Grand Committee Report of 14 March 2005

Official Report of the Grand Committee on the
  Charities Bill [H.L.]
  (Sixth Day)
  Charities Bill [H.L.]

    The Committee met at half past three of the clock.
    [The Deputy Chairman of Committees (Viscount Allenby of Megiddo) in the Chair.]
    Clause 11 [Changes in exempt charities]:
    Lord Hodgson of Astley Abbottsmoved Amendment No. 113:
    Page 13, line 33, leave out subsection (7).
    The noble Lord said: The amendment would reverse a proposal in the Bill to remove the Church Commissioners from the list of exempted institutions. I am not clear why the Government are proposing it, given their willingness to allow universities to remain exempt under the charitable and regulatory control of the Higher Education Funding Council for England, which is itself a funding rather than a regulatory organisation.
    The Minister may argue that there is no regulator in place for the Church Commissioners, although it could equally well be argued that a surfeit of government departments and Secretaries of State are already built into the Church Commissioner structure. Of the 27 Church Commissioners, no fewer than six ex officio office holders represent senior posts in government and Parliament; namely, the Lord Chancellor, the Lord President of the Council, the Secretary of State for the Home Department, the Secretary of State for the Department for Culture, Media and Sport and the Speaker of the House of Commons. Could not one of those become the regulator? If the Government argue that none of the six office holders who are members of the Church Commissioners ex officio can act as the regulator because of a conflict of interest, there are obvious alternatives available, such as the Department for Constitutional Affairs.
    Further, as regards governance, the arrangements within the Church Commissioners for proper governance appear extensive. I understand that there is a properly constituted audit committee to oversee compliance and, no less significant, there is an established procedure whereby, if the audit committee is not satisfied with the response to its reports by the general body of the Church Commissioners, a specific right of appeal is available to one of the six office holders whom I have already mentioned.
    If the Government consider those procedures insufficiently rigorous to ensure compliance with the new Bill, perhaps the Minister could tell the Committee which
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    specific procedures are in place at HEFCE to ensure university compliance with it. Presumably, the Government accept HEFCE's regulatory ability in the charity field, as it is already designated as the regulator for the higher education sector.
    Finally, if the Government are determined to proceed on the basis of the Bill as drafted, it would be helpful if the Minister could let the Committee know what impact he believes the change will have on the nature of the relationship between the Church and state. Some might argue that for the Charity Commission to regulate the Church Commissioners is a subtle but nonetheless significant shift of emphasis in the relationship between the two. I beg to move.
    Lord Bassam of Brighton: We have tried wherever possible to identify suitable main regulators to take on the role of monitoring basic charity law compliance, but for some exempt charities it has not proved possible. The Church Commissioners and the charities that they administer are among those for which it has not been possible to identify a main regulator and which, under the Bill, would have to register with and be regulated by the Charity Commission.
    The noble Lord, Lord Hodgson, asked whether that might have a subtle impact on the relationship between Church and state. I tell him that there is no intention on the part of the Government that this proposition or any ensuing legislation will affect in any way the balance of the establishment of the Church of England in any way, shape or form.
    So far as we are concerned, the amendment would make an already anomalous position even more anomalous. I am sure that the noble Lord would accept that it would be hard to justify to other charities and to the public why the Church Commissioners should be allowed to retain their exempt status when other charities will lose theirs. In the interests of being fair to all, it is only right that we proceed as we envisaged. I hope that the noble Lord will feel able to withdraw his amendment.
    It is worth pointing out that, if we follow the approach put forward by the noble Lord, a member of the Church Commissioners would also be in an anomalous position. I do not see that the amendment follows the general overriding logic of the legislation.
    Lord Hodgson of Astley Abbotts: I am grateful to the Minister for that reply. We wanted to explore the position of the Church Commissioners. I am not sure that their position is as unusual as his remarks suggest, but we want to make progress, so I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    [Amendment No. 114 not moved.]
    Lord Hodgson of Astley Abbottsmoved Amendment No. 115:
    Page 14, line 15, at end insert "become or"
    The noble Lord said: On Amendments Nos. 110 and 114, we had a fairly long debate about the position of service charities—non-public service funds. For the

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    reasons then explained, we sought to add them to the list of exempt charities. We offered the Government the suggestion of a principal regulator for that group, as defined in the Bill.
    I turn now to the position of other groups that may be considered eligible for addition to the exempt list. First, I want to address the position of foundation and voluntary schools. That group is the subject of recommendation 43 of the scrutiny committee. Paragraph 367 of the committee's report reads:
    "We recommend that the Home Office should consider designating a principal regulator for foundation and voluntary schools so that they can retain exempt charitable status".
    Paragraph 43 of the Government reply rejected that on the grounds that to be put on the exempt list, charities had to be,
    "a 'principal regulator' that would be willing, and have the capacity, to ensure that those charities complied with the basic principles of charity law".
    As no principal regulator could, at present, be found for foundation and voluntary schools, the Government would not accept the scrutiny committee's recommendation.
    We accept the argument that, at present, there is no obvious principal regulator for foundation and voluntary schools but, equally, if they and other similar groups are to be permanently excluded from exempted status, the Government will have failed to think through the consequences for the sector.
    The first two amendments, Amendments Nos. 115 and 116, would alter Clause 11(12) to give the Secretary of State power to add charities or groups of charities to the exempt list—not as, at present drafted, only to delete them. The third amendment, Amendment No. 116A, would enable individual charities to force the Secretary of State to consider their request for addition to the exempt list. He cannot just ignore their requests, so causing a withering on the vine. Accordingly, if in the future a principal regulator can be found, the Secretary of State would have the power to add foundation and voluntary schools to the exempt list.
    Why should the Government worry about that? I shall refer to a briefing note. If I do so rather extensively it is because it is a complex subject and it will affect literally thousands of schools. There are believed to be over 4,000 aided schools; 2,500 controlled schools; and 1,000 foundation schools, a category that I understand the Labour Government wish to expand and increase.
    As I understand it, the good news is that for school trustees the provisions of Section 3A of the 1993 Act, as substituted by Clause 9 of this Bill, will be neutral or beneficial. The new general registration threshold will be any charity whose gross income does not exceed £5,000. Of course, it ceases to be relevant to the threshold whether the charity owns land or has a permanent endowment. Therefore, school trustees will have to register only if their gross income exceeds £5,000 and for most of them it will not. Those receiving a substantial income from the letting out of a teacher's house would have to register, but often the rent from such houses is low. Trustees with small monetary
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    endowments producing a few hundred pounds a year, who were previously required to register, would not now need to do so. So the Bill's proposals do not present any real problem for the Church school trustees. As it is a complex subject, perhaps the Minister will say whether I have been right in my supposition thus far.
    The real problem is with the Church school governing bodies. The bulk of the money handled by most maintained school governing bodies is in their delegated budget, which they manage as agents of the local education authority. That would not count as their income for the purposes of the registration threshold. Governing bodies with voluntary funds where donations to the fund and interest on it exceed £5,000 would have to register; although most will probably be just over the threshold and would therefore be subject to the light-touch regime for accounting and reporting.
    The real losers will be the voluntary-aided school governing bodies. Aided school governing bodies are responsible for meeting the capital cost of work done to school premises. They are entitled to claim grants from the department of up to 90 per cent of the cost of the work, but the grant money that they receive is their money, not delegated budget money. Therefore, in any year when an aided school governing body has a capital building project, not only will its income take it over the registration threshold but it is likely to be of a size that brings it into the most rigorous accounting and reporting regimes. So it will have to produce accrual accounts for that year and have them audited, notwithstanding that the money is for a single project and is closely monitored by the DfES, which is paying a 90 per cent grant for it. That will, therefore, impose a regulatory burden—a spasmodic regulatory burden—on voluntary-aided schools that is not imposed on other schools in the maintained sector.
    There is a further and almost certainly unintended consequence of the loss of exempt status for, principally, foundation school governing bodies. Occasionally, maintained school governing bodies hold land not under some statutory regime under the Education Act but on charitable trusts. It is not unreasonable that dispositions of that land should be subject to the same controls as dispositions of land held by other charities. The problem comes with land that the governing body holds that is also subject to a statutory regime under the Education Acts. That principally affects foundation schools—the category designed to replace grant-maintained schools when the Labour Government abolished them. In such schools, it is normal for the governing body to hold all or part of the school premises.
    In the case of a Church foundation school, the governing body is likely to hold the playing fields that were formerly owned by the local education authority, but, as with other Church schools, the trustees hold the school site. With foundation schools that are not former voluntary schools, the governing body is likely also to hold the whole of the school premises.

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    The land that the governing body holds is subject to strict controls on its disposition because it is publicly funded land acquired from LEAs. The Secretary of State's consent must be given to any disposal of the land, and he can direct that the land or the proceeds of its sale are given back to the LEA or to some other body.
    There will now be a system of dual control. Not only will the governing body have to obtain the Secretary of State's consent, but it will have to comply with the requirements of the Charities Act. Moreover, in some cases, the Education Acts regime envisages that, with the Secretary of State's consent, governing bodies can transfer the land free of charge. They will now require not only the consent of the Secretary of State for that but the consent of the Charity Commission.
    That point emerged in discussions with the DfES about the Education Bill, which has been before the House, and in the light of the Government's wish to encourage an increase in the number of foundation schools. They want to give foundation schools the option of forming links with an existing charitable foundation to be a foundation for the school. The governing body will then be able to transfer its land to the foundation. However, if the governing body ceases to be an exempt charity, it will not be able to do that without the consent of the Charity Commission. It is not clear whether the DfES, in drafting the Education Bill, has considered the implications of the loss of exempt status. Our concern is that the department is unaware of the implications of its proposals.
    To summarise, there is the danger of dual regulation—and complex regulation at that. That would be resolved if a regulator could be found and if the Bill then permitted groups to be added to the exempt list.
    3.45 p.m
    So much for the problem of schools. Lest the Minister tries to argue that this is a one-off, I move to my second example, which concerns the Church of England parishes. Parishes will continue to be outside registration procedures when income is less than £100,000, but, of course, as we heard from the Government during our debate on Amendment No. 109, in the course of time, the intention will be to cause them all to register, down to those with an annual income of probably no more than £5,000 or £10,000.
    Bearing it in mind that there are somewhere between 13,000 and 17,000 Anglican churches, 70 per cent of which are Grade I or Grade II listed buildings and are the responsibility of the parishes, it is hard to conceive that many parishes would have an income of much less than £10,000 if they were responsible for the maintenance of such a building. Therefore, eventually, the vast majority of, if not all, the parishes will have to register. I invite the Committee to think what that will mean for all the parties involved—the Charity Commission and the parishes.
    Bearing it in mind that the Church of England's accounting regulations, which are similar to those of the Charity Commission. stipulate that parishes have
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    to deliver annual accounts to the diocesan hoard of finance, there is an argument that the possibility of adding Church of England parishes to the exempt list would be extremely useful and deregulatory.
    Who could the regulator be? One answer would be for individual diocesan boards to decide whether they could cope with taking a regulatory role as an adjunct to their present role; that is, having collected the accounts from the parishes, seeking to obtain an exemption order from the Secretary of State for the parishes in their diocese.
    Those are merely two, admittedly lengthy, examples of why some flexibility is needed in allowing additions to the exempt list, not merely in permitting deletions. There may be other groups that have not yet focused on what is proposed.
    The summary position is that, unamended, the Bill would land a further 20,000 to 25,000 charities with the burden of regulation and the Charity Commission with the burden of regulating them. Moreover, those charities are local, low-risk and pose no danger to overall public confidence in the charity sector. That consequence would be quite at odds with the policy themes that underlie the proposed legislation. Our amendments would give the Secretary of State the flexibility to sort out the difficulty by encouraging the emergence of a principal regulator, following which he could add appropriate groups to the exempt list. I beg to move.
    Lord Phillips of Sudbury: I have great sympathy with the amendments in the group. The noble Lord, Lord Hodgson of Astley Abbotts, has given an exhaustive—not to say "exhausting"—explanation of why they are meritorious. My only query is whether Amendment No. 116A is fit for the purpose that was advanced by the noble Lord. I do not understand what the impact of that amendment would be, given that it hinges around what is described as,
    "the purpose mentioned in subsection (12)(b)".
    do not see a purpose in subsection (12)(b). Therefore, it could be that the amendment needs revision, but, as I said, I am inclined to be persuaded by what the noble Lord said by way of justification.
    Lord Bassam of Brighton: As I said about colleges and halls of certain universities, the order-making power in Clause 11 would enable the Secretary of State to remove exempt status and currently exempt charities, thus requiring them to register with and be regulated by the Charity Commission. As the noble Lord, Lord Hodgson, has explained, the amendment would extend that order-making power to enable the Secretary of State to create exempt charities.
    Our policy is to secure greater accountability and transparency in exempt charities' compliance with charity law by requiring them either to be regulated by a principal regulator or to register with and be regulated by the commission. The amendment would apply to charities which are already registered with and regulated by the commission and which would not

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    need to improve accountability and transparency, as they would already be properly regulated in respect of charity law.
    It is not the Government's intention to create additional principal regulators for groups of charities that are already properly regulated by the commission. Nevertheless, in some limited circumstances it may be appropriate for the Secretary of State to consider conferring exempt charity status on particular charities. Where a principal regulator is proposed to take on the regulation of a group of currently exempt charities, a small proportion of which are not exempt and are registered with and regulated by the commission, we consider it sensible, if they so desire, to allow them all to be regulated by the principal regulator along with the rest of the group. For example, some 200 higher education institutions are not exempted charities and are registered with and regulated by the commission. Under the Bill, other currently exempt higher education institutions would be regulated by HEFCE as the principal regulator. There is much to be said for allowing the few registered institutions to choose to be regulated by HEFCE rather than by the commission.
    With that very much in mind, we agree to consider the amendment in more detail as it applies to the limited circumstances that I have just described and to return to it on Report. With those words of reassurance, I hope that the noble Lord, Lord Hodgson, will feel able to withdraw Amendment No. 115 and not press Amendment No. 116.
    I turn now to Amendment No. 116A. I have already explained in detail the Government's policy on exempt charities, and I do not particularly want to repeat those words. This amendment would compel the Secretary of State to make, on the request of an exempt institution, an order removing the institution's exempt status by amendment to Schedule 2 to the Charities Act 1993. That would be undesirable because it would create a situationi in which some charities were regulated by the principal regulator and other similar charities registered with and regulated by the Charity Commission. That could lead to confusion about the requirements that the different institutions had to comply with and would make it more difficult for consistent advice and guidance to be provided. It would erode the benefits of the principal regulator approach and could be more costly to administer.
    We do not expect that exempt charities would want to lose the advantages of the principal regulator approach and register with and be regulated by the Charity Commission. However, the Bill enables the Secretary of State to make further amendments to Schedule 2 to the 1993 Act to remove exempt charity status from particular charities or groups of charities. That could be used where, for example, it became apparent that a principal regulator was no longer suitable for that role, and it would be more appropriate for all charities to be monitored to register with and be regulated by the commission.
    I hope that that clarifies our approach. As I said, we feel that the noble Lord has a point with his two earlier amendments, and we may want to come back with a
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    provision that will satisfy his objective. No doubt, we can have an exchange of correspondence to cover the drafting issues.
    Lord Hodgson of Astley Abbotts: I had thought that I was very grateful to the Minister, although I was a little less grateful by the time he had finished his remarks. I had thought that we were to be given the flexibility to add groups, but when he came to Amendment No. 116A—I accept that it may be imperfectly drafted—he said that we would probably not be able to add new principal regulators.
    I shall read carefully what the Minister said. As I say, I am encouraged by his response to Amendments Nos. 115 and 116, but less so by his penultimate remarks.
    Lord Bassam of Brighton: I want to correct something I said. In dealing with the two earlier amendments, I said that I thought there were about 200 higher education institutions that were not exempt. I meant to say that 20 institutions were not exempt. I would not want to be wrong by a factor of 10. Perhaps we may correct that error on my part.
    Lord Hodgson of Astley Abbotts: I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    [Amendments Nos. 116 and 116A not moved.]
    Clause 11 agreed to.
    Clause 12 agreed to.
    Schedule 5 agreed to.
    Clause 13 [General duty of principal regulator in relation to exempt charity]:
    Lord Hodgson of Astley Abbottsmoved Amendment No. 117:
    Page 14, line 36, after "can" insert ", including consultation with the Charity Commission,"
    The noble Lord said: In moving Amendment No. 117, I shall be a great deal briefer than I was on the last group.
    Clause 13 gives the Secretary of State the power to make regulations prescribing a body or a Minister of the Crown as the principal regulator of an exempt charity. A body or Minister prescribed as a principal regulator of an exempt charity will have, in relation to that charity, the duty in subsection (2) to do all that it or he reasonably can to meet the compliance objective in relation to that charity.
    The details of the compliance objective appear in Clause 7 as the objectives of the Charity Commission. We debated those extensively at a previous Grand Committee sitting. The objective is:
    "to increase compliance by the charity trustees with their legal obligations in exercising control and management of the administration of the charity".
    As the compliance objective is an objective of the Charity Commission, we argue that it would be wrong for a principal regulator not to have to consult the commission in his role of ensuring that the charities met that objective. Knowing the full up-to-date

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    practice of the compliance objective is essential, if the principal regulator is to carry out his task effectively. Under the Bill, a principal regulator does not have to consult the Charity Commission at all, but it is, after all, the Charity Commission that will develop best practice in compliance.
    Amendment No. 117 would ensure that the principal regulator had to consult with the Charity Commission as part of his duty to meet the compliance objective in relation to the charity. For those exempt charities to be properly regulated, interaction with the Charity Commission on such a matter is surely essential. I beg to move.
    Lord Phillips of Sudbury: I am just a wee bit anxious that the amendment may add to the bureaucracy of the charity regime. The noble Lord, Lord Hodgson, and I are at one in believing that the Bill must, as far as possible, not increase bureaucracy and layers of administrative oversight. Unless I have missed some point, it seems to me that a principal regulator should not be a principal regulator, if he does not understand current law and practice—it is on the commission website anyhow. I am afraid that to require a consultation at the Charity Commission end might beget a sense of obligation that could increase what might be considered a rather pointless additional exercise of regulation. I put those points tentatively, and I shall be interested to hear what the Minister says.
    Lord Borrie: I agree with the points made by the noble Lord, Lord Phillips. When moving an amendment some days ago, I expressed concern at the over-regulation of universities and concern about whether more burdensome duties and more requirements for providing information would be imposed on them if it were done by HEFCE rather than by the Charity Commission. There would be duties on the Charity Commission if the amendment were made. The idea that both of them should have those duties and would require information and demand things of universities does not seem to be desirable. Of course there are many other examples; I just pick one. The principal regulator—if that is the person doing the job—must do the job itself and should not have that additional requirement.
    4 p.m.
    Lord Bassam of Brighton: I agree with my noble friend Lord Borrie and the noble Lord, Lord Phillips. It is a nice but unnecessary amendment. Principal regulators will in any event want to consult the Charity Commission to carry out their functions in meeting compliance. It could not be said of a principal regulator that it did all that it reasonably could to meet the compliance objectives if it did not consult with the Charity Commission whenever it was appropriate to do so.
    It was considered that it would be too prescriptive for the details of the relationship between principal regulators and the Charity Commission to be expressly set out on the face of the Bill. It is intended to establish a committee of principal regulators to share best practice and to ensure consistent communication and
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    application of regulatory requirements. We all want to try to keep bureaucracy to a minimum. I am not sure that this amendment fits that bill. I hope that the noble Lord will withdraw it with good grace.
    Lord Hodgson of Astley Abbotts: When I am told that I am increasing the regulatory burden, I am very sensitive to that accusation. The Minister flatters me by saying that the amendment is nice but unnecessary. Therefore, I am happy to beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    Lord Bassam of Brightonmoved Amendment No. 118:
    Page 14, line 38, leave out "increase" and insert "promote"
    The noble Lord said: We have already debated this. I beg to move.
    On Question, amendment agreed to.
    [Amendment No. 119 not moved.]
    Lord Hodgson of Astley Abbottsmoved Amendment No. 120:
    Page 15, line 3, at end insert—
    "( ) Such regulations shall be brought into force within 6 months of the coming into force of this section."
    The noble Lord said: The amendment would insert a provision into Clause 13 that regulations concerning the role of the principal regulator must be brought into force within six months of the coming into force of the Act. The purpose of this section of the Bill is to ensure that exempt charities are, so far as is reasonable, subject to proper regulation in relation to the way in which they carry out their obligations from the point of view of charity law.
    The principal basis on which certain exempt institutions are relieved from registering with the Charity Commission is that they can point to another main regulator who can perform the job of regulating for charity law purposes as well. It is only if the principal regulator is identified by order that such charity law regulation will occur. If no order is made under Clause 13(4)(b), the exempt charity will remain unregulated for charity law purposes, which is contrary to the spirit and intention of the Bill. It is therefore important that there should be a time limit for implementation of the principal regulator and in our view six months is a long enough period. I beg to move.
    Lord Bassam of Brighton: It may help if I set out the Government's intentions for the implementation of the provisions relating to exempt charities.
    Clause 13(4)(b) provides the Secretary of State with the power to make regulations prescribing the principal regulators for specific charities or groups of charities. These regulations would be subject to the affirmative resolution procedure. Under Clause 71(1)(a), this regulation-making power would come into force on the day on which the Bill becomes law.
    The Government intend that the other provisions dealing with exempt and excepted charities should come into force in 2007. There are good reasons for

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    this. Exempt charities that are to be regulated by a principal regulator will need time to prepare themselves for changes to their existing monitoring and reporting processes. The same applies to those with an annual income over £100,000 for which we have not been able to identify a principal regulator, which will need to register with and be regulated by the Charity Commission.
    It will take some time properly to establish the principal regulators. One of the first steps will involve reviewing the legislation under which they are established to determine what amendments or modifications are required to enable and equip them to take on the role of principal regulator. We will consult with stakeholders on the draft regulations. The proposed principal regulators will need to consider changes to their monitoring processes which would enable them properly to monitor the exempt charities within their scope. The Charity Commission and the proposed principal regulators will need to develop memoranda of understanding, to formalise the details of the relationship between them, to include, for example, matters such as information sharing.
    The amendment of the noble Lord, Lord Hodgson, would require regulations prescribing principal regulators to be made within six months of the Bill becoming law. If, for whatever reason, regulations could not be made within six months establishing the principal regulator for a particular charity or group of charities, they would continue to be exempt charities, unless or until the Secretary of State exercised his order-making power to remove their exempt status and required them to be registered with and regulated by the Charity Commission, and the additional burden this would involve. We do not think this is practical given the work involved in establishing the principal regulators, and the fact that we want to give exempt charities time to prepare for regulation, be it by a principal regulator or by the Charity Commission. I refer to the short time frame that the noble Lord proposes.
    While I sympathise with the noble Lord's wish for the provisions on exempt charities to be implemented speedily, I hope he understands the reasons why our plan is for implementation of these provisions in 2007, which will allow sufficient time for principal regulators and exempt charities to prepare. It is simply a matter of practicalities and the amount of work that needs to be done in the relevant time frame. That is what motivates our decision to resist this particularly seductive amendment.
    Lord Hodgson of Astley Abbotts: I am particularly grateful to the Minister for laying out the timetable. It is helpful to have that on the record. I am sure that will help members of the sector when they read the record of our proceedings. The concern was that an uneven playing field would exist for a long time and that, in the famous words, tomorrow would never come. However, the Minister has reassured me that will not happen and that tomorrow will arrive, even if it is in 2007. I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
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    On Question, Whether Clause 13, as amended, shall stand part of the Bill?
    Lord Hodgson of Astley Abbotts: Clause 13 is entitled,
    "General duty of principal regulator in relation to exempt charity".
    We have tabled this clause stand part debate to tease out from the Government how principal regulators are to be selected and against what criteria their performances are to be judged. Nowhere has this been explained. There is concern in the sector about an even playing field in this regard. Do principal regulators just put themselves forward or are there more complicated reasons for the commission not detailing the selection process? The regulatory impact assessment covers this only very briefly. For example, as I understand it there has been no study published or made publicly available that describes how HEFCE plans to carry out the charity regulation aspects of its work, so how can we know what the regulatory impact will be?
    HEFCE is not respected by all higher education stakeholders—I believe that some higher education bodies have elected to register directly with the Charity Commission—though there is an acceptance that it may have access to the best data. However, to date it has shown few teeth as a regulator and some have suggested there are doubts whether it has any legal power to act in this matter. Therefore, a number of questions arise. How and by whom will principal regulators be judged to be effective? Who do they report to? Will they have to make an annual report to the commission or will they report to their relevant government departments? What about parliamentary scrutiny of these exempt sectors? They are certainly big enough to merit it.
    A key issue identified by the Association of Medical Research Charities (AMRC) is the potential conflict of interest between the roles of major funder and principal regulator. AMRC's interest is to protect the independence of charitable funding for research from the interference of the state. Therefore, it would be helpful to receive an assurance from the Minister that the independence of charitable funds will be assured, even if the principal regulator is a principal funder, a government department or a government agent.
    It is not clear from Clause 13(2), even with the insertion of our Amendment No. 117, that the commission will have any powers over the principal regulators should they fail to promote compliance. This is unknown territory and we should be seeking a much stronger commitment to keep it tested and under review. Our key aim is to secure a commitment from the Minister to review the relationship between the commission and principal regulators to see whether compliance has been achieved and is continuing to be achieved.
    As I say, to whom are the principal regulators responsible regarding compliance with charity law? I believe that in an earlier debate the noble Lord, Lord Phillips, said he was sure that that responsibility

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    fell to the commission, but I cannot find that stated explicitly anywhere. I look forward to hearing the Minister's response to those points.
    Lord Phillips of Sudbury: Pursuant to what the noble Lord, Lord Hodgson, said, I hope there will be a very full consultation before the regulations are laid under this clause. The affirmative procedure is required which is of some consolation but I assume that there will be a very full consultation to ensure that the kind of concerns voiced by the noble Lord, Lord Hodgson, are fully taken into account.
    Lord Bassam of Brighton: On the first point made by the noble Lord, Lord Phillips, of course there will be consultation. I am sure that in keeping with the spirit of the legislation the consultation will, indeed, be full as this is a very important set of relationships.
    I am grateful to the noble Lord, Lord Hodgson, for initiating this clause stand part debate as it provides me with the opportunity to put on record our view of how this part of the Bill will work. The clause provides for the determination of principal regulators and for amendments to be made to their legislative framework to enable them to take on the role of principal regulator. It also provides the objective for a principal regulator, which is to further charity law compliance by the trustees of exempt charities which it monitors.
    We have already had lengthy discussion on that and I have spoken at length about the Government's policy towards exempt charities and the approach of establishing principal regulators to minimise bureaucratic burdens on those charities. Perhaps it would help if I simply restate and reiterate some of the main points. The Government accept the Strategy Unit recommendations that exempt charities should have their monitoring regimes adapted to cover basic charity law requirements and should provide information on their voluntary funds. As I have said on a number of occasions, where possible the Government have identified principal regulators—organisations that already monitor or regulate exempt charities in other ways—which will take on the role of monitoring and promoting charity law compliance.
    Principal regulators are already familiar with the charities they will be regulating as the charities are already monitored by them in other respects. Their knowledge and expertise of the particular sector for which they will be responsible will be a key advantage. We had much discussion on that when we debated HEFCE's role. Principal regulators will be able to adapt existing monitoring mechanisms to capture information required for monitoring charity law compliance. We believe that will keep the burden of regulation to a minimum. Principal regulators will not have powers of investigation and enforcement; only the Charity Commission will be able to intervene at the request of the principal regulator. The Charity Commission's view is that this is likely to be infrequent given that these organisations are already subject to monitoring through their own existing regulatory regimes.
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    The names of the principal regulators that we have identified for individual exempt charities or for classes of exempt charities are listed in chapter 4 of the regulatory impact assessment, which was published with the Bill. The list is too long for me to go through now but I can tell the Committee that all the principal regulators are organisations created by statute or by Secretaries of State or in one case by the Welsh Assembly. Like the Charity Commission, all the principal regulators are ultimately accountable to Parliament or to the Welsh Assembly for the performance of their functions. That accountability will extend to their new functions as principal regulators of exempt charities.
    If this clause were not to stand part of the Bill, there would be no principal regulators and we would be left with a very difficult choice. We would either have to maintain the anomalous position of exempt charities by leaving them unregulated with regard to charity law—which I am sure would draw criticism from registered charities and others—or we would have to force them to register with, and be regulated by, the Charity Commission, thus negating the benefits of reduced bureaucracy that the principal regulator approach provides.
    4.15 p.m.
    The Government believe that appointing principal regulators for exempt charities where it has been possible to do so provides a proportionate solution which will establish greater accountability and transparency while imposing the minimum extra bureaucracy. I expect to provide some further reassurances when we discuss some of the other amendments tabled to this clause. I hope that in the light of what I have said the noble Lord will feel able to reconsider his intention to oppose the Question that the clause stand part.
    The noble Lord, Lord Hodgson, asked about conflicts of interest and whether a body could be both funder and regulator. We have no objection to that in principle. An example is the Housing Corporation, which is widely viewed as a very effective regulator in its own right.
    Lord Hodgson of Astley Abbotts: I am grateful to the Minister for that explanation. However, one point he made slightly surprised me. Did he say that the principal regulator has no powers of investigation and that only the Charity Commission can investigate?
    Lord Bassam of Brighton: Yes, I did say that.
    Lord Hodgson of Astley Abbotts: I find that slightly strange. I should like to think about that because it seems to me that a principal regulator should be able to investigate. As I said, one of our concerns is whether the bodies have the legal teeth to be proper regulators. It seems to me that investigative powers are part of that. To have to pass all investigations back to the Charity Commission seems to make them only second division principal regulators at best.
    Lord Bassam of Brighton: This matter requires clarification. If an investigation were needed, the role

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    of the Charity Commission would be to intervene at the request of the principal regulators. The principal regulators would approach the Charity Commission, explain that a problem needed to be investigated and support the Charity Commission in conducting that exercise.
    Lord Hodgson of Astley Abbotts: I am grateful for those comments and I am glad that they are on the record. I should like to think about them. It seems to me a strange regulatory structure for HEFCE to ask the Charity Commission to look into a problem that may arise with a university. However, as I say, I should like to think about the matter and perhaps return to it.
    Clause 13, as amended, agreed to.
    Clause 14 [Commission to consult principal regulator before exercising powers in relation to exempt charity]:
    Lord Hodgson of Astley Abbottsmoved Amendment No. 120A:
    Page 15, line 13, leave out "relevant"
    The noble Lord said: My noble friend Lord Hunt, in whose name this amendment is tabled, will later tonight reply for the Conservative Front Bench on the Serious Organised Crime and Police Bill. Therefore, he has asked me to speak to Amendments Nos. 120A and 120B on his behalf.
    Clause 14 inserts new Section 86A entitled,
    "Consultation by Commission before exercising powers in relation to exempt charity".
    I think that it is common ground among us all—certainly this is common ground between the noble Lord, Lord Phillips, and me—that we want the Bill to be as simple, as unbureaucratic and as readily understandable as possible. That is why we have some problems with this clause as it stands.
    In paragraph 368 of its report, on page 99, the Joint Committee states:
    "The Committee also recommends that the Charity Commission should be given a duty in the Bill to consult with principal regulators before using any of its enforcement powers in respect of exempt charities".
    That seems to me to endorse a simple principle: it is universal and readily understood. For a time it seemed that the Government had accepted the Joint Committee's call for clarity and that the Bill, when published, would include a general obligation to consult. Therefore, it was with disappointment and some foreboding that I saw that the Bill included in Clause 14 only partial implementation of the duty to consult.
    The list of powers in the clause described as "relevant" seems rather arbitrary and I agree with the various representatives of charities who have argued that the concept of "relevant" powers—and, by implication, of irrelevant ones—should be struck from the Bill.
    The subsection that I seek to delete entirely from the Bill includes the rather esoteric powers contained in Sections 73(4) and 73C(4) to (6) of the Charities Act 1993 (orders relating to remuneration paid while a trustee is disqualified). However, it does not include, for example, Sections 14B (power to make cy-près schemes), 26(1)
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    (power to sanction trustees' actions), 31A (power to apply for a warrant to enter and search), 63(2) (power to present a petition to the High Court for the winding up of a charity) or 75A (power to free land from restrictions).
    Frankly, by the time this list is expanded sufficiently to make any sense, it would be simpler to dispense with it altogether—striking out the notion of a "relevant" power in subsection (1) of new Section 86A and deleting entirely subsection (2) of the new section.
    These amendments would simplify considerably the relationship between the Charity Commission and the principal regulators, making life easier for both. They would have the consequential effect of simplifying the memoranda of understanding that will have to be drawn up between the commission and the regulators.
    I wish to say a few words about the requirement to consult itself. The word is well chosen for it explicitly underlines the fact that the final decision in the matters under discussion will rest with the higher authority—the Charity Commission. That is subject to the various provisos that we in this Committee are in the process of discussing, particularly the proportionate use of the Charity Commission's powers.
    My amendments are about good working relationships, about courtesy and about making the system work well. These processes will surely work more smoothly if there is a general presumption in favour of the commission calling upon the accrued expertise of the principal regulator before exercising its powers to intervene. I beg to move.
    Lord Phillips of Sudbury: As a member of the Joint Committee I am obliged to the noble Lord, Lord Hodgson, for reading out our recommendation which was one of several along those lines. We have said it many times before. However, I have a query on this amendment. It is somewhat akin to the one I raised on Amendment No. 117, which required consultation with the Charity Commission. My concern again is that one does not double up consideration. If we delete "relevant" from Clause 14(1), I fear that the Charity Commission would then be required, before doing anything at all, to consult with the charity's principal regulator. If the amendment were accepted, the clause would read:
    "Before exercising any power in relation to an exempt charity, the Commission must consult the charity's principal regulator".
    The Charity Commission must be by definition exercising some power when it does anything in relation to any charity.
    The consequences of the measure might not be as the noble Lord, Lord Hodgson, intends as it would create almost a mirror image of consideration by both the principal regulator and the Charity Commission. That in turn would necessarily increase the bureaucratic overlay. I do not enjoy arguing against amendments proposed by the noble Lord but I believe that this measure may have exactly the reverse effect from that which he intends.
    Lord Bassam of Brighton: I certainly appreciate the point made by the noble Lord, Lord Phillips. However, I also appreciate the point that the noble Lord, Lord

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    Hunt, wished to put forward through the amendment which the noble Lord, Lord Hodgson, ably moved. The point made by the noble Lord, Lord Hunt, in the amendment is that the principal regulator has an interest which goes rather wider than just those powers that might be described as enforcement powers, and that the consultation requirement should apply before the commission exercises any of its statutory powers over an exempt charity. We see some sense in that and we are willing to accept the noble Lord's amendment in principle.
    In doing so, however, we note that requiring the commission to consult a principal regulator does not give a principal regulator the right to veto the commission's exercise of its powers. However, it gives the principal regulator the right to have its views listened to and—this is important—taken seriously by the commission before it acts. We believe that is no bad thing in itself. I see where the noble Lord, Lord Phillips, is coming from but we see some merit in the amendment. I believe that we can come up with something which will work. We would like to take the measure away, consider it and return at Report with an amendment which has the effect that the noble Lord, Lord Hunt, seeks, but also takes into account the point made by the noble Lord, Lord Phillips.
    Lord Phillips of Sudbury: Before the noble Lord, Lord Hodgson, replies, if there were a crisis in relation to a charity, whereby the Charity Commission was having to exercise one or several of its many statutory powers to protect charitable assets, would that mean that every time it did anything it would have to consult the principal regulator? If there were an emergency situation, where swift action or a series of consecutive decisions have to be taken—snap, snap, snap—unless the construction of the phrase "before exercising any power" were to be confined to the initial exercise of the power, I can see a huge problem about doing the job. I hope that in considering the matter the Government will take full account of that. The last thing in the world that we want is to run into a situation in which there is an impediment to effective oversight of charity in extreme situations.
    Lord Bassam of Brighton: I suppose we come back to that word that we often debate in Committee and elsewhere, "proportionately" and using the powers proportionately. Clearly, a judgment call has to be made about what is proportionate in the circumstances.
    Lord Phillips of Sudbury: With respect to the noble Lord, I do not believe that these words will be left as such. There is no issue of proportionality. It says,
    "Before exercising any power … the Commission must consult".
    Lord Bassam of Brighton: Then we need to be clear what we mean by "any power" in those circumstances. We shall have to give that further thought.
    Lord Hodgson of Astley Abbotts: I am grateful to the Minister. I am sure that my noble friend Lord Hunt will be grateful to the Minister for his positive response.
    Lord Bassam of Brighton: Positive with qualifications.
    Lord Hodgson of Astley Abbotts: Possibly. I shall turn to the torpedo launched by the noble Lord,
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    Lord Phillips, into my port side. I do not believe that it was ever considered that there should be a veto on the power of the Charity Commission to take action, but there was a requirement for it to be listened to and consulted. I wonder about the urgency issue that the noble Lord, Lord Phillips, raises quite properly and whether that could be covered in some aspect of the memorandum of operational understanding. When there is real urgency, one could dispense with that, and the MOU might cover it.
    Lord Bassam of Brighton: I made the point earlier that there will be a committee of principal regulators, and no doubt that will concern best practice in the circumstances.
    Lord Hodgson of Astley Abbotts: I am sure we can tackle that issue. It is very positive. With that reassurance I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    [Amendment No. 120B not moved.]
    Clause 14 agreed to.
    Clauses 15 to 17 agreed to.
    Clause 18 [Cy-près schemes]:
    Lord Hodgson of Astley Abbottsmoved Amendment No. 121:
    Page 17, line 29, after "applied" insert "with the consent of the trustees"
    The noble Lord said: Amendment No. 121 concerns Clause 18 and the cy-près schemes, which are described in this section of the Bill. The current law on cy-près schemes, set out in the Charities Act 1993 does not, in normal circumstances, allow the Charity Commission to create such schemes on its own initiative. Section 13(5) of the 1993 Act obliges trustees of charitable trusts to apply for a scheme in circumstances where,
    "the case permits and requires the charity's property or some part of it to be applied cy-près".
    In most cases, cy-près schemes are made only when charity trustees apply for one. Section 16(6) of the 1993 Act—it applies to schemes in general, not only to cy-près schemes—allows the commission to make a scheme of its own volition, but only if,
    "the commissioners are satisfied that the charity trustees ought in the interests of the charity to apply for a scheme, but have unreasonably refused or neglected to do so, and the commissioners have given the charity trustees an opportunity to make representations to them".
    4.30 p.m.
    New Section 14B(2), beginning at line 27 on page 17, significantly widens that power, allowing the commission to make a cy-près scheme whenever charitable assets are applicable cy-près, "as it considers appropriate". That would allow the commission to override the wishes of the charity trustees, contrary to the principle stated in new Section 1E(2)(b)—page 7, lines three to four—that the commission should not,
    "be directly involved in the administration of a charity".

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    Amendment No. 121 seeks to rectify that by stipulating that the commission's power in new Section 14B may be exercised only with the consent of the charity trustees. I beg to move.
    Lord Bassam of Brighton: I shall go through the matter carefully, because it affects the way in which we approach the whole area. New Section 14B(1) of the 1993 Act requires the commission and the court to act in accordance with the provisions of that section when exercising their powers to make schemes for applying property cy-près. As this is the first amendment concerned with the application of the cy-près rule, I shall take a little time to work through and explain it and the circumstances under which a scheme can be made to apply a charity's property cy-près in accordance with the rule.
    Section 13 of the 1993 Act sets out the circumstances in which a charity's original purposes can be altered according to that rule. Those circumstances are, to paraphrase, where the original purposes have already been met or can no longer be fully met; where the purposes have ceased to be charitable purposes; or where the purposes no longer provide an effective means of using the charity's property. As a shorthand, the commission normally describes those circumstances as ones in which the charity purposes have failed.
    The cy-près rule is the rule that requires the commission, where a charity's purpose has failed and the commission is making a scheme to alter a charity's purposes, to alter its purposes so that the new purposes are drawn as closely as reasonably possible to the failed purposes while, of course, avoiding the failure that afflicted the original purposes. There are two principles behind the operation of that rule. One is that once assets are held for charitable purposes, they should remain in perpetuity within the domain of charity. The failure of a charity's purposes is therefore met by a device—the cy-près scheme—to ensure that alternative charitable purposes are provided for the use of the assets, rather than allowing them to continue to be used for purposes which have ceased to be charitable.
    The other principle is that the wishes of donors should as far as possible be respected. A donor of assets has given them for a particular purpose. If that purpose fails, the donor's expectation is reckoned to be that the donated assets will be used for something as similar as possible to the purposes for which the assets were given in the first place. To take an example, people who give money to a particular disaster relief fund do not expect, if the fund attracts more money than is required to relieve needs arising from the disaster, their money then to be diverted into, say, animal welfare or amateur sport. They would prefer it, I am sure, to be diverted into something very similar to the purpose that was oversubscribed, perhaps another similar disaster relief fund.
    New Section 14B would slightly alter the way the cy-près rule can be applied. It will allow the commission to take into account not only the need to find a new purpose that is close to the failed purpose
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    but the spirit of the original gift and the need to ensure that the charity can make a significant social or economic impact. In other words, proximity of purpose would not be the overriding imperative; equal consideration would be given to the spirit of the gift and the social or economic impact imperative.
    I turn to the core of the noble Lord's amendment. The commission's power to make a cy-près scheme is contained in Section 16 of the 1993 Act. Subsection (4) of that section provides that the commission shall not exercise its jurisdiction to make a scheme except on the application of the charity or on an order of the court or, for a charity that is not an exempt charity, on the application of the Attorney-General. Subsection (5) allows the commission, in the case of a charity with an income of £500 a year or less, to consider an application from a wider range of people. Subsection (6) allows the commission, in certain specific circumstances, to make a scheme on its own initiative. I understand that it is extremely rare for the court to order a scheme or for the Attorney-General to apply for one, and the majority of schemes made under Section 16 were made because the trustees of the charity applied for one.
    The only other circumstances in which the commission can make a scheme on its own initiative and, perhaps, against the trustees' wishes is if, in the course of a statutory investigation, it has found misconduct and mismanagement and considers that there is a continuing risk to the property of a charity. Such schemes are made under Section 18 of the 1993 Act and, again, are rare.
    The commission normally, of course, gives every consideration to trustees' views on the nature of the purposes to be substituted when a cy-près scheme is made, but it is for the court or the commission, in the public interest, to exercise the discretions conferred by the section. That will not invariably coincide with the wishes of the trustees. It would not be appropriate to give the trustees an effective veto on a scheme of the court or the commission of which they did not approve. They will, of course have the right of appeal against the order that is made.
    I hope that the noble Lord will have come to the conclusion from what I have said that, far from having wide discretion to make schemes out of its own thinking, the action of the commission is already pretty closely circumscribed and that it is only in rare and exceptional cases that a scheme can be made without its being sought and approved by the trustees of the charity concerned. That is how we want to see things work in the future.
    Lord Hodgson of Astley Abbotts: I am grateful to the Minister for that wide and helpful explanation of the cy-près operation in the 1993 Act. The slight inconsistency in what he said was that he said that the powers were rarely used and that we needed to widen them with this Bill. If they have been used rarely since 1993, it is not clear why we have to extend the power, role and influence of the commission in this area.

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    In particular, I did not think that the trustees would have a veto; I rather thought that they would have to be consulted. It seemed to me that, in those circumstances, we were moving the powers of the commission up further in a way that was not desirable, given that their powers under the 1993 Act had not been shown to be deficient in any way.
    I shall read carefully what the Minister said. In the mean time, I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    Lord Phillips of Sudburymoved Amendment No. 122:
    Page 17, line 40, leave out "make a significant social or economic" and insert "realise its potential charitable"
    The noble Lord said: Clause 18, which relates to cy-près schemes, is, as the noble Lord, Lord Bassam of Brighton, implied, a very important clause. It seeks to make up for some of the inadequacies in the 1993 Act regime.
    The quarrel that I have with the wording of subsection (3)(c) of the proposed new section is that the scope of the cy-près scheme is altogether too narrow. As the noble Lord said, in the making of a scheme, the matters that must be taken into account are, first, the spirit of the original gift—fine—secondly, the desirability of making sure that the charitable assets are used for purposes close to the original purposes—fine—and, thirdly, the need for the relevant charity,
    "to be able to make a significant social or economic impact".
    It does not take a lot of consideration to realise that those two adjectives, "social" and "economic", are too limited in their scope to make this a satisfactory third limb of the matters for consideration. What about cultural, sporting, aesthetic, educational, research matters et cetera? My amendment would replace,
    "make a significant social or economic impact",
    with, "realise its potential". It is as simple as that.
    In proposing the amendment, I am encouraged by the fact that Section 13(5) of the 1993 Act already states that a trustee, in applying a cy-près scheme, must do so,
    "to secure its effective use for charity".
    That would be a better phrase, I suggest, than the one in the Bill. The 1993 Act uses "effective use"; I have suggested "realise its potential", but there are many other phrases that one might use, and I think that the noble Lord, Lord Hodgson, is about to propose another. Whatever phrase we use, it is not at all adequate to be left with those rather narrow words. I beg to move.
    Lord Hodgson of Astley Abbotts: I have proposed Amendment No. 123, as the noble Lord, Lord Phillips, said. He has made all the points that need to be made. I do not like the words in the Bill for the reasons that he has described. We prefer, "an increased impact".
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    We are heading down the same track. We have not chosen quite the same words, but I do not wish to detain the Committee by repeating what he said.
    Lord Shutt of Greetland: Perhaps I may give an example. If a bowling green is a charity and, down the road, a brewery or a local authority has put together a bigger and better bowling green, the trustees of that bowling green ask, "What do we do with our bowling green?". They decide that it is right to make it some sort of environmental area. It is doubtful whether that would fit "social or economic" and it is certainly doubtful whether it would be "significant". "Significant" really is in the eye of the beholder. A place the size of a bowling green becoming an environmental area may be very much the right thing to do, but, in the great pattern of things, it would be hard to suggest that it would be "significant". The words in the Bill are restrictive. The words of the noble Lord, Lord Phillips, would allow the provision to be used in a much wider way.
    Lord Bassam of Brighton: I can see the difficulty here, but I am not sure that I agree that the noble Lord, Lord Phillips, or the noble Lord, Lord Hodgson, have got the answer. "Potential charitable impact" or "increased impact" would, I presume, be the new wording. It is hard to judge what that would achieve. How does one judge the realisation of a potential charitable impact? I am not quite sure what means one would put in place.
    In the end, I am not convinced that the alternative wording broadens the scope of the provision in a way that does not depart too far from the original intent of a charity, any better than "social or economic impact". One can include under "social" and "economic" a number of things. It may well be that there is a social benefit in changing a bowling green to an environmental area. I am sure that there would be because people in the local community would feel that their environment was being greatly enhanced and that it added to sense of community spirit and well-being.
    Given that the cy-près scheme must be as near as possible to the original purpose and that the proposed change should not be so radical as to undermine the confidence of donors, the scheme ought really to relate back to the donor's original wishes and be in the spirit of the original gift. We are making a fine judgment here. What is significant must of course be judged by reference to the amount of resource available to the charity or charities to which the scheme is being made. I am not convinced that the alternatives on offer are any better than what we have already. By having "social or economic impact", we will have a broadening out that works and respects the fact that charities exist in a community context.
    Lord Hodgson of Astley Abbotts: It is not clear why the Minister is hanging hard onto those words, when elsewhere the words "social and economic impact" were removed in accordance with recommendation 13 of the scrutiny committee. We seem to have allowed them to be swept away everywhere else, but suddenly, in this one place, we are grimly hanging on to them.
    4.45 p.m.
    Lord Bassam of Brighton: It depends where it is appropriate. Here it relates to the cy-près scheme and the origins of a charity that has failed—or it might have succeeded—and needs to move on, whichever way one prefers to look at it. That is the reason.
    We take our starting point from the fact that a charity has been set up for a particular purpose and that a donor perhaps wants to encourage a widening of the purpose of the original gift. One can fiddle with the wording endlessly. We believe that our wording is broad enough to respect the original intentions and to provide some flexibility in designing a new scheme, but not so broad as to frustrate or lose completely the original sense of purpose that was behind the original donation.
    Lord Phillips of Sudbury: I am bound to say that the Minister is in need of a cy-près scheme. I think his reasoning has failed. The intervention of the noble Lord, Lord Hodgson, was fairly mortal. To pretend, as the Minister does, that the words "social or economic" embrace the whole sphere of charity will not wash.
    Lord Bassam of Brighton: I was not saying that.
    Lord Phillips of Sudbury: You said as good as that. You said that it was wide enough to cover all circumstances needed. I can see help arriving.
    I urge the Minister to consider the matter again tomorrow or the day after. I do not believe, for example, that the words "social or economic" naturally fit an educational charity at all. One can squeeze in social, educational or aesthetic, or many other things, but many adjectives are used in the Bill. Noble Lords will remember that there was a big argument over the duties of the Charity Commission and the use of the word "economic". If nothing else, let us return to Clause 13(5) of the 1993 Charities Act and talk about securing greater effectiveness, or something like that.
    It is bad legislation to take a word like "economic" or "social" and say that one can squeeze everything from saving lives to animal experimentation to chess into it. That is bad legislation. Let us have a general phrase and not use those particular adjectives. I am an unhappy man, and I shall withdraw the amendment on that basis.
    Lord Bassam of Brighton: I shall try to be helpful. I did not think I was hanging on grimly. I can almost hear a different argument in my head. I can see circumstances in which I would have been attacked for seeking to broaden out, when noble Lords opposite might have wanted us to narrow the matter, so that we did not lose sight of the original purpose.
    I have heard what the noble Lords, Lord Phillips and Lord Hodgson, have said. I shall not fail to consider it further. Having listened to what has been said and bearing in mind that we want a helpful Bill, I shall have another look at the wording. I am not sure that I am happy with the words used by the noble Lord, Lord Phillips, in his amendment. When someone has set
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    up a fund, it is hard to assess where he really intended the potential of the charitable impact to end up. That is a difficulty.
    Lord Phillips of Sudbury: I do not want to prolong the debate, but the Minister referred to the need to stick to the original purposes. It is already there; it is the second limb of three. He does not need to worry about that. All we are talking about under the third head is the need for the relevant charity to be able to realise its potential—the noble Lord, Lord Hodgson of Astley Abbotts, says "increase its potential"—and so on. That is another problem along the lines mentioned by the Minister. I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    [Amendment No. 123 not moved.]
    Clause 18 agreed to.
    Clause 19 agreed to.
    Clause 20 [Power to give specific directions for protection of charity]:
    Lord Hodgson of Astley Abbottsmoved Amendment No. 124:
    Page 19, line 14, leave out "considers" and insert "reasonably believes"
    The noble Lord said: We are flying through the clauses this afternoon. Amendment No. 124 relates to Clause 20. Where the commission discovers misconduct in a charity, this clause allows the Charity Commission to order trustees or employees of a charity to take action which the commission considers to be expedient in the interests of the charity. It is therefore a very important clause.
    Amendment No. 124 seeks to remove the word "considers" replacing it with the words "reasonably believes". We believe that the test as to what the commission "considers" to be expedient is not sufficiently high. We argue that the test as to what the commission "reasonably believes" to be expedient is more appropriate. The latter phrase is established in the courts and in statute as a higher test and therefore is the more appropriate wording in this context.
    The Bill as drafted significantly increases the commission's power to issue orders directly to charity trustees and employees. With that increase in commission power and the potential increase in interference with the performance of the duties of charity trustees and employees, it seems only balanced for the commission to be subject to a higher test. The word "considers" is too wide a definition and therefore open to abuse. The test of reasonable belief is well established in law and would be a better test in the circumstances. I beg to move.
    Baroness Howe of Idlicote: I also support the amendment. In the light of the comments made about the use—or some would call it "misuse"—of the commission's powers in the past, and given that these

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    powers are to be increased, it would be valuable to have a slightly more precise test such as the one proposed.
    Lord Bassam of Brighton: My advice is that the amendment will have no effect. The Bill as drafted prevents the commission from ordering that a specified action be taken unless the commission "considers" the action to be expedient in the interests of the charity. Here "expedient" means advantageous or beneficial. So, before ordering an action to be taken, the commission must be in a state of "considering" that the action will advance or benefit the charity's interests.
    In this context there is no material difference between the state of "considering" that an action will do that and the state of "believing" that it will do that. Both require the commission to have reached a positive view that the taking of the action will be of advantage or benefit to the charity's interests, which really means the interests of the charity's beneficiaries.
    Furthermore, as we have said on a number of occasions, the commission is under a permanent duty as a public body to act reasonably in exercising all its functions and powers, whether or not there is an express requirement to act reasonably before exercising any particular function or power. The commission says:
    "In exercising our legal powers, we will seek to act with impartiality, fairness, independence and honesty. We will follow the principles of natural justice, and act proportionately and reasonably".
    Inserting the word "reasonably" here would have no legal effect. The commission has to, and says that it will, act reasonably whether or not the word is present. So, the amendment would not change anything and is unnecessary. In the light of that, I hope that the noble Lord, Lord Hodgson, will feel able to withdraw it.
    Lord Hodgson of Astley Abbotts: The Minister is, as ever, punctilious. He says that "considers" is the same as "reasonably believes". I am no lawyer. It may be that the noble Lord, Lord Phillips, will ride to the Minister's rescue by referring to the charity law about this. I consider that "reasonably believes" in English—perhaps not in legal English—is a much stronger test than "consider". "Consider" is something that I would quite likely enter into. If I "reasonably believe" something, I would have to have a foundation for my belief.
    I do not propose that the Minister and I argue that this afternoon or further discuss the legal wording. However, I shall take advice outside and see whether the briefing note so beautifully prepared for the Minister stands up to external scrutiny. If it does not, I shall be back. In the mean time, I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    Lord Phillips of Sudburymoved Amendment No. 125:
    Page 19, line 22, at end insert "and shall be without prejudice to the rights of third parties, whether contractural or otherwise"
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    The noble Lord said: Amendment No. 125 and Amendment No. 126, which is grouped with it, relate to Clause 20. It inserts into the 1993 Act a new Section 19A, which relates to the power to give specific directions on the part of the Charity Commission to protect charity. The section to be inserted into the 1993 Act comes after Section 18 of that Act, which relates to the misconduct or mismanagement of a charity or the need to protect its assets to prevent their misuse. So, it is an important clause.
    The point of my amendments is to give protection to third parties. The power given by the clause is very wide and deep. The clause says that, once the commission has directed, for example, a charity trustee or employee of a charity to take certain action, that trustee or employee, if he or she takes that action, is exonerated from the consequences.
    My first amendment would expressly preserve the position of third parties that may have contractual or other rights against or in respect of the charity concerning which the order is made. That is a proper protection that ought to be in the Bill. The Bill might imply, without the amendment, that, if the order impinged on the rights of third parties, they had somehow lost them.
    In passing, I note that subsection (3) of the new section limits the extent of an order that the Charity Commission can give to a charity trustee, employee or whomever. It refers to an action that is not,
    "expressly prohibited by any Act of Parliament".
    That seems to imply that, if the action is only implicitly prohibited by an Act of Parliament, one can carry on. My first amendment would protect the rights of third parties.
    The second amendment, which relates to subsection (4), would ensure that, if a trustee or employee is to shelter under the protection given by the subsection, they must have acted bona fide. Noble Lords may say that that is implied; I would argue that we ought to make it explicit, given the use of the word "expressly" in the previous subsection.
    I also refer the Committee to the provisions of Clause 24. It inserts another new section into the 1993 Act that relates to the power of the Charity Commission to give advice and guidance. That is an important power. Again, the clause exonerates a charity trustee or, I suppose, employee who is acting on the advice of the commission from any adverse consequences of doing so. In subsection (3) of that new section, we see the sort of protection that I seek to draw in by using the two little words "bona fide" in subsection (4) of the new section to be inserted by Clause 20.
    Clause 24 states that you do not always get the protection of having acted on the advice of the Charity Commission. It cites two examples: first, that the trustee,
    "knows or has reasonable cause to suspect that the opinion or advice was given in ignorance of material facts"
    or, secondly, where the trustee acts on that advice, knowing or expecting that a court is about to adjudicate on the matter concerned.

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    By inserting "bona fide" in subsection (4), one achieves the sort of sensible protection against unscrupulous action on the part of a trustee or employee that is imported expressly into Clause 24. It is on that basis that I beg to move.
    5 p.m.
    Lord Brooke of Sutton Mandeville: Mine is a simple question; it relates to Amendment No. 125. Since the adjective "procedural" is derived from the noun "procedure", what does "contracture" mean?
    Lord Phillips of Sudbury: The noble Lord, Lord Brooke, is being beastly. It is a spelling mistake. I was not going to draw that to the Committee's attention, but the eagle eye of the noble Lord has pointed to my embarrassment and I wish to withdraw the letter "r" in the word "contractual".
    Lord Bassam of Brighton: You can never put one over the noble Lord, Lord Brooke.
    Amendment No. 125 would ensure that the commission's orders giving specific directions for the protection of a charity do not infringe the rights of third parties. I think that that is agreed. We propose to address this concern by tabling an amendment to Schedule 4 on Report which would allow a third party to appeal to the tribunal if it believed that the commission had made an order which offended its rights. An order made by the commission under this section would be made only if the exercise of this power was in the best interests of the charity and, in particular, the protection of charitable funds or the prevention of maladministration. The commission would be acting as a protector of charity in those circumstances.
    I understand that Amendment No. 126 has been tabled to make it clear that a person cannot do absolutely anything under the authority of an order made under this section. As the Bill is drafted, subsection (4) only has the effect that a person acting under the authority of an order will be treated as acting within its powers. It does not protect him from any other legal consequences of his actions. Also, the order could not instruct a person to do something which was contrary to an Act of Parliament or which was inconsistent with the charity's purposes. We are considering to what extent it might be possible for an order to instruct a person to act unreasonably, or indeed for a person to act unreasonably in carrying out an order, while relying on new Section 19A(4) for assurance that he had acted properly. We will return with an amendment on Report if we consider it appropriate.
    I thank the noble Lord for tabling the amendments and I hope that he will see my response as helpful and constructive in the circumstances.
    Lord Phillips of Sudbury: I do indeed, and I thank the Minister. I am very content with what he said vis-à-vis Amendment No. 125. I am happy that the issue raised by Amendment No. 126 will be rethought. I
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    have no doubt that regard will be had to what is in the Bill to protect against the same potential evil in Clause 24. I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    [Amendment No. 126 not moved.]
    Lord Phillips of Sudburymoved Amendment No. 127:
    Page 19, line 25, at end insert—
    "(5) The Commission shall give to the charity and the charity trustees copies of any order made under subsection (2) as soon as practicable."
    The noble Lord said: This is a blazingly obvious amendment that does not need much additional justification from me. It relates to Clause 20, which inserts a new section into the 1993 Act. It states that when the commission makes an order that directs charity trustees or employees to do this or not to do that, it shall give to the charity and the charity trustees copies of any orders made by it. I cannot see but that that is common sense. There will be occasions when an order will be directed to a particular trustee. Unless the provision is included, other trustees might not be aware of what was being done. I await the Minister's explanation. I beg to move.
    Lord Hodgson of Astley Abbotts: I support the noble Lord, Lord Phillips. It must be sensible that an explanation be given for such draconian powers. I understand why they exist but, where they are used, the object of their use should be informed about the fact that they are being used.
    Lord Bassam of Brighton: Where the commission makes an order directing the charity trustees, any trustee for the charity, any officer or employee of the charity or, if the charity is a body corporate, the charity itself, the amendment would oblige the commission to give the charity trustees a copy of that order. It would be normal practice for the commission to send a copy of such an order—or any order—to the charity trustees, with the important caveat that it was appropriate and in the interests of effective regulation to do so.
    There are, however, circumstances in which the commission would not want to send an order to charity trustees; for example, when it is sending an order to a third party, such as an employee, or officer or trustee, who may be a property-holding trustee. There is a possibility that charity trustees might take action, which is not in the interests of the charity, to frustrate the order in some way.
    This is an inquiry-based power, so the commission may not operate in a way with which the charity trustees might agree. In such circumstances, the commission might send the order later, after it had been complied with, but that would not be "as soon as practicable", as required by the amendment.
    Similar situations arise under the commission's current powers. It might send an order to someone outside the charity, such as a bank, to ask for information or documents. It might want to seek

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    compliance without the charity trustees intervening, and there may be issues of confidentiality or personal safety for the third party.
    In spite of all those negatives, we are grateful to the noble Lord for his suggestion. We would like to take it away with a view to coming back on Report with an amendment that would require the commission to send a copy of any order as soon as practicable, except where it considered that it was in the interests of the charity to delay doing so. In other words, where the order makes good sense, where it assists the effective running of the charity and where it is outside some of the enforcement powers that might cause some problems in the charity, it of course seems sensible that a copy of that order should be forwarded in the way which the noble Lord seeks, as I am sure that it would be in any event. However, we will examine the amendment and come up with something that works.
    Lord Phillips of Sudbury: I am grateful to the Minister and entirely satisfied by what he said. I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    Clause 20 agreed to.
    Clause 21 [Power to direct application of charity property]:
    Lord Phillips of Sudburymoved Amendment No. 128:
    Page 20, line 1, leave out "expressly"
    The noble Lord said: This amendment is brief, and I shall try to be brief. It would remove the word "expressly".
    Members of the Committee may recollect that, when I moved Amendment No. 125, I spoke about the use of the word "expressly" in Clause 20. It recurs in Clause 21. Clause 21 gives the Charity Commission power to direct that charity property shall be applied in the way it directs in order to protect that property. The subsection to which the amendment relates states that an order made by the Charity Commission under the section,
    "may not require any action to be taken which is expressly prohibited by any Act of Parliament or by the trusts of the charity".
    As I said earlier, the word "expressly", if left in the Bill, clearly suggests that an implied breach of an Act of Parliament or of the wishes of the trusts of the charity would not be caught by that proviso. That seems to be double Dutch. I beg to move.
    Lord Bassam of Brighton: The noble Lord, Lord Phillips, is horrendously effective in making his point, and I bow to his knowledge here. To speed things along, I say only that I see the force of his argument. We shall take the amendment away and consider whether, on reflection, the noble Lord does not have it absolutely right. We shall then decide whether to instruct parliamentary draftsmen to produce a suitable amendment for a later stage.
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    I simply invite the noble Lord to consider whether, on its face, the same point arises in respect of subsection (3)(b) of new Section 19A, to be inserted by Clause 20. Does the noble Lord think that the use of the word "expressly" is different in that case?
    Lord Phillips of Sudbury: I am again grateful to the Minister. He did not expressly accept my amendment, but he implicitly accepted it. He is correct: the word "expressly" should be taken out of new Section 19A(3)(b). Precisely the same argument applies, but sheer want of energy and a certain natural restraint on my part prevented me tabling amendments to address all uses of the word. I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    Clause 21 agreed to.
    Clause 22 agreed to.
    Clause 23 [Participation of Scottish and Northern Irish charities in common investment schemes etc.]:
    Lord Hodgson of Astley Abbottsmoved Amendment No. 129:
    Page 22, line 16, at end insert—
    "( ) After section 24(1)(b) of the 1993 Act (common investment schemes) insert—
    "(c) for service non-public funds of the armed forces of the Crown irrespective of unit identity or location.""
    The noble Lord said: Amendment No. 129 has been tabled in the name of the noble and gallant Lord, Lord Craig of Radley, who is still away in Egypt. He has asked me to move the amendment on his behalf. It addresses Clause 23, on the ability of Scottish and Northern Irish charities to participate in common investment schemes. The noble and gallant Lord is particularly concerned about its effects on the Armed Forces.
    The concern is that the provision will affect service non-public funds. Unless some special arrangement is made, those funds will be caught by exposure to one or other of three separate charity governance schemes set up by this Parliament and by the devolved Administrations in Scotland and Northern Ireland and, perhaps at some future date, by the National Assembly for Wales. It would seem sensible that a common charity legal system should apply to the three armed services irrespective of unit identity or location in the same way as, say, the Army Act 1992 applies throughout the structure of the Army.
    I understand that the participation of Scottish and Northern Ireland charities in English and Welsh common investment schemes will be permitted. That would allow service units in Scotland or Northern Ireland to invest, for example, in the Army Common Investment Fund. Does it also allow the service central funds to remit funds or make grants to those service non-public funds outside their English or Welsh umbrella? If the service non-public fund of a Gurkha unit were to have to report to the Charity Commission's Armed Forces office in Taunton, why should the SNPFs of Scottish or Northern Irish units not do likewise?

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    The amendment would allow for the common treatment of SNPFs wherever they are to be found geographically. I beg to move.
    Lord Bassam of Brighton: I am grateful in his absence to the noble and gallant Lord, Lord Craig of Radley, for tabling the amendment. It gives me an opportunity to talk about common investment funds, which is not a widely known area of the law.
    Basically, common investment funds are a particular type of collective investment scheme. They are currently open only to charities in England and Wales. They are set up by schemes made by the Charity Commission under Section 24 of the Charities Act 1993. While they operate as investment vehicles, they are also deemed to be charities and are therefore eligible for registration as charities in their own right. Thus the Army Common Investment Fund is a registered charity.
    The benefits of common investment funds are that they provide for a broad range of investments, which helps to minimise risks. They are tax and cost efficient and administratively simple. Of course, as with all investment matters, trustees should take their own professional legal advice before investing in a common investment fund.
    The Bill has already done much to broaden membership of common investment funds. It provides that the trustees of a common investment fund may admit bodies recognised as charities under Northern Ireland law or as a recognised body under Scottish law. This represents a significant widening of the admission of bodies into common investment funds. It has dealt specifically with the concerns put forward by the Armed Forces about devolved legislation preventing service units based in Scotland and Northern Ireland investing in the Army Common Investment Fund.
    This amendment seeks to widen even further the range of charities able to invest in common investment funds, so that it could include any service non-public fund of the Armed Forces no matter where it is based. It could include organisations set up and established outside the UK, which would not be subject to the regulatory oversight of a UK regulator and might not satisfy or comply with charity law in the relevant UK jurisdiction.
    We believe that we have already gone a long way to meeting the concerns of the Armed Forces charities by widening the range of charities able to invest in common investment funds to charities based in Scotland and Northern Ireland. We do not believe that it would be appropriate to extend that even further to include bodies not established as charities under any of the United Kingdom jurisdictions. For that reason, we cannot support the amendment and I invite the noble Lord, on behalf of the noble and gallant Lord, Lord Craig, to withdraw it.
    5.15 p.m.
    Lord Hodgson of Astley Abbotts: With great respect, I think that the Minister is slightly missing the point.
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    This is concerned with investment rather than regulation. It is the ability to participate in a group investment scheme as a means of minimising risk—a point rightly made—for those making the investment. I think that the noble and gallant Lord, Lord Craig, is seeking to ensure that members of the Armed Forces, whether inside or outside the UK, can take advantage of these particular investment opportunities. They are sensible and carry a lower risk, and often the trustees feel that they are appropriate. Thus exactly how the participators—those making the investments in these schemes—are regulated is a secondary consideration.
    I think that the point the noble and gallant Lord seeks to make is that all units of the British Army, wheresoever located, should be able to take advantage of the types of scheme described in Clause 23, whether or not they fall directly under the regulatory structure of the Charity Commission. The fact that they do not should not affect their ability to invest.
    To be frank, I do not think that the Minister has directly answered the point put to him. However, at this point it may be appropriate for me to take further advice from Egypt before I pursue the matter. In the mean time, I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    Clause 23 agreed to.
    Clause 24 [Power to give advice and guidance]:
    Lord Phillips of Sudburymoved Amendment No. 130:
    Page 23, line 31, after "court" insert "or Tribunal"
    The noble Lord said: Mention has already been made of this clause. It will insert into the 1993 Act a new Section 29 spelling out the power given to the Charity Commission to give advice and guidance. It goes on to state that any charity trustee acting on that advice or guidance is protected against having otherwise committed a breach of trust. However, there are exceptions to that, one of which is,
    "a decision of the court has been obtained on the matter or proceedings are pending to obtain one".
    That indicates that if the decision of the court is contrary to the advice given by the Charity Commission, the charity trustee cannot then rely on it.
    My amendment is simple. It seeks to add the new Charity Appeal Tribunal alongside the court so that a trustee will not be protected if a decision of the court or the tribunal has been obtained, and that decision is contrary to the advice given. That seems a commonsense approach and I hope that the Government will think so too. I beg to move.
    Lord Bassam of Brighton: The Bill provides for a new Section 29 in the 1993 Act. Under the new section, the Charity Commission continues to have the power to give a charity trustee who applies in writing for it, its opinion or advice on any matter affecting the performance of his or her duties as a trustee. If the trustee acts in accordance with the advice or opinion given by the commission, he or she is deemed to have acted in accordance with the trusts of the charity. This protection is withdrawn, however, if the trustee knows

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    or suspects that the commission's opinion was given without it knowing all the material facts of the matter, or where the court has already given a decision on the same matter, or proceedings are under way to obtain the court's decision.
    The purpose of the amendment is to extend the circumstances where that protection does not apply to cases where a decision of the tribunal has been obtained on the same matter, or proceedings are pending to obtain one. We do not think that it is appropriate or necessary for the protection to extend to the decisions of the tribunal. In the case of a court decision, there might be circumstances where the commission would not be aware of a decision on a particular matter, or of a pending case. As far as the tribunal is concerned, however, the commission would always be the respondent and so will necessarily be aware of all proceedings. Thus if the commission was aware that a particular matter had come before or was to come before the tribunal, it would not give its own opinion on the matter. Rather, it would refer the applicant to the tribunal decision, or pending decision.
    I hope that that point of clarification will enable the noble Lord to withdraw his amendment.
    Lord Phillips of Sudbury: I am grateful to the noble Lord for his careful and considered reply. One might be tempted to say thank you and to withdraw the amendment, but I want to put in his mind the thought that if this were a decision of the tribunal which is pending, the Charity Commission is quite a large beast these days. Someone in one part of the jungle may not know what is happening in another part of it. Perhaps I should rephrase that: someone in part of the enterprise may not know what is going on in another part. Given that, I question whether the Minister is correct in his assumption that this would be known throughout the organisation.
    However, in the heat and burden of this Bill, far be it from me to labour to protect the Charity Commission from its powers. I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    Clause 24 agreed to.
    Clause 25 agreed to.
    Clause 26 [Power to enter premises and seize documents etc.]:
    Lord Hodgson of Astley Abbottsmoved Amendment No. 131:
    Page 24, line 22, at end insert—
    "( ) that the premises to be specified in the warrant are premises at which the charity which is the subject of the enquiry in section 8 above carries on its business;"
    The noble Lord said: In moving Amendment No. 131 I shall speak also to Amendment No. 132. The amendments relate to Clause 26, which has the rather forbidding title of,
    "Power to enter premises and seize documents etc.".
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    This clause gives the Charity Commission a new power to enter premises for certain purposes and on certain conditions. These powers could be used in a draconian or even what some might call an oppressive way. Amendments Nos. 131 and 132 attempt to introduce some balancing restrictions on the commission.
    Since 1960 the commissioners have had an enforceable power to call for documents and to search records, but they have never had the power to enter premises to take possession of documents or information. So the power to enter premises is a significant new development. Amendment No. 131 would insert a new condition for the commissioners,
    "that the premises to be specified in the warrant are premises at which the charity which is the subject of the enquiry in section 8 above carries on its business".
    The amendment is simply intended to exclude the commission from entering non-business premises.
    We understand that the commission needs to have its investigatory powers extended, but this should not be extended to give the commission the power to invade the privacy of a trustee's home or private quarters. Without this amendment, the commission would have the power to do just that.
    Amendment No. 132 adjusts subsection (4), which explains that:
    "Entry and search [with] a warrant must be at a reasonable hour".
    The amendment would add that it must also be carried out within seven days of its issue. The power to search should not be open-ended, and giving the time-frame within which the search should take place adds a proper degree of balance. No swords of Damocles, please.
    The right to privacy and the restriction on search time-frames are two points that need to be taken very seriously when we consider this clause. We have discussed many times the dual role of the Charity Commission, which has to balance its duty to regulate clearly and firmly with its duty to encourage the development of the charitable sector. The power to enter premises represents a major increase in the powers of the commission and the boundaries that Amendments Nos. 131 and 132 would enforce help to keep an appropriate balance. I beg to move.
    Lord Phillips of Sudbury: I rise to oppose Amendment No. 31 with, I am afraid, some force.
    Lord Bassam of Brighton: I am sorry. We are considering Amendment No. 131.
    Lord Phillips of Sudbury: I beg the pardon of the Committee. I wish to speak to Amendment No. 131.
    My reason for parting company with the noble Lord, Lord Hodgson, on whose side I normally ride, is very simple. It was interesting to note that the joint scrutiny committee had two or three recurrent bees in its bonnet, one of which was the preservation of the honour and integrity of the charity sector as a

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    whole. It was universally agreed that public trust in charity was priceless and must be maintained. However, I am afraid to say that it is my experience that where there is an occasional rotten apple—you do; it is bound to happen—one of the commonest ways that a rotten trustee tries to secret away his or her dishonesty is by removing to their home or other premises the kind of evidence that would be sufficient to subject them to prosecution.
    If Amendment No. 131 were agreed, it would remove one of the most powerful and important tools that the commission should have in order to get to the root of any abuse of charity assets. I am comforted by the fact that no such search can be undertaken without the issue of a warrant by a justice of the peace. That is a very real safeguard and can be given only after information on oath has been provided to the justice of the peace concerned by a member of the commission's staff. On those grounds, I must oppose the amendment.
    Lord Bassam of Brighton: The noble Lord, Lord Phillips, has made most of my argument for me. Public trust and confidence is of great value and must be highly prized. For that reason, there have to be effective means of carrying out investigations. To be frank, the easiest thing to do with documents which might in some way implicate a person is simply for him to take them away to his home or to another office. Seeking to restrict the application of an entry warrant to the premises of a charity would make it easy for someone to get around it and, if you like, defeat the object of the investigation. Given that, I do not think that we could possibly accept the amendment.
    It is saddening that we need to have such a power at all, but we must be realistic in our approach. As we observed at the outset of our debates, we are not talking about a small enterprise here, rather we are considering a £35 billion a year sector. That is big business indeed. For that reason and for those of practicality, we must reject Amendment No. 131.
    I am conscious that Amendment No. 132 was in the same group as Amendment No. 131, but I am not sure whether the noble Lord, Lord Hodgson, specifically spoke to it.
    5.30 p.m.
    Lord Hodgson of Astley Abbotts: I said that we wanted to extend the restriction—that is to say, the warrant must specify that the search must take place at a reasonable hour and within seven days of its issue—because we did not want it to be left open-ended. There have been cases under other legislation where warrants have been signed on an open-ended basis. As I said, we wanted no swords of Damocles hanging over any potential trustee or potential charity.
    Lord Bassam of Brighton: My response to this amendment is slightly more positive: it is not unreasonable that there should be some limit on the period for which the warrant should have effect. I am
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    not sure that seven days is the right period; there may be good reasons for requiring a slightly longer one. I propose that we look further at this amendment.
    It is perhaps worth pointing out that the code of practice under the Police and Criminal Evidence Act 1984 (PACE) provides that a search warrant should be exercised within a month of its being issued. I should like to consider the point further. As ever, I am grateful to the noble Lord, Lord Hodgson, for raising the issue, because time is an important one. I can understand his desire to pin down the process and ensure that it is effective and timely.
    Lord Phillips of Sudbury: I think that there is an issue. When you get a crook as a trustee, he or she will try to evade execution of the warrant. It is the daily fare of solicitors to try to serve proceedings on recalcitrant defendants. A little leeway is needed.
    Lord Brooke of Sutton Mandeville: I wish to ask an innocent, lay question. I totally followed the arguments of the noble Lord, Lord Phillips, and the Minister. But I assume that there are places other than the man's home to which the documents might have been removed, and that therefore there is a possibility that the warrant will cite a number of premises that should be inspected. Am I right in thinking that the protection against fishing expeditions lies with the justice of the peace examining whether there is justification for choosing particular premises?
    Lord Bassam of Brighton: I am sure that that is right; common sense tells us that it must be. I am sure that no JPs worth their salt would want to give a warrant at large, and that they would want to understand its exact effect.
    Lord Hodgson of Astley Abbotts: I am grateful to the Minister. I do not disagree entirely with the points made either by the noble Lord, Lord Phillips, or by the Minister. Obviously, I understand that the crook will secrete his documents wherever he can. In fact, if he were that big a crook he would not take them home; he would have them much better hidden.
    My purpose in tabling the amendment was as follows. We have heard from my noble friend Lord Sainsbury about discouragement. When people say, "If you become a trustee someone may knock on your door with a warrant and ask to search your house", it can discourage people from wishing to serve as trustees. The more weight we put on people, the more they feel that there may be a knock on the door, the more danger there is that men and women of quality will not want to become trustees. That must be a bad development for the sector.
    In this probing amendment I wanted to tease out some of those issues. In the mean time, I am grateful to the Minister for agreeing to look at Amendment No. 132. I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    [Amendment No. 132 not moved.]
    Lord Hodgson of Astley Abbottsmoved Amendment No. 133:
    Page 25, line 43, at end insert—
    "(9) The authorised person must make a written record of—

    (a) the date and time of his entry on the premises;

    (b) the number of persons (if any) who accompanied him into the premises;

    (c) the period for which he (and any such persons) remained on the premises;

    (d) what he (and any such persons) did while on the premises; and

    (e) any document or device of which he took possession while there,

    and must supply a signed copy of that list to the person from whose possession it was taken.""
    The noble Lord said: We are still on the same point: Clause 26 and the power to enter premises. This amendment has been provided by the Law Society. It adds to the clause a further subsection that ensures that the person authorised by the Charity Commission to undertake a search must make a written record when entry is made to premises and documents seized. As we have discussed, Clause 26 confers rights on a member of the commission's staff who is in possession of a justice's warrant, as the noble Lord, Lord Phillips, pointed out, to enter and search premises where it is reasonably believed that there are documents or information that the commission could require to be produced under Section 9 of the 1993 Act.
    The draft Bill included a similar provision to this, but with an important protection for the owner or guardian of the documents and information concerned, which has been omitted from the Bill as now drafted. It was then in subsection (7) and provided that the authorised person must make a written record of certain details of the search.
    This is a serious omission from the Bill, for a number of reasons. First, as Amendment No. 131 has not been accepted, it is possible that the premises entered under such a warrant may not be under the control of the charity but could be the home of a trustee.
    Secondly, if the premises in question were those of an agent of the charity, such as a professional adviser, and documents were removed under the authority of a warrant under this provision, very great difficulty could be imposed on the person whose premises were entered in explaining why the documents had been removed, particularly if that person owed a professional duty to the trustee of the charity to retain them.
    Thirdly, there is the statutory obligation proposed in the Bill that all the documents removed must be returned as soon as is reasonably practicable—I refer Members of the Committee to subsection (7). If no proper record is taken of what is removed, there may be uncertainties and difficulties in causing them properly to be returned under this provision. That is of particular concern where the items removed—for example, computers or computer disks—contain additional information about other organisations or the personal and private business of the owner, which
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    could be of no possible relevance to the commission's concerns but could be of considerable importance to the owner.
    For all those reasons, it is not merely desirable but essential that there should be evidence of the items removed by the commission, so that it will remain properly accountable for its stewardship of property taken by it. Finally, we propose that there should be a provision, which did not appear in the draft Bill. requiring the member of the commission's staff responsible for removing the property to hand a copy of the list to the person in charge of the premises from which they were removed. I beg to move.
    Lord Phillips of Sudbury: My name is attached to the amendment. I declare an interest as a member of the Law Society, to which we are grateful for producing this amendment. Further to my opposition to Amendment No. 131, I feel equally strongly that this provision must be included as a protection for those whose homes are raided—rather, searched.
    Lord Bassam of Brighton: When I read the amendment I was puzzled that this provision had not already been included. While mindful of our codified way of operating, I believe that the amendment seems entirely sensible. We would like to sharpen it up and see what we can come back with. It has been whispered to me that there might be a similar DTI provision, presumably exercised in relation to companies. I am grateful to the noble Lord for this sensible amendment. If he will agree to withdraw it, I am sure that we will come back with one that does the job just as well or perhaps even better.
    Lord Hodgson of Astley Abbotts: I am grateful to the Minister. If his Bill team care to look in the Companies (Audit, Investigations and Community Enterprise) Act 2004, they will find that exact provision. I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    Baroness Howe of Idlicotemoved Amendment No. 134:
    Page 26, line 5, at end insert—
    "( ) When the Commission publishes a report under section 8(6) of the 1993 Act it shall include the dates of appointment and termination of any receiver and manager, the cost of the receiver and manager and any other consultants utilised by the receiver and manager, and which of these costs was borne by the charity and which by the Commission."
    The noble Baroness said: With the permission of the Committee, I shall move the amendments tabled in the name of the noble Lord, Lord Swinfen. Before I address the first amendment on this lengthy list I should offer a preliminary word. I find myself in an overstretched position because, as noble Lords will appreciate, the noble Lord, Lord Swinfen, who follows this subject closely and who has great expertise and experience in it, is today in Kuwait and therefore cannot be with us. More than usual, therefore, I must accept responsibility for some disturbing allegations that go beyond my own immediate experience and have led to these amendments. They are, however,

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    founded upon real situations and detailed advice from responsible sources. On that basis, I very willingly present them. I am sure that Members of the Committee will agree with me that they deserve to be considered.
    The purpose of Amendments Nos. 134 and 136 is to require the Charity Commission to publish data about the use of receivers and managers so that the frequency and cost of their use may be known. Amendments Nos. 134 and 136 would require the Charity Commission to publish with each inquiry report where a receiver and manager (R&M) has been utilised the date of appointment and termination of the R&M and the costs of the R&M and of each subsidiary consultant. The charity, its trustees and any other affected persons would be invited to submit their estimate of the costs of their consultants, lost time, lost assets and income, and any other costs. These, too, would be published by the Charity Commission, alongside the costs of the R&M.
    In addition, and as a result of Amendment No. 136, the Charity Commission would be obliged to publish at least annually the total number of R&M appointments, a list of the charities to which they were appointed and the cost of each appointment, along with such summarising statistical data as it considered fit.
    The commission has very recently revealed, in the March 2005 edition of Charity Finance magazine, that since the passage of the 1993 Act it has made 51 R&M appointments, of which 12 are not yet completed. The Association for Charities report Power Without Accountability documents 13 cases of charities that have apparently been subjected to what they consider injustice at the hands of the commission. Nine of those cases involved R&M appointees—no less than one fifth of all R&M appointments. I submit that that is not an encouraging record.
    Let me cite a current case to illustrate the problem. In the case of the Cancer Care Foundation the costs of the R&M and his consultants, together with the cost of legal advice taken by the charity, are rising towards £1 million. Cancer Care Foundation and its subsidiary trading companies are, in fact, it is stated, well run. Even the commission's watchdogs have been unable to find any shortcoming of significance. On the other hand, the commission's initial press release, which, it is said, so damaged the charity, revealed that the Charity Commission had entirely misunderstood the charity's accounts. The true cost of such regulatory errors would be revealed, I suggest, by these amendments. I beg to move.
    Lord Phillips of Sudbury: I am aware, as I am sure are all Members of the Committee present, of the dissatisfaction felt in some parts of the sector vis-à-vis appointments. There seems little doubt that the concern has its basis in experience. I hope that if the Government feel that these amendments are
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    unsuitable or not fit for purpose, an additional safeguard can be provided against the matters referred to by the noble Baroness, Lady Howe.
    Lord Bassam of Brighton: The Charity Commission has a duty to act for the protection of charity. It takes the steps of opening an inquiry under Section 8 of the Charities Act 1993 and of appointing receiver and managers only when absolutely necessary.
    If the commission finds evidence of misconduct or mismanagement, or that charity assets are at risk, it may intervene and use its statutory powers to protect the charity's property. It is essential that those appointed as receiver and manager in respect of the property and affairs of the charity are sufficiently qualified to act in that capacity and able to rectify the problems that necessitated their appointment as quickly and economically as possible, with the minimum of expense to the charity involved.
    We agree that the public may have an interest in the number of receivers and managers appointed each year, and the costs of such appointments. The Charity Commission has recently formally decided to make publicly available, on an annual basis, information about cases where a receiver and manager has been appointed. That information will include the number of outstanding cases, and for cases concluded in the previous year it will include the name of the charity, the name of the receiver and manager, the dates of appointment and termination of the receiver and manager, the costs of the receiver and manager, and whether the costs were borne by the charity or the commission. The information about closed cases will also include details of additional costs to the charity, if they are directly related to the receiver and manager appointment. There may be various reasons why a charity needs professional advice, including advice to support the day-to-day management of the charity and its activities and accounts and the discharge of the receiver and manager's functions. For each case, it will be necessary to consider what costs are relevant.
    5.45 p.m.
    The commission does not intend to publish information in detail about live cases. In some cases, that would be detrimental to the work and reputation of the charity while the commission's inquiry was in progress. When the commission publishes a report of an inquiry under Section 8(6) of the 1993 Act, it is already able to publish information about the costs of that inquiry, including the costs of a receiver and manager. The commission has decided in future to publish such information in all relevant reports where a receiver and manager has been appointed.
    Legislation is not required to enable the commission to make that information available; it intends to do so. It would be unhelpful to include a legislative requirement that by its nature would be prescriptive and difficult to change in the light of experience. Although we understand the concerns that the noble Baroness has expressed on behalf of the noble Lord, Lord Swinfen, we think that this rather formalistic approach may not fit the purpose. Given that the

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    commission has decided to adopt an approach that goes some way towards meeting the concern, we think that that would be a more effective approach. Its flexibility would enable the commission to vary the way in which it publishes the information and makes it generally available.
    Baroness Howe of Idlicote: I am grateful to the Minister for what he said, and for the extent to which the Government are prepared to take on board some of the points raised. I shall read carefully what the Minister says. I beg leave to withdraw the amendment for the moment.
    Amendment, by leave, withdrawn.
    Baroness Howe of Idlicotemoved Amendment No. 135:
    Page 26, line 5, at end insert—
    "( ) When the Commission publishes a report under section 8(6) of the 1993 Act it shall invite on 28 days' notice the charity, its trustees and all other affected parties to submit for publication with the report an appendix containing those parties' estimates of the costs to those parties of the inquiry, including the cost of consultants, lost time, lost assets, lost income and any other costs."
    The noble Baroness said: This amendment and Amendment No. 139 would prevent, or at least discourage, the commission from publishing what are seen as one-sided reports of inquiries that leave a burning sense of injustice in their subjects. Amendment No. 135 would require the commission to publish the cost to charities of statutory inquiries—a significant cost of regulation that the commission has so far been unwilling to acknowledge.
    Amendment No. 139 would encourage the commission to produce balanced draft reports. In one case, to which I cannot refer because of ongoing activity, neither the charity nor its eminent lawyers could even recognise their own case from the draft report that the commission sent to them. In fact, it was so far from reality that the charity's trustees and lawyers assumed that the commission had sent them a wrong draft, relating to an entirely different charity inquiry. That may or may not be a regular occurrence, but it has caused great concern.
    Amendment No. 139 would also prohibit the commission from taking into account such dissenting appendices when later considering the reinstatement of a banned trustee. Remarkably, it is suggested that in the past improper personal threats have been used against trustees by the commission to force them into silent acquiescence. An example is quoted of the case of the Little Gidding Trust. The Association of Charities can cite examples of how the commission has also frightened charity staff by, for example, summoning the secretary of one charity to its headquarters for questioning. The letter contained a threat to the effect that, if she did not comply, she would be in breach of the law and subject to criminal proceedings. Not surprisingly, the letter rendered the secretary so nervous that she had to be supplied with a lawyer to accompany her to the meeting. That meant yet more expense for the charity and trustee concerned in the case.
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    It is with that sort of situation in mind that I beg to move.
    Lord Phillips of Sudbury: I rise in somewhat the same spirit as I did earlier to offer some support in principle to the purpose as I apprehend it of the two amendments.
    The provisions of Section 8(6) of the Charities Act 1993 seem unsatisfactory. In rare cases, there is no doubt that they have proved to be unfair to those affected. The section provides that where the commission has held an inquiry under its provisions—it is a very wide inquiry clause—the commissioners may either publish the report of the person conducting the inquiry or,
    "publish any such report or statement in some other way which is calculated to bring it to the attention of persons who may wish to make representations to them about the action to be taken".
    I confess that I have not had cause to look at the section much or if at all since it was enacted, but it seems inadequate in the light of the representations made by the noble Baroness.
    I hope that the Minister will at least indicate whether he thinks there is some inadequacy in the present arrangements. Perhaps they could be addressed by an amendment to Section 8(6) of the 1993 Act bringing in, for example, a reference to "fairness" or "balance", rather than by the means adopted by these amendments. As it stands, however, it provides no succour in the rare cases—I emphasise that they are rare—where things go wrong.
    Lord Bassam of Brighton: The noble Lord, Lord Phillips, has put his finger on the point: cases where this arises will be rare. If it were a more general problem, we would be very concerned. Moreover, one has to understand the nature of what the Charity Commission is doing when it undertakes an investigation. It does so only in the belief that there is something wrong with what is being undertaken by the charity concerned.
    As the noble Lord pointed out, the commission has the power and the duty under Section 8(6) of the 1993 Act to publish reports of or statements about any inquiries it carries out under that section. The policy of the commission is to report, where appropriate, the outcome of every formal inquiry by publishing a statement of the results on its website. Occasionally, it may not be appropriate to publish a statement. It may not do so, for example, where there are continuing investigations into a crime or where a prosecution is in the offing. The commission removes statements from its website after a couple of years from the date on which they were first published.
    The normal policy is to make available drafts of the statement to those who are affected, seeking comments before it is finalised. So there is provision for some iterative interaction. There is within that a general opportunity for those affected by an inquiry to tell the commission what they think about it and what should happen as a result of the inquiry.

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    The amendments tabled by the noble Lord, Lord Swinfen, and moved very ably by the noble Baroness, Lady Howe, would go further than that and give those affected rights to have material written by them incorporated into the commission's report as an appendix and published by the commission. That would be somewhat open-ended as a change to current practice.
    We cannot agree with the amendments, and in any event we do not think that they are necessary for the following reasons. First, the commission's practice is to give people affected by an inquiry an opportunity to make representations to the commission on any statement that it makes about that inquiry. The fact is that inquiries can often, and will often, be adversarial and contested. The commission's statement is just that—the statement of the investigating authority that has carried out an inquiry using powers given to it by Parliament in the public interest. The statement does not purport to be consensual as a summary of the inquiry. However, the commission is bound to listen to any representations made to it and to take them into account before deciding how to act.
    Secondly, the commission, as a statutory body, is accountable for and can be challenged on the actions it takes in exercising its powers in any inquiry. Part of the answer to the problem lies in the fact that it will be able to be challenged through the tribunal. It has a duty to make sure that the statements it publishes about its inquiries are factually accurate and not defamatory.
    Thirdly, anyone affected by an inquiry or mentioned in a statement about it is at liberty to publish his or her own account of it. They can publish it in whatever format they wish. The commission cannot and should not be able to insist on appending its own material to someone else's account of an inquiry. Each party involved in the inquiry should be responsible for the material that it puts out.
    For those reasons, we do not believe that it is appropriate to give those affected by an inquiry rights to have material written by them incorporated into the commission's report by way of an appendix and published by the commission. That would be inappropriate and would qualify the commission's inquiry role. That would be unfortunate as in some circumstances it could undermine the effectiveness of the independence of the commission's own inquiry activity. For those reasons, I invite the noble Baroness to withdraw the amendment.
    Baroness Howe of Idlicote: I thank the Minister for what he has said. However, I shall not pretend that I am not disappointed with his reply. I have the impression that, with regard to the new provisions on inspection reports in the Education Act, there was a rather greater willingness to listen and to make certain that there was either agreement or total disagreement on what inspectors said about a school.
    I refer to the number of charities that may be affected by what we are discussing. It may be small, but when the situation arises it is very disturbing for them
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    and for the people who deal with them. The Minister says that they can take their case to a tribunal. That is fine and is without doubt an added plus. However, some time may elapse between the publication of the report—with no answer coming from the charity concerned—and the case being heard before a tribunal, in which case, as we all know, a lot of damage can be done if a misleading impression has been given.
    However, having listened carefully to what the Minister said, I beg leave to withdraw the amendment and perhaps return to it on another occasion.
    6 p.m.
    Lord Phillips of Sudbury: Before the noble Baroness sits down, perhaps I may ask the Minister a question. In answering the argument on this amendment, he said that things will be better in future because the Charity Appeal Tribunal will be able to consider inquiries made under Section 8 of the 1993 Act. I would be grateful if the Minister took advice on that. In the table in Schedule 4, only the decision of the commission to institute an inquiry under Section 8 is appealable. The format of the inquiry is not, as I see it, an appealable matter. If the Minister says, "Don't worry because you are subject to libel laws", I believe I am right in saying that the protection given by defamation law vis-à-vis a report of this kind means that there is absolute privilege in respect of a report that is issued.
    I emphasise the rarity of such an event, but I believe that there is more of a problem here than the Minister may realise. The effect of a Charity Commission report can be quite devastating. The commission is an extraordinary organisation. Inadvertently, it sometimes causes terrific harm to a charity by a report that has not been as well considered as it should be. I do not see that it has a right of appeal to the tribunal. There will be no right of defamation action. I ask the Minister, again, to consider the predicament raised by the noble Baroness, Lady Howe, in her amendments because I am sure that the Minister, no less than those moving the amendment, would want to rectify an inadequacy, if there is one.
    Lord Bassam of Brighton: I am sure that the noble Lord, Lord Phillips, will accept that the commission does not publish statements lightly. It gives very careful thought to them. It certainly would not want to make published comments that were in any way defamatory. The commission is well stocked with very able charity lawyers and is very mindful that there are very able lawyers who are watchful of how it conducts itself.
    I accept that on occasion there may be an example where perhaps it is felt that the commission has overstepped its usual careful approach to such matters. The noble Lord is right that adverse comments on an operational charity can have profound impacts on its ability to fund itself, raise new funds, operate and provide services. Fortunately and thankfully, it is very rare that that happens. I am sure and confident that the commission will reflect long and hard on this important discussion that we have had and on the important comments made by the noble Baroness, Lady Howe, in this regard.

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    The noble Lord, Lord Phillips, may want to read carefully what I said about the commission, the operation of the tribunal and the way in which it works in relation to this issue. I am not sure that I said any more than was entirely accurate in describing how the tribunal might function in regard to the challenges made.
    I can see the potential for damage, but I do not believe that this is the best way to deal with the matter. There needs to be great care on both sides because one does not want to inhibit the commission from carrying out what is a very important job. The role of commentary and investigation is very important to ensure that we have probity in the sector. We all take pleasure in the fact that it exists at the moment and want it to exist in the future.
    Baroness Howe of Idlicote: I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    [Amendment No. 136 not moved.]
    Baroness Howe of Idlicotemoved Amendment No. 137:
    Page 26, line 5, at end insert—
    "( ) References to "receiver and manager" in section 19 and elsewhere in the 1993 Act and in this Act shall be replaced by the words "interim trustee"."
    The noble Baroness said: The purpose of this amendment is to avoid the use of the term "receiver and manager", which for many people has connotations of a commercial receiver in an insolvency context, and is thus unnecessarily damaging to a charity's reputation.
    I believe that the Charity Commission is not opposed to this change, but it may prefer the term "interim manager" because not all receivers and managers take on the legal functions of trustees. My understanding is that some receivers and managers are given all the powers of trustees. In those circumstances they are the trustees in law and the real trustees have de facto been temporarily suspended from their trustee duties.
    However, I understand that some R&Ms are given very limited duties, perhaps just taking charge of investments or producing accounts. In those circumstances they are temporary managers rather than trustees. I would not be adverse to the use of either term, the one selected in each case being dependent on the duties and the legal standing of the person appointed.
    Notwithstanding the use of "interim manager" in those cases for which it is appropriate, it clearly is important that R&Ms acting as trustees should have this word in their title so that they and others are in no doubt that they can expect a trustee standard of propriety from such office holders. That is necessary because it is alleged that too often R&Ms have acted without much adherence to the standards which one might expect and which the law requires of ordinary
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    charity trustees. That appears to be so in the case of Cancer and Leukaemia in Childhood, the Hedley Roberts Trust, Iran Aid, the RSPCA (Swansea), the Little Gidding Trust and the Voice of Methodism. I beg to move.
    Lord Bassam of Brighton: I am in some difficulty here. I can see the point of wanting to move away from references in the Bill to terms such as "receiver" and "manager". I can see the potential for confusion with the commercial sector, liquidation and bankruptcy and so on, which the term might evoke. However, I am not drawn to the term "interim trustee", as I am not sure what that conjures up. It is not a brilliant substitute. I do not say that with any malice about the tabling of the amendment.
    I would like to consider the amendment further. However, I shall not give a rock-solid, bankable, cast-iron commitment to bring forward alternative terminology because it might be difficult for us to fit it in to all the parts of the Bill where it currently occurs. We might be asking ourselves to do rather more in bringing forward an amendment than we would otherwise want to do and the amendment warrants. I would like to consider the matter further. I recognise the difficulty and I have some sympathy with the point being made.
    Lord Brooke of Sutton Mandeville: Having listened to the noble Baroness and to the Minister, I understand the difficult situation in which the Minister finds himself. One of the cases in the Association for Charities dossier—the noble Baroness quoted a number of cases—was that of PALS, about which I happen to have some knowledge because of local residents. In the case of PALS, at least according to the account given in the dossier, the operations manager and the Charity Commission said that they would oversee the appointment of trustees to take over the charity after its founder had resigned. They could not have been more accurately described as interim trustees in the light of the account given here. Very few of them lasted more than three or four months. As a consequence, the deterioration of the charity was very severe. I have sympathy with the Minister's view that "interim trustee" may not be the right term, but I also have sympathy with the noble Baroness, Lady Howe, in terms of eliciting a response from the Minister.
    Baroness Howe of Idlicote: I am grateful to the Minister for understanding the reasons behind the amendment. Local people may assume the worst because those words are being used, when in fact it is something that can be sorted out fairly quickly. The result can be that the charity suffers very significantly. I am grateful that the Minister understands the dilemma and I hope that he will be able to find a suitable form of words, if that conclusion meets everyone's desires. I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    Baroness Howe of Idlicotemoved Amendment No. 138:
    Page 26, line 5, at end insert—
    "( ) In section 19(6)(b) for "the income of the charities concerned" substitute "public funds"."
    The noble Baroness said: Noble Lords will be glad to hear that I am nearing the end of my amendments. The purpose of this amendment is to transfer the burden of meeting the cost of receivers and managers from the charities concerned to the Charity Commission. I acknowledge the principle followed, for example, in company law, that it is the organisation that pays the costs of a specialist appointed by the court or regulator to sort out an improperly run organisation. Nevertheless, the performance of the Charity Commission and its receivers and managers has, too often, been so poor, and sometimes so expensive, for the charity involved that justice in my submission cries out for the commission to foot the bill for its own decisions.
    I believe that the amendment would have two desirable consequences. First, it will discourage the commission from too casually appointing an expensive R&M when a little more effort by its own staff would assist existing trustees to sort out their problems. Secondly, it would discourage the commission from being tempted to use R&Ms simply to enable them later to claim to the Public Accounts Committee how much charity assets they have protected. Very often a large part of those charity assets have been under no credible threat—for example, in the current Kingsway International Christian Centre (KICC) and Cancer Care Foundation cases.
    Perhaps the most telling point about the commission's use—one could even say misuse—of R&Ms is that they rarely put them into small charities that do not have the assets to pay them, nor into large charities that have the resources effectively to oppose the commission's use of the power and to which different standards of regulation seem to apply. I beg to move.
    Lord Bassam of Brighton: Section 19(6) of the Charities Act 1993 at present allows regulations made by my right honourable friend the Home Secretary to make provision for receivers and managers to be remunerated out of the income of the charities concerned. The effect of the amendment tabled by the noble Lord, Lord Swinfen, moved very ably by the noble Baroness, Lady Howe, would be to allow those regulations to make provisions for receivers and managers to be remunerated, not from the charities' income, but from public funds.
    Charities enjoy considerable financial privileges because of the status and benefits that they bring to society more generally. The public is entitled to be satisfied that charitable resources are being used in the most effective way possible, especially in view of the financial benefits that charities enjoy. Trusteeship brings with it a responsibility to ensure that that happens. The appointment of a receiver and manager generally happens when trustees are no longer in control of a charity. That can be due to disputes within
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    a charity or perhaps where there is a loss of enthusiasm for a charity or where there is a need to safeguard the assets of a charity. The Government believe in general terms that in most circumstances it would probably be appropriate for receivers and managers to be remunerated from the income of the charities concerned.
    Section 19(6) does not, however, preclude receivers and managers from being remunerated from public funds in appropriate circumstances. For example, when a charity has insufficient funds and the commission decides that the most effective remedy which is in the best interests of the charity is to appoint a receiver and manager, the commission may appoint one at public expense. Although we believe that remuneration from the charity's own funds will be the right course in most cases, we are happy to consider the possibility of tabling an amendment making it clear that remuneration may come from public funds if the commission so decides.
    I am grateful to the noble Baroness for moving the amendment on behalf of the noble Lord, Lord Swinfen. We will reflect on the matter and design an amendment to address it before Report.
    6.15 p.m.
    Baroness Howe of Idlicote: Once again, I am grateful to the Minister for his reply, and for the commitment to consider an appropriate amendment, which I hope will satisfy some of the concerns. Behind all this is the great concern that, despite all the duties and powers of the Charity Commission, the one duty that it does not appear to have is to consider the interest of the beneficiaries of that charity. Sometimes when so much money is spent in that way there is a concern that the interest to beneficiaries should be taken into account much more than it has been in the past. I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    [Amendment No. 139 not moved.]
    Clause 26 agreed to.
    Baroness Howe of Idlicotemoved Amendment No. 139ZA:
    After Clause 26, insert the following new clause—
    "Arbitration
    DUTY TO MAKE ARBITRATION AVAILABLE
    After section 31 of the 1993 Act insert—
    "31B DUTY TO MAKE ARBITRATION AVAILABLE
    (1) The Charity Commission shall promptly submit to arbitration when requested to do so by charities, trustees and other parties concerning matters which affect or may affect them.
    (2) If the Commission and the complainant cannot agree an arbitrator then the Commission shall ask the Centre for Effective Dispute Resolution to appoint an arbitrator and the Commission shall pay any fees for so doing.
    (3) The arbitration will be binding on both parties.
    (4) The arbitrator shall have the power—

    (a) to comment on the Commission's processes and actions, and

    (b) to award the complainant compensation for financial loss.

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    (5) The complainant will not be required to obtain the permission of the Commission to make use of arbitration.
    (6) In appointing an arbitrator the Commission shall seek to incorporate the following principles—

    (a) the arbitrator shall have power to access all charity and Commission records and require the attendance of any employee of the Commission or of a receiver and manager,

    (b) the arbitrator shall be quick to access,

    (c) the arbitrator shall be cheap to access and operate in a simple way which does not necessitate lawyers,

    (d) the Commission must publish the arbitrator's report, normally identifying all parties,

    (e) the arbitrator shall be a person who is skilled in such matters,

    (f) the arbitrator shall seek fairness, justice and equity for all stakeholders involved in the charity in question, whether or not party to the case, including beneficiaries who may not have the knowledge or resources to represent themselves.

    (7) The costs of the arbitrator will be paid by the Commission unless the arbitrator considers that the complainant has acted vexatiously, frivolously or unreasonably, in which case the arbitrator may find that the complainant shall pay all or part of the arbitrator's costs.""

    The noble Baroness said: The purpose of this lengthy proposed new clause is to make available to charities, trustees and others who have suffered real and unnecessary financial loss as a result of what is claimed to be maltreatment by the Charity Commission an accessible mechanism for holding the commission to account and obtaining recompense.
    The range of matters that can be taken to arbitration under subsection (1) may be excessively wide. Obviously, I am ready to listen to what lawyers and others have to say on that. There seems to be some question over whether the Centre for Effective Dispute Resolution, referred to in subsection (2), is the appropriate body for that type of arbitration. The Chartered Institute of Arbitrators or another body may be more appropriate. Again, I shall listen to the responses on that.
    The Bill should be amended to enable any charity, trustee or other party who alleges that he has suffered actual financial loss as a result of the Charity Commission acting disproportionately, unfairly or unreasonably to take the commission to binding arbitration for the purpose of securing a ruling on its behaviour and obtaining financial compensation for actual loss. Without that, it is possible that this Act will deliver technically good law but a serious lack of justice in cases where charities and trustees have been mistreated by the regulator.
    The measure is necessary because there is no other practical route at present for charities, trustees or others to obtain such a ruling elsewhere, nor does this Bill provide one. The commission's internal complaints procedure consists of a review by senior commission employees of the conduct of junior commission employees, and cannot be relied upon to deliver financial compensation for actual losses suffered by charities, trustees or others as a result of incompetence, misconduct, maladministration or abuses of power resulting from commission
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    interventions in the affair of a charity. The Independent Complaints Reviewer is no answer to that point, since he or she is appointed and paid by the Charity Commission, which sets his or her terms of reference. The reviewer is prohibited from awarding compensation for complainants who have suffered financial loss as a result of incompetence, misconduct maladministration or abuse.
    The Parliamentary Ombudsman has routinely refused to consider cases until they have been to the High Court. That occurred in the cases of the Hedley Roberts Trust, the Protection of Animal Life Society and the Little Gidding Trust. In the Little Gidding Trust case the High Court, supported by the Court of Appeal, refused to consider the behaviour of the Charity Commission, even after it identified it as a central issue. As the eminent charity lawyer Jean Dollimore subsequently wrote in Charity Finance magazine, "This is no justice". Furthermore, the technical and financial obstacles peculiar to charity law in taking the commission to the High Court are so severe as to make it a daunting prospect for even a National Lottery jackpot winner. In the Little Giddling Trust case the costs were hundreds of thousands of pounds to the complainant, even though he represented himself.
    Bluntly, none of those options in practice makes available an accessible mechanism of redress for charities, trustees and others who have suffered real loss as a result of mistreatment by the commission. If redress is to be available only to the fabulously rich, which rules out most charities, that is surely justice denied. I do not suggest that the Charity Commission routinely mistreats those whom it regulates—obviously I do not—but there appears to be a culture in that organisation which tolerates, supports and conceals abuse when it occurs, and does its bureaucratic best not to be held accountable when an accusation is made. The new management in the commission may well be intent on reforming that organisation, but they will not be helped by the continuance of a process in which it is perfectly feasible for their organisation to avoid being held to account for staff's misbehaviour and the real financial consequences for the very charities that they are supposed to support.
    In the Gaia Trust case, the charity asked the commission for advice, followed it carefully and, when the commission changed its mind, found itself in the middle of land transactions that could not be completed without lengthy delay while the commission pondered. It is alleged that that incompetence and abuse of process cost the Gaia Trust £600,000. There was no compensation.
    In the current case of the Cancer Care Foundation, the commission has appointed a receiver and manager on evidence that appears highly questionable, to say the least. Over a year later the costs to the charity and its trustees are expected, as I have mentioned, to exceed a million pounds. One might ask, to what purpose? The statutory answer of "protecting charity assets" rings a little hollow. These cases call for a

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    practical, accessible and fair mechanism for swiftly identifying where things went wrong and awarding compensation for real financial loss.
    The Government may oppose this clause because it has cost implications for the public purse. If any private citizen financially harms another he is expected to pay. In my submission, there is no reason why the Government's regulator should be above the law. In practice, I think that this clause will assist the new management at the commission to change the culture there. If the amendment is agreed, we shall see very few claims.
    The courts and the Government support the alternative dispute resolution procedures as a means of levelling the playing field between citizen and state. I argue that without such mechanisms the Bill may deliver law but may well, on occasions, fail to deliver justice. I beg to move.
    Lord Phillips of Sudbury: Perhaps I may—
    Lord Brooke of Sutton Mandeville: Perhaps I may—
    Lord Phillips of Sudbury: The noble Lord, Lord Brooke, is so senior to me in experience and competence that I insist on him speaking first.
    Lord Brooke of Sutton Mandeville: That is an absolutely ill-based reason, but I shall make life easier by speaking. I have no professional background in this area. I certainly do not have the knowledge that the noble Baroness, Lady Howe, has demonstrated in speaking to the amendment. Such knowledge as I have of arbitration is derived from the fact that there is a substantial amount of activity in the City of London, for which for nearly a quarter of a century I was Member of Parliament, and from private conversation with my brother, who now sits in the Court of Appeal, but who was involved in arbitration cases in his earlier legal career.
    As someone who has listened to the debate so far, there appears to be a mildly uneven playing field. I am looking forward to hearing the Minister. If the trustees are permanently liable for their behaviour, and the commission is not as liable for the behaviour of those who represent it and take actions on its behalf, I look forward to hearing what the Minister has to say.
    Lord Phillips of Sudbury: There is an evil that needs addressing on this matter. For the reasons described by the noble Baroness, Lady Howe, one needs to emphasise that it is rare that the Charity Commission acts unfairly or perversely, but it does happen. When that happens, it has a disproportionately adverse impact on the charity concerned. Sometimes those within the commission do not understand the effect of some of its reports and decisions—and some of their non-decisions—on the world beyond. One of the evils with which one has to contend is extremely attenuated consideration of a matter on which it has its eye.
    The remedy of the Independent Complaints Reviewer in some or many circumstances is perfectly adequate. I understand that the Minister referred to a
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    global sum of about £15,000 paid out as compensatory sums last year because of the intervention of the Independent Complaints Reviewer or because the commission decided to make a compensation payment. As has been heard, some of the losses involved in the few cases that go badly wrong are very many times more than that total. This matter needs to be addressed. In my view, it is not enough to continue in the same old way.
    Having said that, I do not believe that Amendment No. 139ZA is fit for the purpose. There is no point in spending a lot of time on it. It does not describe the circumstances in which anyone may initiate an arbitration; it requires that all the costs of arbitration are met by the commission unless,
    "the complainant has acted vexatiously, frivolously or unreasonably".
    I believe that that is inadequate in terms of the Charity Commission's exposure.
    I do not want to get bogged down in the wording of the amendment because I hope the Minister will say that thought will be given to addressing the underlying complaint. For my part, it might be done informally in the sense of not putting something in the Bill. The Charity Commission says that the role of the Independent Complaints Reviewer should be amended in some way, given more teeth and more powers to award compensation so that the confidence that is currently lacking within the sector can be restored.
    6.30 p.m.
    Lord Bassam of Brighton: I am grateful to the noble Baroness for moving the amendment. It has provided us with another opportunity to look at the issue. I am mindful that we have already had one crack at this at an earlier stage, in terms of looking at how complaints are dealt with. In some parts of the sector there is unhappiness about how it is regulated. That said, I am drawn to conclude, like the noble Lord, Lord Phillips, that this is not necessarily the best way to deal with the problem—if problem it be.
    I cannot think of another sector where one seeks mediation between the regulator and the regulated in the way sought by the amendment.
    Lord Phillips of Sudbury: Does it not happen widely in the private sector—in banking, for example? It is a very common device these days.
    Lord Bassam of Brighton: I accept that mediation is a not uncommon route. I have been a party to mediation myself and I understand why it is used. It is an extremely good development, particularly for resolving lower level disputes where there is a need for some form of mediation. I accept that mediation is fine for effective dispute resolution. Certainly, from my experience in local government, there are local mediation services.
    The arbitrator in this instance, as the amendment would provide, would be able to award compensation for financial loss. The commission, as the noble Baroness argued, would have to meet the costs of

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    arbitration except where the arbitrator found that the complainant had acted vexatiously, frivolously or unreasonably. That is a difficult judgment call.
    We discussed an earlier amendment relating to the Charity Appeal Tribunal. If a charity or trustee has a complaint about the Charity Commission's processes or actions in a particular case, it or he should address the complaint in the first instance via the commission's own established internal complaints procedure. If it or he is not satisfied with the outcome of that process, it is open to it or he to complain to the Independent Complaints Reviewer, the Parliamentary Ombudsman, or both.
    As I understand it, the noble Lord, Lord Swinfen, is particularly concerned about the operation of the Independent Complaints Reviewer's remit in recommending compensation for financial loss. I provided figures when we previously debated the issue. I understand that while the reviewer's terms of reference do not enable her to recommend payment of a specific amount in respect of financial loss, it would be open to her in appropriate circumstances to recommend that the commission considers making such a payment.
    It is also worth emphasising that there are no restrictions on the Parliamentary Ombudsman in terms of recommending compensation for financial loss, provided the ombudsman is satisfied that the loss resulted from maladministration on the commission's part. On thinking about this and having heard the noble Baroness, maladministration is probably the largest cause of concern for those affected by how the Charity Commission acts as a regulator.
    The process of arbitration would represent a third avenue—in some ways a fourth avenue—for complainants to pursue complaints against the commission. The Government's overall view is that this would be unnecessary and perhaps undesirable given the options that already exist and which are available in terms of access to the Independent Complaints Reviewer, to the Parliamentary Ombudsman, to the tribunal and beyond that to the High Court. The Government cannot see any added benefit in requiring the commission to submit to arbitration, particularly given that the commission has never refused a recommendation from the Independent Complaints Reviewer to make a consolatory payment.
    The noble Lord, Lord Phillips, asked about the Independent Complaints Reviewer and the possibility of that route being able to award meaningful compensation. We would be prepared to have more discussion, perhaps with stakeholders and those concerned, on the understanding that the ICR's role will continue to be restricted to complaints about administration and standards of service. That is part of the concern. I cannot see that that would be the right forum to challenge the commission's legal decisions. We are prepared to give the suggestion some additional thought as it would seem to be fruitful and helpful in the context of complaints and complaints resolution.
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    I am sure that I have not said what the noble Baroness would like me to say, but given that there is a structure in place—one that works and has a track record—the best course would be to try and see what can be done outside the legislation to improve the effectiveness of the various routes. I am sure the noble Baroness will accept that with the more accessible route to the tribunal open to charities as well, there is an important dimension that has not operated as a brake or check on the activities of the commission in the way the tribunal probably will.
    Baroness Howe of Idlicote: I thank the Minister and other noble Lords who have spoken about their concern on these amendments. I cannot say that I am entirely happy with the answer, but I think that there is some room for looking at the matter again. The Minister has identified the maladministration and standards of service as very relevant to the reasons for the amendments.
    There is a need to look at the matter again to see what the Minister can come up with and whether we need to return to it. I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    Lord Dubsmoved Amendment No. 139A:
    Before Clause 27, insert the following new clause—
    "GROUP STATEMENTS OF ACCOUNTS FOR CHARITIES CONTROLLING SUBSIDIARY UNDERTAKINGS
    (1) Section 42 of the 1993 Act (annual statements of accounts) is amended as follows.
    (2) After subsection (1) insert—
    "(1A) Where at the end of any financial year a charity has the control of one or more subsidiary undertakings the trustees shall, in addition to the statement of accounts prepared under subsection (1) above, prepare a group statement of accounts consolidating the statement prepared under subsection (1) and the statements of accounts prepared in respect of its subsidiary undertakings.
    (1B) Any such group statement shall comply with such requirements as to its form and contents as may be prescribed by regulations made by the Secretary of State."
    (3) In subsection (2) after the words "generality of subsection (1)" insert "or (1A)".
    (4) After subsection (2)(b) insert—
    "(c) as to any exceptions to the inclusion of subsidiary undertakings in the preparation of a group statement of accounts".
    (5) In subsection (2) after the words "financial years of a charity" insert "and its subsidiary undertakings".
    (6) After subsection (3) insert—
    "This subsection shall not apply to a charity which is preparing a group statement of accounts under subsection (1A) above."
    (7) In subsection (4) for paragraph (a) substitute—
    "(a) any statement of accounts prepared by them under subsection (1) or (1A) above, or"."
    The noble Lord said: In moving Amendment No. 139A, I shall speak also to the five other amendments in the group. I am very grateful to the Charity Finance Directors' Group for its advice and help in preparing the amendments and the arguments connected with them.

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    Charities are becoming increasingly sophisticated in the structures that they adopt to undertake their charitable activities and to generate income. For larger charities we have the charity itself and then a number of subsidiary operations. The difficulty is that the accounts do not reflect in sufficient detail the whole range of activities. including the subsidiary activities of a charity.
    It may well be that activities and assets indirectly controlled through subsidiary undertakings are omitted and simply disclosed in the accounts as investments on the charity's balance sheet. It may well be that the subsidiary activity is much larger than the main activity of the charity, about which there may be more detail.
    There is a need for charities to be able to indicate the size of their trading activities. At the moment they may not be able to give the details of trading activities within the charitable activity because the activities themselves are not fully charitable.
    The proposition is a simple one. I would argue that the Charities Act 1993 is out of line with accounting practice. Indeed, the fact that there is no reference to it in the Bill is also an indication that we are not in line with modern accounting practice. I can only believe that there is a flaw or that there has been an unintended omission in the way the Bill has been put forward.
    The requirement for charities to give fuller details of their activities would more sensibly be subject to a threshold so that smaller charities do not have to do that. Indeed, Amendment No. 140A suggests the two levels at which the threshold would be reached.
    There is also an overall question of public confidence in a charity. Under the existing legislation it would be possible for a charity to put significant income-generating activities into a non-charitable subsidiary. For example, a subsidiary might have an income of £10 million and costs of £9 million but would pass, say, £1 million to the charity. That would give a misleading impression of the scope and scale of the charity and might also make it more difficult for the Charity Commission to oversee how it works.
    I think that there should be a requirement that it cannot fully reflect the activity of the charity and all its subsidiaries. It is a fairly moderate suggestion. Some charities do this automatically, although currently they are under no obligation to do so. I think it might be better if they were. I beg to move.
    Lord Hodgson of Astley Abbotts: I have sympathy with the amendment. We are aiming for clarity and transparency and this provision tries to achieve that. I was much reassured by the remarks of the noble Lord, Lord Dubs, about materiality and the threshold below which you would not be involved so as to avoid the bureaucratic effect.
    I am not clear about what happens when you have charities that are companies and charities that are not companies mixed up together—whether that can be dealt with because they have different thresholds. Also, whether or not under Section 42 of the 1993 Act
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    we could achieve what the noble Lord is seeking to achieve, and which I support in principle, just by the prescribed regulations referred to in Section 42(1) of the 1993 Act. The Secretary of State could presumably decide that he wanted consolidated accounts prepared covering a charity and its subsidiaries and have those regulations prescribed in that way under the 1993 Act. But I must say that there is a great deal in what the noble Lord is driving at.
    Lord Dubs: I am grateful to the noble Lord for his support. I am not an accountant, as the noble Lord will realise. That is now patently obvious. A charity, after all, raises money from the public. The money is raised in the name of the charity even if the fundraising activity is not itself charitable. So I think that it would be helpful if the public were aware of the total scope of what a charity does. If there are other ways of achieving that end, I should be very happy. It is the end I am interested in and not the means of getting there. If the Minister can give us that assurance, that is fine.
    6.45 p.m.
    Lord Phillips of Sudbury: I am reluctant to sound a discordant note, but discordant note I must sound. I have not received the brief from the Charity Finance Directors' Group. Contrary to the suppositions of the noble Lord, Lord Dubs, I think that the provision would give rise to far more confusion than enlightenment. I shall give the reason.
    Let us take the easiest case: a charity that is also a company limited by guarantee. The trading company that is, let us say, wholly owned by that charity is a completely different and separate animal. It is so different that the relationship between the charity and the non-charitable trading company is the subject of a complete arm's-length requirement. A charity cannot make a loan to its wholly owned trading company unless stringent criteria have been met. Nor can the charity mix its funds with those of the trading company at all, at least not if the benefit is flowing from the charity to the trading company, despite the fact that the trading company is wholly owned by the charity and all its profits go to the charity. The reasons for that are fundamental: a charity is a non-commercial entity; it is not an entrepreneurially risk-taking entity, although it is risk taking in its grant making. It is not allowed to trade except to a very limited extent, and that is to protect the assets of the charity from being depleted by an entrepreneurial risk that goes wrong, which would eat up the money given to it, often by the public, in the expectation that it will be used exclusively for charitable purposes.
    If you are considering, as you plainly are, how these accounts will look to somebody looking in at them—that is the only point of making the amendment—they will be much more difficult to unravel if they are shoved together and there is a joint balance sheet. That balance sheet may look extremely bonny and bright in one particular year, because the trading company may

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    be doing well at that time; it may look utterly different in a year's time when some disaster has struck. I perfectly accept—
    Lord Hodgson of Astley Abbotts: What I think the noble Lord, Lord Dubs, is driving at, and what I am certainly driving at, is transparency. It may be a one-way valve—in other words, the money cannot go down from the charity to the trading subsidiary, but it can come the other way—but if you are being asked to give money to the charity and it has an extremely profitable, well run and effective trading subsidiary, do you not want to know about that? You might say, "Well, they're getting on all right, so I want to give my money to something else that is struggling more".
    While I do not want to speak for the noble Lord, Lord Dubs, I think that he is trying to get at the fact that you want to see the overall picture of the charity, including the non-charitable activities which are supporting it as a charity. That consolidated picture might be very variable, and that is exactly what the noble Lord, Lord Dubs, wants to have shown. He wants you to be able to judge how well the charity is doing and whether you want to continue to support it or leave it to get on with its commercial activities and find its money thereby.
    Lord Phillips of Sudbury: I understand the point that the noble Lord has just made so well, but I am bound to say that it would be impossible for somebody looking at the consolidated accounts to know what part of those assets was charitable and what part was not. I perfectly accept that, in an ideal world, one could do that, but I do not think that it is practical to do it and there are more dangers than benefits.
    What a charity can do, and what many of them do, is make a big song and dance in their annual accounts about the state of their trading company. If a charity has a trading company that is doing well and has lots of net assets, it is up to it to make as much of that as it likes. It does not have to have tiny, italicised notes; it can have a separate section which deals with that. I make this point only from what I would call long experience. What is intended as a clarification and transparent improvement would be more likely to lead to confusion than to enlightenment. I regret saying that.
    Lord Dubs: I hope that I am not completely out of my depth, but I agree with the noble Lord, Lord Hodgson. Transparency must be the aim here. Frankly, I do not see why, in addition to consolidated accounts, one should not also indicate separately the accounts of each subsidiary. That is only right and proper, and would enable a judgment to be made. As I said earlier, quite often the problem is that the subsidiary is a larger activity than the parent charity. It is only right that those looking at the charity should be able to see its total activity—even, one has to accept, the activities that are non-charitable. After all, they would normally use the name of the charity.
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    I should have thought that there would be no problem about this in principle, and that there would be many benefits in terms of openness and transparency. Anyone would be able to look at the annual report and accounts to see what is going on.
    Lord Bassam of Brighton: I have listened with interest to that exchange. Having heard the noble Lord, Lord Phillips, I was almost persuaded away from the position to which my speaking notes generally direct me—which is one of sympathy for the amendment. As the noble Lord, Lord Phillips, pointed out, this is already almost accepted practice within the trade, as it were. I want to take the amendment away and ensure that we give it further thought. I say that because finance directors have rightly encouraged us to come up to speed with current accounting practices and thinking across the charitable sector for the very good reasons made plain by my noble friend Lord Dubs and by other noble Lords. We need to get into the spirit of the era of greater transparency and a deeper understanding of how charities work, in particular the larger ones, which are now extremely sophisticated organisations.
    While I cannot accept the amendment as currently drafted, I am minded to take it away and give it further thought. However, it is worth putting on the record that the Charities Statement of Recommended Practice already enables charities to prepare consolidated accounts in the way described and recommends that all charities above the audit threshold with subsidiary undertakings produce consolidated accounts. The preparation of consolidated accounts is already accepted practice in the sector and the Charity Commission accepts the filing of consolidated accounts on a non-statutory basis. I am told that the practice has been accepted by 90 to 95 per cent of the sector already, so in a sense we are legislating for only a small minority that do not conform with recommended good practice.
    One undoubted benefit of the amendment would be to bring the legislation up to speed with accepted sector practice as it is. The question for us in preparing the legislation is whether it is necessary to require the preparation of consolidated accounts through primary legislation, given that the vast majority of relevant charities already prepare consolidated accounts, and given the undoubted complexity of the provisions that would be required to introduce this effectively.
    We need to have regard to two considerations in terms of whether to include a provision relating to group accounts. The first is whether there should be an exemption for small charity groups, for which a requirement to prepare consolidated accounts might prove overly burdensome—here I refer to our earlier arguments about proportionality in terms of regulation. Secondly, at what level should the audit threshold be set for consolidated accounts? The Companies Act already requires the preparation of consolidated accounts, but has a higher audit threshold for consolidated accounts and entity accounts. We shall have to take those issues into consideration.

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    In principle, we have no problem with a practice that is already prevalent across 95 per cent of the sector, but we must have regard to important issues of proportionality and the practicality of introducing such a provision at this late stage in the legislation.
    Lord Hodgson of Astley Abbotts: When the Minister looks at this proposal with his Bill team, I hope that he will note that the accountancy profession places great stress on the concept of materiality. Therefore the issue of materiality could usefully be considered. It means that a trading subsidiary would not be defined in absolute terms, but relative to its parent charity. It is worth looking at the concept of materiality.
    Lord Bassam of Brighton: I accept the point which has been usefully made. As I say, we shall look at this in a very practical light as it needs to be viewed in those terms.
    Lord Dubs: I am very grateful to my noble friend and to other noble Lords who have taken part in this short debate. I am grateful to the Minister for his positive and encouraging response. I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    Clause 27 [Annual audit or examination of accounts of charities which are not companies]:
    Lord Hodgson of Astley Abbottsmoved Amendment No. 140:
    Page 26, line 14, leave out from beginning to "at" in line 15.
    The noble Lord said: In moving Amendment No. 140, I wish to speak also to Amendment No. 141. With this group we come to the first of a series of amendments that we tabled to seek to make clearer and simpler the thresholds at which the need for inspection, auditing and so on kick in.
    Amendments Nos. 140 and 141 relate to Clause 27, which is entitled,
    "Annual audit or examination of accounts of charities which are not companies".
    As drafted, the Bill provides for a somewhat complicated double test for a charity to satisfy before it can determine whether or not it is required by statute to have its accounts audited. This requirement would, as drafted, apply if either,
    "(a) the charity's gross income in that year exceeds £500,000; or
    (b) the charity's gross income in that year exceeds the accounts threshold"—
    currently £100,000—
    "and at the end of the year the aggregate value of its assets (before deduction of liabilities) exceeds £2.8 million".
    The two-pronged nature of this second test seems unduly complicated. It seems sensible that a charity with assets of more than £2.8 million should in any event be required to have an audit, even if those assets are primarily functional assets or for some other
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    reason do not produce high levels of income. Losing £2.8 million worth of assets could have an impact on public confidence. The fact that the charity had an annual income below £100,000 per annum would make no difference to that. Will the Minister explain the value of the concept of "the accounts threshold", which seems to make one fleeting appearance in the Bill at this point? However, the purpose of this amendment is to argue that the second alternative of the test should be simplified by referring simply to the asset value threshold of £2.8 million, and the reference to income levels in this part should be deleted. I beg to move.
    Lord Bassam of Brighton: As ever, I am grateful to the noble Lord for tabling these amendments as it enables me to explain a bit about the Government's policy in relation to audit thresholds.
    As I am sure the noble Lord will be aware, the Strategy Unit considered specifically the matter of the audit threshold for charities and recommended that the threshold should be raised from £250,000 to £1 million annual income per annum. However, the respondents to the Strategy Unit review felt that the rise was too high and would reduce the accountability of medium-sized charities, leading to greater risk of abuse. The Charities Bill, therefore, provides for a rise in the threshold but only to £500,000 per annum. A number of respondents also suggested that an asset threshold should be introduced for unincorporated charities. There is, of course, already an asset threshold for charitable companies.
    We believe that an asset threshold should be introduced for unincorporated charities as a means of enhancing the transparency and accountability of the sector, which we all agree is vital for its success. For that reason the Bill provides for an asset threshold of £2.8 million for unincorporated charities as well as a rise in the asset threshold for charitable companies to £2.8 million.
    In considering how best to introduce the asset threshold for unincorporated charities we were mindful of the concerns in the sector about imposing an audit requirement on charities that were least able to afford it. The introduction of an asset threshold without any qualification would impact most on smaller charities. We agree that we need to ensure that there is an appropriate and lower level of burden on them. For example, there will be some (possibly several thousand) land holding charities that have negligible incomes but whose assets would be valued at more than £2.8 million. They obviously would not have the resources to pay for an audit.
    By introducing an asset threshold, but only for those charities required to prepare more sophisticated accruals accounts, we have sought to ensure that the audit requirement is not imposed on those charities with small incomes but large assets. The gross income threshold for the preparation of more sophisticated accruals accounts is currently £100,000 per annum. I hope that the noble Lord agrees that the introduction of the asset threshold in this way achieves the correct balance.
    7 p.m.
    Lord Phillips of Sudbury: I am most grateful to the noble Lord for giving way momentarily. Why is the £2.8 million taken before deduction of liabilities? That seems very odd, even bizarre, if you have a land charity with £3 million in assets and a mortgage of £2.5 million.
    Lord Bassam of Brighton: Yes, all right. The noble Lord has floored me. Having heard what I have been advised, I want to drop the noble Lord a note about it. I want to understand the point better as well.
    Lord Phillips of Sudbury: I am most obliged.
    Lord Bassam of Brighton: To conclude, we are trying to achieve the right balance, enhancing transparency and accountability without imposing over-mighty audit requirements on charities that do not have the resources for them because, although they may be asset-rich, their resource is light. I was hoping that, because the noble Lord is clearly sympathetic to the point, particularly for smaller charities, he would understand and think further about it.
    Lord Hodgson of Astley Abbotts: I am grateful to the Minister. I am sorry to disappoint him, but I do not think that £2.8 million—depending on how we define it; we will come back to that—represents that small a charity. I assume that we are talking about £2.8 million net in hand. That is a major chunk of assets. If that is the case, either that £2.8 million is being underused, in which case the commission should be looking at the whether the charity is using those resources efficiently—if not, it is not worthy of charitable status—or, if the money is supporting some other activity, auditing it will be very simple. In that case, the asset will be locked in some way and the audit will be very cheap and will be the same every year. It does not hold water to say that it will be very expensive to audit. Either the assets are not being well used, in which case the commission ought to encourage their better use, or they are being well used and are simply locked. I am not sure that the Minister has got this one yet. I am happy to withdraw the amendment, but, as we have told him, the thresholds in the Bill are all over the place. We want to simplify it.
    Lord Shutt of Greetland: The noble Lord says that the commission should move in, but in some situations trustees take a view about capital growth rather than income. Also, some charities have it in their objectives that they can spend capital. These things may well not appear to balance in the way the noble Lord indicates.
    Lord Hodgson of Astley Abbotts: I entirely accept that this is a very eclectic and wide-ranging sector with many approaches. However, overall the approaches are relatively simple. If you have £2.8 million of assets there should be a return on it. If there is not, you can afford to have it audited easily. I shall come back to thresholds as we go along, but in the mean time, I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
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    [Amendments Nos. 140A to 141B not moved.]
    Lord Hodgson of Astley Abbottsmoved Amendment No. 142:
    Page 26, line 26, leave out "£10,000" and insert "£25,000"
    The noble Lord said: We are hammering on about simplicity, clarity and consistency. We want the charity trustees to find the system user-friendly. As we have mentioned before, 95 per cent of charities have no permanent staff and depend on their trustees' readiness to give up their leisure hours to look after the charity's affairs. We want to reduce the number of thresholds and different levels as far as possible.
    Those who were present will recall that on Amendments Nos. 107 and 108 I argued that the requirement to register should be set at an annual income of £25,000. We argued that that was the level at which a charity becomes sufficiently significant to justify having to appear on the commission's radar.
    For the same reasons, I argued that the requirement for an independent examination should kick in at £25,000, not £10,000. This amendment makes that change for the accounts of a charity that is not a company—we are still on Clause 27.
    I hope that I have made it clear that I want charity trustees to have as few thresholds as possible to juggle with. I wish to do so without putting public confidence at risk. I believe that an annual income of £25,000 strikes the right balance for the uplift in the type of annual examination for the accounts. I beg to move.
    Lord Phillips of Sudbury: I am not sure that the noble Lord is removing any thresholds; he is just changing them.
    Lord Hodgson of Astley Abbotts: I am changing them, but I am getting rid of one, because I am moving them all to £25,000. We currently have £5,000, £10,000, £25,000, £90,000, £100,000, £250,000, £500,000, £1.4 million and £2.8 million. In producing a simple, deregulatory, transparent Bill, surely we can get rid of a few of those.
    Lord Phillips of Sudbury: I admire that ruthlessness. We had this little joustabout on registration. My only question is about public confidence. I shall be interested to hear what the Minister says. I am more sympathetic to this amendment than I was to the noble Lord's proposal of a £25,000 threshold for registration.
    Lord Bassam of Brighton: I shall try to truncate discussion on this. I admire the noble Lord, Lord Hodgson, for his desire to add simplicity to transparency and accountability in all these things. I fear that the objective is not easily achieved. He has to bear in mind the obvious point that those thresholds are for different things. We are looking at different beasts when we look at each threshold.
    Having said that, I think there is a good case for looking again at this threshold. We are happy to take away the gross income threshold for independent examination, with a view to raising it to a level that

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    strikes a better balance between proportionate regulation and not impacting negatively on the transparency and accountability of the sector as a whole. There are no easy miracles in collapsing the number of thresholds, but I think there is a good case for raising this one.
    Lord Hodgson of Astley Abbotts: I am grateful to the Minister. I shall quit while I am ahead. I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    [Amendment No. 143 had been withdrawn from the Marshalled List.]
    Lord Hodgson of Astley Abbottsmoved Amendment No. 144:
    Page 26, line 39, at end insert"; or
    (c) the Association of Charity Independent Examiners"
    The noble Lord said: This is a probing amendment. Clause 27(5) lists the bodies whose members are allowed to perform independent examination of charity accounts. As the name suggests, the members of the Association of Charity Independent Examiners specialise in the independent examination of charities. The ACIE is a reputable organisation and it seems appropriate to include it in the list. I am interested in the Minister's view on why it has not been included. I beg to move.
    Lord Phillips of Sudbury: My name is also on the amendment. After the robust performance of the noble Lord, Lord Hodgson of Astley Abbotts, on the previous amendment, I am taken aback by his extraordinary lack of forthrightness in calling this a "probing amendment". It is not a probing amendment; it is a thrusting amendment.
    I can see no reason why this body should not be on the list. As the noble Lord said, it is a professionally run body. I have asked it about its admissions procedures and disciplinary procedures, and it seems to be just the sort of body that ought to be on the list.
    Lord Bassam of Brighton: I think that we are going to be shamed into submission, whether by a probe or a thrust—I am not sure what the difference is. I agree to consider whether we ought to put it on the list of eligible bodies. The noble Lord has made a good point and we will consider it.
    Lord Hodgson of Astley Abbotts: Two in a row is more than I ever anticipated. I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    [Amendment No. 144A not moved.]
    Clause 27 agreed to.
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    Clause 28 [Duty of auditor etc. of charity which is not a company to report matters to Commission]:
    Lord Phillips of Sudburymoved Amendment No. 145:
    Page 27, line 21, after "must" insert ", after making such enquiries as he considers appropriate in order to establish such a likelihood,"
    The noble Lord said: This is a probing amendment. I simply want to be sure that given the duty of an auditor who, as subsection (2) of the new section has it, "becomes aware" of one of the matters concerned to report immediately to the commission, there is an interval during which the auditor may make such inquiries as he considers appropriate to establish the likelihood. I want to be certain that we will not see reference to the commission too early, before the accountant, auditor or examiner concerned has made due inquiry into whether there exists one of the matters to which the subsection relates. I beg to move.
    Lord Bassam of Brighton: Subsection (2) of new Section 44A of the 1993 Act gives an auditor a duty to communicate to the commission in writing information or his opinion on any matter of which he has become aware in his capacity as auditor relating to the activities or affairs of the charity or, for that matter, any institution or body corporate connected with the charity that the auditor has reasonable cause to believe is or is likely to be of material significance for the exercise of the commission's functions under Section 8 or Section 18 of the 1993 Act.
    If I understand what the noble Lord, Lord Phillips of Sudbury, has said, the thinking behind the amendment relates to the need to require the auditor to consider the need to make inquiries before he or she decides that there is reasonable cause to believe that a matter is likely to be of material significance to the commission, thereby triggering the duty to make a written report. It is not entirely clear that the amendment would have that effect as it would require the auditor to consider the need to make inquiries to establish the likelihood of the matter being of material significance after he or she has concluded that there is reasonable cause to believe that that is the case.
    We have doubts about the drafting of the amendment and its intended effect, but we certainly have sympathy for the underlying principle behind it. I suggest that we have another look at the quality of the amendment and consider the desirability of making it. It would impose another duty on the auditor with regard to his or her consideration of the need to make inquiries.
    That is about as far as the noble Lord, Lord Phillips of Sudbury, will get on this amendment, but I am grateful to him. There may be something here that we can make good use of.
    Lord Phillips of Sudbury: I am grateful to the Minister. His explanation of my purpose was right. I was struck by the language of the Bill. It refers to an auditor who "becomes aware" and says that he must,
    "immediately make a written report".

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    One does not want auditors and others to make reports before they are mature. I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    7.15 p.m.
    Lord Bassam of Brightonmoved Amendment No. 146:
    Page 28, line 10, leave out "apply" and insert "shall apply in relation"
    The noble Lord said: This is a government amendment, standing in the name of my noble friend Lady Scotland of Asthal—and my brief does not say "Resist" at the top. This is a drafting amendment. It has no substantive effect. It is designed to improve the way in which the Bill is written and to provide greater clarity and consistency within Section 46. I beg to move.
    On Question, amendment agreed to.
    [Amendment No. 146A not moved.]
    Clause 28, as amended, agreed to.
    Clause 29 agreed to.
    Clause 30 [Annual audit or examination of accounts of charitable companies]:
    Lord Hodgson of Astley Abbottsmoved Amendment No. 147:
    Page 29, line 16, at end insert ""£90,000" substitute "£250,000" and for"
    The noble Lord said: This amendment is a further attempt to simplify the framework for the auditing examination of charitable companies as set out in Clause 30. It parallels the discussion we had on Amendment No. 142 which was in respect of charitable trusts.
    Simply put, the Bill, as presently drafted, maintains yet another set of thresholds. Under the existing legislation, charitable companies can opt for an accountant's report as opposed to a full audit when their gross income is between £90,000 and £250,000. Under the Bill before us this afternoon it is proposed to raise the upper limit to £500,000 but to leave the lower limit unchanged. The logic for that decision does not seem clear on at least two grounds.
    First, uniquely, I think that the £90,000 threshold is the only threshold in the Bill not to have been moved upwards to reflect inflation since 1993. Secondly, it keeps in place yet another level which trustees have to keep in mind when carrying out their duties. Without wishing to sound like a broken record, we have made it clear that we want a Bill that is uncomplicated and as straightforward as possible. That is how we can best encourage the development of philanthropy and how we can best encourage men and women of quality to serve as trustees.x
    We believe that the underlying purpose of the Bill as regards maintaining public confidence can easily be met by a simple threefold set of levels of annual income: £25,000, £250,000 and £500,000. If we can achieve that, or we can persuade the Government to
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    accept it, we shall provide a simple system, comprehensible by the trustees of even the smallest charity. I beg to move.
    Lord Bassam of Brighton: Under the Companies Act 1985 a company that is a charity is totally exempted from the audit requirements of that Act, including the requirement to have an accountant's report to accompany its accounts, if its gross income does not exceed £90,000 and its balance sheet total does not exceed £2.8 million. As the noble Lord has explained, the amendment would raise the gross income threshold for total audit exemption from £90,000 to £250,000. So the requirement to have an accountant's report would apply to charitable companies with turnover between £250,000 and £500,000 and with a balance sheet total of not more than £2.8 million. The threshold for audit would remain at gross income of £500,000.
    As I am sure the noble Lord is aware, under the Companies Act a company which is not a charity is exempted from the audit requirements of that Act if its turnover is not more than £5.6 million and its balance sheet total is less than £2.8 million. Clearly, by comparison, the audit requirement is placed at a much lower threshold on companies that are charities.
    Perhaps it will help if I say a little about the purpose of the audit. The statutory audit provides an independent, external, professional opinion that a company's accounts provide a true and fair view. The primary purpose of the audit is for auditors to report on the accounts of a company to the members of that company. It provides an assurance to members as to the stewardship of their funds by the management of the company.
    However, for companies which are charities, the reliability of their accounts is important not only for the members of the company but also for the beneficiaries and donors that are connected and related to it. Tighter controls are important to minimise the opportunity for fraud and as a means of protecting donors. They are also for the benefit of the wider public.
    We believe that the audit requirements for charities should be lower than those for companies generally. That is because the increased accountability and transparency of the charitable sector promotes public trust and confidence. Providing total audit exemption for companies that are charities with incomes below £250,000 would have a negative impact on the transparency and accountability of the sector and would widen even further the disparity between the regimes for unincorporated charities and charitable companies. That would not be desirable. Drawn as I am to simplicity and a system which has perhaps a better internal logic, I think that we have got the threshold point about right in this case and it seems to work pretty well at the moment.
    Lord Hodgson of Astley Abbotts: I am fairly disappointed about this, because the Minister did not answer the question why we have not changed the

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    £90,000 threshold since 1993. It is still stuck at the same level it was at 12 years ago. At least on the rate of inflation, the risk is—
    Lord Bassam of Brighton: I think I am right in saying—I have probably given this answer before—that thresholds can be varied by order and are not stuck in statute, so if it seems appropriate in the circumstances, we can introduce an order that varies that threshold.
    Lord Hodgson of Astley Abbotts: I am glad to hear that.
    What I find disappointing is that during our earlier argument about companies with £2.8 million of assets, the Minister said that we should allow coverage to be at the lowest level. When it comes to a company with a £90,000 turnover, we are going to require a much higher level of examination on the grounds of transparency. I do not understand how it can be argued that £2.8 million of assets, on the one hand, is okay, but that £90,000 of income, on the other, is not. The Government do not have the logic of this structure right. I accept that there is a balance to be struck, but we do not have the structure right. We are confusing ourselves and the sector unnecessarily. Nor are we achieving any real, higher degree of public confidence. I shall come back to this amendment, because I would like to have a crack at persuading the Government that there is a structural issue to be tackled. I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    Clause 30 agreed to.
    Clause 31 agreed to.
    [Amendment No. 147A not moved.]
    Clause 32 agreed to.
    Schedule 6 [Charitable incorporated organisations]:
    Lord Phillips of Sudburymoved Amendment No. 148:
    Page 88, leave out line 16 and insert—
    "(5) A CIO may be established with or without members."
    The noble Lord said: In moving the amendment, I shall speak to Amendment No. 153. In simple terms, it would allow a CIO, a charitable incorporated organisation, to be a unitary structure without members or a dual structure with members. Again, this is a simplifying measure.
    I might as well start my argument in favour of the amendment by addressing the attention of the Committee to Clause 69B(6), which is to be inserted in the 1993 Act by Clause 1 of Schedule 6. Subsection (6) refers to a CIO which has charity trustees who are identical to its members. I am suggesting that where that is the case—that is, members being identical to trustees—why have all the fiddle-faddle of the dual-structure regulation when it is not needed? It exists at the moment. Companies limited by guarantee that are charities very often have Articles of Association which state that the members of the trustee body shall be the
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    same as the members and that the members should be the same as the trustee body, thereby making sure that those two groups are identical.
    Unless there is an insuperable technical reason why this amendment is obnoxious, I urge it on the Government. It will make the constitution of a CIO that has no membership very much simpler. There is no issue of the liability of members in winding up because, as we already have it in the same clause:
    "The members may be either—

    (a) not liable to contribute to the assets of the CIO if it is wound up, or

    (b) liable".

    So there is not even that argument against having a unitary structure which simply has a board.
    If it is necessary, and I can see that it might be in circumstances where there are no members, to have a minimum number of trustees—board members—then so be it. But on those grounds, and simply put, I urge the amendment on the Committee and I beg to move.
    Lord Bassam of Brighton: The understanding of the basis on which the CIO provisions have been drafted is that, under the current law, any incorporated body—including a CIO—must legally be comprised of one or more members. The Bill specifically confers on the members of a CIO functions relating to constitutional amendment and corporate reconstruction. The constitution of many CIOs will confer further functions on the members; namely, the appointment of the charity trustees. But the function of managing a CIO will be discharged by its charity trustees.
    All this is in line with other models of corporate organisation, but concerns have been expressed, in the case of those CIOs whose charity trustees will be the same people as its members, that it is unnecessarily burdensome to make them discharge certain functions in the capacity of members and certain functions in the capacity of charity trustees. The possibility that a CIO's charity trustees may also be its members is expressly recognised in the Bill.
    As I understand it, the thought behind the amendments is that the effect of establishing a CIO without members would be that all the functions associated with the operation of the CIO would have to be discharged by the charity trustees in that capacity. Careful consideration was given prior to the introduction of the Bill to ways in which these concerns might be addressed without departing from the basic legal concepts relating to incorporation. If this were to be done by changes to the Bill, the amendments would have to take a different form from those currently proposed by the noble Lord.
    However, we believe that the burden where the same people are to discharge different functions while wearing separate hats has been somewhat overstated. We think that the concerns that have been expressed can be satisfactorily addressed by the Charity Commission through the publication of model governing documents for CIOs under the powers provided in the Bill and through the issue of appropriate guidance. That approach is preferable to

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    introducing further complexity in the Bill by the addition of provisions designed specifically to apply only where the members of a CIO are the same as the charity trustees. We think that this is a simpler and easier route to achieving the objective sought by the noble Lord, Lord Phillips, in his efficacious amendment.
    Lord Phillips of Sudbury: The language of the Minister gets more Romanesque as the evening wears on. I think that that was an Alice in Wonderland response: it is precisely the reverse of the reality.
    Lord Bassam of Brighton: With respect, I think that we were given the benefit of a Through the Looking Glass explanation of the amendment.
    Lord Phillips of Sudbury: Well, tit for tat, but I will persist as one who labours in dealing with these corporate entities as compared with the unitary structure of a trust. A trust has a massive operational advantage over any corporate vehicle because it is unitary. All the functions are combined in the personages who comprise the trustee board. Of course, some of the biggest and most famous charities in the land are constructed in that way.
    If the Minister reflects on my first justification for the amendment—Alice-like though it may have been—he will be bound to accept that a unitary structure will be a much simpler and easier entity to run. Again I forgive the Minister for believing his brief.
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    But if you are in the business of having to hold members' meetings and board meetings and all the different provisions for both—and they are the same group of people—although it is simple in theory to deal with all that, the truth is that in practice many voluntary bodies make an utter mess of it.
    So this really is a simplifying amendment. I have not heard any point made by the Minister against it, other than ones I have attempted to deal with. I hope that on reflection—not tonight but on reflection—he might be persuaded that this is a worthwhile amendment that will fulfil what we all repeatedly have stated we want, which is something that works better and simpler. Given that the CIO is a new animal, Members of the Committee would be surprised at how many extra charities would convert into that status if they did not have to abandon their unitary structure. I beg leave to withdraw the amendment.
    Amendment, by leave, withdrawn.
    Lord Bassam of Brighton: Given that we have trespassed past the witching hour of 7.30, I think this might be a convenient moment for the Committee to adjourn until Wednesday 16 March at 3.30 p.m.
    The Deputy Chairman of Committees (Viscount Ullswater): The Committee stands adjourned until Wednesday 16 March at 3.30 p.m.
    Committee adjourned at twenty-nine minutes before eight o'clock