charity Commission every year and the NAO will undertake a follow-up review of the Charity Commission’s progress. The review of this legislation will, by considering the operation of the Act, consider the Charity Commission’s use of powers, guidance, and so on.
The purpose of such a statutory review is to establish whether, and to what extent, the provisions in the Bill have achieved their original objectives. The review must also consider whether the objectives are still valid, whether the measures are still required and the best option for achieving those objectives—and if so, whether the provisions can be improved to reduce burdens on businesses, including charities. The review must address three related questions. First, are the policy objectives that led to the introduction of the measures still valid and relevant? Secondly, if the objectives are still valid and relevant, is regulation still the best way of achieving those objectives compared with the possible alternatives?
Thirdly, if regulation is still justified, can the existing measures be improved? Additionally in this Bill, the review must include consideration of how the Act affects public confidence in charities, the level of charitable donations and people’s willingness to volunteer. As I am sure noble Lords know, this follows on from similar requirements in the Charities Act 2006 but should not be considered limiting on the scope of any review. The standard period for such a review to take place is within five years of the legislation being enacted, a point I shall return to.
I turn to Amendments 26 and 27 in the names of the noble Baroness, Lady Barker, and the noble Lord, Lord Wallace of Saltaire. As the noble Baroness said, social investment is a relatively new field but it is growing very fast, and the UK is already a world leader in many respects. I do not believe that the review clause of the Bill is the right place to propose a wide-ranging review of the social investment market, public perceptions of social investment and any impact on grant-making. In relation to social investment, the Bill makes a modest contribution by clarifying the existing law for charities in a way that we hope will encourage more charities to consider whether making social investments is right for them. For many, as I have said, it will not be.
The Cabinet Office and the Treasury have worked closely together for several years on growing the social investment market, a point I made earlier—for example, on the social investment tax relief that was launched in April 2014, the first of its kind in the world, or on the establishment in 2012 of Big Society Capital, the Investment and Contract Readiness Fund and the Social Outcomes Fund. The then Government also published annual progress updates on growing the social investment market. These covered a broad range of policies, including those owned by the Cabinet Office and the Treasury, so a lot is being done here already. All this was done without a statutory requirement for a review. I do not believe that a statutory review requirement would achieve much that is not already being done more frequently and with much broader scope.
There is nothing in the review clause that would prevent the Minister from specifying other matters to be considered in or alongside those required in the statutory review, so I do not think that Amendment 27 is really needed. I would strongly argue that the scope of the review clause is right as it is, and that it would be wrong to start focusing it on matters beyond the direct scope of the Bill when these are already being considered and reported on regularly by the Government. I hope that I have been able to persuade the noble Baroness to withdraw her amendment.
On Amendment 29, in the name of the noble Lord, Lord Watson, I have some sympathy with his arguments about bringing forward the first review but should also point out some of the downsides to holding the review within three years rather than five. Once the Bill becomes law, the clock begins to count down towards the review, but the Commission will need to develop and consult on guidance in relation to its new powers as well as putting in place systems and processes, training and internal guidance for its staff. It is not unrealistic to expect this process to take at least six months. The review clause requires the review to be published within so many years of enactment, which means that the review itself will have to begin earlier—say, six months. So it is easy to see how in practical terms a “three-year” review would actually be a two-year review, losing six months to preparation and guidance at the beginning and six months to the review itself at the end.
Then there is the important point that the commission itself has said that it would expect to exercise some of the powers on only a very few occasions each year—for example, the power to direct the winding up of a charity, which the commission expects to use on only two occasions each year. Factor in the time that it takes for an appeal to be determined, and one can see that there would be a real risk that some of the powers in the Bill may have been exercised only a couple of times by the time of a three-year review. That is unlikely to provide a sufficiently useful sample on which to base an assessment of the powers’ efficacy.
The standard period for reviewing legislation is within five years. The provision in the Bill as it stands does not prevent the review from taking place earlier than five years after enactment. It is also worth pointing out that the Charity Commission publishes an annual report on its compliance work called Tackling Abuse and Mismanagement, which I referred to last week, to help explain its case work and to help trustees learn any important lessons. This annual report would represent a good opportunity for the commission to report on the use of its new powers as and when they are used.
Having said all that, the noble Lord, Lord Watson, has made some helpful points about the timing of a review and I would like to consider them in more detail. For now, however, I hope that he will feel able not to press his amendment.
My Lords, I thank all noble Lords for their contributions. I am surprised by the statement by the noble Lord, Lord Watson of Invergowrie. The Treasury has control over the fiscal and regulatory powers that have a direct bearing on the ability of charities to raise money through these different instruments. I am surprised because I remember that when Gordon Brown was Chancellor he did a great deal to address the issues that charities were facing at the time, particularly on the limitations on their powers to raise revenue. It is not only under this Government but under Governments of his party that we have seen a much more forward-looking view and attitude taken by the Treasury towards different forms of charitable finance.
I take the points made by the Minister about my amendments, and it has been helpful to have him set out what he believes the scope of the review would be. I make it clear that I want the review to look at the performance of the Charity Commission in relation to the powers set out in the Bill. The legislation is now before us because the Charity Commission has told us that it lacks all these different powers in its armoury. Some of us remain less than convinced that that is the case, so it would be helpful to see whether we were right in five years’ time.
I accept the Minister’s point about a wide-ranging review of social investment and I understand that that can be done at any time of the Government’s choosing. However, given that the Bill has the new clause on social investment, it would be helpful if that in particular was reviewed in five years’ time. I have listened to the Minister’s answers to the debate, and on that basis I beg leave to withdraw the amendment.
Amendment 26 withdrawn.
Amendment 27 not moved.
Amendment 28 had been withdrawn from the Marshalled List.
Amendment 29 not moved.
Clause 14 agreed.
Clause 15: Short title, extent and commencement
30: Clause 15, page 18, line 20, leave out “This Act comes” and insert—
“( ) This section and section 14 come into force on the day on which this Act is passed.
( ) The other provisions of this Act come”
My Lords, this is a minor and technical amendment to the commencement provision in Clause 15. At present, subsection (3) of the clause provides for the Bill to come into force on whatever day is specified in regulations made by the Minister. Subsection (4)(a) states that the regulations may specify,
“different days for different purposes”.
The amendment would amend subsection (3) so that Clauses 14 and 15 come into force on the day the Act is passed; that is, on Royal Assent. Clause 14 imposes a duty on the Minister to review the operation of the Act. This should apply to the Act regardless of when other provisions are brought into force, so there is no need to delay commencement following Royal Assent. Clause 15, “Short title, extent and commencement”, contains general provisions, and it is good practice for Acts to make it clear that such general provisions come into force on Royal Assent. The remainder of the Bill would, as now, come into force on the day specified in regulations made by the Minister. This allows for commencement of the substantive provisions of the Act at an appropriate time which, in accordance with the convention, will be at least two months after Royal Assent. I commend the amendment to the Committee and I beg to move.
My Lords, the Minister may say that it is a minor amendment but I happen to have a very long speech here. However, he will be pleased to know that I rise only to thank him for introducing the amendment. When we started on day one, my noble friend Lord Watson wished him well in the Committee stage and promised that we would deal with him gently. I hope he agrees that we have done just that.
This is an opportunity for me to thank the Minister for his patience and thoughtfulness, although maybe not his flexibility, in responding to our amendments. Of course, that has enabled us to hear all the Government’s arguments against our changes, which I hope will fortify and sharpen our case as we bring some of them forward on Report on 20 July.
I also take advantage of this moment to thank, in particular, my noble friends Lady Jones and Lady Pitkeathley for their contributions at this stage. I also give particular thanks to my noble friend Lord Watson for the heavy lifting on many of the amendments. It is the first time that we have worked together in this capacity, but I hope it is not the last. For the moment, we are happy to support this very minor amendment.
I am very grateful that that was not the speech that the noble Baroness was about to give. For one moment my heart sank and I wondered what I might have missed at this late stage. She has been very kind and has indeed dealt with me very gently, as has the noble Lord, Lord Watson, for which I am very grateful. I also extend my thanks to everyone—the noble Baroness, Lady Barker, my noble friend Lord Hodgson and the many others who have made this debate extremely fruitful. I said at Second Reading that this would be a very good opportunity to kick the tyres of this policy—although I know that it has been kicked for quite a long time—and we have certainly done that. We have had some good debates on a range of topics, some in the Bill and some not, and those debates have been incredibly well informed.
I put on record that I have agreed to meet a number of noble Lords between now and Report in two weeks’ time. I look forward to meeting, for example, the noble Baroness, Lady Hayter, to discuss her proposal to extend automatic disqualification to sex offenders, something on which I am very sympathetic. I look forward to dancing on the head of a pin with the noble Baroness, Lady Barker, and my noble friend Lord Hodgson as we define social investment still further. A number of other points on the Bill were raised by the noble and learned Lord, Lord Hope of Craighead, which I will look forward to discussing, as I will the points raised by the noble Lord, Lord Bew, and the noble Baroness, Lady Deech, on unincorporated charities. As I said, I also intend to meet my noble friend Lord Moynihan to discuss his proposals on sport. So all in all it looks as though I have a very busy couple of weeks ahead of me.
Amendment 30 agreed.
Clause 15, as amended, agreed.
Bill reported with an amendment.
Committee adjourned at 5.53 pm.