Select Committee on Welsh Affairs Minutes of Evidence

Examination of Witnesses (Questions 180-199)



  180. So you will not take any formal action or do anything to initiate any processes with your staff until an agreed solution is reached?
  (Mr Sparks) We are trying to avoid that because, of course, the sooner you are able to say to staff, "This has been sorted out and will run until March 2003", the sooner they will not be thinking about other jobs or redundancy and think, "We can carry on" if that is what they choose to do. What we want to do is resolve it quickly enough to achieve that but we cannot guarantee at this stage that will be achieved, because of other parties involved.

  181. I know the staff asked for £4 million from the reserves. I do not know whether Lady Toulson can respond to that.
  (Lady Toulson) Yes, they did ask for that and I think my reply in the third comment I made about the meeting was that Charles will be looking very closely at the endowments and legacies to which Wales is entitled, and that will be the sum of money which will be coming to them in due course.

  182. That is part of the reserves, is it?
  (Mr Nall) Can I give a slight embellishment on that because clearly this detail is of great interest to you. The Society cannot afford £4 million. There is £1 million in endowment, which we would very much like to see released to a successor charity. There is £600,000 of estimated closure costs we would very much like to see go to continuing the work or, indeed, going into the initial liquid general funds. How much more there is needs to be tested very carefully. Let me just point out that if we can pull together a core funding package, a fund raising business plan that takes advantage of the profile that the issue has at the moment and the concern being shown by the people in Wales, then that income should grow over time. For instance, a core funding package, along with additional contributions from other work partners in Wales, could be put in place for a transitional period. Until there is a business plan I cannot tell you how much that core funding would be or for how long it would have to extend, but the reserves of £1.6 million on the normal children's charity mutually agreed consensus would provide for a charity with a turnover of approximately £3 million to £3.5 million with a reasonable level of reserving provided the core funding issues can be tackled. However, the longer this is delayed the more the available funds have to be used up in contributing from central resources towards the month on month running costs in Wales.
  (Revd Glover) My concern is that on Thursday the staff task group, who are trying to set up a new charity in Wales, will not be able to proceed unless they are able to have an injection of, say, £3 million from the reserves of the Children's Society. Their business plan, as I understand it,—

  183. Requires £3 million?
  (Revd Mr Glover) Yes.
  (Mr Nall) That is their current business plan. It is before the detailed negotiations with partners that have been referred to. We would very much like to work with those partners to explore the opportunities for increasing resources. The staff in Wales nearest the problem, the funders and the partners available, have taken the view that it is highly unlikely to fund the kind of sum of £1 million that we are talking about. They have therefore said can the Society fund it? Not at that level is the short answer. The Society can contribute, if the fund raising activities are currently undertaken, towards the reserves requirement. It can, as it has done, press the Charity Commission for an early decision on the Cy Pres application on endowment. It can do many other things. Other partners can do other things, they can review their own positions. You referred, Mrs Williams, to commitment and objective not being the same thing, that applies equally to the potential partners in Wales. We would very much look forward to working with them to ensure the work in Wales has a secure future.
  (Revd Mr Glover) The logic of the group who are hoping to set up a new charity was that the reserves that have accumulated in the Society were accumulated for work in England and Wales and if you are using, say, the Barnett Formula, is that 20 per cent?


  184. The allocation to Wales from the Barnett Formula, which is a UK-wide thing, is six per cent.
  (Revd Mr Glover) That includes Scotland. Their argument was that a percentage of the reserves of the Children's Society should go to Wales, say according to a formula.
  (Mr Sparks) Just to avoid confusion or people saying that we were unclear, at the end of the meeting the Chairman did speak to the staff representatives and we also issued with them a joint press statement which says "The Society was unable to offer the £4 million reserves requested by the staff group". So the staff group asked for £4 million reserves and the board said it was unable to meet that request. The issue about the £1.1 million more or less of the Cy Pres application is quite separate from that.

Julie Morgan

  185. Was that a unanimous decision?
  (Revd Mr Glover) I am not sure that there was a vote taken.
  (Lady Toulson) I have not got the minutes of the meeting with me.

Mr Caton

  186. I can see it would get a bit depressing having votes, Revd Glover. Thinking of what we have just been discussing, the Children Society's responsibilities, in July the trustees considered and approved recommendations for a detailed report into the Society's work in Wales and the way forward given the new conditions resulting from devolution. Included in that was the statement: "Any separation of the Society would require a disaggregation of the current assets and reserves". That report was approved by the trustees. Is that still accepted, that effectively what you are doing is disaggregating the Children's Society?
  (Mr Nall) Can I speak on the financial aspects? We were very helpfully informed that this was a query that might arise and I have been looking into this. There is no financial difficulty in terms of if it will secure the continuing work, transferring the property, computer equipment, cars, furniture and other working assets of Wales to Wales. They have a limited cash value but they have a very high replacement value and much the best use for them is to transfer them to support the continuing work, if that is possible.

  187. That is the current assets dealt with.
  (Mr Nall) That is effectively the fixed assets. Then the working capital, the income, the creditors.

  188. I am quoting from the report that you put to your own trustees.
  (Mr Sparks) That report said that if they were to pursue that offer there would need to be some disaggregation, so at this particular stage what we have been looking at is what, in fact, would be the disaggregation.

  189. You accept the principle of disaggregation, the debate is now about the extent of reserves that you transfer.
  (Mr Sparks) I do not think it is a debate.

  190. And bearing in mind the viability of the projects that you previously provided.
  (Mr Sparks) I need to make this point. It is not a debate. Secondly, the trustees themselves do not have the duty to disaggregate. We are putting to them this is what it looks like and they have the duty to make the decisions that they believe to be in the best interests of the charity and its beneficiaries. They are not required to disaggregate. These are not separate legal entities. That paper was written on the basis that we might be making two separate legal entities. The Society continues to be one legal entity and the decision of the trustees has to be based on their view of what is the right decision for the beneficiaries of the charity.

  191. So you move out of Wales, you do nothing in Wales, but that is not separating from Wales?
  (Mr Sparks) I am saying the trustees have to make a decision based on their duty to the charity, which continues to be the Church of England Children's Society, which is its formal name.

  192. On any reasonable reading of the report agreed by trustees in July that any separation of the Society would require a disaggregation of current assets and reserves, one would assume in the situation you are in now you are talking about disaggregation, you are not providing a service to Wales, somebody else has got to provide it, so those resources should come from the Children's Society.
  (Mr Sparks) What I am saying is that we will be reporting to our trustees on the financial situation but they still have to make a decision as trustees, they do not have any legal or other compulsion to decide that they will hand resources. Charles has said that there is a willingness to hand over resources to something that will continue but what I am trying to do is separate between the issue of willingness to do it against the legal responsibility, and that is not the legal responsibility of the trustees.

  193. But you recognise a moral responsibility?
  (Mr Sparks) I think they would have to judge the moral responsibility because they are the trustees.

  194. They voted, albeit some different trustees, in July to accept this principle.
  (Mr Sparks) I think they would have to reflect themselves on the implication of what they accepted. I do not think I can tell them what they accepted.

Adam Price

  195. Implicit or explicit in your response there was the fact that there had been some consideration given to the idea of the charity effectively separating itself into two distinct legal entities. Am I correct in thinking that?
  (Mr Sparks) There was a working party which had been chaired by our Human Resources Director involving a number of people in Wales which set out the whole range of options that the Society might follow, one of which was to leave the situation as it is now, I think the next option was to set up a Wales Advisory Committee, and the extreme other end of the options was to have separate charities in England and Wales. So what they put forward was "these are the range of things that might be considered" and their recommendation was the one that was actually accepted.
  (Mr Nall) The reason why the decision was taken not to disaggregate was because you would not have a viable continuing body at that time. It may be that under the very unfortunate circumstances we now face, that becomes viable. That is why the matter would need to be reconsidered by the Finance Committee. Clearly to some limited degree within the financial room for manoeuvre there is scope for securing the maximum possible benefit to continuing work in Wales and seeing what extra additional effort can be made, if that can be secured. Clearly it is in the trustees' interests to do all they can to support the continuation of the work, but they cannot afford to continue it themselves.

  196. Can I turn to a different issue and that is the staff bonuses, which is a subject which has received quite a bit of coverage, as I am sure you are aware, in the press in Wales. The Church in Wales issued a press notice on 7 December criticising in fairly strong terms, it has to be said, the Society's decision to award bonus payments of several hundred thousand pounds to its staff in England at the same time as its staff in Wales are facing redundancies. Is the Church in your view correct—
  (Mr Nall) No.

  197.—about the payments of these bonuses. I did not even get to the end of the question! Is the Church correct about the payment of these bonuses and how much will be paid and to whom?
  (Mr Sparks) It is not correct. I took part in an interview on Radio Wales on this particular subject in which two statements were made. One is that the Children's Society has already paid bonuses and secondly I was asked specifically the question, "What is happening about this £617,000?" That was taken from a paper which was circulated to our staff and Mr Paterson presumably had a copy of that and had added up the figures which said "Reward" and presumed that "reward" meant bonus. In fact reward was part of a whole package which we give to staff who work for the Society. Half of that £617,000 is for increments. We employ people on pay scales and they are entitled to an increment in April normally if they have been doing their job. They start at the bottom of the scale and move up. So £300,000 of that was for increments which were a contractual obligation of the Society. The other £300,000 was because we were conscious we had a number of junior and middle managers leaving the Society because of some of the initiatives which are running, particularly national Government initiatives in England like Sure Start and the Children's Fund, paying significantly more than we are paying for the same level of job, and also in local government a number of salaries are being paid at a higher level, so we were losing staff. We recognised we were going to have to enhance some salaries both to recruit people and retain people. But they were not being paid as bonuses, which is suggesting you are paying everybody a standard amount. They were being targeted at areas where we recognise we needed to do something to bring our pay in line with what was generally being offered in this employment market.

  198. I have a copy of the realignments document you are referring to. The total figure under the heading which says, "Implementing the reward strategy and cost of living increases" is £1.3 million and it is disaggregated according to what it refers to as "cost of living increases" and "reward increases". Ordinarily I would read that as being, on the one hand, the kind of annual inflation-related increments you were referring to and, on the other hand, you may call them rewards, somebody else might call them bonuses but increases over and above the rate of inflation for a whole range of reasons, as you have outlined. So a total package of 1.3 million, of which 600,000 is over and above the annual increments.
  (Mr Sparks) If you say that, you would have to ask every local authority why they are paying bonuses, because this is a standard local authority scale and approach of increments. They are contractual increments. I accept what was listed down here, which was for use by staff who knew something about the organisation, would be misleading to someone outside, but I was sorry that no one came to me first and said, "What does this £617,000 relate to?" I could accept they might argue the 300,000 we are putting in for having to increase some salaries, and they may say, "Should you do that or not?" but I do not think you can argue about contractual increments as part of the planned spending for next year because that is the agreement we made with our trade union and with the staff.

  199. But clearly it was not part of the agreement with the trade union to result in these job losses in Wales. Do you think it was appropriate to have this level of special payments to retain staff when you are losing so many staff yourself?
  (Mr Nall) Can I address that directly because I think you are being slightly mischievous, which of course is your right. Teachers, for instance, gain an incremental point each year along with an inflationary settlement. So do social work staff who work for local authorities. It is a perfectly standard contractual practice in government and in charities for this to occur. Turning to the remaining issue, which is staff where there is particular pay pressure, we are of course delighted by the Government's programmes for the benefit of children and young people but it does bring particular pay pressure points. It costs us 25 per cent of salary to recruit somebody into a post typically, when you add up the cost of HR, the advertisement, the manager's interview time; if you are lucky it is about 25 per cent. To pay an extra £1,000, £2,000, sometimes £3,000 to an employee to avoid incurring a likely 25 per cent of their salary cost if they were to vacate and you would have to recruit anew is good financial management, it is reducing your overall payroll costs.

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