Charity Law

HL Deb 05 March 1986 vol 472 cc179-87

3.3 p.m.

Lord Allen of Abbeydale rose to call attention to the operation of the law relating to charities, and in particular the responsibilities of the Charity Commission; and to move for Papers.

The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper.

I think that I should begin by declaring an interest, in that I am a trustee of one or two charities, but it is certainly not a financial one. I should like at the outset to thank all those who have put down their names to speak. There are some 150,000 registered charities in England and Wales which among them receive from the public hundreds of millions of pounds. We are fortunate to have such a wealth of charitable effort, which is recognised by the state in the way of various tax concessions and exemptions, including improvements made by the present Government in regard to covenants and charitable gifts. But Mr. Bob Geldof has shown that there is still a great deal more money which could be found for the right objects.

I originally had it in mind to make a plea today for introducing a provision whereby charitable contributions would be made tax deductible; but then what happened? On 19th February The Times and the Telegraph both came out with the story that that was just what the Chancellor was proposing to do. With my background, I should naturally never suspect that information was disclosed about a Budget intention, but there was such a wealth of corroborative detail that it will be disappointing if nothing on those lines is announced later this month.

Will it be, I wonder, in the simple form of charities being able to recover tax as if all their donors were basic rate taxpayers? Will there be a maximum or a minimum? Will covenants continue?—please. Will the concession, disappointingly, be limited in the first place to companies, as has been suggested by one correspondent who writes as though he is privy to the Chancellor's innermost thinking? I realise that the noble Lord the Minister, when he speaks, will not be able to say much on the issue today and that we can only wait and see and hope. But I must strike one note of warning. It would not be well received if greater generosity to charities were accompanied by a drawing back of the concern of government with social problems on the argument that the voluntary bodies would now be better equipped to take over. That would not do.

There is another financial aspect of great concern to charities—that is, liability to VAT. But I know that other noble Lords have it in mind to speak on that important topic.

Charity law has basically to do with protecting charitable trusts, but in practice it has come to take on this added role of providing the test against which fiscal benefits are judged. It is obviously very important that the sums which enjoy those benefits are not wasted and are not used for non-charitable purposes. I am led therefore to consider, first, the role of the Charity Commissioners, the chosen instrument for the supervision of charities, at any rate south of the Border; and, secondly, the law under which the Charity Commissioners operate.

Let me start with the Charity Commissioners. They have existed in their present form since the Charities Act 1960. They employ some 330 people and cost something like £5 million a year. They will be the very first to say that with their present resources they cannot do all that they would like to do, or anything near it. They register between 3,500 and 4,000 new charities each year. They advise trustees and help with legal schemes. They deal with abuses that come to their notice, and they keep a central register of charities. But, alas, the register is not nearly as informative or as up to date as is desirable, and so far as I am aware there is no immediate prospect of its being computerised. I gather that the commission has had enough trouble with the computer installed for the official custodian of charities.

Let us take accounts. Not all charities which should submit accounts do so, by a long chalk. Those that do come in may not be audited, and the commissioners can look at only a quite tiny number each year. If we look at the picture overall, credit must be given to the commissioners under their present chairman for doing their best, but complaints of serious delay persist and there is no getting away from the fact that the commissioners themselves see their role as purely reactive and they are simply not equipped to take initiatives. They are lacking in resources and it is not exactly comforting to hear rumours that the Treasury is seeking to cut down even that which they have.

Changes in the existing law might afford some slight relief. For example, charities with an income of not more than £15 a year are not required to register. That figure appears in the 1960 Act. If it could be amended and put up substantially, there could at least be a drastic reduction in the size of the register. There are one or two other candidates as well. But whatever was done, there would still remain the problems of charity law itself. It is to these that I now turn.

Charity law has rightly been described as a morass in which no government gladly tread. There is no statutory definition of a charity and the whole edifice rests on the preamble to an Elizabethan statute that has long since been repealed—a rather remarkable example of life after death—and a series of legal judgments, notably one of Lord Macnaghten in 1891, well before the welfare state. That judgment classified charities in the four categories of trusts for the relief of poverty, for the advancement of education, for the advancement of religion (I must say that we have a number of religions that Lord Macnaghten would never have thought of) and for other purposes beneficial to the community. This last category is so wide that under it it has been possible to keep up in some measure with new social developments, as, for example, the fairly recent decision of the Charity Commissioners to change their policy and to accept for registration charities opposing racial discrimination.

In deciding whether or not to register a charity, with all its financial benefits, the commissioners are not making moral judgments or seeking to approve or disapprove particular policies. Their function basically is judicial. It is not surprising that their decisions, from time to time, arouse some slight controversy among those with strong views about the objects of a particular body, as, for example, over the decision of the commissioners to register the Moonies. It is also not surprising that when it is a question of exercising a discretion, the way ahead for the applicant is not always crystal clear. In 1981, the commissioners put out guidelines on how far charities can go in the field of political activities and advocacy. But, to judge from the correspondence that I have been receiving, there is still ample room for argument in individual cases.

There are other topics such as unemployment and job creation where those seeking registration find themselves engaged in something of an obstacle race. Although the relief of poverty is charitable, the prevention of its occurrence, especially overseas, seems not to be. I could go on for quite a time. But no one, so far—there have been various attempts—has come up with convincing ideas as to how the boundary lines of what is and what is not charitable might be clarified and defined by Act of Parliament.

There are, however, a few other, rather more promising, candidates for legislation. Could the easing of the cy-près doctrine in our modest Charities Act last year point the way to some more fundamental change? Should power be taken to enable the commissioners to register a charity provisionally on a kind of probationary basis for a period of years? Should the provisions banning advertising on television be looked at? Should the trustee investment legislation be overhauled? And, since the development of charity law depends upon the decisions of the courts, and since the expense of going there has reduced cases to a trickle, should a suitors' fund be established to enable the important issues to be taken to the courts at public expense on the near analogy of the race and sex discrimination legislation?

With my eye on the clock, I realise that I have skated only lightly over some of the issues. I have had to leave out large chunks altogether. Indeed, to do justice to the subject would require a speech of Gorbachev dimensions. I hope, however, that I have said enough to show why I believe that all is not well. What can be done? Should the Government set up a wide-ranging Royal Commission? There is certainly a case for doing this, but I personally feel a bit dubious. It would take a long time, and my own rather bitter personal experience suggests that there would be no guarantee that the Government would even read the report when it was published.

Another possibility would be an unpretentious Bill dealing with some of the points that I have touched upon, perhaps after scrutiny by a Select Committee. We managed this last year, but I should be a shade surprised if the noble Lord, Lord Glenarthur, was encouraging about the prospects of finding a place for a reasonably early piece of legislation. Perhaps the most profitable and immediate course is to concentrate on the Charity Commissioners themselves. I hope that the noble Lord, when he speaks, will be able to reassure us to some extent about their resources. But, in addition, I would welcome his views on the possibility of calling in outside management consultants to advise on whether the available resources are being employed to the best advantage and to assess how extra resources might best be used. I hope that other ideas will emerge during the debate.

A great deal of money goes to charity with relief from taxation. A great deal more could go. It must be highly desirable to ensure, so far as is humanly possible, that this money is put to good use under provisions that take full and reasonably prompt account of changing social needs. I beg to move for Papers.

3.17 p.m.

Baroness Vickers

My Lords, all of us, I believe, would wish to thank the noble Lord for the excellent manner in which he opened the debate and for the information that he has given us. I wish to talk about one subject; that is, charity chests. These have been formed, and are being formed, in the United States, Canada, Australia, the West Indies, the Canal Zone, Cuba, Hong Kong, Singapore, Greece, Japan, Mexico and the Philippines. They were started originally in Denver, Colorado, nearly 100 years ago, in 1887. There are now 2,200 of them in Canada and the United States. They employ professional people who run them. They co-ordinate programmes and prevent duplication of services.

They were started—one has always to start in a small way—by canvassing from door to door. Nowadays most of the funds come from employee groups and from corporate gifts. I have personal experience of raising money, first, during the war, with the Red Cross penny-a-week fund which I ran for London. That brought in literally thousands a week. It was interesting to discover that Left-wing councils showed no wish to join until Mrs. Churchill introduced aid to Russia. We then received just as much money from those councils as we did from other people.

I also started social services in three states in Malaysia. Here, I was of course a civil servant. I had to think of ideas for raising money in these states to help add to the little money that I was receiving. A separate method had to be thought of for each one. In Negri Sembilan, mostly Chinese, who were gamblers, would come along and, given permission for a week to run a fair, they raised thousands of Malayan dollars. Other states had their own ways of raising money.

One of the other aspects I have worked on was the Reader's Digest Panel. Many of your Lordships in this room will remember that remarkable man, George Haynes. He nominated me to go on this panel to help choose between the various voluntary organisations. We did that from 1972 to 1979. Now they have changed to another system and I therefore do not do that any more.

We also remember that the EC has a Social Fund which has proved very useful for many charities, particularly ones relating to young people. The only difficulty is that it is very slow in dealing with the projects. And one year they had as much as £200 million left over which they had not allocated.

I do not want these charity chests to be called "community" chests, because I think that "community" means something quite different from charity—it is far wider—and I should like to stick to the narrower definition. These will help a lot of the very small organisations which are now trying to get going. It is extremely expensive to start organisations. A PR person will want about £10,000 a year. I therefore think that it would be very much better if such organisations could get their information from a central area. I believe that there are a couple which are already considering doing something along those lines.

A number of people who have no family die without leaving a will. I have been going into the amounts of money they leave. The other day one such amount was £1.5 million. I should like to ask the Government—I shall probably not be very popular—if they would put this into the chests: that would be an excellent way of getting the money. I should like to follow what the noble Lord said on that, particularly about charity shops. Practically all the shops which are run sell second-hand goods. It seems very unfair that we should have to pay VAT on their sales.

I hope that the Charities Aid Foundation might be willing to help to sponsor a national charity chest which would amalgamate a collection of money, set up a panel of persons qualified to allocate the money, and so help to stop competition between various charities and lessen their overheads.

I am sure that all your Lordships have appeals coming in in great numbers, especially at Christmas time. There are generally one or two a week. If one lives in London one receives them in London; if one goes down to the country one finds another lot there waiting, and it is very distressing to have to refuse—or refuse a great number. As I mentioned, there are hundreds of trusts from whom we receive these letters. I think that a central organisation would obviate a great deal of this. I think a united funds payroll for community funds and staff charities might help in this situation. I should like to hear from any people interested in this suggestion. Perhaps they would like to give me any ideas on any form of co-operation.

To end, I should like to say that the United States of America gets £800 million a year through its charity chest. I think the Americans are doing a very good job. It appears to me, having looked into it, that they are being very fair about it. They also advise the new charities of the best way to start. I hope that we shall take what the noble Lord has said to heart today and see that charities get a fair look in the future.

3.25 p.m.

Lord Grimond

My Lords, you may think from my exalted position on the batting list that I am speaking officially on behalf of the Alliance. That would be a mistake. I do not know whether the Alliance has a policy on charities. I hope that it has not. I have spent a great deal of my life trying to dissuade the Liberal Party from having policies on everything under the sun. All I am attempting to do this afternoon is to make one or two points which are purely my own idea.

We certainly all owe a great debt to the noble Lord, Lord Allen. Charities are now very big business, as he pointed out. The first point I want to raise is how far we can expect the Charity Commission to supervise them. As he said, at the moment it is finding it very difficult.

One of the things that the Charity Commissioner has to do, in theory, I understand, is to look at 150,000 balance sheets. This seems to be a quite impossible task and I have just asked whether it is necessary. I draw your Lordships' attention to the fact that the Charity Commission operates only in England and Wales. There is no Charity Commission in Scotland: the functions of the Charity Commission are carried out by the Treasury. I think it is very interesting to know whether the Government have made any comparisons between the results in Scotland and those in England and Wales, so that we may find out whether the Scottish experience has any relevance to possibly relieving the Charity Commission of some of its obligations.

The second matter to which I want to refer is the fact that one of the main features of charities is that they escape taxation. I consider taxation to be quite respectable. There is a growing feeling in the country that only fools pay tax, but somebody has to pay tax. Many good causes have to pay tax, and many admirable individuals also. I have been until lately what is usually called a trustee of an organisation called The Joseph Rowntree Social Service Trust. It is not a trust strictly speaking and I was not a trustee. It is a limited company and its objects are laid down in its Articles of Association. It pays tax. Out of an income of some £330,000 a year it pays £140,000 in tax. We would much rather not do that. Nevertheless, it gives us freedom to support any cause which we think is good and within the remit of the founder, whether it is charitable or not.

I think that we have a certain advantage in this. I do not think that many people would feel, for instance, that it was right to support political parties out of untaxed money. I think people would jib at the taxpayer virtually contributing, say, to the National Front and the Communist Party. But it may be a good thing to have in the system somewhere some organisations which are free to take a rather wider look at what may be called a good cause than can possibly be done by the Charity Commissioners.

Therefore, while I pass on the plea for some relaxation in taxation, I do not want it to be thought that I believe that the door can be opened indefinitely wide. I think that it is very reasonable that donations to charity should be made tax deductible by individuals. I would go to the opposite of what I understand is sometimes the fashionable view of the Treasury that they should be made tax deductible by institutions. I think it is much better that they should be made tax deductible by individuals. Further, I would try to expand a little the present flexibility which is very sensibly exercised by the Charity Commission.

Here again, I want to say that even now it is not absolutely axiomatic that all charities necessarily do good. The largest landowner in Orkney is now the Royal Society for the Protection of Birds—a most excellent organisation, with whose objects we no doubt agree in general—but it is doubtful whether it should indefinitely buy up land and become an absentee landowner partly with the help of the taxpayer and in competition with local people who may wish to buy it. I personally have doubts as to whether it is good that infinitely large foundations should be set up for the acquisition of pictures and works of art. Certainly it is wonderful that the Sainsbury family are going to build a new wing for the National Gallery. However, when one thinks of Getty and the possibility of endless Gettys and practically all the major works of art being put into foundations and museums of one sort or another—again, largely because by this means they escape some tax—I at any rate think that the advantage is debatable. I do not go further than that; it is good in some ways, but it is not absolutely obvious that it will be good indefinitely.

However, I think that we might look at those cases where a charity exposes something which is quite clearly wrong. For many years I was, and I still am, connected with the Minority Rights Group. We could of course publish reports pointing out the parlous state and the grievances of minorities; but if we went further than that and suggested that something should be done about them, we would, quite properly, be liable to get into trouble with the Charity Commission. As noble Lords know, people who publish the facts of famine in Africa and go on to say that some action should be taken are also in danger of getting into similar trouble.

Lastly, I want to point to the case of Koeppler. He was someone who some noble Lords may have known well. He was a very remarkable German who was instrumental in setting up an organisation in this country and he tried to leave his money to it for the purpose of holding seminars and conferences about international affairs. However, the courts have held that it did not fall within the definition of "charity". I should have thought that its purposes were exactly the same as those of Chatham House, and it seems to me strange that the law—I have no doubt that it is perfectly properly administered—should have made void Koeppler's bequest for what I should have thought was a purpose which everyone would agree was highly to be encouraged.

Therefore, my own experience is that the Charity Commissioners do a wonderful job, but whether their job needs to be as wide as it is I do not know, and some comparison with Scotland would be interesting. But in general I think that we could make them a little more flexible. However, it is extremely difficult to find a line which is absolutely valid between the charitable and the non-charitable.

3.32 p.m.

Baroness Faithfull

My Lords, since the dissolution of the monasteries by Henry VIII, the development from Elizabethan times of charity law and the growth of charities have been the subjects of deep interest, both academic and practical. We are indebted to the noble Lord, Lord Allen of Abbeydale, for introducing this debate today, all the more so because charity law and the oversight of charities has not adapted from early times to the changing circumstances of this day and age.

Perhaps I may touch on three matters. The first is the anomalous position of the Charity Commission. While the Home Office answers for the commission, its relationship is a nebulous one. Being somewhat cynical, there is no political mileage in the Charity Commission, and therefore I would submit that no Home Secretary of any party has sought to update the work of the commission in order to see that it has the appropriate and adequate resources. I suspect that neither any Home Secretary nor the one or two staff in touch with the commission can possibly be aware of the dissatisfaction expressed throughout the country—indeed, they have no means of knowing.

I would recommend that there should be a council of three to speak for the commission and to act as advisers—a Member of the House of Commons, a Member of the House of Lords and perhaps a third person with knowledge of charities and charity law. I would recommend that such a council and the commission should look critically at the ethos and work of the commission and, based on these findings, ask for a survey to be carried out. This survey should on no account be carried out by the Treasury, whose only object, very understandably, is to cut expenditure regardless of the needs either of the commission or of the service required by the country. The Treasury cannot be expected to know of that.

The Charity Commission produces a good report each year; but, my Lords, what action is taken on it? As was stated by the noble Lords, Lord Allen of Abbeydale and Lord Grimond, there are 150,000 charities registered whose accounts should be submitted and scrutinised, but obviously that cannot be done. Last year there were 3,000 new applications for registration. Approximately 700 letters are received each working day. In all, there are 300 staff-200 in London and 100 in Liverpool. There are many complaints about work held up and registrations not being dealt with immediately. As has been said, the staff of the commission cannot be blamed because they do not have the resources and have no option but to play a passive role, and are not in a position to take initiatives.

My second point concerns the Charities Act 1985. This Act was passed on the recommendation of a Select Committee chaired by the noble and learned Lord, Lord Brightman. That Act deals with small charities and recommends the amalgamation into neighbourhood trusts of small parochial charities on a voluntary basis. I understand from the Charity Commissioner (the member of staff assigned to deal with the implementation of this Act) that much interest is being shown throughout the country. However, there are some parishes which are unable to use their small parochial funds or which use them unwisely and are not prepared to help neighbouring parishes in need. It is profoundly to be hoped that this attitude will change. The commission is seeking to monitor and implement that Act.

The third point which I want to raise deals with value added tax. When will the Chancellor of the Exchequer listen to the pleas of over 200 leading charities which are paying £20 million a year in value added tax? Charities incur VAT on the goods and services that they purchase. One of the worst hit charities is Barnardo's, on whose council I have the privilege to serve. The total cost per year in value added tax is £600,000. This is hard on the splendid volunteers who in many different ways raise a large sum of money.

The policy of Her Majesty's Government is much to be applauded in the partnership as between the statutory and the voluntary sectors. For instance, Barnardo's, in partnership with the Department of Health and Social Security, has schemes for bringing mentally handicapped children out of mental hospitals into small units in the community. A central government grant is given towards this; but in the building or alteration of a building, in advertising, in medicine and drugs, VAT must be paid. But for VAT, more children could be brought out of the already burdened hospitals. The VAT paid by Barnardo's is therefore counterproductive to the statutory sector as well as to the voluntary sector.

In the year ending 1985 the NSPCC incurred £340,801.77 in VAT. If the NSPCC or Barnardo's opted out of the work which they do, it would have to be carried on by the local authorities, which do not pay VAT. If the Chancellor of the Exchequer cannot give VAT relief, would he consider perhaps giving relief in part? He has acknowledged the problem under the Value Added Tax (Welfare) Order 1985. Would he perhaps consider withdrawing VAT or making it zero-paid on buildings, alterations and extensions; or give relief for services comparable to the work done by local authorities, or alternatively for a specific area of concern, perhaps the relief of the poor, or families and children?

Voluntary organisations are able to provide a social and welfare service which is flexible, effective, and economic due to the involvement of the community and of volunteers. The people of this country are generous in their giving to charities. The wonderful effort of Bob Geldof did not diminish giving to the established charities. Surely those who give want their donations and covenants to go to the charitable work of their choice.

My Lords, I say again that if there was a Council for the Charities Commission all the points made by your Lordships today could, and I am sure would, be taken up by the Charities Commission, and they would be given the opportunity to meet the needs of the ever-growing charities section to which Her Majesty's Government are committed.