RELIEF FOR DONATIONS UNDER PAYROLL DEDUCTION SCHEME

HC Deb 06 May 1986 vol 97 cc77-103 7.14 pm

Mr. Tim Yeo (Suffolk, South)

I beg to move amendment No. 6, in page 24, line 26, leave out '£100' and insert '£108'.

I strongly welcome the clause and its aim of encouraging individual donations by employees. It is one part of a most imaginative package of concessions for charities in the Finance Bill this year. I am sure that it will be welcomed on both sides of the House.

The purpose of my amendment is both to encourage and to make it simpler for employees who are weekly paid to exploit that valuable concession to the maximum. The present figure of £100 a year amounts to £1.9230769 a week—then my calculator went off the end of the scale. Large numbers of employees might wish to give £1.92 per week and large numbers of employers might welcome making that calculation, but it seems more likely that a figure of £2 would be easier to promote for weekly paid employees. We must remember that the concession in clause 26 will work only if sufficiently large numbers of employers—including, in particular, the people who work in the payroll offices—are happy and find it administratively convenient to operate it.

I am advised that every few years there is a year in which there are 53 pay days, so a figure of £104 would still not be sufficient to allow employees to pay £2 a week to a charity of their choice. That takes us to £106, but as I am sure my hon. Friend the Economic Secretary will have noticed, the amount in the amendment is £108. That is to take into account the fact that we are very close to allowing monthly paid employees a round figure of £9 a month. That gives us the figure of £108.

Therefore, I hope that my hon. Friend the Minister will feel able to be sympathetic to the amendment. If it was accepted, much larger sums of money would be channelled into charity through the concession and the voluntary sector would benefit accordingly. In particular, I believe that larger sums would be given by relatively low-paid employees, who are paid by the week.

Mr. Robert Sheldon (Ashton-under-Lyne)

I also welcome clause 26. I noticed the proviso that the Chancellor of the Exchequer set out in his Budget statement, when he said that the VAT concessions that he was making were not an annual event. I suspect that what he had in mind was to produce another focus for charity giving, which is reasonable. The VAT road was producing more and more anomalies. I suspect that he was trying to divert attention to more fruitful areas of charity relief. This is a useful one, which one wants to encourage. The idea of tax relief on payroll giving is an imaginative venture, and I look forward to seeing it implemented.

I am a little concerned about the extension of allowances. There is a danger of following the United States road, whereby one gives so many allowances, and narrows the tax base again and again, which leads to much higher rates of taxation than one would wish. That does not apply in this country. It is possible to make a reasonable exception in the case of charitable relief and I prefer to accept the advantages and virtues of that.

A new definition of charities will be needed. There has been a big gap in our examination of the various ways in which charities operate. All hon. Members know that charities law is a minefield and an area which has frightened so many legislators. As we move towards granting tax relief, we can no longer delay the need to examine charity law and the anomalies that must be dealt with in due course.

The provisions for avoidance are necessary. It is especially nasty to have to make provisions for avoidance on charity matters. It would seem that a number of people might confuse the wells of benevolence with the murky waters of greed. It is sad that these anti-avoidance provisions are necessary, but I accept that there is a need for them and I hope that they will meet the real requirements in that area. A number of people have set up bogus charities and the problem is that such activities may be on the increase. It may be sad, but these anti-avoidance provisions are necessary.

I know that the Chancellor of the Exchequer used to be interested in index-linking the sum and it may be that, over a period, the figure of £100 may prove inadequate. That sum might be related to the individual's pay or to a maximum limit and there are various ways of calculating that figure. However, we are in the initial stages and obviously a round figure is appropriate. We can review the progress of the scheme and the Chancellor of the Exchequer will unavoidably, from now on, have to come to the House with new proposals or amendments to existing proposals which we can examine happily in the years to come.

Mr. Michael Stern (Bristol, North-West)

I congratulate my hon. Friend the Member for Suffolk, South (Mr. Yeo) on moving this extremely sensible amendment. Many hon. Members are aware that in dealing with this new concept of payroll deduction, ordinary employees will be encouraged to consider reordering their affairs and taking a fresh look at regular charitable giving. They will be encouraged to do that by their employers only if the discipline is convenient.

I believe that the effect of the figure of £100 set out in the clause will be to limit the deduction to £52. Most modern payroll schemes, especially computerised schemes, manage pence with some difficulty. As far as the employee is concerned, round sum of pounds per week. will be much more convenient for him and will meet little resistance from his employer. It is possible that some will go for £1.50 a week, and therefore the effective maximum for those on weekly pay will be £78 per annum. I am sure that my hon. Friend the Minister cannot be responsible for this, but I detect a little sleight of hand somewhere from the back of the Treasury.

My right hon. Friend the Chancellor of the Exchequer's intention in his Budget speech was to maximise charitable giving to a level that could be recorded in terms of revenue. However, I wonder whether, in making that calculation, someone somewhere did not think that by drafting the clause in its present form they would effectively halve the possible relief.

I commend the amendment. It will make the charitable deduction scheme more effective and more readily saleable and, subject to the comments of my hon. Friend the Economic Secretary to the Treasury, it could operate at very little, if any, extra cost.

Mr. William Powell (Corby)

Like my hon. Friends the Members for Suffolk, South (Mr. Yeo) and for Bristol, North-West (Mr. Stern) and the right hon. Member for Ashton-under-Lyne, (Mr. Sheldon), I welcome the steps taken by my right hon. Friend the Chancellor of the Exchequer in the Budget to make donations to charity much easier than they have been in the past through the fiscal means, embodied in the clause. I also welcome the amendment introduced by my hon. Friend the Member for Suffolk, South. I should like to know why the Treasury has determined that £100 is the correct level at which to set the maximum allowed under the scheme.

The administrative costs of the scheme will be considerable. No one should underestimate the difficulties which employer and employee will have to face before they can take advantage of the concession made by the £100 limit. I should like to consider some of the hurdles which will have to be crossed by all those responsible for the administration of the scheme.

First, the employer's professional advisers will have to meet him to explain the scheme in detail. Many small firms without great expertise in their wages departments may have employees who wish to take advantage of the scheme, so it will be necessary to ensure that the employer, who may employ only one, two or three people, understands the way in which the scheme can be administered.

When the scheme has been explained to him by his professional advisers, the employer will have to devise a scheme which suits his particular circumstances and liaise with the wages office to ensure that the scheme can be implemented. The scheme must then be explained in detail to the employees, many of whom will have little idea of its taxation implications. Eventually employees will need to give authority for payroll deductions in writing. If the payroll is computerised, the programme will have to be rewritten. If it is not computerised, considerable additional time will be spent administering the scheme in the wages office. The employer will have to liaise with organisations like the Charities Aid Foundation to agree the scheme and set up the necessary procedures, including the periodic payments to charities.

Procedures for administering schemes will have to be set up for those employees leaving or joining the employer during the course of a fiscal year, because the £100 deduction is per employee per year, and the employer will have to ensure that a joining employee has not already utilised the year's entitlement. Corresponding complications may arise for an employee who is leaving an employer.

There will also be difficulties in establishing the employee's entitlement to a deduction if that employee has multiple employments. An employee who has not revealed his multiple employments may well be deterred from joining the scheme.

Full records will have to be maintained for the inspection of the Inland Revenue, as required. Tax deduction cards will probably be needed to note the deductions given, and the end of year Inland Revenue return—form B35—may also need to show details of the deductions.

The scheme is bound to involve administrative costs, which may be fairly considerable to the employer. As, for the vast majority of the work force, the relief will be £29 per annum—that is, £100 at the basic rate of 29 per cent.—the employer may conclude that the tax savings and incentives involved are not worth the administrative costs. All those matters must be considered.

It is against that background that I commend the amendment. I also take this opportunity to invite my hon. Friend the Economic Secretary to explain why the level was set at £100, and whether he feels that, in setting such a low figure, there might be a disincentive to take advantage of the scheme, which I am sure is widely welcomed in the House and by the nation.

7.30 pm

Mr. Tony Blair (Sedgefield)

We shall have an opportunity to debate clause 26 overall later in our debates on the Finance Bill, when we debate clause stand part. As the House will know, we welcome the payroll provision, in particular because it seems to us to open up charitable giving to many more people than before. Previously, through deeds of covenant over a four-year period, people were entitled to give and get tax relief, but that was a more sophisticated form of donation, and the payroll scheme should open up giving to a much broader spectrum of people.

The purpose of the amendment, as I understand it, is to ensure that, if there are difficulties because of the fractions of money that will be paid over to charities on a weekly or a monthly basis, such difficulties do not result in the levelling down of the amount of money given but rather in the full provision being taken advantage of. At the moment, if the full £100 relief were to be given, in a 52-week year, that would result in a weekly payment of £1.92.3, which is not a happy figure for employers to have to pay out. In a 53-week year, it would be £1.88.6, and would work out on a monthly basis at £4.34.7. The figure of £108 is reached by saying that, if we round the figure up a bit, it should be about £2 a week, and if it were £2 a week in a 52-week year, it would be £104 and £2 a week in a 53-week year would be £106. To provide for monthly payments, the figure has been rounded up to a multiple of 12, which is how we get £108.

The Minister should tell us whether he believes that there will be any significant disincentive to paying the maximum of £100 because of the problems of computation that will arise, and of employers having to deduct such fractions. In addition, what would the extra cost be for increasing the relief from £100 to £108? We support the payroll deduction and are sympathetic to the amendment. We should like to see from what the Minister says whether there are problems that could be avoided by making the figure £108. That does not seem a round figure, but in the way in which the scheme will operate, it is a rounder figure than £100.

The Economic Secretary to the Treasury (Mr. Ian Stewart)

I am grateful to all right hon. and hon. Members who have spoken for enabling us to begin the Committee stage of this year's Finance Bill on such an agreeable and harmonious note.

Mr. Austin Mitchell (Great Grimsby)

There is something wrong.

Mr. Stewart

The hon. Member seems to be somewhat disconcerted by this.

As we are talking about charities, it is appropriate that we should begin in a spirit of co-operation and understanding. Therefore, I welcome the way in which the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), the hon. Member for Sedgefield (Mr. Blair), and my hon. Friends the Members for Bristol. North-West (Mr. Stern), for Corby (Mr. Powell) and for Suffolk, South (Mr. Yeo), who introduced the amendment, welcomed the concept of the payroll scheme, which we think will widen the scope for contributions to charity in an acceptable way. We are most anxious that it should not be unduly burdensome administratively, to take up a point made by my hon. Friend the Member for Corby.

Before I answer the specific points, I shall touch briefly on one matter mentioned by the hon. Member for Ashton-under-Lyne. With his long and distinguished experience as a Treasury Minister, he will appreciate that it is necessary in our charities package to include anti-avoidance measures. We always feel inclined to do so, with regret, because of the difficulties of dealing with such technical matters. This subject has attracted a certain amount of comment and anxiety and it might be helpful if I say a few words about that now.

No one has disputed that abuse has occurred, and I am sure that it is right to take steps to tackle it, but we are determined to ensure that in doing so we do not put genuine charitable work at a disadvantage. There are difficult technical considerations involved here and, as with most measures dealing with abuse, it is not possible to consult before a Budget. We have, however, received a number of representations to the effect that the proposals, as they stand, are likely to cause difficulty for a number of responsible bona fide charities. We are therefore considering these representations most carefully, and the Inland Revenue is consulting about them with the charitable organisations involved.

Meanwhile, I can give the responsible charities this assurance—that we fully recognise the questions that they have raised, and shall take steps to respond to them, after thorough consultation, during the passage of the Bill. We are as anxious as they are that the potential adverse consequences that they foresee do not occur.

I appreciate the comments made by my hon. Friend the Member for Suffolk, South when he moved this amendment, which were echoed by other hon. Members, about the competing figures that might be used for this purpose, based on so many weeks or months in the year. The amendment is designed to cope with that problem. However, any monetary limit is to some extent arbitrary. No single figure will provide a convenient round sum per week or month in all circumstances.

We looked at this most carefully and found, for example, that although, as everybody knows, there will be occasional years in which 53 weekly pay days fall in one tax year, it is also the case that some people are paid fortnightly or every four weeks, so that an extra pay day in any particular year can sometimes mean bringing in up to 56 weeks. That would require a higher figure. However, if the limit were increased to £112 to cover up to 56 weeks at £2 a week, it would not be a round sum per month. Therefore, taking the monthly and weekly figures, it is not possible to arrive at a universally correct figure.

I can explain why we chose the round sum of £100 as the annual limit. We had it in mind that for many employees that was a substantial figure and would represent a generous contribution to charity. It will be an upper limit and by no means all those who want to contribute to the scheme will contribute that amount, or even close to that amount. It has the great advantage of being a round figure and one that is readily remembered and understood. That is important in getting the new scheme off to a good start. If a substantial number of employees can give up to the £100 limit, the benefit to charities would be considerable.

The hon. Member for Sedgefield asked me about the cost. It is exceedingly difficult, to the point of impossibility, to quantify small changes in the upper limit, for the good reason that it is exceedingly difficult to quantify the cost of the scheme as a whole before we know better the likely take-up. It will become more apparent over the year, as consultations and discussions take place. We have estimated that the overall cost to the Revenue might be about £20 million in the first year, but that is again based on assumptions about participants and their average rate. I am afraid that I have to decline to be precise about that.

We shall be looking at the figure of £100 in the light of experience. We shall want to see how the scheme gets going and we shall keep the limit under review from year to year. It would not be sensible to change it now. It would be better for the scheme to be readily comprehensible with a simple round sum of £100, which potential donors can easily understand and remember. I hope that my hon. Friend will withdraw his amendment on the understanding that we accept the valid points about the details of how contributions may be made in practice and that we can review it when we have experience of how the scheme works.

Mr. Yeo

I welcome very much what the Economic Secretary has said about listening to the charity concerns on the possible adverse consequences of the anti-avoidance provisions elsewhere in the Bill. That will be of relief to many charities which feel that they may otherwise be hit in legitimate fund-raising activities.

I was far from persuaded by my hon. Friend when he explained how he had arrived at the figure of £100. That is the one figure which is not a round sum in the way any employee is paid; it is not a round weekly, two-weekly, four-weekly or monthly sum. Unless there are employees who are paid annually—I do not believe that there are—£100 is the one figure which the Treasury could have managed to choose which is not a round sum by any method of calculation. Whatever other justification there may be for choosing £100, to claim that it is a round sum is the least convincing.

However, I appreciate that we have much to learn about how effective the scheme will be. The take-up will depend on quite a few factors, including the administration points raised by my hon. Friend during the debate and, indeed, the success of the charities in selling schemes to employers and employees. So we shall have to learn by experience.

Before withdrawing my amendment I wish to ask my hon. Friend one question. Will the Inland Revenue be willing to make available statistics about the number of people giving amounts which are close to the upper limit? If we are to argue later for a higher limit, can we have access to information which, as I understand it, will only be in the possession of the Inland Revenue?

Mr. Ian Stewart

I shall have to invite my hon. Friend to table questions at the appropriate time; we shall see what answer we can give then. Because the arrangements for the scheme will take some time to put in place, it will not become operative until this time next year. Therefore, it will be some time before such evidence as my hon. Friend wants will be available.

Mr. Yeo

I appreciate that point. Even the charities might not feel that the first full year of operation was a fair basis on which to assess the scheme. It may take two or three years for the scheme to get into its stride. I am grateful for what my hon. Friend has said. When we table questions relating to Inland Revenue statistics, I hope that we shall not be met with such answers as I have come across in the past—that the information is confidential or that it would cost too much to supply it. We shall have to wait to see what happens.

In the light of what my hon. Friend has said, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Yeo

I beg to move amendment No. 5, in page 24, line 31, at end add— '(9) Any approval under this section of a scheme by the Board is not to be unreasonably withheld.'.

The Chairman

With this it will be convenient to consider amendment No. 7, in page 24, line 31, at end add— `(9) Nothing in these provisions shall prevent the agent and the charity from being the same person.'.

Mr. Yeo

I am sure my hon. Friend is aware of the welcome which clause 26 has had from charities generally. He may also be aware by now of the concern which has been provoked about the practical operation of the proposed payroll donation schemes. That concern emanates from two different sources. First, there are charities which already operate payroll giving schemes; Dr. Barnardo's and the Save the Children Fund are perhaps two of the most distinguished in this category. They already have relationships with established companies and many employees give money net.

The position of those organisations would be protected by the amendment which has been tabled by my hon. Friend the Member for Kettering (Mr. Freeman). I do not want to trespass on his territory, except to say that I strongly support the sentiment and aim of his amendment. I am anxious that charities which are already involved in successful payroll schemes, in some cases for many years, should not be forced to use an outside agency to process a scheme so that the people giving money can get the benefit of the tax deduction. That would be potentially inconvenient and would give rise to further expense.

7.45 pm

The second category of charities which is concerned about the practical operation of the concession comprises those which do not yet have in operation payroll deduction schemes with employers, but which hope to do so as a result of the concession. That includes a large number of charities, large and small, national and local. In three or four years we all want to see tens of millions of pounds flowing into charities because of this valuable concession, but if full advantage is to be taken of it a large number of agencies will have to be approved under the provisions of the Bill.

According to the clause, schemes and agencies have to be approved by the Inland Revenue. I am slightly nervous that it might be convenient, from the point of view of the Inland Revenue, if only a small number, or even a very small number, of agencies and schemes were approved. The administrative convenience of the Inland Revenue must not be allowed to disrupt the successful development of payroll donations.

The concern of various organisations which have approached me about this has been heightened by recent claims by the Charities Aid Foundation. I welcome the involvement of the Charities Aid Foundation in the concession and I strongly support the initiatives which it has been taking since the Budget. I also support its work generally, but I must take issue with a statement in a leaflet which it published recently, called "Payroll giving—give as you earn", which said: There will be strict rules governing who can be an agency charity but Charities Aid Foundation will be one and probably the principal national agency. That claim is neither helpful nor justified. If the Charities Aid Foundation succeeds in becoming the principal national agency over some years in full and free competition with other agencies, that is fine, but it would be unfortunate if the provisions of the Bill were interpreted in such a way as to restrict the establishment of other national agencies under the clause.

Groups of major charities feel that they could run their own agency on a joint basis as efficiently as any other body. Not only should they be allowed, but they should be encouraged to do so. Some major charities are talking to each other about the establishment of such an agency.

In addition, local charities may wish to take advantage of the concession. One example is the Ipswich and East Suffolk Spastics Society, of which I have the honour of being president. We might establish a relationship with a major East Anglian company such as Fison. In those circumstances the charity or the company might not want to be obliged to go to a national agency with headquarters in a part of the country well away from Suffolk. It would be more appropriate to have a local agency, based near the charity or the employer. We want to see a network of local agencies; I mean genuinely local agencies and not branches of a national agency.

All hon. Members want the clause to be successful. Therefore, I hope that my hon. Friend will at least accept the spirit of my amendment. Can he assure us that it is the wish of the Treasury that many payroll schemes will be established and that that will be facilitated by the establishment of a large number of agencies approved by the Inland Revenue? Above all, I ask my hon. Friend for an assurance that the Treasury will take steps to ensure that the Inland Revenue does not unreasonably impede the establishment of such agencies.

I commend my amendment to the Committee.

Mr. Roger Freeman (Kettering)

The purpose of my amendment which is grouped with the amendment moved by my hon. Friend the Member for Suffolk, South (Mr. Yeo), is to probe the Government's reasons for the technical language in clause 26.

The scheme is excellent and is warmly to be welcomed. I speak on behalf of many companies, not only in my constituency but nationally, which are enthusiastic about the scheme and will operate it with vigour. My amendment would enable the charities themselves to act as agents for the disbursement of contributions which have been collected by employers from employees, and I envisage that the charities, acting as disbursers of the funds, would perhaps keep a portion for their own charity, the charity designated by the employees, and, as agents, pass on to the other charities the remainder of the amounts collected. I would stress that under the provisions of this clause my amendment, if it proved acceptable, could be operated only with the agreement of the employer—because it is an enabling provision—the Inland Revenue.

As I read the clause—I look forward to enlightment by my hon. Friend the Economic Secretary—it seems to restrict the agents through whom the amounts collected by employers are ultimately passed on to charities to bodies such as the Charities Aid Foundation, and seems to prevent charities such as those mentioned by the hon. Member for Suffolk, South from performing that task.

The amendment is supported by Dr. Barnardo's, Save the Children Fund, Help the Aged and a number of other charities. It is important to recognise that some major charities already run collection schemes through company payrolls. The schemes work without tax relief and operate on a net basis rather than on the gross basis proposed by the Bill. Where these collection schemes are operating sensibly they should be allowed to continue. I understand that Dr. Barnardo's runs a payroll scheme for about 12,000 employers and raises about £2 million a year through them. I understand that it has operated the scheme for about 80 years. Save the Children Fund operates a payroll scheme for about 4,500 employers, raising about £500,000 a year, and has done so since 1948. Between those two charities alone, therefore, there are schemes already in existence on a net basis which cover perhaps 1 million employees. A considerable body of expertise has been built up in the operation of these schemes.

There are three principles for testing the validity and acceptability, not only of my amendment, but of the clause as a whole. I believe that the clause as amended would meet all the tests. The first must be that a payroll deduction scheme is easy for the employer to administer. My hon. Friends the Members for Bristol, North-West (Mr. Stern), and for Corby (Mr. Powell) alluded to the administrative cost of the scheme, but in my conversations, both in my constituency and outside, I have found employers to be enthusiastic about the scheme and prepared to operate it, not only converting an existing net scheme to a gross scheme, but introducing new schemes. It is important, however, that the payroll deduction scheme should be easy to administer.

Under my amendment it would be up to the employer to decide whether he would use an agent, such as the Charities Aid Foundation, or an existing charity which had been collecting funds for a number of years under the companies payroll deduction scheme and passing on perhaps a portion of the amount collected to other charities. It would be up to the employer to select the easiest and simpliest route. Realistically, we must accept that there will be just one scheme operating in a company and that it will be a gross scheme.

There should also be maximum freedom of choice for the employee. That already happens at present with deduction schemes. If the amendment were accepted there would be no change, because it would facilitate maximum choice by the employee when it came to asking his employer to decuct an amount, within the limit of the clause, and send it to the charity of his choice.

Thirdly, I agree with my hon. Friend the hon. Member for Suffolk, South that we must encourage diversity of systems for colleting money for ultimate donation to charities. We should not have a single, uniform, monolithic system. Many new schemes will be set up under clause 26. I welcome the fact that amounts will be collected by the employers and paid over, for example, to the Charities Aid Foundation, but there are existing schemes run by the charities themselves, and where they have proved worth while there seems no reason to disturb them. In those circumstances, the clause should facilitate the continuation of existing schemes.

Mr. Andrew Rowe (Mid Kent)

My hon. Friend the Member for Kettering (Mr. Freeman) has raised in my mind a doubt that was not there before. As I understand it, the intention of the clause is to make it possible for employees to vary the charity to which they pay if the scheme is similar to those run by the Charities Aid Foundation at present. Just because a scheme is running, this should not prevent the employee from choosing the charity to which, out of many, he would like his money sent.

I should like to reinforce the point that there are enormous dangers in having a limited number of agents. There are even greater dangers in having only one. One of the serious disadvantages of the American system of philanthropy is that it is very often possible for United Way and similar organisations to exclude from the disbursement of money raised through their efforts charities of which they, the organisers, disapprove. This had made it much harder for innovative charities to get off the ground in the United States than is good for the cause of charity. Those charitable organisations which have long experience of running these schemes should be encouraged to continue to do so.

The Charity Commission does extraordinarily good work in antediluvian circumstances. If we had a properly equipped Charity Commission, it would be quite easy to make administrative distinctions between, for example, charities which were deemed capable, either through experience or other means, of running schemes of this kind and those which were not. I very much hope that we will see a time then the Charity Commission comes into the 20th century and has a computer.

Mr. Stern

Perhaps I may contribute a word of caution to this remarkably unanimous debate. I was most impressed by the comments of my hon. Friend the Member for Suffolk, South (Mr. Yeo) when he referred to the need for this amendment as something which would facilitate local agencies. I think particularly of large companies in my own constituency, such as British Aerospace or Rolls-Royce, which would much prefer to approach a local rather than a national agency.

It seems to me—this point has not come out in my hon. Friend's comments—that a great advantage of this particular clause will be its encouragement not of the big national charities but of the small local ones—those which have neither the muscle nor the expense money to go in for big national campaigns—which will find through local employers a ready access to additional funding which was previously denied to them by the big battalions.

On that basis I am a little worried by the suggestion that some of the larger national charities should be confirmed as agencies. I am not wholly set against the idea, and I look forward to the comments of my hon. Friend the Economic Secretary when he replies. However, there are two potential disadvantages. First, in selecting the charity to receive a donation, many employees will take the easy way out. If the agency on every letterhead in relation to the payroll deduction scheme happens to be Barnardo's, there is at least a danger of a boost to the agency charity at the expense of many local charities which could well expect to benefit from a local scheme.

If existing charities are encouraged to set up agencies—I hope that they will be, because they have considerable expertise in the area—they should do so only on the basis of setting up an agency which is separate from the charity concerned so that the possible advantage of the name of the charity would not appear in the name of the agency.

I hope that whatever administrative arrangements are made, it will be borne in mind that the employer will also incur costs. Even where payroll deduction schemes are in operation or are to be adapted, there should be no pressure on the employer to go to more than one agent simply because of his employees' choice of charities.

8 pm

Mr. Roger Sims (Chislehurst)

Several charities have been mentioned as supporting the amendment of my hon. Friend the Member for Kettering (Mr. Freeman). May I add to them by mentioning one of the big battalions, the National Society for the Prevention of Cruelty to Children, which which I am closely associated. The society is worried about the possibility that the agents mentioned in the clause may be restricted to one or very few organisations, because that could have several effects. One would be to remove a charity's freedom to market itself. Another would be to remove the freedom of companies to back a charity of their choice.

My hon. Friend the Member for Suffolk, South (Mr. Yeo) envisaged a local initiative. In fact, that already happens on a national basis. For example, boards of directors of companies may decide to back a particular charity by saying that they will match pound for pound anything that their employees are prepared to give that charity. To go through an agency in the way that is envisaged would not be compatible with such a scheme.

Presumably, the Charities Aid Foundation would make some sort of charge, as indeed might any agency. Different agencies may have different fees. If the giving has to be channeled through only one or two specified agencies, the amount that a charity finally receives may be that much less.

It could be argued that my hon. Friend's amendment will result in a proliferation of agencies because, according to the book, there are literally thousands of charities. But we are probably talking, at most, of the top 200 in the CAF list and perhaps a handful of local charities. It would be feasible for some charities to get together, along the lines already suggested, and act as an agency. That would not necessarily have the effect envisaged by my hon. Friend the Member for Bristol, North-West (Mr. Stern).

I hope that my hon. Friend the Economic Secretary will consider that seriously. If he is not at this stage prepared to accept the amendment, I hope that he will at least give some further thought to the ideas that have been put forward, with a view to amending the final scheme so that the agents can be drawn from a fairly wide spectrum.

Mr. Blair

The regulations that the Government will promulgate will tell us a great deal more than the Bill, but we should have some clear idea of the Government's concept of how the scheme will operate. Will it simply embrace a few charitable collecting agencies or have a much broader scope, or are the Government simply willing to let it run and see what happens? We need to know that, because many charities have expressed concern that they may be unduly limited if they are not also allowed to act as agents.

I have doubts about some of the points made by the hon. Member for Suffolk. South (Mr. Yeo). At present, the employer will deduct the money and pay it to the agent who will give it to the charity. Whereas the employer will arrange for the agency, for which there will be board approval, the employee will simply tell the employer the amount to be deducted and the employee will presumably nominate to the agent the charities to which he wishes to give.

One desirable advantage of that scheme is its administrative simplicity for the employer who has one agent for all the employees. Secondly, there is a notion of confidentiality between the employee and the agent about the charities to which he wishes to give. I do not know whether that does or could happen but an employer may want to foist a pet charity on his employees who may then feel in some way constrained if they have to give to a charity that is an agent. The notion of confidentiality is important.

Thirdly, where as the large charities may want to act as agents, many of the smaller charities could lose out. It would be unfortunate if some of the smaller charities were eased out of the competition by the larger charities. The disadvantage of the scheme as presently envisaged is that Dr. Barnardo's and other charities already have a payroll scheme without tax relief, so why should not they continue to do so? There are also charities—my hon. Friend the Member for Eccles (Mr. Carter-Jones) asked me to mention MENCAP in this connection—that do not operate such a scheme but may want to do so, so why shouldn't they?

I want to make two points to the Economic Secretary but I shall keep an open mind until he replies. First, is there anything in the provisions to prevent a charity from setting up an agency with the same effect as the amendment? Secondly, is not an important facet of this that we have to decide whether, if charities are to be allowed to act as collecting agents, they can simply collect for themselves as agents or whether they have to collect as agents in the proper sense of the term and distribute not merely to themselves but to any other charities that an employee may want to mention?

Both those points are important in terms of how the Government see the scheme operating. It would only be acceptable—I notice that the hon. Member for Kettering (Mr. Freeman) made the same assumption—for charities to act as agents if they acted properly as agents and were not simply collecting on their own behalf. Even then it would obviously be in their interests that more rather than less money sticks to their fingers as it passes through their hands. I should be obliged if the Minister would give us some information or enlarge our understanding of the exact role which the Government envisage for agents. Will there be many or few agents? If a charity is allowed to become an agent, will donations be confined to that charity or will they he spread over several charities?

Mr. Ian Stewart

Our relatively short debate on the two linked amendments gave some of my hon. Friends the opportunity to propose ideas—sometimes conflicting ideas—that we must take into account before the arrangements for the agencies are finalised. I welcome the sensible contribution of the hon. Member for Sedgefield (Mr. Blair), who asked some questions which have been in our minds and which, like those of my hon. Friends, must be considered before the schemes and the agencies are set up.

My hon. Friend the Member for Suffolk, South (Mr. Yeo) hoped that there would be no limitation on the number of companies or agencies taking part out of consideration for the convenience of the Inland Revenue. We do not intend that administrative convenience should limit the number of agencies. We are anxious that as many companies as possible should take part in the scheme and that there should be a range of choices for them in the agencies that they select. I do not exclude the idea of local or regional agencies, so long as they are willing, if requested by participants in that scheme, to make payments to any charity. In many cases, it would be sensible for the local interest to be represented through one agency, and I hope that will rise.

My hon. Friend the Member for Mid-Kent (Mr. Rowe) said that there could be dangers in establishing only a few agencies. The Government will not specify the number of agencies because the scheme must not be operated by administrative instruction from the Government. It should develop according to the needs and interests of the people taking part. There should be no bar on existing charities acting as agents, provided that they act fairly and without bias as agents for any charity that may wish to be nominated.

The specific points raised in the amendments are of some interest. Amendment No. 5 refers to the Board of Inland Revenue unreasonably witholding approval of a scheme. Clause 26 already sets out the basic conditions of relief. Clause 27, which is the more technical clause, provides for the Treasury to make regulations governing the grant or withdrawal of approval of schemes by the board. That should enable us to set out the more detailed conditions of approval in the regulations. It will be necessary to ensure that, once the donations have been deducted from the employee's pay and received their tax relief, they cannot be returned to the employee and that they are paid over to the agency for the charities within a reasonable time. We shall wish to embody several such practical considerations in the regulations.

The board's main function in considering schemes for approval will then be to see whether the scheme meets the requirements laid down by the legislation and regulations. Although this point is rather more appropriate to clause 27 than to clause 26, I assure my hon. Friend the Member for Suffolk, South that the board will not withhold approval from schemes without good reason. In any event, a charity could look to the courts for effective redress under existing administrative law. No doubt it would be a cumbersome process, but if in any case the board acted unreasonably, it would be exposed to redress in that way. It is not necessary to amend the Bill in the way that my hon. Friend suggests, but if, on reflection, he wishes to raise the matter again, it may be in order to do so when the Committee considers clause 27. As that will not be for a few weeks, there will be more time to consider the points raised.

My hon. Friend the Member for Kettering (Mr. Freeman) said that the scheme should be easy and give maximum freedom of choice for the employee. That is right. We do not wish to compel employers, employees or charities to do the Government's bidding. We wish to encourage diversity. Amendment No. 7 deals with a matter that has already been mentioned by Dr. Barnado's, Help the Aged, Save the Children Fund and other larger charities. Perhaps I can outline our approach to the matter.

8.15 pm

One condition for tax relief for charitable donations under the new payroll scheme is that the donations should be paid over by the employer to an agency which will distribute them to the charities to which the employees wish them to go. Using agencies in that way has several practical advantages. It makes the scheme easier for the employer to run, because he will not need to make separate payments to individual charities to which employees wish to make donations, nor to check that they are properly registered charities. Instead, the agency would act as a clearing house. Some charities which already run payroll deduction schemes with employers have been rather worried about this. Their fear is that, as the clause stands, their schemes might have to operate through an independent agency if the participants are to get tax relief. At the same time, however, it is important that the employee should be able to use the scheme to make his donations to any charity he wishes. He should not be limited to one charity with which the employer already has a deduction scheme.

Therefore, our aim is to give all charities a fair chance to benefit from the scheme. Large national charities, although important and deserving, should not be allowed to squeeze out smaller local charities. If a charity such as Dr. Barnado's or Save the Children Fund wishes to fulfil the agency role and pass on donations to other charities at the employees' request, as well as collecting donations for itself, there is no objection in principle to its doing so.

I stress again that a charity which acts as an agency in that way would have to pass on donations to any charity to which the employees wish to give.

I accept that the clause as it stands leaves some doubt whether an agency charity can collect donations to itself at the same time as donations to others. We shall reconsider the drafting of the clause and, if necessary introduce an amendment to clause 26 on Report. If the matter can be dealt with under clause 27, we can table amendments in Committee.

I hope that my hon. Friend will accept that assurance and that the Committee will accept that the Government take into account many of the worries and interests that have been expressed. We hope that they can be taken into consideration when the rules and regulations are formulated.

Mr. Yeo

I welcome my hon. Friend's assurances, especially his clarification of the Government's view that it will be desirable to establish a fair number of agencies. I also welcome the possibility of local and regional agencies. The concessions will probably enable funds to flow into local and regional organisations. I am fairly optimistic that, because of the importance of personal contact between the charity and the donors, there will be opportunities for local organisations to benefit.

The only discouraging aspect of my hon. Friend's remarks was the suggestion that it may take some weeks for the Committee to reach clause 27. I had hoped that progress would be such that we would reach it very quickly.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Mr. Blair

I must confess that one extraordinary fact that became clear when I studied the matter in detail was the sheer scale of the voluntary sector. For example, there are 150,000 different charities, with an estimated income of between £8 billion and £10 billion a year. That covers income not only from gifts but from grants, fees and other earnings. It is an enormous sector, which receives grants of £350 million a year from local authorities and £180 million a year from Government Departments. Quangos such as the Manpower Services Commission also contribute in total as much as £2 billion a year.

Estimates of individual giving are uncertain, but the Charities Aid Foundation estimates that it could be about £500 million to £700 million a year, to which must be added gifts from companies. We are discussing a vast business. The payroll provision being introduced in clause 26 will increase the income of charities by another £20 million, which is about 0.2 per cent. of their income. I do not cavil at that, because any increase is welcome, but it is a measure of the voluntary sector that it has such a large income.

As I have already made clear, we welcome these measures. However, we seek one or two assurances from the Government. The first is that these measures should increase the resources of charities and should not be simply a transfer of burden from the state sector to the voluntary sector. These measures should complement state provision, not be a substitute for it.

Secondly, we want to be sure that we are increasing the revenue of those charities which pursue genuine charitable objects, and not those which have less to do with charity and more to do with narrow self-interest. We seek an assurance that it is no part of the Government's intention to reduce financial aid to the voluntary sector. If that assurance is given now, I shall leave the matter there. The Minister is nodding, so I take that he is giving me that assurance.

I may have misunderstood what the Financial Times quoted the Financial Secretary as saying during a meeting organised by the Charities Aid Foundation: We prefer that responsibility should rest with the individual, so that the state is involved only where it needs to be. If that means that individuals should pursue self-help and not be beneficiaries of state help, I accept that that is an old Conservative canard with which I am happy to live. However, if it means——

Mrs. Elaine Kellett-Bowman (Lancaster)

Why canard?

Mr. Blair

If the hon. Lady wishes to intervene, I shall give way. I see no reason to answer sedentary interventions.

Mrs. Kellett-Bowman

Why does the hon. Gentleman refer to a canard?

Mr. Blair

We believe that self-help would be greatly assisted if there was proper state provision, and that state provision and self-help go hand in hand.

If the Financial Secretary meant that the beneficiaries of state help should come within the voluntary sector in addition to being state beneficiaries, we are happy to live with that. However, if he meant that the donors should be individuals rather than the state, so that the responsibility for vital services is transferred from the state to the voluntary sector, that is a novel and unacceptable proposition. I see the Minister shaking his head, and I take it that he is giving me the assurance that I seek on that point.

One aspect that has concerned many people has arisen partly because of the cuts in local authority funding and partly from the publication by the Office of Health Economics of a document entitled "Crisis in Research". This document shows how much medical research has become dependent upon charities, and that charities are increasingly becoming a substitute for proper state provision. I very much hope that those are only straws in the wind. We talk of and argue about privatisation, but voluntarisation, as it is now called, is a novel proposition and it would be wrong to introduce it under the guise of increased Exchequer generosity to charities.

Mr. William Cash (Stafford)

The hon. Gentleman may be interested to know that a charity is starting up in my constituency because a school that was closed by the Labour county council needs to continue for the sake of children who are suffering from child abuse——

The Chairman

Order. I hope that the hon. Gentleman will stick to the terms of the clause that the Committee is discussing.

Mr. Blair

We wish to ensure that charities are not being given something with one hand and having it taken away with the other.

I very much welcome the Economic Secretary's assurance that the Government will carefully consider representations about their anti-avoidance provisions, which arise under clause 29. I appreciate that we will debate those provisions in much greater detail in Committee, but they affect clause 26 because payroll deductions will be made only in respect of charities that qualify. The measures may cause more problems than they solve.

I wish to make it clear that we fully support the objective of stamping out bogus charities, and we accept the need for anti-avoidance provisions. We are concerned that desirable objectives may be undesirably attained; the purpose is right, but the means of achieving it could cause many problems. I ask the Government to reconsider their proposals well in advance of the detailed debate that we will have in Committee.

I have formed a view—although I am happy to listen to anything that the Economic Secretary says—that those provisions may catch many innocent charities and fail to catch the guilty. They focus on the method of operation of charities, not on whether charitable objectives are being pursued. There is some confusion about whether the measures are proper anti-avoidance provisions, or whether they are an attempt to redefine charities with bona fide objectives and those without them.

The Opposition would be happy to open up the debate on what are or are not bona fide objectives. Indeed, many people cannot understand why tax relief is given to private schools that charge fees, or why the taxpayer should subsidise those institutions of privilege. In introducing anti-avoidance provisions the Government have opened up the debate on what are or are not deserving charities. I ask the Government to remember that when we question what should or should not be considered bona fide charities.

We welcome clause 26. We are pleased with the assurance that this is not part of a desire by the Government to shift responsibility for the proper provision of services from the state to the voluntary sector. We shall monitor the situation carefully. I hope that the Economic Secretary will repeat the assurance he has given that the Government will carefully consider the representations about the anti-avoidance provision. It would be a tragedy if a measure which is basically welcomed by charities ended up causing as many problems as it solved.

8.30 pm

Mr. Andrew Rowe

I welcome the clause and all that it means for charities. I hope that one of the consequences of it will be to widen enormously the interest that employees take in charities.

One of the most useful functions would be to encourage people who give to charity to take an increasing interest in the way in which the charity discharges its responsibilities. The payroll giving will encourage groups to form in the workplace, and those groups may become activists—shareholders—in the charity's performance. That will go some way towards ensuring that the administrative costs do not run out of control and that those who donate approve of the functions that the charity performs. At present there are too many charities still run by a small group of people, often in a traditional way. The functions of the charity are not clearly known by the people who subscribe to it.

I agree with the hon. Member for Sedgefield (Mr. Blair) that we should do everything in our power to remove any abuse of charitable status. The clause will increase the awareness of any possible abuse. In time it will reduce the need for some charities to depend so heavily on central and local government money. The terrible weakness of depending on the state sector—central Government are notable offenders—is that it tends to give its annual grants too late in the year. This makes it extremely difficult for charities to forecast exactly what their income will be. Anything that will make it easier for charities to be independent of state handouts should be welcomed.

Mr. Austin Mitchell

I welcome the clause, although not for the same reasons as the hon. Member for Mid-Kent (Mr. Rowe).

The consequences of the clause will be to turn charities much more into business organisations. They will go away from the old, somewhat fuddy-duddy but caring, important role of charities, run on a voluntary, almost casual basis. This allowed people to get involved without expertise, and that was healthy. The clause will professionalise charities. There will be a much more professional means of tapping money, and donations will be made out of salaries.

We want to consider carefully what is meant by a charity. We should carefully consider what areas are appropriate for charitable activities. Public schools are regarded as charities, but I do not think that the clause will help them because, with present public school fees, it will not enable pupils to buy a packet of crisps. The fact that public schools are regarded as charities suggests a need to review what is a charity. Such a review will be carried out by the Labour Government and it will take away the charitable status of bodies such as public schools.

Mr. Rowe

Did the hon. Gentleman see the report today that it is cheaper to keep a child at a fee-paying school than at some Inner London education authority schools?

Mr. Mitchell

It is cheaper to keep a child in prison than at a fee-paying school, but that does not say anything about the advantages of either institution.

Given the scale of fees, the privilege of keeping children at public schools is one accorded to a narrow, wealthy section of this society. It is wrong that such schools should have the backing of charitable status. It is wrong to subsidise the education of the children at these schools at the expense of the rest of us.

The charitable sector is active and dynamic. Grimsby is a classic example of a centre of thriving charitable activity and endeavour. Such a centre needs the help provided by the clause. It is welcome and should have been implemented some time ago. The clause will enable our charities to operate on similar lines to the American pattern for charitable donations. It will allow those donations to be made with ease and convenience, which I welcome.

I cannot help being suspicious, not of Greeks bearing gifts, but of Spartans bearing gifts. The Government's attitude to the welfare state is Spartan. When I consider the clause in the context of the other things that the Government have done to undermine the welfare state, it makes me a mite suspicious. The clause, though it is welcome, important and benign, may be the preparation for shifting the burden of caring and concern from the public sector on to the voluntary charitable sector. The Government can rush forward and state what wonderful things they have done for charity and then state that they will carry further the process of cuts on which they have been engaged for so long.

My hon. Friend the Member for Sedgefield (Mr. Blair) asked whether this was the prelude to a further trimming of the welfare state. I share his suspicion. It is essential that there is basic state provision in a whole range of areas, not just in traditional areas, but where the voluntary charitable sector has been least effective in alleviating the problems.

The clause will tend to channel money to efficient, well-organised middle-class charities rather than to those which are concerned with the problems of poverty and housing neglect. I do not wish the concentration of charitable activity to be at the expense of the state sector. The Government have cut back in a shameful, shabby, cheese-paring and mean way. Throughout the seven years of Conservative Government the local authorities have been undermined by penalties and by cuts in rate support grant. Now that the Government are supporting the voluntary sector and charitable organisations, we are bound to be a little suspicious of their motives.

I welcome the clause with those reservations. It is a step towards stimulating and supporting a living, loving, caring and altruistic sector of society which makes life better for many people. Charities provide a range of care and concern which are best summed up as Socialism in action, and that is well deserving of help.

Mr. Cash

I welcome the clause. I am sure that my right hon. Friend the Financial Secretary to the Treasury will not mind if I refer to his excellent speech on 1 May at the Charities Aid Foundation conference. My right hon. Friend set out the philosophy which underpins this provision. His speech gave a clear explanation of its objectives and in a far more eloquent manner than I could.

I am concerned about some of the remarks made by Opposition Members. I detected a certain amount of criticism for voluntarisation, but that is what lies at the root of charitable giving. It is important that employees should be involved. It is obvious that the state has an important role to play, but voluntary giving is the essence of community giving and the loving and caring to which the hon. Member for Great Grimsby (Mr. Mitchell) referred.

I hope that Opposition Members are careful not to denigrate the voluntary aspect of giving, because there was the slightest suggestion of that tonight.

Mr. Nick Raynsford (Fulham)

I declare an interest. I have worked for a charity for the past 14 years and I am continuing, albeit in a part-time and temporary role, as its employee.

I welcome clause 26, but I should like to reinforce the anxieties expressed by my hon. Friends the Members for Sedgefield (Mr. Blair) and for Great Grimsby (Mr. Mitchell) about voluntary giving not being seen as an alternative to support from the public sector. I find it a slightly unfortunate coincidence that we are considering the clause when many voluntary organisations are threatened with the loss of staff, or even closure, because of the abolition of the Greater London council and the metropolitan county councils and the restrictions on local authority expenditure.

In my constituency, I have examples of well respected voluntary organisations—such as Age Concern, the unemployed workers centre, and the law centre, which have done exceptionally good work—which are all at risk of redundancies or closure because of inadequate support from the public sector. Lest it be suggested that public sector support is not healthy for voluntary organisations, the Committee should be aware of an article in this week's New Society, which discusses the matter in some detail and which is based on a study funded by the Home Office and published by the Policy Studies Institute.

According to the article, the study considered what effect statutory grant aid has on the number of paid staff employed, whether it affects the level of voluntary involvement and how it changes the amount of funding obtained from other sources. The evidence is perhaps surprising. It suggests that, far from undermining voluntarism, statutory grant aid has a multiplier effect, which the article identifies. It was found that statutory grant aid led to a greater capacity to obtain more resources from other sources, that it expanded capacity so that the organisation was able to acquire and do more, and that it created a climate of general support for the voluntary sector, which produced a great deal more voluntary activity.

The study compares two areas. The article stated: The effects of local government grant aid on an organisation's ability to acquire other resources are nicely illustrated in one example of two local Age Concern organisations: one is in an authority which gives relatively little in grant aid to the voluntary sector in general and similarly little to the local Age Concern; the other receives substantially more grant aid from a relatively generous authority. Nothing is said about the political complexion of the two authorities, but hon. Members will be aware that more generous support is generally afforded by Labour-controlled authorities, whereas more sparse support is generally given by Conservative-controlled authorities.

The article continues: The low-funded Age Concern employs three full-time and three part-time workers and involves volunteers giving an estimated 1,000 hours per week … The higher-funded Age Concern employs six full-time and four pan-time workers and involves volunteers who give an estimated 3.000 hours per week. In other words, three times the level of voluntary activity is stimulated by local government generosity to the voluntary sector. It is therefore important to be aware of the stimulating effect of generous public sector support on voluntary initiative and the debilitating effect that reliance on purely voluntary donations can have.

8.45 pm

A substantial number of voluntary organisations are not popular. They do not pursue causes which the public want to support. Indeed, many of them help some of the most unpopular groups in society, such as drug addicts, alcoholics and others who do not engender support and sympathy. Some public sector support for such organisations is vital to maintain their work.

Dr. M. S. Miller (East Kilbride)

Such a psychological phenomenon is well known. Those who help organisations which are doing good stimulate and encourage them. There is no reason to suppose that assistance dampens an organisation's enthusiasm—quite the reverse.

Mr. Raynsford

I entirely agree. If Conservative Members extend the parallel to economic matters, they will appreciate that a little stimulus and encouragement of the economy can produce considerable benefits, as many of us argue.

It is important to remember that a healthy voluntary sector meets a range of needs not just popular needs, and ensures proper provision. It depends on generous support from individuals, private donors and the public sector. It would be very sad if the clause were seen to be part of a process of continuing restrictions on public sector grants to voluntary organisations or as a process of transferring support from public to private sources.

Mr. Yeo

I shall not attempt to follow the hon. Member for Fulham (Mr. Raynsford) in his wide-ranging choice of subjects, but I find it rather surprising that, in a debate on a clause which is universally agreed to be likely to stimulate private giving, we have to listen to a lot of moans about organisations that run out of funds presumably because they cannot attract such giving.

I was also sorry to hear the hon. Member for Great Grimsby (Mr. Mitchell) trying to suggest that there is some conflict between an efficiently run organisation and a caring organisation. I believe that any organisation that is truly caring must care about the efficiency with which it uses its resoures. That is why I was so delighted by what my hon. Friend the Member for Mid-Kent (Mr. Rowe) said. If the clause leads to greater scrutiny by donors and the public of how funds are used, it is to be welcomed, to say nothing of its ability to stimulate private donations.

The hon. Member for Sedgefield (Mr. Blair) mentioned the 150,000 charities. I should just like to remind the Committee that there is a larger, but unknown, number of charitable organisations. The 150,000 is roughly the number of registrations issued by the Charity Commission, but there are many unregistered charities which will enjoy the tax benefits of the Finance Bill.

Nobody—not even the Charity Commission—knows how many charities there are in Britain. Indeed, some of the Charity Commission's numbers have been issued to charities that are now defunct, as it will admit if pressed. We have an estimate—£10 billion is a popularly used figure—of the charitable sector's income, but it is only the most vague guesstimate because the requirement for charities to file their accounts is not enforced. We therefore do not have access to the accounts of many charities which enjoy what is effectively a public subsidy through tax concessions.

There is not even a requirement on some charities to file accounts, to say nothing of the fact that such a requirement would be ignored. I hope that my hon. Friend the Economic Secretary and his colleagues will, in view of the prominence that charities have been given in the Bill, persuade their Home Office colleagues to see whether we can improve the accountability of charitable organisations. The more that we grant tax concessions—I welcome them—the more necessary and desirable it becomes to give the public proper information about how the concessions are being used.

My second and last point concerns the comment about voluntarisation, which came in the same breath as privatisation. I think it was acknowledged by the hon. Member for Sedgefield that assurances were given from the Conservative Benches that it was not the intention of the Government to use greater private funding of charities as a reason for cutting basic state provision in areas where the state has an obligation to fund. However, I believe that it is important to recognise that there is a form of voluntarisation which is in everybody's interest.

Many organisations provide services on an agency basis for the state. To give as one example the education of handicapped children, many special schools in the country are run with great expertise and efficiency by voluntary organisations. In my view, it is positively desirable that we should encourage more voluntary organisations to provide such services on an agency and competitive basis. There is no merit in saying that all handicapped children who go to a special school should go to a school that is run by a local education authority. There is every advantage in saying that we should have a great plurality and diversity of provision of special education and all sorts of other functions, some by local authorities, some by health authorities, some by education authorities and some by voluntary organisations. If, by encouraging private donations in the voluntary sector, we encourage innovation in the voluntary sector, we will find that this diversity and the plural approach will be promoted.

Mr. Cash

Will my hon. Friend accept that Henchurch special school in my constituency was closed by the Labour county council and we had to go along the very route that he advocated, which I thoroughly applaud?

Mr. Yeo

I am most interested in the very important point raised by my hon. Friend.

The question that I want to ask the Opposition is whether they endorse the process of encouraging voluntary organisations to provide services that will be funded by sponsorship from state authorities, or whether they are opposed to the growth of voluntary activity in that way.

Mr. Blair

May I make it absolutely clear, if it has not been made clear already—I should have thought that it had been—that we do not in any way oppose voluntary organisations providing these facilities. What we oppose is the state reducing its commitment in order to allow the voluntary organisations to do the state's work for it. If the two grow in tandem, that is excellent. If there is plurality, that is excellent. What there should not be—this is what voluntarisation means—is voluntarisation in the sense that the state reduces its burden and shifts it on to ordinary members of the public.

Mr. Yeo

I am delighted that the hon. Gentleman has given that assurance. I therefore hope that, when schools are being closed by education authorities because they are voluntary organisations providing education that will receive the full backing of Labour party members in the House and in local authorities throughout the country.

Mr. David Penhaligon (Truro)

I believe this to be one of the best clauses of a Finance Bill that Parliament has had the chance to consider for some time. There is no doubt that those who should take the credit are those who have been involved in the long-running campaign to get some relief for charities against the doubling of VAT on their expenditure in 1979. For all that, one regards this as a most welcome addition to the legislation, and I congratulate the Government and Ministers on it.

I think that criticism is not right at this moment. It is fair to say, when the argument against state provision and voluntary provision is taken into consideration, that some charities take enormous pride in their independence. In a peculiar way, the greatest insult that any Government could give to such charities would be to suggest that they, the Government, should take over a part of the assistance. I know this well from my own locality in regard to one of the more remarkable voluntary services in the country, that provided by the lifeboat men. This service often calls upon the individual concerned to make the ultimate charity donation to the well-being of his fellow human beings, as it is not unknown for lifeboat men to give their own lives, yet their fierce independence of Government provision goes back way beyond this Government, the last Government or the Government before that.

I believe that this may well encourage charities to make provision in addition to the provision that is made by the state. If there is any hint that the Government are hoping to make a reduction in certain areas because of the clause, I suspect that they are in for a disappointment in any case. I suspect that the sums involved relative to the provision of care for the mass of people in Britain are very small.

For all that, I think that there will be new and fresh ideas, and that public opinion will be given a new freedom to influence events and developments because of the clause. It will be possible to express ideas which Governments may well be forced to follow, because it will have been demonstrated that in particular areas of care these ideas have been successful. It is not difficult to think of examples. There is, for instance, the hospice movement, which was started in the charity area.

I have no criticism to make of the clause, and I congratulate the Government on introducing it. It is not inconceivable that at some time in the future we may wish to change it a little. Sometimes clauses to Finance Bills have effects other than those originally intended which cannot be imagined by anybody at the time. This can be looked at as the years go by. I hope that the charities will find this effective in increasing their income and that the public will use this new freedom to show the care that I know they have in the development of new ideas. I therefore add the wholehearted approval of the alliance Benches of the clause.

Mr. Alan Howarth (Straftord-on-Avon)

I was encouraged to hear my hon. Friend the Economic Secretary to the Treasury tell the Committee that if clause 26 works as he hopes it will do it will encourage a wide diversity of charitable giving. That theme has been echoed by other hon. Members on both sides of the House, particularly by my hon. Friend the Member for Suffolk, South (Mr. Yeo).

I was not particularly surprised, but I was concerned to hear the reaffirmation from the Opposition, notably in the speech of the hon. Member for Great Grimsby (Mr. Mitchell), of the intention of the Labour party, if it has the opportunity, to introduce a statutory definition of what is a charity and what are appropriate charitable objects. I understand their argument about abuse. We are agreed, I think, that it is important to find practical ways to tackle abuse.

The hon. Member for Sedgefield (Mr. Blair) was right to say that the problems of definition are relevant to the working of clause 26, because if clause 29 creates the sort of collateral damage, if I may use that phrase, which many people, including myself, fear, this in turn will impact unfavourably on the operation of clause 26 because people will be unwilling to give if they cannot be assured that tax relief will be available in respect of the charities they wish to support.

We are concerned to find practical ways to tackle the problem of abuse. It will be no surprise to the Committee, however, if I say that I would be most reluctant to see the Labour party abolishing the charitable status of independent schools. That is an argument which it is entitled to put forward and a point of view that one understands. However, it would, in my view, be using a rather heavy blunderbuss and it would be in danger of creating more collateral damage than it would wish to do if it were to set off down the road of trying to achieve a statutory definition of what is a charity. I hope that when the Government come under pressure, which they are now experiencing, and of their own volition come properly to tackle abuse, they will resist the temptation to try to achieve a statutory definition of what is a legitimate or proper charitable activity. That has never been done in our history.

The Elizabethan Statute of Uses did not define charities. The preamble to the Statute of Uses, in sonorous Elizabethan language, sets out and itemises a list of individual charitable activities and provides examples or cases of what is charitable activity or what are charitable objects. They are instances that were pertinent to those days, and the circumstances that applied then—the help or relief then needed—perhaps no longer apply.

There are some rather quaint items in the preamble. We no longer think that it is a proper role of charities to engage in building bridges — at least in a literal or physical sense. We no longer see it as a major role of charities to find endowments for spinsters. However, it is my recollection that both instances are set out in the preamble to the Elizabethan Statute of Uses.

The history of charitable giving and charitable practice in Britain has evolved in case law. There have been no attempts fully to define in statute what is charitable. There have been important judgments—for example, those of Lord McNaghten in the previous century and, much more recently, certain obiter dicta of Lord Hailsham—and these have reinforced the tradition of there not being a statutory definition.

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The great strength and value of the charitable movement has been in its diversity and innovative quality and its capacity to identify new circumstances where charitable giving is needed urgently and would be valued. The virtue of charities, in my judgment, in our contemporary circumstances is that they should complement the welfare state. I accept the arguments advanced by the hon. Member for Fulham (Mr. Raynsford). Charities can be complementary to the welfare state in the sense that they have a flexible, innovative and creative quality. They are able to work with much greater precision and much greater speed of response than the relatively cumbersome, broad-brush approach of statutory organisations. Both charities and statutory organisations are needed, and both should work in fashions that are complementary to each other.

I commend to Opposition Members a wise remark that was made by Lord Goodman. Of course, the Labour party changes, and it may be that what Lord Goodman says is no longer viewed so forcibly, but he remarked in his study of charities that to define is to confine. I think that we have all been anxious to ensure that the clauses that relate to charities should be such as to encourage a new flowering and greater diversity of charitable activity. Therefore, I counsel great caution in attempting a definition, even with a worthwhile purpose lying behind it, for to define is to confine. It would be a shame if legislation and policy which would be met with considerable sympathy in all parts of the House of Commons were to end up in a limiting definition. I am confident that that will not be the upshot of the Governments legislative activity. However, I was nervous when I heard the hon. Member for Great Grimsby (Mr. Mitchell), and for that reason I decided to contribute to the debate.

Mr. Ian Stewart

I wish to say plainly that I welcome the uncomplicated way in which the Member for Truro (Mr. Penhaligon) spoke about the clause. It is an important step forward in the provision of resources for charities and I hope, like the hon. Gentleman, that it will have stimulated people's imagination about carrying out charitable causes which they might have felt were impossible because of lack of resources. I hope that the clause will enable them to see their way to undertaking those clauses. In that sense the clause could have a creative contribution as well as an additional one to existing charitable activities as they are now conducted.

I hope that no Opposition Members are surprised that the Government should introduce such a clause, or the package of measures which were announced in the Budget. The Government have done more to help charities than any previous Administration. Direct support for the latest year amounts to over £200 million, which is more than double the 1979 figure. That represents a substantial increase in real terms even after account has been taken of inflation. We have maintained and increased Government support. I can assure the hon. Member for Sedgefield (Mr. Blair) and others that the measures that we are introducing are not at all prejudicial to funds made available for public service provision. They are additional, and I hope that in many cases they will be complementary.

The package introduced this year is the most substantial package of measures to help charities to have been included in a single Budget. It marks a further step in the process that we have tried to develop during the past few years in order to improve tax relief for giving. In 1980, we reduced the minimum period for charitable covenants that qualified for tax relief from seven to four years. We also introduced the higher rate income tax relief for charitable covenants, originally with a £3,000 limit. In 1983, that limit was increased to £5,000 and in 1985 it was increased to £10,000. It is now to be removed. Charities generally welcomed those moves, and I think that it is a measure of their success that new charitable deeds of covenant seen by the Inland Revenue increased from just under 600,000 to 1980 to 830,000 in 1985. Tax repayments to charities increased by about 85 per cent. during those years.

We have also introduced several other measures to encourage the flow of funds from the private sector to voluntary organisations. We removed the limit for capital transfer tax exemption for gifts to charities within one year of death, so freeing gifts and legacies to charities completely from capital transfer tax. We exempted charities from development land tax, before the tax itself was abolished last year. Exemption from stamp duty was introduced on charitable covenants, and on conveyances and transfer of property of all kinds to a charity. In 1983, we introduced tax relief for an employee's salary costs met by an employer during a period of secondment to a charity. All those changes, together with the changes in the Budget and the payroll scheme in clause 26, helped charities in their different ways.

This year's package includes, of course, arrangements for on-off gifts by companies up to the equivalent of 3 per cent. of their annual dividend. It includes some extension of VAT relief in respect of talking books for the blind, the dress allowance for the handicapped, medicinal products and some other items. But it is right that the debate should focus on the payroll scheme, because in many ways that is one of the most interesting and innovative measures to be introduced to help charities. I particularly appreciate the welcome given to it by hon. Members on both sides of the House.

The hon. Member for Sedgefield alluded to the scale of the voluntary sector. The figures are very impressive. I understand that the annual income of charities is now in excess of £6 billion. The hon. Gentleman said that he thought that £20 million extra as a result of this provision represented a small sum. But we are talking about £20 million in tax relief and not £20 million as being the net effect for the charities. We hope that the figure will be three or four times bigger than that. That judgment is made solely on an assessment of how widely the scheme may be used in its initial stages. If it proves successful, we hope that it will be extended. The Treasury would be willing to see the cost in tax relief increased as the commitment to charitable support also increases.

My right hon. Friend the Financial Secretary made a speech a few days ago in which he referred to the Government's approach to voluntary giving. Our philosophy is to stimulate charitable support. This measure is designed to that end. After the bit that has been quoted, my right hon. Friend said: In the voluntary sector we see it in the action taken by voluntary organisations up and down the country in many areas of charitable work. Charities operating in a particular field or a particular local area are often better placed to know what the real needs are and how best to tackle them. Of course it isn't just a question of money, because many charities depend heavily on the unpaid voluntary work done by their supporters. But it must be healthy for charities to get their financial and practical support from members of the public and from businesses which take an interest in their work. That is complementary to the public provision. There is no question of one substituting for the other.

The hon. Member for Sedgefield referred to the problems of abuse and anti-avoidance. Consultations are already under way on that subject. I say that for the benefit of my hon. Friend the Member for Stratford-on-Avon (Mr. Howarth) also. The questions of abuse concern financial abuse and not charitable objectives. Although the Treasury has many responsibilities, it does not have responsibility for the Charity Commission, or the whole question of charitable objectives. We are anxious that tax relief given to encourage contributions to charities should not be abused for non-charitable purposes. That is the aim of clause 29. Obviously, we shall have to look further at clause 29 in the light of the representations that have been made. I do not know whether the hon. Member for Stratford-on-Avon was in the Chamber earlier when I gave an assurance to that effect. However, it will be recorded in the Official Report.

My hon. Friend the Member for Mid-Kent (Mr. Rowe) welcomed the fact that the clause would widen the interests of employees in charities generally. I am sure that that is right. It is important to encourage the voluntary sector. Giving creates a direct link and a direct interest in the activities that charities provide. That itself is important. If it leads, as my hon. Friend the Member for Suffolk, South (Mr. Yeo) said, to greater accountability, that will be welcome. As he said, in charitable expenditure, as in any other, it is important to get value for money. One is not doing one's best by the people who provide the money if one does not use the money economically and in the best interests of those for whom it is provided.

I do not want to enter into a long disquisition about voluntarisation. My view is that the best future for charities and public provision of a charitable and social nature is that, wherever possible, they should work in partnership. For a long time, I was treasurer of a charity on which I think the mother of the hon. Member for Fulham (Mr. Raynsford) served. I hope that I have not embarrassed him by saying that.

Mr. Raynsford

indicated dissent.

Mr. Stewart

Perhaps I am wrong. However, it was a London-based charity. I am glad that the hon. Member for Fulham has taken part in this debate. I think that it was his first contribution to the Committee stage of a finance Bill. I am glad that we have considered the subject of charities. The hon. Member represents a borough in which the charity with which I was concerned was active.

The welcome which has been given on all sides of the House reflects the fact that, through the payroll scheme, we hope that there will be opportunities for supporting local charities which are identifiable by the employees of local firms. It is important that the national charities carry out their work and that the major charities receive the funds they need. I am sure that I am not the only hon. Member who can think of many deserving local causes which ought to be able to benefit from the payroll scheme, provided that they can approach local employers and make their case known. I hope that bodies such as St. Mary's church in Hitchin, the citizens advice bureau in Letchworth, Knight's Templar school in Baldock, and the Royston branch of the St. John Ambulance Brigade will benefit from these provisions. I hope that my hon. Friends and hon. Members opposite will encourage charitable activities in their constituencies to look to the scheme and to obtain funds which they need to develop and increase their charitable activities in the years ahead. I am glad that the clause has been welcomed in this way, and I commend it to the Committee.

Question put and agreed to.

Clause 26 ordered to stand part of the Bill.