Charities Act 2006 (Changes in Exempt Charities) Order 2010

My Lords, I am very grateful to the Minister for setting out these two instruments. In speaking to these and to my Motion I will concentrate on the major issues. I do not believe the House will be particularly interested, or indeed particularly troubled, by some of the minor issues to which the Minister referred. First, I must declare interests. I was at Magdalen College, Oxford, which will willingly give up its exemption under the changes order, and until recently was a trustee of Magdalen’s development foundation, which is a registered charity. I was, some years ago, the chairman of the trustees of Kew Gardens and on the board of Kew’s foundation and friends. I am a founder friend of Kew. I am a member of the advisory council to the Eccles Centre for American Studies at the British Library, as was mentioned by the Minister, and a member of the British Library’s friends. I have no particular problems with the consolidating arrangement that was made by, and with the approval of, the Charity Commission for those charities at the British Library. There are, however, issues which arise out of the friends of the British Library which I think are quite important. All of those charities are affected by one or other or both of these instruments, and I am also a member of the friends of several others of those affected institutions. I would say straight away that I fully accept that Parliament passed the 2006 Act and that it enabled Ministers to do the things they are proposing. However, Parliament did not agree to this particular solution. There were options and they remain in the 2006 Act and in my view, and I hope to develop this argument, there was a much more elegant solution or series of solutions. I would also say that although I am no longer a member of the Merits Committee, I was when these instruments were first laid in July. They were then withdrawn and we are now considering their replacements. They need to be seen in context. The number of charities affected is quite small even though the Charity Commission is the regulator of 160,000 charities, in fact some estimates are even larger than that. Whatever is done with these instruments, we need to remember that the primary responsibility for the regulation of the sector rests with the Charity Commission. The issues raised by these instruments are complex and significant and it is their importance and complexity which makes me so critical of the decision recorded in the bald statement in paragraphs 8 of each explanatory memorandum. They state that the regulations, ""have not been the subject of formal public consultation"." In her summary of the position, the Minister referred to the Strategy Unit and to the discussions and the recommendations that were made in the pre-legislative period up to 2004 and perhaps, in the final analysis, a revision of the documents in 2005. That is a long time ago, and I know of no precedent where the implementation of an Act through statutory instruments is dependent on the pre-legislative scrutiny and the processes that were undertaken at that time. It is this that makes me so critical of the decision not to hold a formal public consultation. At the time, the Cabinet Office had responsibility for the better regulation agenda. It is inexcusable that it broke its own rules. Public consultation was a necessity under those rules. Instead, the explanatory memoranda continue to rely on the work done between 2001 and 2004. This was incomplete, and at the time revealed sharply differing opinions among the 60 respondents, whose responses clearly showed that both exemption and the possibility that sponsoring departments could become charity law regulators were highly contentious issues. There was then, as there is now, a compelling case for further consultation. There is also a compelling case for an up-to-the-minute regulatory impact assessment, based on the data accumulated since the passing of the 2006 Act. Of course there are some registration costs that can be calculated; but if we are changing the regulatory responsibilities of significant bodies, it behoves us to have a sensitivity analysis. I doubt whether the Charity Commission has had any experience of dealing with charities such as the Oxford colleges, some of which have been going for rather a long time and have statutes and ways of doing things that are quite particular. I have heard that there are already issues between the Charity Commission and an Oxford college or two. The need for a regulatory impact assessment based on the data for the 2006 Act also leads to needing the data on the Companies Act 2006. I will return to this point, because many registered charities—indeed, nearly all the large ones—are also companies limited by guarantee. Therefore, they come under two regimes and must satisfy both. Many institutions affected by these orders have related companies limited by guarantee. Any change in regime is likely to cost money, even if it is only fees for prudent legal and accounting advice. This is another matter that has gone unmentioned in the explanatory memoranda. It has been equally clear for the past three years that there were bodies—for example, the NCVO, the Charity Law Association and leading firms of accountants and lawyers—with far greater knowledge of the voluntary and charitable sector than the newly formed Office of the Third Sector. It was forgotten that the issues that arise when changes are made to charity law are always complex. Well presented evidence needs to be explained, most notably evidence from the Charity Commission, which is the most involved and experienced adviser available. We lack that evidence. Instead, we have draft regulations, sketchily explained and unilaterally imposed by the Cabinet Office on behalf of the Office of the Third Sector, without public consultation or regulatory impact assessment. It is not too late for the important issues that arise to be properly and publicly discussed, because two further steps are needed before the instruments come into effect. A 2006 commencement order is needed, as is a further set of regulations under Section 3A of the 1993 Act, as set out in paragraph 4.6 of the explanatory memorandum. There is time for further consideration. The first important issue to consider is that of regulation itself. The 2006 Act makes it possible to opt for more than one way forward. While it enables the appointment of regulators other than the Charity Commission, it is equally possible to make the commission the sole regulator. The sole regulator option was preferred, for example, by national museums directors—who are pretty directly involved in what is happening with these instruments—by the Museums Association and by the Charity Law Association. One strong argument that they made was that since the public well understood the role of the Charity Commission, it would be confusing, and thus damaging to public confidence, were other regulators to become involved. I agree strongly with the proposition that bringing in Secretaries of State as regulators is not good for public confidence. These witnesses volunteered their views: there has never been public consultation, with targeted questions aimed at discovering the response either to Secretaries of State or to the Higher Education Funding Council for England becoming principal regulators. Nor has there been a formal response to the simplifying suggestion that all charities should be registered with the Charity Commission. The Minister has not given us an answer to that tonight either. It remains unclear why the Government have not followed up that suggestion and I shall return to that later when discussing Kew Gardens. Although I shall now note that simplification and a level playing field are the principle arguments made, and convincingly made, for removing exemption from university colleges and thus bringing them within regulation by the Charity Commission, to argue that something is good here but bad there smacks of cherry picking. The second issue is the complex one of friends' organisations. I shall be brief. They are most commonly companies limited by guarantee and registered charities. There is a question mark over their heads when the institution with which they are friends becomes exempt and is regulated by someone other than the Charity Commission. Given the combination of primary charity and company law with the secondary legislation which attaches to both, the question is whether a particular friends’ organisation is legally exempt. If it were, it would be required to de-register from the Charity Commission under the terms of the 1993 Act, as amended by the 2006 Act. That loss of its charity number would raise all kinds of questions with the members of the friends. For example, what happens to gift aid? Again, public confidence will be damaged. I was hoping to be able to welcome the Minister's assurance that it is government policy that friends' organisations will, without doubt, remain registered charities. I would welcome a further assurance that if, by some unintended consequence, present legislation, including these orders, determines that a friends’ organisation—for example, the Friends of the British Library—had no choice but to become exempt, will the Government agree to take steps to introduce measures which ensure that present policy prevails and registration with the Charity Commission is maintained? Thirdly, I shall refer to Kew in more detail. Kew is to be an exempt charity, with Defra as its principal regulator. Defra provides Kew with its annual grant from public funds under Treasury rules. Since way back in 2002-03, objections have been raised to the principal involved in a sponsoring department also being a Charities Act regulator. I really do not think that the Minister gave us an adequate justification for dealing with the argument that there will be a conflict of interest. These representations in any public sense have gone unanswered. Is there a better answer? Matters become more complicated if we move on to consider the Foundation and Friends of the Royal Botanic Gardens Kew. As it is a registered charity—No. 803428—the Charity Commission is the regulator and will remain so. The foundation and friends organisation is incredibly important to Kew and I think it transferred £10 million to the Royal Botanic Gardens last year. The commission will also have rights and duties toward Defra, the other regulator, as the Minister mentioned under Schedule 5 to the 2006 Act. Furthermore, the board of Kew, members of which also serve on the foundation board, will be in a triangular relationship: Defra, the Charity Commission and themselves in two guises, which is likely to be a recipe for trouble. Those who favour the commission as the regulator of all charities certainly have a point. There are other institutions on the list in similar situations. Consideration of this point leads to a question to Ministers. Under the provisions of Section 11(12) of the 2006 Act, the Minister can only—the "only" is there—make an order if she is satisfied that it is desirable in the interests of ensuring appropriate or effective regulation. No evidence has been included in the explanatory material to show how that test of appropriateness or effectiveness is met. If there were consultation, I guess that there would be a school of thought saying "inappropriate", and surely there is effectiveness already. What is the case for saying that the test is met? Finally, I believe that the Office of the Third Sector has shown a fine disregard for Parliament's amendments to the Bill. The office’s case for these orders depends on work done when the Home Office was responsible and its reliance on that work ignores Parliament’s decision during the passage of the Bill to include Section 6(4) which states: ""In the exercise of its functions the Commission shall not be subject to the direction or control of any Minister of the Crown or other government department"." In laying these orders, which alter the Commission’s responsibilities without securing the Commission’s expressed agreement, the Government must be sailing close to the Section 6(4) wind and thus not meeting Parliament’s decision that the Commission should be truly and unusually independent. Will the Minister assure us that due regard will be paid to Section 6(4)? However, there may be more to it than this. My impression is that in some version of turf war between the Office of the Third Sector and the Commission, it is no surprise that the Commission is in the middle of 5 per cent cuts in its annual expenditure. Its resources are already slim and it carries a heavy responsibility, and, as Jane Austen knew, it is hard to be independent if you have no money. It may well be convenient for the Office of the Third Sector to forge ahead with its transformation role in support of public services, urged on by the Prime Minister, while sidelining the Commission, despite Parliament. This would go a long way to explaining a preference for other regulators, however inexperienced or inappropriate. It would also explain the absence of a regulatory impact assessment. A great deal has changed since the 2001 Strategy Unit started on this story. We have a different Prime Minister, the Home Office has given way to the Office of the Third Sector in the Cabinet Office, the Cabinet Office has lost its regulatory responsibilities to BIS, and the re-established Charity Commission has had three years’ experience of the widely welcomed 2006 Act. Everything tells us that it is time for fully open and compliant orders. These two instruments have been withdrawn once. They need to be withdrawn once more.