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Lord Wedderburn of Charlton: This is purely a matter of convenience, and I apologise to my noble friend. I gave notice to my noble friend Lady Scotland that, in order not to complicate the Marshalled List with unnecessary amendments, I wanted to ask why in Clause 1, the word "Clause" appears and not "Act". I have no doubt that my noble friend has passed the request on. If she has not, I apologise, but this may be the only convenient moment to ask that question without moving an unnecessary probing amendment.
Lord Bassam of Brighton: I have got the postcard and will deal with the query in turn. Before I get stuck into the meat of the discussion, I shall thank the noble Lord, Lord Hodgson, for the way in which he opened the sitting. We want to have a constructive Committee stage, and I welcome the probative approach that has been adopted. I hope that our deliberations will have constructive outcomes. I thank all noble Lords who have tabled amendments. They are useful, and it helps us explain, or try to explain, exactly where we are coming from with the detail. It presages a constructive consideration of the Bill. I shall endeavour to approach it in that way, as will my noble friend Lady Scotland when she appears at other sittings.
As the noble Lord, Lord Hodgson of Astley Abbotts, said, this is new territory, in that we are trying to provide clarity to the legislation and ensure greater understanding and transparency. As is obvious, Clause 1 provides, for the first time, a general statutory definition of "charity". It is a clear definition; it sets out that a charity is an institution which,
and is within the High Court's jurisdiction.
The definition excludes institutions outside England and Wales from the scope of charity, since the jurisdiction of the High Court extends only to England and Wales.
I am aware of the concerns that have been expressed over the possibility that there will be some inconsistency or incompatibility in UK charity legislation as it develops in the different jurisdictions. The noble Lord anticipated part of my response and yes, it was ever thus. Legislation on the regulation of charities is devolved to the Scottish Parliament and to the Northern Ireland Assembly. Even before devolution, each of those territories had its own body of charity law, different from that applying in England and Wales. Any legislation in either territory will, quite properly, be designed to reflect priorities there. That is part of the beauty of the devolutionary approach.
The noble Lord referred, quite rightly, to the Scottish Executive and the introduction of the Charities and Trustee Investment (Scotland) Bill. It was introduced in
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the Scottish Parliament on 15 November last year with the explicit purpose of reforming charity law. Its considerations will run in parallel with ours. I suspect that it will probably take rather longer to complete its legislation than we will, but one cannot precisely anticipate the future.
There has been a high level of co-operation between the Executive and the UK Government, with the aim and purpose of ensuring that, in the key areas where there is a common interest in consistency, the two pieces of legislation are entirely consistent. In our discussions with the Scottish Executive, we have had particular regard to the definition of charity and the consequences for English and Welsh charities that operate in Scotland of being required to register with the Office of the Scottish Charity Regulator, as these are two areas in which most concerns have, understandably, been raised.
Of course, an overarching view will be developed in the UK committee of charity regulators, including the Charity Commission for England and Wales and the Office of the Scottish Charity Regulator, to ensure co-operation where appropriate between regulators and consistency of regulatory approach.
I appreciate the argument that it would be counterproductive for the definition of charity in England and Wales to be substantially different from that in Scotland. We will endeavour to ensure close liaison with our Scottish counterparts, with the aim of mitigating that risk. However, as I said, it is ultimately for this Parliament and the Scottish Parliament to determine what is appropriate in our particular circumstances. The noble Lord referred in particular to public benefit. The public benefit provision in Scotland does not affect England and Wales. The definition in Scotland is intended to be explanatory, not to change the law, and it is likely to be compatible with our definition. The Scottish principles will be reflected in the guidance. Charity activities, such as fund raising, are regulated according to where they take place, not according to the charity's seat of establishment.
The concerns expressed are quite proper. We must trust the devolutionary approach to work well. It has worked well thus far, and I see no profound difficulties with it, although I see where the noble Lord is coming from in his argument. There will be that overarching regulatory committee, which will enable the jurisdictions better to understand where they are. We intend at all stages to ensure that we work in close co-operation and harmony with the other jurisdictions where there will necessarily be some rubbing up against them and potential for conflict.
I am very grateful to the noble Lord, Lord Wedderburn, for his point. Although we received his short missive only today, it has caused a flurry of activity that has led us to conclude that we ought carefully to consider his point and hold discussions with parliamentary counsel to ensure that we have got it right.
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3.30 p.m.
Lord Phillips of Sudbury: I think that the Minister said about the status of public benefit that Scottish legislation was as it is in Clause 4; namely, providing guidance only. That is not how I read it. Clause 8 of the Scottish Bill does not talk about guidance; it gives a definition of public benefit—admittedly an extraordinarily broad and unhelpful one—which lends credence to what the noble Lord, Lord Hodgson of Astley Abbots, said. In a very different way to Clause 4, it concentrates on the disbenefits of an institution compared with its benefits. That is the way in which they choose to deal with it. I make that point only because I think that it is of some interest, although otherwise I broadly agree with what the Minister said.
Lord Bassam of Brighton: I thought that I had said that the Scottish principles would be reflected in the guidance that we publish here.
Lord Phillips of Sudbury: I misunderstood.
Lord Bassam of Brighton: Perhaps the noble Lord misheard, but that is what I said.
Lord Shutt of Greetland: I have here the Explanatory Notes to the Scotland Bill, which describe foreign charities as those registered outside Scotland and having only a relatively minor operation in Scotland—sending out newsletters, and so on. That would therefore not involve registration in Scotland. If the charity has an office in Scotland, that is rather different.
I hope that the Minister will find that there is sufficient fraternity between England and Wales and Scotland so that arrangements can be made. For example, what is the position with accounts? Will there have to be a separate set of Scottish accounts sent to Scotland, or is it just a matter of another postage stamp—that the charity registered in England and Wales with an office in Scotland also has to send its accounts to the registry in Scotland? Such practical things need sorting out.
Lord Bassam of Brighton: The answer to the noble Lord's question is probably "No". Clearly such things will need to be reflected on, and advice will need to be given on them in the guidance that operates for both sets of legislation. It is helpful to raise those practical issues here, but those things can be carefully explained and taken account of.
Lord Hodgson of Astley Abbotts: Can I ask the Minister about one word that he used? In reply to the noble Lord, Lord Phillips, about the notes about the public benefit, he referred to the guidance that "we" publish. Did he mean "we", or did he mean the Charity Commission?
Lord Bassam of Brighton: The Charity Commission.
Lord Hodgson of Astley Abbotts: That is important. What concerns is very much is that the Charity Commission and "we"—as the Minister has it—are
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two different things. One of concerns later on will be that the two may become commingled, now and in future.
Lord Goodhart moved Amendment No. 1:
"TRUST FOR PURPOSES WHICH CEASE TO BE CHARITABLE
(1) This section applies to a trust for purposes which, immediately before the coming into force of this Part, were exclusively charitable but which have ceased to be exclusively charitable as a consequence of the coming into force of this Part.
(2) A trust to which this section applies shall continue to be a valid trust for the purposes mentioned in subsection (1).
(3) If a trust to which this section applies comes to an end or its assets can no longer be applied for the purposes mentioned in subsection (1) the assets of the trust shall be applied for purposes which are exclusively charitable."
The noble Lord said: I should make it clear to start with that, in moving the amendment, I speak for myself, not for my party. So far as I know, there is no party line on the somewhat technical subject of the amendment, and my noble friends may or may not agree with me on the subject—although I note that the firm of Bates, Wells and Braithwaite, of which my noble friend Lord Phillips of Sudbury is a member, raised concerns about the subject of the amendment in its evidence to the Joint Committee on the draft Bill.
Clause 3(2) removes the presumption that charities for the advancement of education or religion necessarily benefit the public. As a consequence, it is likely that some existing charities will fail the public benefit test and cease to be charities. That was the view of the Joint Committee, which said, in paragraph 103 of its report:
"It is a possible consequence of the Charity Commission carrying out checks on the public benefit requirement that a small number of institutions will lose charitable status".
What will happen to those institutions? The answer provided by the Bill is that we do not know.
The Joint Committee said in a recommendation in paragraph 105 of its report:
"We recommend that the real Bill include provisions to clarify the effect of the loss of charitable status on the assets of a charity. The Government should consider whether the Bill should contain provisions enabling the Charity Commission to agree that trustees in such circumstances can elect to retain their assets and continue to run the organisation, as a not-for-profit organisation without charitable status, for the original purposes".
The Government unfortunately did not accept that recommendation. In their reply to the report from the Joint Committee, in paragraph 9, they said:
"The Government does not accept this recommendation. The Charity Commission's publication, Maintenance of an Accurate Register, explains the effect of the loss of charitable status under the current law, which we believe provides an adequate basis for determining what happens to the assets of an organisation that ceases to be a charity. We do not in any case believe that changes to the current rules should be contemplated without an extensive public consultation on the matter, since any change could have a significant effect on the rights and expectations of anyone who donates money or other assets to charity".
Unfortunately, the Charity Commission's publication, Maintenance of an Accurate Register, does not explain the effect of the loss of charitable status, because it says that in an important manner it is open to question—that the law is uncertain. That being so, it seems to me that the publication does not, as the Government say that it does, provide an adequate basis for determining what happens to the assets of an organisation that ceases to be a charity. I am aware of the problem primarily because some years ago, in the 1980s, I advised a number of independent schools about the consequence of the loss of charitable status in the course of my practice at the Bar.
I am not convinced that the Charity Commission document, Maintenance of an Accurate Register of Charities, is correct. I am afraid that I will have to go into some rather technical law here. Technically, there are two categories of charity: there are charities that are set up under a trust and charities that are set up as a corporate body. The consequence of the loss of charitable status may be different depending on which of those two categories applies.
Where a charity is set up as a trust, it is clear that the loss of charitable status brings that trust to an end. That is because of a technical rule of English trust law that a trust for purposes as opposed to a trust for the benefit of persons can exist only if those purposes are charitable. It does not matter, therefore, that the purposes as set out in the trust could still be carried out in practice, even if they were no longer charitable. The trust automatically comes to an end, and the assets of the trust must be reapplied for other charitable purposes.
Most charities that are operating charities, as opposed to grant-giving charities are now, I believe, set up as corporate bodies, usually as companies limited by guarantee. There are various reasons for that. Most important, perhaps, is the need to give the trustees benefit of limited liability. So schools, hospitals and so on are mostly now set up as incorporated charities. When I advised on that issue, there were still a number of charitable schools that were operating as trusts. There was also a hybrid form where the school assets were held on trust, but the trustee of those trusts was a corporate body.
The position of an incorporated body whose purpose is a charity is, in my view, different. In law, as it stands now, it appears to hold its property beneficially and not as trustees for charitable purposes. But the law is unclear on that. Paragraph 36 of the Charity Commission document, to which reference has already been made, states:
"The corporate property of a charitable company is not in general held on trust. Informed by the results of the public consultation, we have arrived at a tentative conclusion on the consequences for property held by a charitable company when the objects of the company no longer appear to be exclusively charitable because of a change in social circumstances and values. The conclusion is tentative because as yet, neither the Courts nor ourselves have had a case in which there has been a need to reach a decision on the issues relevant in these circumstances. There may, of course, never be such a case".
"Our conclusion, which is explained in detail at Annex E, leans in favour of the imposition of a constructive charitable trust on the beneficially owned corporate property of a company which finds itself in this position".
I would come to a different conclusion on that, which would be that the property of the company continues to be held for the purposes set out in the company's memorandum and articles and that the company simply ceases to be a charity, but continues to conduct its previous activities. I would rely, among other reasons, on the fact that Section 64 of the Charities Act 1993 provides that if a charitable corporation changes its objects and adopts new objects which are not wholly charitable, the existing assets must be ring-fenced and applied to the previous objects. Section 64 does not apply where the company's existing objects remain unchanged but cease to be charitable. The inference from that is that the company can continue to apply all its assets for those purposes.
There is also a question whether depriving an incorporated charity of the property which it owns beneficially and imposing a trust on it for significantly different purposes would be compatible with Article 1 of the First Protocol to the European Convention on Human Rights. But it is not necessary to go into the details, and I am certainly not intending to bore the Committee with the contents of Annex E because the Charity Commission and I would agree that the law is uncertain. So I regret that the Government have introduced a Bill without spelling out the consequences of a tighter application of the public benefit rule, although I see the political attractions of not having to take that decision.
3.45 p.m.
Therefore, the purpose of the amendment is to try to persuade the Government that there is a need to provide an answer to this uncertainty and to suggest what that answer should be. The answer, I suggest, is broadly that suggested by the Joint Committee; that is, that trusts whose objects cease to be charitable—of course, this would apply also to charitable corporations—should be allowed to continue to carry out their existing purposes. It would be necessary to override the current rule that there can be no trusts for purposes unless they are charitable, but I see no great problem in doing that.
If an independent school loses charitable status because it fails to satisfy the test of public benefit, it is of course absolutely right and proper that it should lose the tax benefits that go with that status. That is a step which I would not only accept but welcome. If it can continue as a charity with relatively minor changes to the trusts, it is reasonable to expect it to make those changes. But that will not always be possible. And to say that where this is not possible, the institution, whether it is a school, hospital or whatever it may be, must be closed down and its assets applied for a different purpose, is unreasonable. That applies to schools operating under trusts as well as schools which are carried on by corporate bodies.
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The effect of my amendment would be that a trust which had ceased to be charitable could carry on its existing purposes. I have also provided that if the trust comes to an end or ceases to be workable—for example, where an independent school is closed because it is making unacceptable losses—any available assets should go back to charitable purposes. It obviously would not be right that trustees or shareholders in a corporate body should take for themselves property which was originally dedicated to specific purposes which at that time were charitable.
This problem is considerably more serious than the Government are prepared to recognise, and we need a solution to it in the Bill. The solution which I proposed is based on the suggestion from the Joint Committee, and it is fair and reasonable. I beg to move.
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