Charities Bill [H.L.]

HL Deb 20 January 2005 vol 668 cc883-965

11.38 a.m.

The Minister of State, Home Office (Baroness Scotland of Asthal)

My Lords, I beg to move that the Bill be now read a second time.

One of the most important contributions that the Government can make to facilitating and promoting activities of the charitable sector is to create a modern legislative framework for it. That is what the Charities Bill is for. The Government's three aims for the Bill are: first, to provide a legal and regulatory environment that will enable all charities, however they work, to realise their potential as a force for good in society; secondly, to encourage a vibrant and diverse sector independent of government; and thirdly, to sustain high levels of public confidence in charities through effective regulation.

By reforming the legal and regulatory framework for charities the Government will enable people to use charities as a means to make a difference. The Bill will help existing charities to thrive, grow and to realise their full potential.

The Bill will make improvements in several areas of the law and regulation of charity. The most important improvements are: first, the definition of charity and the public benefit requirement;secondly, the Charity Commission's constitution and functions, and the creation of a new tribunal to hear appeals against commission decisions; thirdly, the creation of a new corporate legal form for charities, called the charitable incorporated organisation; fourthly, changes to ensure that effective and proportionate regulation applies right across the charity sector, including those charities that are not required to register with the Charity Commission;and fifthly, the'regulation of charitable collections. I will return to each of those in more detail later.

This Bill is the result of a thorough process, including extensive consultation. During the process, a high level of support for the Bill has been evident. I know that many noble Lords are involved as trustees and patrons of charities, and they will be well aware of the widespread support for the Bill across the charity sector. The National Council for Voluntary Organisations encapsulated this when it said: There is a real need for legislation to modernise charity law. In order for charities to operate effectively and for charities to retain public trust and confidence, charity law needs to be seen to be relevant and effective". The process began with the work on public benefit undertaken by the National Council for Voluntary Organisations in the mid-1990s. This was taken up by the Prime Minister's Strategy Unit in its review published in 2002, on which there was public consultation. The responses to this review, whose proposals form the meat of the Bill now, showed strong support for a great majority of its proposals. The Government accepted all but one of the Prime Minister's Strategy Unit's recommendations. The Bill was published in draft in May 2004, and it received pre-legislative scrutiny by a Joint Committee of your Lordships' House and another place. The Government are very grateful for the excellent report of the Joint Committee. We have accepted over three-quarters of the Joint Committee's recommendations.

It has been over a decade since any significant changes were made to charity law, and many aspects of current law are considerably older in origin. As a result, charity law has not kept pace with changes in society and within the diverse voluntary sector. The Charities Bill has been drafted in the light of the responses to the Prime Minister's Strategy Unit review, and it aims to promote a dynamic voluntary sector that continues to enjoy the high levels of public confidence on which the sector depends.

There will also be charity law reform in Scotland. Charity law and regulation is devolved there. The Scottish Executive introduced its own Bill in November 2004 to the Scottish Parliament, and the parliamentary process is likely to continue well into 2005. Continued co-operation between the Executive and the UK Government, and the Charity Commission and its Scottish counterpart OSCR, will aim to ensure that in key areas—such as the definition of charity—the two Bills are fully compatible. Charity law is also devolved in Northern Ireland, and it is likely that there will be reforms there too, although proposals are in the early stages.

Now that I have set the context for the Bill, I will describe to noble Lords the detail of its content. Part 1 covers the meaning of "charity" and "charitable purpose". It sets out a general statutory definition of charity for the first time. It then lists 11 specific descriptions of charity and one general description. No purpose that is currently charitable will cease to be charitable under this Bill. All but one of the recommendations made by the Joint Committee have been taken up by the Government in this Bill, for example, the inclusion of "culture" in the charitable purpose of, the advancement of the arts, culture, heritage or science", and, the promotion of equality and diversity", as a charitable purpose. The Government's intention is to clarify and codify the law, rather than to extend it significantly. The recommendation that we have not taken up is the proposal to redefine "religion", which we do not believe to be necessary to achieve what the Joint Committee sought. It will remain for the Charity Commission, and ultimately the courts, to decide by reference to the law what is and is not charitable in the coming years.

Part 1 also introduces the public benefit test. Under the existing law, there is a presumption that charities established for the relief of poverty, the advancement of education or the advancement of religion are for the public benefit. However, charities established for all other purposes do not benefit from this presumption, and Clause 3 abolishes this presumption. Under the Bill, all charities must show that they are for the public benefit, irrespective of the purpose for which they are established. In addition. Clause 4 requires the Charity Commission to issue guidance on public benefit following consultation. We have made this change in response to the report of the Joint Committee, which recommended that the basic principles of public benefit should be set out either in the Bill or in guidance issued by the Secretary of State.

The Government do not believe that it would be practicable to deal adequately in the Bill with what is a complex legal issue. We have accordingly adopted a variation on the alternative approach recommended by the Joint Committee. We believe that any guidance should be issued not by the Secretary of State but by the independent regulator, which is not under ministerial control and which is accountable to the courts. The commission has today published an illustrative draft of its public benefit guidance, which I hope will assist your Lordships in considering the impact of these provisions.

I hope that it will be helpful if at this point I clarify the position of the Bill on the charitable status of independent schools. The Bill has been criticised both for failing to remove the charitable status of independent schools and for failing to protect the charitable status of independent schools. However, the Bill does not single out independent schools in any way. In common with all other charities, independent schools will have to show that they provide a public benefit. The Prime Minister's Strategy Unit recommended that the Charity Commission carry out a review of the public benefit provided by high fee-charging charities once the Bill is enacted, and the commission has agreed to carry out such a review. This would include not only schools but all other fee-charging charities, including private hospitals, arts organisations, and others. The commission's draft guidance will indicate how it proposes to set about this task. The commission's monitoring of the financial and other affairs of all but the smallest charities will also continue. Both tasks will be carried out under the commission's existing statutory powers and for that reason no provision is made for them in the Bill.

Part 2 covers the regulation of charities. Chapter 1 forms the Charity Commission into a body corporate; currently its functions are personally held by the Charity Commissioners themselves. This chapter also contains reforms to the commission that will modernise its constitution, governance and powers in order to build on its current effectiveness. It gives the commission a new set of five statutory objectives, which we have revised to take account of the Joint Committee's recommendations, as well as six general functions in support of those objectives and four general duties. A new Charity Appeal Tribunal is created, which will mean that the Charity Commission's decisions are challengeable without recourse to the High Court, which is a costly and difficult process.

The commission is, and will remain, a non-ministerial department. Under the Bill it will remain an independent regulator, completely free from any form of ministerial direction or control. This Bill does not change this position at all. The Government believe that the commission's independence in that respect is of paramount importance for the proper regulation of charities and for the public's confidence in charities. It is important for me to make that clear before we proceed any further.

Chapter 3 of Part 2 deals with the registration of charities. There are three main changes. First, the Bill raises from £1,000 to £5,000 the income threshold above which a charity must register with the Charity Commission. However, charities whose income falls below the threshold will be able to register with the commission if they so wish. Secondly, the Bill brings the arrangements for the so-called excepted charities— which include those Armed Forces and church charities and which are not at present required to register with the commission—into line with other charities by requiring them also to register, starting with those having an annual income of £100,000 or more.

Since excepted charities are already within the commission's supervisory powers, this will not significantly increase the regulatory burden. It will increase the transparency and accountability of these charities as we believe there is no principled justification for keeping these charities outside registration with the commission.

Thirdly, the Bill introduces new arrangements for the so-called "exempt charities", which include the universities, other places of further and higher education, schools, museums and galleries. Exempt charities are those which are currently specifically excluded from the Charity Commission's supervisory and monitoring powers although they are defined as charities. They enjoy the status and the fiscal benefits accorded to other charities, but there is currently no mechanism for monitoring their compliance with charity law. The Bill changes this position.

Where a regulator is already in place, for example, in the case of the universities, which are regulated by HEFCE, that regulator will take on the responsibility of monitoring compliance with charity law. Where there is no regulator, as in the case of foundation and voluntary schools, the Charity Commission will take on this responsibility. The proposed new regulators have been identified following extensive discussion with the relevant regulators and charities. The purpose of these changes is to ensure that modern and effective regulation extends right across the charity sector and not just to some parts of it.

Chapter 4 of Part 2 will allow the commission or the court to give charities permission to change charitable purposes for which charitable property was given. This is an amendment to what is known as the "cy-pres" rule. Currently, as many noble Lords will know, the law is rather inflexible in this area: purposes must be as close as practicable to the original purposes. Complying with the current legal position can frustrate trustees and the outcome is not always necessarily the best for the charitys beneficiaries. By also allowing the social and economic circumstances within which the charity operates to be taken into account when changing charitable purposes, the Bill will help more effective use to be made of charitable resources. That is a change which has been long awaited and very much welcomed.

Chapter 5 of Part 2 modernises the Charity Commissions regulatory powers. This chapter includes new powers for the commission to suspend or remove trustees and employees from membership of their charity; to determine who are the members of a charity; and, in the course of a statutory investigation, to enter premises and take possession of information and documents. We are confident that these new powers strike the right balance between enabling the commission to operate effectively and the need for independence of charities from the control of the regulator.

Chapter 6 of Part 2 raises the income level at which unincorporated charities must have their accounts audited and contains some other reforms to the accounting regime. Chapter 7 of Part 2 makes the same changes for charitable companies.

A provision I particularly commend is the creation, under Chapter 8 of Part 2, of a new legal form specifically for charities, called the charitable incorporated organisation, or CIO. It is designed to avoid the need for charities which take a corporate form to register as companies and be liable to regulation under company law as well as by the Charity Commission. The Joint Committee expressed some concerns about the potential complexity of the provisions. I am afraid that complexity is inevitable when one is creating a new type of corporation, but we will do all we can to simplify things as an aid to understanding. The Home Office is today issuing a model form of regulation to show how we plan to fill in the detail of the CIO's administration, and there will be plain English guidance for anyone wanting to set up a new CIO or convert from their existing form to a CIO.

Chapter 9 of Part 2 contains provisions relating to trustees. The Bill contains a power for trustees to be paid for certain types of service provided to the charity, subject to certain conditions designed to ensure that this is proportionate, protects against conflict of interest and is in the best interests of the charity. I emphasise that the Bill will not allow payment for carrying out the duties of trusteeship; nor will it allow a charitys paid employees to be trustees at the same time. It preserves the essence of the voluntary principle of trusteeship.

Clause 36 would allow charity trustees to apply directly to the Charity Commission, as well as to the courts, for relief from personal liability for breach of trust in instances where they have acted honestly and reasonably. This is intended to encourage more people to act as trustees, giving them confidence that they will not have to pay money out of their own pockets if things go wrong after they have made an honest mistake. Of course, trustees found to have acted dishonestly or unreasonably would still face personal liability.

Trustees existing power to spend small amounts of permanent endowment will be made easier and less bureaucratic, and technical obstacles to mergers will be removed. Decisions on mergers will of course remain for charities themselves: it is not the Governments role to procure mergers between charities or to put pressure on charities to merge.

An important part of the Bill, Part 3, is the reforms to the regulation of public charitable collections. The present arrangements do not work as well as they could, because different types of collection are subject to different sets of licensing rules, and because the rules are applied differently from one local authority to another. Through the Charities Act 1992 it was intended to introduce a new scheme for the regulation of fundraising, but the relevant part of the 1992 Act was never introduced because the proposed scheme was found to be unworkable.

We propose in Part 3 a new, unified licensing scheme to iron out the inconsistencies. In response to the Joint Committees report, the Charity Commission will be given the role of determining the eligibility of organisations to undertake public collections. Charities and other bodies proposing to undertake public collections will be able to apply to the Charity Commission for a public collections certificate lasting for up to five years. Street collections will continue to require a permit from the local authority. For house-to-house collections the requirement is simply to notify the local authority. I am sure that noble Lords will be relieved to hear that purely local, short-term collections, such as those by carol singers, will be completely exempt. The Bill will also ensure that face-to-face collections, where members of the public are asked to sign direct debit forms in the street, will be brought within the statutory licensing scheme for the first time.

The remainder of Part 3 deals with fundraising. Clause 65 introduces a reserve power for my right honourable friend the Home Secretary to introduce a statutory scheme for the regulation of fundraising. The Government welcome and support the sectors work in developing the self-regulation of fundraising, led by the Institute of Fundraising and the Buse Commission. The Government hope and expect that self-regulation will be effective. However, the powers in the Bill will be available should self-regulation fail. Work is very well advanced on a consultation paper on the broad principles for assessing the success of self-regulation. We hope this will be published very shortly.

The final chapters of Part 3 include provisions to put beyond doubt the Governments power to fund charities and other benevolent and philanthropic organisations. This responds to the concern that the Home Affairs Select Committee expressed in another place about the lack of a proper statutory power for the Home Secretary to fund such organisations. The Bill gives the National Assembly for Wales the same funding power as it gives to the Secretary of State.

I will say a few words about charities and trading, an issue which is not covered in the Bill. The Joint Committee recommended that the trading turnover threshold above which charities are obliged to set up a trading company in order to trade should be raised to allow more charities to trade within the charity itself. If this change were introduced, considerably more trading could be carried out by charities tax free. We have rejected that recommendation—which in any event would be for the Finance Bill, not this Bill— because it would give charities an unfair competitive advantage over small businesses, which are taxed on their profit.

The Bill will support the work of thousands of people and organisations across the country to make a real impact on their community, through a variety of measures designed to improve the ways in which charities are run and regulated. It has been a long and thorough journey towards the Bill that we have today, with many individuals and organisations involved in ensuring that it is as good a Bill as we can make it. The Bill rightly enjoys a high level of support in the voluntary and community sector. Therefore, it gives me considerable pleasure to commend it to the House.

Moved, That the Bill be now read a second time. — (Baroness Scotland of Asthal. )

Noon

Lord Hodgson of Astley Abbotts

My Lords, I thank the noble Baroness for her characteristically thorough explanation of this important legislation. As she said, the Bill has been eagerly awaited for some time by the charitable sector, and it is good that the legislative process is at last under way. At the outset, let me make it clear that, on these Benches, we give the Bill an in principle welcome. We recognise and support the broad policy themes that underpin it.

Further, I was encouraged—at least I hope I was encouraged—by the tone of some of the Ministers remarks, because she seemed to indicate that the Government were still open to changes in the Bill on the basis of persuasive argument. From the approaches that we have received from the charitable sector so far, I believe that there are aspects of the Bill where we can and should make real improvements.

Like, I suspect, most noble Lords who plan to speak in todays debate, I have several charitable interests, all of which are disclosed on the Register. But there are two which I think appropriate to declare to the House now given their particular relevance to the Bill. First, I am a fellow—an honorary fellow, I hasten to add— of St Peter's College, Oxford, and chairman of the colleges foundation, a registered charity. Secondly, I am a governor of Shrewsbury School—one of the seven great schools as defined in the Public Schools Act 1868—which is, of course, a charity, and has so far benefited from the presumption that is to be removed.

Conservatives believe passionately in the charitable sector. We believe that it combines, inter alia, three important strands. The first is the ability to extend support beyond that which is or can be provided by the state. The second is the ability to react flexibly and responsibly to local circumstances in a way that state provision finds difficult, if not impossible. Finally, it provides a means for individuals to put something back into society. As a party, we want a thriving charitable sector.

It is good that a Labour Government appear to want that, too. It was not always thus. I remember my days in the other place in the 1970s when Left-wing Labour Members of Parliament regarded charitable activity with a mixture of scorn and derision. For them it was only government, and big government at that, who knew what was best for people. I very much hope that those old-fashioned and outdated attitudes will not resurface when the Bill goes to the other end of the Palace. That is why we shall want to be reassured that the new structure of the Charity Commission really will be insulated from political pressures of every kind—not just in the short term, but well into the future when all those responsible for the Bill so far have long left the stage.

A second general yardstick that we shall apply in our deliberation in Committee will be whether, overall, a particular provision encourages or discourages charitable endeavour. Will it help to maintain the flexibility and the innovative approach for which the charitable sector is well known? A further yardstick will be the regulatory balance. We accept the argument that it is important that public confidence in 'the charitable sector be maintained at its current high level. Clearly, to maintain is easier than to rebuild—as the old saying runs, an ounce of prevention is worth a pound of cure. But we shall want to be reassured that we are not getting a pound of prevention where only an ounce of cure is needed.

As is so often the case today, the Bill is in several important respects a framework Bill. Regulations are to be published to cover the detail of several critical new powers, such as the working of the Charity Appeal Tribunal. I was also going to mention the establishment of CIOs, but I understand from the noble Baroness's remarks that guidance is being published today. I congratulate her and her department on that. However, we need those regulations, particularly as they apply to the Charity Appeal Tribunal, if we are to have an informed and constructive debate on the relevant parts of the Bill itself.

My final general point is to warn the noble Baroness of the law of unintended consequences. That operates with particular unpredictability and, indeed, savagery when regulatory systems are changed. Several noble Lords in the House today were involved in the Committee stage of what is now the Licensing Act. That Act was presented by the Government as having many of the same characteristics as the Bill—updating, flexibility, transparency, public responsibility and, above all, "light government regulatory touch". The effects have proved rather different. The detail has proved difficult to work out and, as a result, individuals, venues and events are being swept into the Act in a way that I do not think any of us—even the noble Baroness's ministerial colleague, the noble Lord, Lord McIntosh of Haringey—envisaged at the time. We have to make sure that that does not happen with the Bill.

I turn to the provisions of the Bill. Clearly we are interested in the much discussed issue of public benefit. We support the Government's decision to maintain flexibility on those key definitions in the Bill. Common law has to date provided a good framework for the development of charity law. It is a truism that we live in an era in which social and economic conditions and public attitudes change with increasing rapidity.

I see no reason to believe that that rate of change will slow down, let alone stop. Therefore, to put a fixed statutory definition of public benefit or charitable purpose in the Bill would risk creating a statutory straitjacket in which public benefit, narrowly statutorily defined, would be likely to become increasingly out of touch. If the past is any guide, we should not expect the next charities Bill to emerge much before 2015 or 2020. Who can tell what our society will be like thenߞother than that it will be a very different world from the one in which we live today? The Government have taken the right approach on this point, and I congratulate them on having avoided the temptation to stray into more dangerous waters.

However, along with the other provisions of the Bill, that dramatically increases the weight of responsibility resting on the shoulders of the new Charity Commission. The commission guidance on what qualifies as representing public benefit must be not only clear, but capable of resisting ephemeral pressures caused by one-off events. We shall need to explore the force of the concordat agreed between the Home Office and the Charity Commission on the issue of public benefit. I accept the reassurances given by the Minister in her opening remarks about the independence of the Charity Commission, but it will be important to establish how much political involvement there could be in its future decisions.

As part of that, we will want to probe the relationship between the Home Office and the Charity Commission. Is it correctly modelled or are there more appropriate corporate structures for the commission, given its enhanced role and powers? The noble Baroness will be aware that there has been criticism from the sector in the past as regards the performance of the Charity Commission. Some have found it slow to react and bureaucratic. Some have found its staff, especially its more junior staff, insufficiently experienced.

We shall therefore want to know whether the commission in future will have the organisational and structural freedom to address those concerns. In part, it is of course a question of funding, but it is also a question of being able to adopt an approach which will encourage men and women of quality to join and serve the commission. We will also wish to probe its dual role as regulator and adviser and explore its new powers under Clause 24. We strongly support the need for the Charity Commission to be required to give advice. That was an important aspect of our discussion on community interest companies in last year's Companies (Audit, Investigations and Community Enterprise) Act. But "advising" and "regulating" are very different functions. When the two functions are carried out by one body, it is easy for an overlap to occurߞand that would not be right.

We will also want to question whether the Charity Commission plans to have a "one size fits all" approach to charity regulation. Private charities, large multinational charities and local community charities all operate quite differently, and this should be reflected in the method of their regulation. In this connection the Government's response to recommendation 10 of the Joint Committee as regards regulatory burden was woolly, to say the least. We shall want to explore this, particularly in the context of the currently excepted service charities.

The proposal in Part 2 of the Bill for the establishment of a Charity Appeal Tribunal is a welcome development. The expensive and lengthy procedure of application to the High Court has clearly been an impediment to developments in the sector. There is, however, concern about the detail of what is proposed. If the tribunal is to be light-footed, easy to access and cheap to use, that is fine. We shall be tabling amendments, however, to probe the Government's thinking and to ensure that this happens. The nightmare scenario is the development of a tribunal which is only one stage less expensive and cumbersome than the High Court. That is another reason why the regulations on this point are so important.

Similarly, we will wish to review these new proposals for charitable incorporated organisations. These are clearly a worthwhile innovation, but how are they to be promoted and developed? Those of us who worked on last year's Companies (Audit, Investigations and Community Enterprise) Bill had similar questions about the new community interest companies. We wondered then how many CICs would ever be formed.

Perhaps, when she comes to reply, the Minister could let us know how many CICs have so far taken advantage of that legislative provision.

The issue of fundraising, especially fundraising from the public, is important, as the Minister pointed out— particularly since it is the aspect by which public confidence in the sector could most easily be shaken. The regulatory balance of the proposals in Part 3 of the Bill will deserve a careful review, not least because of the weaknesses subsequently revealed in this aspect of the Charities Act 1992.

Then there is the issue of reporting as envisaged by the GuideStar system. Some parts of the sector are concerned as to what this will mean in terms of paperwork and bureaucracy. There is a helpful website on GuideStar but it would be helpful for the House if the Minister could update us on the current state of play for GuideStar, whether it is keeping to the timetable for its introduction given on the website, and the funding implications, both for the sector and the Government.

There are a number of issues not fully addressed in the Bill. These include the payment of trustees, the restriction on charitable trading referred to by the Minister, and the relieving of trustees from breach of trust. Most important, and not referred to by the Minister, was the failure to follow up recommendation 9 from the scrutiny committee, concerning the effect on assets where charitable status is lost. This is a serious omission. No doubt we shall have some vigorous debates on all these points in Committee.

There is also one aspect that the Government have completely ducked: any attempt to consolidate charity law. According to the Minister, this Bill has as its central purpose the growth of the charitable sector within a proper regulatory framework. It should therefore demystify, simplify, explain and modernise charity law. Without the consolidation of numerous Acts, this will not be achieved. The Minister is, of course, a lawyer, so no doubt she has no difficulty in interpreting layer upon layer of amendments to earlier legislation. I am afraid, however, that those of us who are laymen do have a difficulty. Most people who are involved with charities are, by definition, not lawyers. It is not even as though the relevant statutes are all directly connected with charity law. For example, the Deregulation and Contracting Out Act 1994 makes a shy and fleeting appearance in Clause 27. This failure of will on the part of the Government is a great opportunity missed.

Finally, we have a particular concern that the Bill may be rushed through, as, indeed, the Charities Act 1992 was rushed through in the run up to the general election in that year. This resulted, inter alia, in a poorly drafted Part III that has never been put into effect. We intend to work carefully through the Bill. Consequently, it is good to see that the list of speakers today includes members of your Lordships' House with huge experience in the charitable sector. I, for one, look forward to learning from their contributions to our debates over the course of this Bill.

To conclude, we support the Bill in principle, but we have no doubt that it will benefit from the expert attention of your Lordships' House. The charitable sector wants and expects a well drafted, clear and balanced Bill. It must not be rushed, and we look forward to fully scrutinising its proposals.

12.15 p.m.

Lord Shutt of Greetland

My Lords, I give a warm welcome to the Bill, and thank the Minister for her introduction.

I declare my interests as a trustee of the Joseph Rowntree Charitable Trust, a trustee of the JRSST Charitable Trust, a trustee and chairman of Northern Broadsides—a theatre company—and a trustee of several tiny charities associated with being a governor of the Brooksbank School, Elland. I am also the vice-president of the Community Foundation for Calderdale, which I started back in 1990. Finally, I am an independent examiner of the Quaker Peace Studies Trust.

Reference has been made to how we got to where we are with this Bill today: the precursor to the Bill; the Strategy Unit review, Private Action, Public Benefit; the Charity Commission giving a response; the Government giving a response after further consultation; the production of the draft Bill; the Joint Committee and its thorough involvement with people from the charitable sector; again, the Government's response; and now the Bill. Bearing in mind all the consultation and wafting that has taken place in looking at the Bill we have today, this ought to be the best Bill that has ever come before Parliament. I pay tribute to all those who were involved in that, particularly the many and varied participants from the charitable sector, and not least my noble friend Lord Phillips of Sudbury who has had a lifetime of involvement in these issues.

What, then, are the highlights of this Bill? The greater clarification of charitable purpose is one of them, and we must get used to 12 descriptions of it. It has been very easy to remember poverty, religion, education and other purposes. It is going to be a bit harder to get to know what the 12 are. That clarification is useful, however. Having it published highlights the possibility of charitable activity and action.

Secondly, the introduction of the charitable incorporated organisation. This is a very useful thing to do. I can think of a charity that I am involved with which is registered with the Charity Commission, but also has to be registered with Companies House. Therefore, it may well take some time, and people may want to make the transition.

Thirdly, and perhaps this is a personal thing, I am very pleased to see the lifting of the figures from £250,000 to £500,000 for the income of a charity before an audit is required. It is nearly five years since I came to your Lordships' House, and shortly after arriving I took the view that I would have to give up my practising certificate and the accompanying professional indemnity policy with its costs. People like me can be useful, however, in doing these examinations. I found, for example, with the charity for which I am independent examiner, that it had had a very good year. This meant that, for that one year, the charity had to go back into audit again. I arrived the year after that. Doubling the figure therefore helps. I hope that those figures will be kept under review, because there are plenty of people who can give good service in doing this work, and it is a pity if some organisations have to go to the trouble and expense of audit when that really ought not to be necessary. So I am pleased that that has been doubled, but hope that it will be kept under review.

There are also those matters which raise the position of the Charity Commission. First, it is good that the Charity Commission is given a duty to promote charitable giving and voluntary participation and that that is clearly set out. Secondly, the introduction of the appeals tribunal will be useful and I hope that it will stop people having to go to the expense of law.

Our job in the next few weeks will be to try to make a good Bill as near-perfect as possible. What are the needs? First, there will be a need to examine and clarify the public benefit rules to make clear the difference between the position now and what it is intended to be once the Bill is passed. Secondly, it has been mentioned that there will be a parallel Bill in Scotland. There is a reference in it to charities operating in Scotland from, would you believe, "outwith" Scotland. What will be the position in England in relation to that and where is the reciprocity between that Bill and this? That must be examined.

Thirdly, there will be concern as to the right positioning of the Charity Commission. I have been concerned for some time about that organisation. Some people who are involved in charitable activity feel rather frightened of it. A friendlier image would be helpful. I refer to a standard paragraph that the Charity Commission sticks in letters, which states: Please note: If we do not hear from you within three months of the date of this letter, we will assume that you do not wish to take the matter further and all correspondence held regarding this particular matter will be destroyed in accordance with Charity Commission policy". That is not a friendly way to operate as a charity commission. When correspondents from charities, who are doing their best, receive a letter like they may have to seek certain advice and then summon trustees together, who may not be able to make such and such a date because of other commitments and so on. In such circumstances a three-months' rule "or we burn it" attitude is not helpful. I hope that that can be dealt with before we have concluded our discussion on the Bill.

There will be many other concerns and many other noble Lords will raise them. The main concern is that the Bill is not gobbled up by a general election. I hope that that will not be the case and that we can crack on and put this Bill on the statute book. I commend it to the House.

12.23 p.m.

The Lord Bishop of Southwell

My Lords, the contribution that charities make to our society is such that their effective promotion and regulation is a matter of importance to us all. But it is also a matter in which the Churches and other faith groups have a particular interest, not only because, in many cases, the institutions through which they work enjoy charitable status, but because of the long history of involvement by those with a religious commitment in the formation, funding and administration of charities. It should be no surprise, therefore, that I speak from these Benches to welcome, in principle, the bringing forward of the programme of change to the legal framework for the administration and regulation of charities embodied in the Bill.

Much of the detail of what is proposed will be helpful to the many charities associated with the Churches and other faith groups at local level. In particular, Part 2 of the Bill will give more flexibility in modifying the trusts of long-established charities and so facilitate their ability to fulfil a more effective role in the often changed circumstances of today.

They will also benefit from the new power enabling charity trustees, in appropriate cases, to receive remuneration for services rendered to their charity, provided certain safeguards are met. In that connection, it is welcome that the Government have agreed to remove the possibility of a criminal penalty being imposed on those receiving unauthorised trustee benefits. That would seem to be an inappropriate response to situations into which those who voluntarily give of their time and effort to administering a charity can so easily fall through mere ignorance of the law.

There is much therefore to welcome in the Bill. But there remains one area about which the Church of England and other religious groups continue to have concerns: namely, the provisions of Part 1 which redefine the requirements of charitable status. As regards the type of purpose that should qualify as charitable, if charitable purposes are to be fully defined in statute, we welcome the Government's acceptance of the Select Committee's recommendation that they include a new charitable purpose in the form of, the promotion of religious or racial harmony". We more concerned over the implications for religious bodies of the abolition of the presumption of public benefit. That a body should provide public benefit and be answerable for doing so, if it is to be a charity, is self-evident. How that answerability is achieved is another matter. There is a risk that the abolition of presumption will in practice lead to an additional and unnecessary administrative burden on bodies concerned with the advancement of religion as they fill in ever more forms for the Charity Commission. Most religious charities are relatively small and lack ready access to professional advice.

More fundamentally, there is the question of how the public benefit of religious bodies will be assessed. We live in a society in which there is less agreement on the benefits of religious faith and practice. In that context, if religious bodies are to be required, in every case, to demonstrate the public benefit that they provide, they will wish to be assured that the benefits of religious commitment will be analysed in a properly informed and constructive way. We welcome what the Government have already said in an effort to allay concerns in this connection, both the original Strategy Unit consultation and the Government's response. But those assurances can be seen as implying what many in the faith communities would see as narrow understandings of the range of religious bodies currently entitled to charitable status, the breadth of activities that those bodies undertake and the nature of the public benefit derived from them.

On the first of these issues, many religious charities exist for purposes much more focused than providing opportunities for public worship or evangelism generally. Examples range from the provision of stained-glass windows, through the exercise of rights of patronage and on to the promotion of particular doctrinal positions within a Church. We therefore hope that the Charity Commission will recognise that purposes of this kind, specific as they may be, can, none the less, be seen as contributing indirectly to the wider public benefit derived from the practice of the religion concerned.

Secondly, regarding the nature of that wider public benefit, statements in the documents to which I have referred suggest a Government view that the benefits derived from religious belief and practice are confined to the adherents alone. But those with a faith commitment would wish to argue that religious belief and practice confer significant benefits on society as a whole in a number of ways. They include the articulation and propagation of fundamental ethical values that are beneficial to society and the very real contribution made to "social capital" by the commitment to voluntary service by members of faith communities, whether through volunteering or charitable giving. The existence of benefits of this kind has been publicly recognised on more than one occasion by the Prime Minister and other senior Ministers.

Against that background, we welcome the proposal that the Charity Commission should be required to issue guidance to promote awareness and understanding of the operation of the public benefit requirement and to consult before issuing or revising any such guidance. That is a requirement which can only inform and clarify the parameters within which the commission will decide these important issues of public benefit. The Church of England for its part looks forward to engaging with the commission in that task.

None the less, in the light of the considerations to which I have referred, the Churches and other faith communities will welcome any further assurance the Minister can give that the Government recognise the range and diversity of religious purposes currently accepted as charitable. We hope they will encourage the Charity Commission, in considering the charitable status of religious bodies, to take an appropriately constructive and well informed approach to the different kinds of public benefit that such bodies provide. If that is done, the very wide range of religious bodies which currently enjoy charitable status, continue to do so in the future and, as such, can continue to play their full part in society.

12.30 p.m.

Lord Dubs

My Lords, I welcome this Bill and the way in which my noble friend the Minister introduced it and explained its details. In common with most noble Lords who will speak today, I should declare an interest. I have been chief executive of one charity and have been a chair, trustee or patron of quite a number of others. Perhaps I may have the unique distinction that on three occasions, charities with which I have been closely associated have been reported to the Charity Commission on grounds of political activities. I shall say more about this later on.

A decade or more ago I remember sitting in the National Council for Voluntary Organisations' offices when the last Charities Bill was before Parliament. I was not then a Member of your Lordships' House or the other place. The noble Lord, Lord Phillips of Sudbury, was there as was my noble friend Lady Goudie. We discussed a range of matters which became the subject of the previous Charities Bill. I wish to talk about political activities which took up a lot of time in those earlier discussions.

However, before I do that, I stress that I believe charities have an enormous contribution to make to our society, which they do in all kinds of ways. They are innovative; they can take risks; they can act quickly on behalf of the people they wish to help; they can have a good base in the local community or in the sector of the national community that they may represent; they can be non-bureaucratic in their approach; and they can use the experience of their users and beneficiaries to contribute to the running of the charity. They have an enormous part to play and they are a very large sector of our society. It is therefore important to judge how much the Bill will further the work of charities and voluntary organisations and help them to continue to be as effective as they currently are.

I turn to political activities, which has bothered me. This is a difficult area because it is not as clear-cut as I would wish. When we had these discussions at NCVO 10 or 12 years ago we were told that it would not be appropriate to argue that the then Bill should be changed and that quite a lot could be achieved in the then guidelines produced by the Charity Commission but that in the end we were stymied by legal precedent which was a constraint on how far things could change.

I am not certain that the current position is any different. There has been no legislation on political activities by charities since then and the Bill says nothing on it either. Clause 2 refers to the advancement of education, health, citizenship, human rights and so on. That is as near as the Bill gets to covering the area within which charities and voluntary organisations may wish to be active.

For a small charity, a complaint to the Charity Commission can be very unsettling. It can bring the entire work of the charity to a halt. When a complaint is received one has to prepare a rebuttal, have meetings and so on; it is not a minor matter. Some large charities may have specialists able to deal with such a problem but for smaller charities it can be quite a difficult and depressing event.

Of course it is proper that a charity which receives tax and other benefits should have some constraints on political activities. Indeed, the revised version of CC9 produced by the Charity Commission permits some level of political activity and campaigning.

However, there is a difference between a charity that is set up with the main purpose being political activity, which would not be permitted to become a charity, and a charity doing an element of campaigning in furtherance of its objectives. That is fine but I wonder how soundly based that view is in relation to the legislation and Charity Commission guidelines. I do not believe it is as clear-cut as that.

I had difficulties, on behalf of charities with which I was involved, with the Charity Commission 10 or 12 years ago, and I am not sure whether the situation has changed very much. I should like to give a couple of examples.

When I was chief executive of the Refugee Council, we produced jointly with Oxfam a series of educational booklets for schools to help teachers to inform their classes about the nature of refugee situations. We thought this would be a useful aid to teaching and teachers welcomed the help that we gave them. We produced one booklet, jointly with Oxfam, on the Middle East; there can hardly be a more contentious area on which to do it than that. A complaint was made about that booklet centred on Oxfam. I do not know why they picked on Oxfam but that charity dealt with it. Then we had a complaint that the bibliography in that booklet was not politically balanced between the Palestinian and Israeli sides. That was a little absurd. Nothing happened to the booklet as the Charity Commission accepted our rebuttal. As far as I remember three out of the five publications quoted were on one side and two on the other. It was absurd.

I was also connected with a small charity dealing with health care in central America, particularly Nicaragua. We were very small, producing one fundraising leaflet a year. In that leaflet there was a quotation which said that the World Health Organisation had welcomed the improvements in healthcare in Nicaragua. Some anonymous body made a complaint to the Charity Commission. I went to see it and was told I had to pulp all the leaflets. This would have been a disaster for a small charity and I fought against that. Fortunately the official I was dealing with—perhaps I should not say this—was a former constituent of mine in Battersea. In the end he agreed that if we did not do that again the leaflet could go out.

Anybody with common sense would say that these things could not happen again. All I want is that assurance. There have been many improvements in the Charity Commission since that experience, and I welcome its stance on such issues. I would like to feel that these ridiculous things could not happen again.

To conclude, I welcome the appeals procedure. There was nothing like that in my day. We had to go to the Charity Commission, argue with it and hope we would win the case—which we did in the examples I have given. However, the appeals procedure is good but I hope it will not deter or prevent a conciliation procedure before one reaches the appeals stage. I do not wish to add another layer but when there has been a complaint about a charity to the Charity Commission, the charity concerned should be able to go to the commission and discuss the matter informally and try to get a resolution before going into an appeals procedure, no matter how informal.

In my day, a number of organisations sought to monitor charities and to report them to the Charity Commission if they did not like what they did—I am not sure whether that still happens. The Middle East was one area in which that occurred; hence the complaints about the Refugee Council's joint publication with Oxfam. There were also some American-influenced organisations which were concerned about any charity that said something sympathetic about central American regimes that the then US administration did not like. When such organisations monitor what charities do and report them to the Charity Commission the process has to start willy-nilly.

Finally, the Bill does not cover Northern Ireland. My experience there is that it has a vital, vibrant and effective voluntary sector. Parallel legislation may be introduced, as my noble friend suggested. My most recent experience of the voluntary sector on a wide scale was in Northern Ireland. That sector made an enormous contribution to life, society and reconciliation. I should like to applaud that sector for the work it did and continues to do.

12.40 p.m.

Lord Sainsbury of Preston Candover

My Lords, I must first declare an interest as the founder and a current trustee of a grant making endowed charitable trust; namely, the Linbury Trust. Since it was established in 1973, I have been involved in the process of grant making, which has brought me in touch with a wide range of charities in social welfare, education, arts, heritage and the environment. I am also currently a trustee of two charities: the Ashmolean Museum and the Rambert School of Ballet and Contemporary Dance.

I should also tell your Lordships that I had the privilege of serving on the Joint Committee established to scrutinise this Bill in draft. As your Lordships know, the report of our committee was unanimous and I support all its recommendations. I have to say that although we did not have the time we needed, a pretty thorough job was done and an all-party consensus was reached thanks to the noble Baroness's colleague, Mr Alan Milburn, who was the chairman and secured our consensus.

Overall, therefore, I support the Bill and welcome the fact that many of the Joint Committee recommendations have been accepted. However, I much regret that some of the most important recommendations have been rejected and none, in my view, more important than in paragraph 180 of our report, in which we advocate that, the phrase 'on behalf of the Crown', should be removed and replaced by a clear statement that the Commission shall be a body independent of Government". The Government are insisting on retaining the commission as a non-ministerial government department and yet they say—the noble Baroness said it this morning —that its independence is of paramount importance. In their published response to our committee the Government say that they want the commission, to remain an independent regulator completely free from any Ministerial direction and control". Having spent my life in business rather than politics, I find it difficult to come to terms with the idea that the Charity Commission is in effect not under ministerial direction and control. After all, a member of the Government appoints the chairman and the chief executive; has the power to dismiss them; decides the level of their remuneration, the size of their budget and the pay conditions and number of staff of the commission. Yet the organisation is described by Ministers as not under the Government's direction and control. That may be formally true but to my mind it cannot be the reality.

I believe that the Charity Commission should report to Parliament and, as the Joint Committee said, be totally independent of government—perhaps the National Audit Office could be a model. So far as it is possible, I hope that charities and the charity sector could be non-partisan and above politics. I quote the much respected Charity Law Association: If the Charity Commission is a Government Department, then it is likely to lessen, rather than increase, public confidence in charities. It will be seen as susceptible to being used by the Government to further its own policies. Indeed, it is conceivable that this is in fact what the relationship between the Commission and the Government would develop into; it may not only be a matter of perception. To avoid this, the Commission needs to be— and to be seen as—an entity established to serve the public benefit and uphold the law, not beholden to the Government and outside the sphere of governmental policy considerations". The Directory of Civil Service Guidance, in defining non-ministerial departments, says: The general rationale is to distance the day to day administration of the particular activity from direct Ministerial control, while retaining some Government input to the wider policy context". Cabinet Office guidance on non-department public bodies says that, there has been much criticism about the lack of Parliamentary accountability of Non Ministerial Departments and this option is best avoided". I suggest that attention should be paid to both those comments.

The fact is that I think the Government are being too complacent on the standing and capability of the Charity Commission. I do not think that in their evidence to the Joint Committee they were at all impressive; indeed, some of us felt quite the reverse. We heard some praise from one or two of those giving evidence to us, but a very considerable amount of criticism and frustration. They are generally thought to be well meaning but unnecessarily bureaucratic and at times they can come across as autocratic—as was recently described—and insensitive to that vital and huge small charity sector. They have had a "one-size-fits-all" mentality, which has meant, for example, that they make no differentiation between service-providing charities funded by public subscription or receiving government funds, and grant making charities, all of whose funds come from private endowment. They both must be regulated but not in the same way. As I shall refer to later, this "one-size-fits-all" attitude has already had some clear effect harmful to grant-making charities.

A graphic example of the bureaucracy that charities have to bear is the Statement of Recommended Practice known as SORP. Compliance with recommended practice for all intents and purposes now has the force of law and affects all charities without differentiation. Under the Accounting Standards Board, the Charity Commission is responsible for the charity SORP. In 1995, the SORP contained 68 pages—I thought that was an enormous length—and 240 paragraphs. By 2000 the Charity Commission had expanded it to 89 pages and 358 paragraphs. The 2004 draft has 100 pages and 439 paragraphs. It is hard to believe those figures, but I am assured that they are correct. It is a charter for accountants and registered auditors to charge charities more, adding to costs without in practice giving any more accurate accounts than those that existed before 1995.

Part of the problem of bureaucracy and inefficiency is that I believe the commission is under-resourced and is not able to attract sufficiently qualified staff, particularly on the legal side. It is not that the commission needs more staff, but it needs more qualified and capable ones. It is quite understandable that the most able and ambitious civil servants cannot be greatly attracted to the world of charity in a non-ministerial government department as opposed to a main government department where the variety of career opportunities is obviously bound to be greater. In considering this we must bear in mind that the Bill before us very significantly increases the work and responsibilities of the commission. But the important point is that the success of this Bill and the development of charity law in decades ahead depends greatly on how well the Charity Commission carries out its tasks.

In paragraph 215 of its report the Joint Committee said: The evidence we have heard has given us reason to question whether the Charity Commission is properly organised and properly resourced to make it effective in its new tasks. We recommend that professional advice be sought to review the ability of the Charity Commission to meet its new responsibilities under the draft Bill and in particular the quality of the processes, methods and organisation; the calibre of its staff; its resources". The Bill requires the commission, in managing its affairs, to have regard to generally accepted principles of good corporate governance. Yet the Government propose an internal inquiry; one that they say "could be professionally advised". That is surely very half-hearted. Why cannot "could be" be "must be"? They should welcome outside organisational expertise rather than pushing the Joint Committee's suggestion aside and not welcoming an objective outside study on how to improve efficiency. Such a study could be helpful in assessing whether indeed the staffing, in both calibre and numbers, is what is needed.

The Joint Committee was particularly concerned, having heard the comments that we did on the Charity Commission, that great emphasis should be put on the duty of the commission to use its powers "proportionately, fairly and reasonably". The reason given by the Minister in the published rejection of this proposal is that, under administrative law, the commission has a duty—as do all—to use its powers fairly and reasonably. I have no doubt that is so, but surely wording could be found acknowledging that that has always been the duty, yet that Parliament attaches great importance to the proportionate use of powers.

For the small charities—and it is those that I am thinking about—proportionality is particularly important. They should be able to have that reassurance that to act proportionately is the duty of their regulator, and their regulator should be constantly reminded of that fact.

Like small businesses, it is of course the small charities that suffer most from over-regulation. The Government tell us that the Better Regulation Task Force will be carrying out a study of what they call the regulatory environment for the charitable sector, or parts of it. But why this qualification "parts of it"? The Government should require the whole charitable sector to be studied. It seems that the BRTF is better at writing reports—though, often, very good ones—than being effective in stemming the flood of ever more regulation from the EU and Whitehall, from which charities suffer like everybody else. Sadly the Government record of fighting over-regulation can only be summed up as "talk and no action", so we should not be optimistic that the study proposed by the BRTF will result in help for the charitable sector.

In recent years, the charities that have suffered most—as far as government action is concerned— have been the privately endowed grant-making charities. Their income has been reduced by about 20 per cent following the non-return of advance corporation tax, a stealth-like change of tax which has now been fully introduced. The Charity Commission does not have much data on grant making trusts or foundations but I am told that there are about 9,000 endowed grant making charities whose purpose is to give grants to other charities.

They are of course an important element in the charity sector and the estimated level of annual donations made by the top 500 grant makers is £2.2 billion. Their importance should not only be measured by the size of their grants but by the fact that privately endowed charities can naturally be more creative, more innovative and more risk-taking than those using the public's money. As their association claims, they are more inclined to support unfashionable causes and small or new charities. Their assets are a permanent commitment to charity and, for that reason if no other, they should be encouraged.

Last year research was published by Philanthropy UK which suggested that a fifth of wealthy people considering establishing a grant-making trust decided not to do so because of the bureaucracy it involved, or because of what they had learnt from the difficulties created by the Charity Commission and by the charity SORP. A senior QC tells me he now advises his clients only to give out of income rather than endowing a grant making charity, because of what he calls unwarranted interference by the authorities. In the long term it is worrying if one believes in the value of the permanent nature of endowed charities. Gift Aid is now marginally more tax efficient than giving through an endowed charity—as well as being simpler, with no involvement from the Charity Commission.

Giving through Gift Aid also has great merit in terms of privacy and confidentiality which many of the most generous benefactors value highly. For some years it has only been with the Charity Commission's special permission that particular grants have not been named in a grant-making charity's annual report— and the commission makes it all too clear that it does not like giving it. The latest SORP would effectively outlaw anonymity. Of course all gifts should be revealed to the Charity Commission and to the Inland Revenue, but why should they be published if the benefactor or a foundation wishes to remain anonymous? Once, anonymous gifts were those most valued. If the present regulatory regime—including forbidding anonymity—had existed in 1973 when I set up the Linbury Trust I would certainly not have done so.

The Charity Commission on occasion lays down the law on investment policy, which the recent research I referred to showed up as another reason for newly wealthy entrepreneurs not to establish their own charity. I quote the words of one of those interviewed by Philanthropy UK: The Charity Commission is an anonymous bureaucracy … completely muddled on its investment policy and its diversification policy. If the Government wants new entrepreneurs to put, say, 10℅ of the company into a trust and then two years later tells them to diversify, why should they set it up … in the first place?". I sympathise.

The Joint Committee concluded that, the draft bill should include provision to ensure that the regulatory burden on grant making charities does not discourage philanthropy". I am happy that the Minister agrees that the regulatory burden on grant making charities must not do so, although she qualifies her response by saying as far as is reasonably possible to the Commission's duty to encourage charitable giving. Learned counsel specialising in charity law has in fact satisfactorily recommended the inclusion of philanthropy both as a charitable purpose and among the objectives of the Charity Commission. I urge Ministers to reconsider their response to the Joint Committee on this subject. The encouragement of charity from all, and certainly not just from the wealthy, should surely be central to the work, the duty and the responsibility of the commission.

Perhaps I may conclude by giving the results of a recent survey as part of nfpSynergy research on public attitudes. In this, when respondents were given a list of 10 types of organisations and asked to pick the three which they considered the most trustworthy, 51 per cent thought of Churches, 40 per cent of charities, 30 per cent of small businesses, then 20 per cent of supermarkets, I noticed, 10 per cent of trade unions, and 4 per cent of newspapers. The number for politicians, for reasons of tact, I leave others to give.

One can only express the hope that the outcome of the Bill sustains the high reputation of charities and that those at the bottom of the list improve their standing.

12.58 p.m.

Lord Phillips of Sudbury

My Lords, I hope it will be sufficient—the Clerk will no doubt tell me—if I declare my interest generally by reference to the official House records. I have founded four charities and am a trustee of many. As a solicitor who has been active some 30-something years in the charity world, if I started ringing out the names of my clients noble Lords would be bored to death.

It is not often that one can say a Bill is without enemies, but that really is true of the Charities Bill. There are of course critics of particular provisions, some important, but it is widely welcomed. It is important that we manage to get the Bill through before the forthcoming election and I hope my noble friend Lord Shutt is right about that. As the Minister rightly explained in opening the debate, it has a long provenance. There has been deliberate, extended consultation with both the sector and the public. That is surely as it should be: it would be a contradiction in terms if a Charities Bill had not been adequately matured.

We on these Benches reckon that voluntary activity and charitable works exemplify the bedrock virtues of British life. The extent of citizen engagement in charities is so far ahead of political engagement that it almost seems presumptuous of us politicians to meddle. In all recent assessments of public opinion— the noble Lord, Lord Sainsbury of Preston Candover, mentioned one—charity is near the top and politics are near the bottom. Charities are trusted, we are not. Charity is from the heart and so much of politics is from the spleen. Charities reach, as the saying goes, those parts that politics do not reach.

In my eye, charity is a traditional cottage garden. Beyond the garden hedge is the monoculture of agri-business, but the cottage garden has a wild and wondrous profusion—anarchic and diverse—and; in some respects is the antithesis of the latter and utterly indispensable.

Certainly one of the over-arching convictions of the Joint Scrutiny Committee on the draft Charities Bill, on which I sat, was that this legislation must not add to the bureaucracy of voluntary bodies, particularly the small ones. As they are wholly run by volunteers, they are highly vulnerable to the demotivation brought about by pointless paperwork and centralised intrusion. I may also say that we were no less convinced that the volunteering of time is not one whit less important than the donation of money, recognising that over half the population engage in some form of voluntary activity and around a million of our fellow citizens have some part in the governance of charities.

If I have an early morning panic about this Bill, it is that while, clause by clause, it may seem sensible enough, in totality it will turn out to beget yet another upward ratchet towards an over-managed, centralised, bureaucratic society.

I want to say a word about the Charity Commission. We shall spend a great deal of time, as we have already, properly criticising the commission, but as one who has had a close liaison with it for over 30 years, and more reason than most to complain about what goes wrong, we should remember its achievements and the almost universal goodwill towards the sector. But, as the Joint Committee repeatedly warned, where there are problems they are invariably related to the inadequate experience and/or calibre of staff, of which the noble Lord, Lord Sainsbury of Preston Candover, eloquently spoke. That has everything to do with remuneration, particularly of the lawyers who are the linchpins of the whole machine, for charity law is subtle and complex in application. That is why one of our recommendations was that the commission should be more independent of Government and, therefore, have greater control over its remuneration levels. I hope that the Government may yet be persuaded.

I turn to the only potentially partisan issue in the Bill, which I note that others, rather gingerly, have walked around: that is, public benefit. The genesis of that was the NCVO report of 2001. The NCVO deserves much credit for getting the Bill to this point. The report recommended, as we know, the removal of the presumption of public benefit from charities under the poverty, education and religious heads— otherwise, there would have been no point in such a recommendation—on the basis that that would address longstanding concern that certain types of charity deliver far too little public benefit to warrant their charitable status.

The law is that charity objects must be exclusively charitable and their activities likewise, subject, none the less, to any unavoidable or incidental private benefit. For example, provision of irrigation to an African village, where 95 per cent are in absolute poverty, will also benefit disproportionately the handful of well-off major landowners in the village, but it is still a charitable gift.

By contrast, it has long seemed anomalous that independent schools can devote by far the greater part of their benefits to the rich, because the fees they charge are unaffordable to others, while still being entitled to charitable status. That paradox is intensified when the public or independent school is, as many were, founded for poor boys and girls. It is perhaps a measure of the persistent and shrewd influence exerted by generations of lawyers and judges, who have mostly been independent school educated, that this 180 degree turn has occurred. It has been a process of a thousand nudges and as many winks.

The Minister, Fiona Mactaggart, when confronted by the fact that the Charity Commission considered that the draft Bill would not alter the legal status quo under existing case law vis-à-vis independent schools and private hospitals, asserted before the Joint Committee that that was wrong and that the Government would scarcely be bringing forward the public benefit change for it to be ineffectual in practice. In my considered view, which is shared by other senior charity lawyers, the Charity Commission was right and still is. The fact that all that is disputed by other senior charity lawyers exposes a central flaw in the Bill which, I believe, should not be allowed to persist to the final legislation.

I say that as one who has always been against undermining the independent schools, but who devoutly wishes them to stride more purposefully and charitably into the 21st century to spread their undoubted virtues to a far, far wider cross-section of the public. The Bill does not ensure that, notwithstanding the addition of Clause 4 which requires the Charity Commission to issue guidance in pursuance of its public benefit objective. Some think that that is precisely what the Government intend; that they want the appearance of change without the substance and that they want to satisfy critics of the status quo without arousing the middle classes. In short, they want the credit without any opprobrium.

The Joint Committee reached a unanimous compromise on all this; namely, that non-exclusive criteria of public benefit should be on the face of the Bill, or that the Home Secretary should be charged with issuing non-binding statutory guidance. Neither was adopted.

I should add that the noble Lord, Lord Campbell-Savours, another member of the Joint Committee, was the author of a suggestion, which did not become a recommendation: that the independent schools should lose their charitable status but not their tax exemptions. While I do not follow him on that, he will have a great deal to say about it in Committee stage. He has asked me to say to the House how sad he is not to contribute today, but he is visiting a very sick near relative.

My own non-radical belief is that careful but limited surgery to Clauses 3,4 and 7 of the Bill should give the commission more support for ensuring that the stated wish of the Government and, I believe, of the Joint Committee, can be delivered. No one should underestimate the legal resistance that will come from some quarters in relation to the public benefit test to frustrate any significant bridging of the gulf between our two school sectors, which is such an impediment to the sort of society that I suspect 99 per cent of us, in truth, want.

With regard to fee-paying hospitals, the existence of their public benefit is in some cases unobvious, judging by the evidence we heard in the Joint Committee.

I have already referred to the trenchant view of the Joint Committee that small and smaller charities should be protected from unnecessary or misplaced bureaucracy. In the 350 submissions that we received and in the eight days of oral evidence we heard, that was a recurring theme. Therefore, although nearly 40 of our 54 recommendations were accepted in whole or in part, we were disappointed that recommendation 15, that the Bill should include a provision obliging the Charity Commission to use its powers "proportionately, fairly and reasonably", was not accepted.

I do not want to add to what has been well said on that by other speakers, but the noble Baroness in her opening speech referred to the fact that proportionality is part of the Bill. However, the word does not appear in it. I find the argument that an amendment is not necessary wholly unconvincing in a Bill that deals with the voluntary sector and when one considers other terms that proliferate in the Bill, such as "efficiency", which are equally superfluous if one is dealing with the implications of administrative law.

Another area where I hope the Government will listen to the recommendations that we made is vis-à-vis the definition of the "advancement of religion" in Clause 2. We said that the fact that religion included non-deity and multi-deity groups should be written into the Bill. In declining to do that, the Government argued that such groups can already satisfy the common law criteria and that Buddhist and Hindu faith charities are already registered. All I can say is that that is an unnecessary muddle which some careful addition to the Bill, without changing the existing definition, could help to dissolve. I will argue that we should adopt the Australian method of coping with this. My noble friend Lord Lester will deal more expansively with this subject.

There are many other issues which we need to consider astutely at Committee stage and I will not burden the House by mentioning them now. But I cannot resist saying that the creation of the Charity Appeal Tribunal and the widened scope which it has been given pursuant to the Joint Committee's recommendation represents a landmark advance in charity law and practice. It means an end to the frustrations and obfuscations which noble Lords have encountered, such as the noble Lord, Lord Dubs—and I think I was involved in one of those Oxfam cases in trying to push off the Charity Commission invaders— and the noble Lord, Lord Judd, who could speak eloquently about all this in his days at Oxfam. Those frustrations will be things of the past because one will be able to take the official from the commission involved to the tribunal and not have to wait year after year—and I have had cases that have taken five, six, seven years to resolve. That outcome is of huge importance.

Also important is the agreement of the Attorney-General, now written into the Bill, to take over cases of public interest at public expense so that the issues can be properly argued before the tribunal and if necessary in the High Court. That will begin to make a reality of the virtues of a common law definition, because, frankly, without being able to take the Charity Commission to the tribunal or the court, it is an empty and unachievable virtue.

I wholly agree with the noble Lord, Lord Hodgson of Astley Abbotts, about consolidation.

The Bill is important to an invaluable part of civic society. I am grateful that we have got to this point and grateful to those who have made it possible, and I look forward to a stimulating and constructive debate and an outcome which will redound to the credit of this House.

1.12p.m.

Baroness Howe of Idlicote

My Lords, like other noble Lords, I have spent a considerable part of my life benefiting from and working with charities. So I must declare a root and branch interest in this whole subject. I should mention specifically my membership of NCVO's advisory committee, as that organisation has played an invaluable role in facilitating this important Bill.

The Joint Committee's pre-legislative scrutiny of the draft1 Bill has clearly been of immense value, and listening to the last two speakers has made clear that the members of the Joint Committee deserve more thanks than we can possibly give for the work that they have done. The result is that the Bill has—for the most part—been widely welcomed. It starts from the premise, as I and most of your Lordships do, that charitable giving and voluntary action have for years been among the most important dynamos of community involvement and positive change in our society. It is those features above all that we must take care not to stifle.

Fortunately, even today, voluntary charitable groups continue to spring up to meet new social needs. We have also witnessed considerable and welcome changes in attitudes towards voluntary activity, as the noble Lord, Lord Hodgson, noted earlier. When I was a care committee worker in the 1960s for a partially sighted school in Stepney, many old Labour supporters regarded that kind of voluntary activity as taking paid jobs from workers—in other words, "scab" labour. The new Labour approach, I am glad to say, is indeed quite the reverse. It now understands the positive value of partnership with the independent charitable sector. However, even the partnership approach can have a downside, with the risk that a charity can become far too dependent on public sector funding, and correspondingly less innovative and less likely to criticise the hand that feeds it.

Thankfully, there are reassuring signs that this has not yet happened with well established, self-confident charities. I have in mind just one of many shining examples—the brilliant performance of the Royal National Institute for the Deaf. Not only did it press the Government to provide digital hearing aids on the NHS, it was also instrumental in brokering an acceptable financial deal with the digital hearing aid industry on behalf of the Government.

All that underlines the point made by NCVO's chief executive, Stuart Etherington, that in addition to ensuring that charities engaged in public service delivery can rely on the continuity of statutory funding and on recovering the full real costs of partnership— which we know is not happening currently— political support for the voluntary sector must go beyond its role as an alternative supplier of public services". Against that background I want to focus the rest of my remarks on two specific areas: first, the importance of keeping bureaucratic interference with charities to a minimum, as other noble Lords have emphasised, and, secondly, the new or revised concept of public benefit contained in the Bill.

First I will discuss bureaucracy. At least two organisations with which I have worked—the Pre-School Playgroups Association and the National Association of Governors and Managers—could, like many others, have been stifled at birth by undue bureaucracy. I know, because I was present at the conception of NAGM and not long after the birth of the other, PPA.

NAGM was conceived at a small meeting inspired by an all-party handful of enthusiasts, with the late Sir Edward Boyle as the keynote speaker. Today that organisation plays a vital role in the education system and has a flourishing membership. I came across the other seedling charity, PPA, in its very early days when I was writing a pamphlet, Under 5, which concentrated on the lack of provision for pre-school children. It was only with difficulty that I tracked that organisation down to its organisers—two or three women in a small house in Pinner.

PPA's achievement, mercifully unobstructed by bureaucracy, was to blaze an affordable cost trail of innovation, which led to an explosive growth of pre-school child care. The most important factor behind that success was that we prevented bureaucracy causing the "best" to become the enemy of the "good".

The risk is still with us today across the entire field of charitable effort. That is why I warmly welcome the Government's acceptance of paragraphs 10 and 11 of the scrutiny committee's report, which call for robust and independent scrutiny of the regulatory burdens upon charities. I hope that I have not misread it because clearly not all of your Lordships seem to think it goes quite as far as it should. The Government really must ensure that neither they, nor other regulatory authorities, overreact to any of the obligations imposed by the Bill. In other words, under no circumstances should they be "gold-plated".

I have already come across one example which worries me. It comes from an article in the Whitehall & Westminster World of 9 November last year by Rosie Chapman, Director of Policy and Strategy at the Charity Commission. It will, she says, be revising the application forms for registration so that all charities give details of how they will provide public benefit. Then we will use the information … to make sure they provide sufficient public benefit". Note the two little words "details" and "ensure". I find that quite worrying. One can all too easily imagine potentially valuable new charities being frightened off at birth because of the prospect of a complex and daunting entrance exam.

Your Lordships will, of course, have seen the same fear reflected—indeed illustrated—in the document we have no doubt all received from the Association for Charities, Power without Accountability. Another example is the case of the Royal Television Society. Subjected to a random review visit from the commission last year, it found itself in what the chief executive describes as an "Alice in Wonderland" world where no word had its commonsensical meaning. Many of the commission's interpretations appeared to be, they said, entirely arbitrary.

Told that its charitable status might be at risk, the Royal Television Society had to seek expensive legal advice. It was only later, when attending sessions held by the scrutiny committee, that the RTS was relieved to find that it was far from alone. It stated that it was particularly grateful for the support of the whole committee and for the resultant changes made in the Bill before us.

The Charity Commission has probably been given an impossible job as both friend and regulator, but a pressing need is for a future Charity Commission—I know the current one is making a lot of changes—to be seen as transparently accountable for its actions. I am glad to say that a more independent appeals process is in the Bill, but concerns remain about the expense and burden upon charities and whether the process is independent enough. These issues, as is obvious from what noble Lords have said, will clearly be discussed in detail in Committee and at other stages of the Bill.

My last point relates to the Bill's new concept of demonstrating "public benefit" before an organisation qualifies for charitable status. This particularly applies to fee-charging charities. I am glad, of course, that the Government have rejected the more negative approach to this question that was suggested by the Select Committee, but even now I worry about what the Bill may mean for independent schools. One must certainly hope that this is not a covert return to old Labour policies to curtail—even to abolish—the role of independent education. I take some comfort from what the Minister said in her opening remarks.

One important aspect of that role is that the great majority of independent schools serve as an important benchmark by which to measure and set standards for the quality of state-provided education. That is only one aspect of the ways in which such schools are able to make a substantial contribution to the quality of our entire educational system. That has been facilitated by many of the Government's actions, for which I applaud them.

These schools make a contribution in three other distinct ways. First, they save the state huge sums—well above the amount the schools receive through charitable tax relief—by educating a large tranche of pupils entirely at the expense of their taxpaying parents.

Secondly, and not least, most independent schools, simply by virtue of their charitable status, continue to attract a substantial inflow of additional charitable giving. Parents and ex-pupils are constantly asked to contribute funds for scholarships, for new buildings and for other improvements. They continue, in other words, the charitable impulse which founded these schools in the first place.

Thirdly, these schools make available a range of scholarships, sometimes to local children and sometimes more widely. Increasingly, such schools share facilities and expertise with local schools and communities.

If "education, education, education" is genuinely to remain a top priority—and not the destruction of quality, however inadvertently—then it would indeed be folly to risk throwing away the advantages that I have tried to describe. I hope very much that the Minister will be able to offer some real reassurance on these points.

1.24 p.m.

Baroness McIntosh of Hudnall

My Lords, I start by declaring my interest as a trustee of a number of charities, large and small, all declared on the register. They are mostly arts-related, and include the Almeida Theatre, Welsh National Opera and Southbank Sinfonia. I was also employed for many years first by the Royal Shakespeare Company and then by the Royal National Theatre. I mention these in particular because they are all arts organisations with charitable status, rather than campaigning, fund-raising or grant-giving charities such as those mentioned by other noble Lords.

I will refer to the possible impact of the Bill on this kind of charitable enterprise, but I would first like to add my thanks, as a member of the Joint Scrutiny Committee which examined the draft Bill, to my right honourable friend Alan Milburn. He chaired the committee through all our evidence sessions and much of our deliberation before being translated to higher things just as we were about to report. He set a very brisk pace—he needed to, because we had very little time, as recommendation 52 of our report reveals—and a bracing tone, from which I think committee members and witnesses alike benefited. The committee's Clerks processed a vast amount of evidence brilliantly, and kept us all on track through a challenging timetable. I am sure I speak for my colleagues on the committee when I say we owe them a particular debt of gratitude as well.

There are few, if any, of those who have taken an interest in the evolution of the Bill who do not accept the need for a significant overhaul of current legislation. As has already been said, the body of law that has built up over the past 400 years is, like many of us, beginning to show its age, and is no longer quite fit for purpose. Along with many others, therefore, I support the Bill. I welcome in particular the significant expansion of charitable purposes in Clause 2(2) and the introduction of the "public benefit" test in Clause 3, together with the revision of the powers and duties of the Charity Commission. I should, none the less, like the Minister to reassure the House on a couple of points. I am afraid that there is bound to be an overlap between the points I want to make and those that have already been made or will be made.

The effectiveness of the new legislation will depend, above all, as other noble Lords have said, on the development of a test of "public benefit", and on the ability of the Charity Commission properly to apply it in regulating the charitable sector. Obvious as this may sound, it is no easy matter to achieve, as the Joint Committee discovered through many hours of deliberation. That is why it recommended that some basic principles should either be set out in the Bill or included in non-binding statutory guidance from the Secretary of State. As my noble friend Lady Scotland explained, the Government have not accepted this recommendation, giving the reasonable reason: The intention of putting such a list into the Bill would be to set out some of the factors which are to be taken into account by the Charity Commission and the court when considering an organisation's public benefit. There is a risk that over time the list would come to be seen as representing not some but all of the factors to be taken into account". I sympathise with this view, and note that NCVO welcomes the decision not to include a definition of public benefit in the Bill, which now proposes in Clause 4 the issuing of guidance on public benefit, but from the Charity Commission, not the Secretary of State. This is possibly a response to the Joint Committee's fears about political interference in the definition of what is charitable. It is good news, provided that the commission's independence is not in doubt, a point to which I shall return. The commission is also required to consult widely before issuing, or revising, such guidance.

These arrangements are fine, provided we can be sure that the mechanisms for delivering them are sound, as other noble Lords have said. It probably is ungenerous to draw attention to the doubts expressed by the Joint Committee on the ability of the Charity Commission to fulfil the significantly expanded remit envisaged for it by the Bill, particularly as it has already begun to revise the way it works, and is led by a new chairman and a new chief executive who deserve to be given every encouragement. None the less, as has already been pointed out by, among others, the right reverend Prelate, who is no longer in his place, the devising and application of a public benefit test could not be more sensitive, especially in respect of those charities which charge for their services. So we must be sure that the commission is fully able to undertake its new duties.

Attention has been focused on the politically volatile issue of private schools and hospitals, but, as my noble friend acknowledged, the group of charities charging for what they provide includes many cultural organisations, for instance, of all shapes and sizes., for whom charitable status is not only an important fiscal benefit but a vital determinant of governance and therefore of public confidence.

I do not suggest for a moment that it is any part of the Government's intention in bringing forward the legislation to undermine the cultural sector or any other sector. Indeed, I am delighted that the advancement of arts, heritage, culture and science has been specifically included in the list of approved charitable purposes. I am glad that my noble friend Lady Scotland has already reinforced the aims for the Bill set out in the foreword to the Government's response to the Joint Committee's report. But are Ministers confident that the commission will have all the necessary resources, human and financial, to put these aims into practice in a fair and rigorous way?

In making that remark I remind the House of the words of my noble friend Lord Dubs, in that regard, although I see that he also is no longer in his place. I think that they were, although referring to past experience, none the less extremely powerful. We should be very aware of just how tangled relationships between the Charity Commission and those it seeks to help and regulate can become.

On the subject of regulatory independence, like the noble Lord, Lord Sainsbury of Preston Candover, I am sorry that the Government did not find it possible to accept the Joint Committee's recommendation 17, which suggested the removal of the words "on behalf of the Crown" from new Clause 1A(3) under Clause 6 of the Bill.

The independence of the Charity Commission in carrying out its functions, most especially in relation to the public interest test, is, as I have already said, absolutely fundamental to the credibility of this legislation. In its response to the Joint Committee, the Government assert the necessity, to preserve the Charity Commission's status as a Government Department". I was clearly not alone in feeling some alarm when I read those words. Whatever the formal issues, the terms "independent" and "a Government Department" do not sit altogether happily together. Therefore, despite my noble friend's earlier assurances, I urge the Minister to reconsider that matter and include in the Bill, for the sake of those who come after, a clear assertion that the Commission's independence from government is paramount.

There are many other important issues that I know other noble Lords will raise with far more authority than I could muster. Indeed, they have already been raised with just such authority. So I will finish simply by saying that the Bill, despite the criticisms that many of us may want to raise about it, is necessary and timely. I look forward to following its progress through your Lordships' House and seeing it enacted before the general election.

1.31 p.m.

Lord Brooke of Sutton Mandeville

My Lords, it is a great pleasure and privilege to follow the noble Baroness, Lady Mcintosh of Hudnall. Ever since she and I did business together across a table in the cultural sector more than a decade ago I have had, quite apart from natural affection, a profound professional admiration and respect for her.

I declare an interest as a trustee of the charitable funding provided and delivered by the alumni of my old school. I have also created two tiny charities under the CAF umbrella. Finally, soon after I sit down, I have to fulfil a representative function within the Association of Conservative Peers. My absence during the speeches that immediately follow my own therefore will not in any way indicate a lack of interest in what is being said. I will return as soon as I can.

When the Joint Select Committee of both Houses was sitting in pre-legislative scrutiny of the published draft of this Bill, I was sitting in similar scrutiny on the draft Gambling Bill. So I have a great deal of knowledge ground to make up on some of the distinguished noble veterans of the Joint Select Committee who are speaking in this debate.

I am in part speaking as an amulet against the consequence that can flow from abstinence from the ritual of Second Reading; that is, the slippery slope that becomes next a rationalisation of ones absence from the long slog of Committee, misdirected indolence of which the high-minded Victorians immersed in charitable works themselves would have greatly disapproved.

The last time that I participated in Opposition in the proceedings of a major Bill that should have been racing towards the statute book before the end of a Parliament was the companies Bill of 1978–79. Of the eight Conservative Members of Parliament on the Committee upstairs in the Commons on that Bill, seven now sit in your Lordships House, among them my noble friend Lord MacGregor of Pulham Market, who will speak later in this debate.

Though I say it as should not, it was an effective Opposition team, but it took me more than two decades to learn from the noble Lord, Lord Maclennan of Rogart, who was one of the two Ministers on that Bill, that the Government had their own internal reasons for not wishing to make rapid progress. The Bill, in fact, did not become an Act before the 1979 general election.

Exactly the opposite applies in this instance. It is clear from conversations with senior representative figures in the charitable sector that the sector generally welcomes the Bill, would like to see it on the statute book by the end of the Parliament and hopes that a full-scale political row over particular definitions will not prevent that happening. That is not necessarily a commanding reason for the legislature to deliver punctually in accordance with the sectors hopes, but it is a very powerful consideration.

The Bill is of course yet another significant milestone in the evolution of our nations charitable history. Better historians than myself will know the origins of our national charitable instincts and traditions, but in my former constituency I regarded the nine centuries of the history of Barts as a lodestar, not just for its original foundation by the monk Rahere, but also for its survival against the initial threat from Henry VIII at the time of the dissolution of the monasteries.

No doubt, in Committee we shall learn why it is that Winchester and Eton are to cease to be exempt. Also within my former constituency, under this Bill again, the 19th century saw the transformation of the medieval livery companies into charitable bodies. In the Edwardian era, the Lord Mayor of London in 1908 created the Lord Mayor Treloar Hospital for orthopaedic care. When the National Health Service effectively nationalised it, the hospitals trustees spent the proceeds on creating a school within three miles of the hospital, so that orthopaedically-challenged children could get their education on the hospitals doorstep. Bart's own linkage between medicine and education was being imitated and emulated.

In 1986, when my noble friend Lord MacGregor of Pulham Market and I were serving in the Treasury, the Finance Bill offered new incentives to charitable giving, as well as, in compensation, closing loopholes. Our noble friend Lord Lawson of Blaby, then Chancellor of the Exchequer, chaired a seminar at Lancaster House for the charitable sector. The first intervention from the floor was by Sir John Smith, the celebrated founder of the Landmark Trust, who complained as a parochial church council treasurer that four centuries of agreeable debate on what the Church of England was about was about to be settled in the Bill at a stroke by an assistant secretary in the Inland Revenue.

In the same seminar, the last intervention from the floor was by a very senior imam who prefaced his question by saying that the Muslims, unlike the Church of England, knew exactly what they were about. That was regarded as a very British joke, but it may also have been one of the harbingers of the two decades of debate that have led to this Bill. Incidentally, I warmly congratulate the Government on the way that they have imaginatively built on the fiscal incentives to charitable giving which they inherited from their predecessors.

I have only once delivered an academic lecture, but it was an annual one in the series in memory of the late Robert Birley, who was not only headmaster of Charterhouse and Eton, but also advised on post-war education in Germany in the British zone and, attached to the University of Witwatersrand, on Bantu education in South Africa in the early 1960s. My lecture was intended to echo his actions in interesting Etonians in unemployment in Slough in the 1930s, on the theme that privilege also confers social responsibility.

I shall not trouble your Lordships House with what I said, save to indicate that I became profoundly aware of the subject's many layered and sometimes conflicting aspects in our national tradition. I give a tiny example. I first watched cricket at Lords 62 years ago. I had no loyalty to either side playing, but one of them appeared on the scorecard as Haileybury and ISC. As an inquisitive nine year-old, I asked what ISC stood for, to which the response was the Imperial Service College, reflecting preparation for service in our then Indian Empire.

Ten years later, the late Philip Mason, to whom my late noble kinsman had once taught philosophy, embarked on his two volume work on the history of the British in India where he had served in the ICS. He gave the first volume the title, The Founders, and the second the title, The Guardians —the latter title being derived from Plato's Republic. He regarded the service in which he had served as selflessly beneficent in intent. At precisely the same time, Karl Popper was composing his magnum opus, "The Open Society and its Enemies", in which Plato's guardians were being indicted in the second half of his title.

That emphasis on definition and function is centrally reflected in this Bill in the analysis of public benefit. It is more than two decades since I was president of the Incorporated Association of Preparatory Schools, a body set up more than a hundred years ago, arising out of preliminary negotiations on the size of cricket ball that should be used in interschool matches. I do not think it is an interest that is truly relevant to this debate—I have not consulted them prior to speaking today—but I remain an honorary member of the association.

I have, however, heard it said that rural preparatory schools may be significantly tested by the challenge of public benefit because of the sparsity of their social hinterlands. Market forces have decimated the sector over the years. The town of Seaford in Sussex and the towns on the north Kent coast were both once full of prep schools—no doubt originally because of the virtues of sea air—but they are now largely departed. The Isle of Purbeck in Dorset has, I believe, lost all but one of the schools that once graced it, including the school in Swanage which Michael Foot once attended.

But in sparsely populated rural areas the very fact of a prep school can confer very public economic benefit on the villages to which they are attached. I hope there will be a characteristic British breadth and flexibility to the definition of public benefit. In corporate governance, box-ticking is still a controversial mode. The observation of the Ulster and later Oxford theologian C.S. Lewis to the effect that, if you hear of someone going around doing good to others, you can always tell the others by their hunted look is a vivid index that these matters are not always simple or straightforward.

So, to go back to where I began, if we are to get this Bill onto the statute book by whenever the election is called, I hope that most English of games, cricket—a game which combines two of this nation's greatest contributions to the wider world, those of lyric poetry and instinctive political wisdom—will be allowed to illuminate the discussion on public benefit through that wisest of umpiring conventions, the benefit of the doubt. If our debates can be sensibly charitable in themselves, our chances of, against time, erecting this new milestone before the election will be greatly improved.

1.42 p.m.

Lord Lester of Herne Hill

My Lords, like all previous speakers, I greatly welcome the Bill. I entirely share the important concerns expressed by the noble Lord, Lord Sainsbury, in his powerful speech and other concerns that have already been expressed. I shall focus on only one issue, which is the legal uncertainty and potential for discrimination resulting from the absence of a definition in the Bill of "religion" and the absence of a reference to "belief" as distinct from religion.

What interests can I declare? Certainly I have a dead professional interest as I once advised the Church of Scientology in its unsuccessful attempt to be registered as a charity. I also have been a trustee of various human rights trusts and, with the noble Baroness, Lady Howe, I am glad to say that I was a trustee of a great south London independent girls' school, James Allen's Girls' School.

So far as religion and belief are concerned, 1 do not have much interest to declare because I agree with E.M. Forster's great essay What I Believe, which begins, I do not believe in Belief". But it occurs to me that I am a member of a belief organisation, the Liberal Democratic Party.

The Explanatory Notes on the Bill are not explanatory as to what is meant in Clause 2(2) by "religion" in the reference to the advancement of religion as a charitable purpose. Nor do they deal with the problem that the application of the Bill as it stands risks breaching the Human Rights Act and Articles 9 and 14 of the European Convention because of the lack of legal clarity and certainty and the potential for discrimination as between theistic and non-theistic religions and as between religious and other belief organisations.

The Joint Committee on Human Rights, of which I was until recently a member, recommended that compliance with the convention requires the Bill to be amended to include the advancement of both religion and belief, as is the wording in both Article 9 of the convention and the Human Rights Act. A reference only to "religion" excludes the advancement of non-religious ethical beliefs such as humanism. Your Lordships may read our report—I shall not quote from it—which is House of Lords Paper 182 of 1 November 2004.

We sought clarification from the Home Office as to why the Bill could not be amended to include "religion or belief". Our report noted: The Home Office responded that it was satisfied that organisations advancing non-religious beliefs would not be disadvantaged under the Bill as currently drafted, since the law would be capable of development compatibly with the Convention rights. The Home Office also considered that defining non-religious belief systems would require detailed legislative provisions which would impair the flexibility of the legislation. However, the Home Office was prepared to consider setting out the position of non-religious belief systems in guidance". I am always suspicious of the use of guidance rather than stating what the law is.

Our committee concluded: We remain of the view that Convention compliance could best be supported by including the advancement of non-religious beliefs as a charitable purpose under clause 2(2)(c) and we draw this matter to the attention of both Houses". So that was the first example.

Secondly, the Joint Committee on the Draft Charities Bill, as has been said, also recommended that the Bill should include a definition of religion that included non-deity and multi-deity groups.

Thirdly, the Prime Minister's Strategy Unit, in its consultation report, Private Action, Public Benefit, proposed that the current interpretation of religion be widened, to clarify that faiths that are multi-deity (such as Hinduism) or non-deity (such as some types of Buddhism) should also qualify". The Government's response in explaining why they would not give effect to the strategy unit's recommendations was as follows: The clear evidence we found was that non-deity and multi-deity groups can already satisfy the (common law) charity law definition of a 'religion' and thus qualify for charitable status. There are, for example, over two hundred charities registered for the purposes of advancing the Buddhist faith, and a similar number for the purposes of advancing the Hindu faith. The Charity Commission began registering some such organisations from the time the register of charities was being created in the 1960s, so their recognition as charitable is well established. The Government's conclusion in considering the Strategy Unit Review was that there was no need for a statutory definition of 'religion' in charity law. That remains our view. We therefore do not accept this recommendation". Unfortunately, the Government's statement is not in accordance either with the Charity Commission's own repeatedly published statements, nor does it cure the current legal uncertainty. The Charity Commission continues to assert that there is a definition of religion peculiar to charity law and that the definition requires belief in a supreme being and worship of a Supreme Being in a certain fashion. Whatever may have been the Charity Commission's practice with regard to some non-deity groups, its published documents—which I shall not take time quoting now but I hope the House will accept it from me—state quite unequivocally that religions that do not meet these criteria are not religions for the purpose of charity law.

The Joint Committee on the draft Bill made its recommendations based on concerns raised in evidence given to the committee, including what its report described as, the anomaly that some organisations already registered under the head of the advancement of religion, for example Buddhism, do not meet the current legal definition", and that the present definition is not compliant with human rights obligations. I agree.

The need for legislation—this Bill—to give effect to those recommendations is underscored by the fact that more than 400 groups registered already as religious organisations, including 144 Buddhist organisations, several groups of Jains, Hindu groups, Christian Scientists, Unitarian Churches and Quakers, do not meet the current Charity Commission's definition of religion. Those groups should be registered but the fact that they do not meet the Charity Commission's current religious definition illustrates the arbitrary and discriminatory nature of the commission's approach and the pressing need for the House to insist that the position be clarified in the Bill.

The Charity Commission's booklet CC21 Registering as a Charity, to cite only one example, sets out its current practice on charity registration. In the section dealing with "the Advancement of Religion" it states: For the advancement of religion to be charitable a religion has to: be founded on a belief in a supreme being or beings; and involve expression of that belief through worship". The Charity Commission's approach and practice do not accord with the Government's statement on what "religion" means in charity law. That mismatch, that conflict between the Government and the Charity Commission leaves avoidable legal uncertainty, which is why the Joint Committee recommended that a statutory definition of religion should be included in the Bill. The anomaly created by the Charity Commission's criteria on religion, which currently exist for religious groups of the kind that I mentioned, needs to be remedied in the Bill. Otherwise, those groups are stigmatised as somehow inferior under charity law, and their registration will remain subject to question.

The Minister will correct me if I am wrong, but there is no clear UK case law on the meaning of religion which includes non-deity religions. Common law countries such as Australia, New Zealand, the United States and Canada have adopted broad definitions of religion, but there has been no similar judicial decision by a UK court. The Government's conclusion that, because the Charity Commission has registered organisations advancing some such religions in the past as charities, that means that there is an established, common law English definition of religion, which includes all religions—non-deity religions among them—is simply not correct. I challenge the Minister to demonstrate otherwise in his or her reply. The Charity Commission's current stated position demonstrates that fact.

The present position, therefore, of the Government saying one thing and the Charity Commission saying something completely different, is not satisfactory. The solution is to include a definition of religion in the Bill without opening a can of worms. I will not develop the reasons why the present position probably breaches the European convention because the Joint Committee on Human Rights has done so, but as my noble friend Lord Phillips of Sudbury has mentioned, the Charity Law Association has proposed a definition that is now accepted under Australian and New Zealand common law, which is this: Belief in a supernatural being, thing or principle; and acceptance and observance of canons of conduct in order to give effect to that belief. I hope that the Government will in due course accept an amendment on those lines which will satisfy the concerns of the Joint Committee on Human Rights and the Joint Committee on the draft Bill in order that we can clear up this matter without the need for lawyers such as me to earn a living in unnecessary litigation.

1.52 p.m.

Lord Best

My Lords, I declare the usual bunch of interests. I have been continuously involved with the charitable and voluntary sector since the 1960s, and I am director of the Joseph Rowntree Foundation and the Joseph Rowntree Housing Trust. I was a member too of the pre-legislative scrutiny committee on the draft Charities Bill. I think that I am the only Member of the House of Lords from that group who is present. I pay my tribute to our officers and advisers, who helped us produce a very impressive result. Indeed, I thank Alan Milburn for his role in the chair, which was not a difficult one.

Perhaps I may briefly reflect on that process of scrutiny of a draft Bill. I wondered why, if it was successful, that should have been the case. It had two attributes of which we should remind ourselves: first, in bringing together Members of the House of Lords and the House of Commons one creates a synergy and an opportunity to exchange, which is perhaps more creative than some of the fora in which we work. Members of the House of Lords can bring some specialist expertise to issues such as this, which feeds in and helps to influence Members of the House of Commons, and no doubt vice versa, in a very helpful way that we do not usually encounter.

Secondly, the process looks for consensus and a unanimous report. We do not have a lot of votes, but we share our thinking. That unanimity was not achieved simply because this was an anodyne Bill with nothing controversial to worry us—it included difficult issues such as what happens to public schools and private hospitals. Unanimity was achieved, and that gives a result that is more robust, possibly more long-lasting and more likely to survive changes of political control in years to come than where one is simply voting on party lines. So, preserving the good things that came from that scrutiny committee may be important in its own right. I know that we will return to some of the points that the Government have not picked up, but I am delighted that the Government have adopted, in one way or another, three quarters, I think, of the recommendations.

A lot of the Bill is about tidying up past legislation and modernising, if you like, what has gone before. It brings together in a modern way the things that are needed for the charity sector of the future. The big aim behind the tidying-up operation is ensuring that there is a strong, clean, corruption-free and effective sector that will be worthy to receive public donations and will command public support when it spends public money and provides public services. That is a big, important prize for the sector, and it would be the basis for a much larger voluntary and charitable sector in the future. However, it carries dangers. I am sure that lots of good ingredients in the scheme will enhance the protection of charities' independence, but some of the dangers in the Bill can be illustrated in the way in which a government can, through legislation, reach out their policy tentacles and capture the voluntary sector.

The housing associations provide a case study. In the world of social housing, housing provided with public funding, we have, from the days of the origins of my housing association—the Joseph Rowntree Housing Trust—existed without any reliance on central government. We were able to pioneer and innovate and do things entirely independently of government control. As the years have gone by, public funds have become increasingly important and, in particular, regulation has grown around the work of housing associations, commensurate with their scale and growth. We have seen a different approach taken by those bodies to the opportunities to do things differently from the way in which the Government would wish them to be done.

Housing associations today receive all the new money that goes to the provision of extra social housing, in contrast to the situation that existed until relatively recently, in which local authorities received most— nearly all—of that funding. Housing associations today see a transfer of the public service of council housing to them from the public sector. Those are big movements into the voluntary sector from the public sector, and one can readily understand why government are interested in seeing such a movement of services. There is nothing worse than confronting a monopoly that is difficult to reform and change. If there be monopolies at the local level—inevitably, there will be some—that are not performing and not implementing or delivering policies in the way in which central government would wish, having a sector to which one can transfer responsibilities opens up the opportunities for government, on the basis of funding, to capture that sector and, through it, deliver central government policies.

In the Bill, we must guard against the capturing of charities that can provide the independent thinking, the pioneering spirit, the different way of doing things that is an alternative. Such bodies can even try out things that government have thought about and rejected, things that deserve to be tried and tested. I am sure that all of us on the scrutiny committee were keen to see that balance between giving the sector the credibility to receive more public money and protecting its independence of thinking. We should keep the regulator sufficiently at bay to allow there to be a strong, healthy, independent voluntary sector. Among the many good ingredients in the Bill I will list but a few. Under each heading, some tweaking may yet be needed to ensure that a balance can be achieved between making a credible recipient for public money and donations and having a sector that can know its own mind and go its own way.

The definition of charity will be enshrined in a broader form than in the past, but some tweaks may be left to be made. The commission's role, as the noble Baroness, Lady Scotland, said, will not be government-controlled and there will be clarity that the commission is not a creature of Government. However, some of us worry that the phrase, "on behalf of the Crown", remains in the Bill and poses a threat to the sector's independent nature.

The noble Lord, Lord Phillips, described the independent appeal tribunal as a landmark change in the world of charity. It is an important protection against an overweening regulator in the Charity Commission. It also avoids the necessity to go to the High Court to clarify the law as my own charitable organisation did at great expense in the past. It is good that that will not be necessary in the future.

Resistance in the Bill to proposals from some charities to pay their trustees for being trustees is an important omission that I am pleased to see. If the charitable and voluntary sector is to assume the moral high ground and put itself as an independent, outside-of-government-thinking group of organisations, it must not take the King's shilling and it must not undermine public perceptions of it as separate and distinct by each trustee taking remuneration for their place on the board.

There is lots of helpful buttressing of the independence of the voluntary and charitable sector, but the balance remains delicate and some tweaks in Committee could be extremely important. In welcoming the Bill, congratulating the Government on bringing it forward and recognising its modest inherent dangers, I would like to underline that the sector's unique selling point is that it must be a separate enterprise to Government. As we tweak the Bill we must keep in mind the underlying value of a set of enterprises with separate values that can be sustained only if the sector remains wholly independent.

2.3 p.m.

Baroness Morgan of Drefelin

My Lords, I hope that I will be able to make my contribution without losing my voice. Although this is my last week in the role, I declare an interest as the chief executive of Breakthrough Breast Cancer, which is a registered charity. If it is true that charity is a cottage garden, I have to admit to being a lifelong keen gardener.

In the charity sector the Bill has been much anticipated. I welcome the process followed in the development of the Bill's proposals. There has been plenty of opportunity for the charity sector to engage with the process, which has been positive. The charity sector welcomes the Bill and, most importantly, is enthusiastic about the prospect of embracing change.

As we have already heard, much rests on the existence of a strong, independent, effective and fair Charity Commission that is in touch with the sector and the public and must act with proportionality. Many in the sector and your Lordships' House have in the past bemoaned the Charity Commission's record with good reason, but we now have reason to be optimistic about the future. The commission is now under the leadership of a new chair who has an outstanding record in the charity sector and will be an impressive poacher-turned-gamekeeper at the commission's helm. We have reason to be optimistic provided—as has been said—the resources are commensurate with the commission's task.

Before I turn to my specific points, I have sympathy with those concerned that institutions enjoying the considerable benefits of charity status should not be able to use those benefits to promote privilege. I welcome the proposal to remove the presumed public benefit and to ensure that all charities should be expected to prove their worth to the community, and that the interpretation of that worth should be allowed to evolve over time.

I would like to concentrate on fundraising. The ability to raise funds is incredibly important in terms of independence. I welcome the overhaul of the control of public fundraising and the introduction of a new integrated licensing scheme for public fundraising, as well as the decision to give self-regulation of charity fundraising the chance to prove itself as an effective mode of regulation for the sector.

Throughout the public debate around the Bill considerable attention has been paid to the role of face-to-face fundraisers, often referred to as "chuggers". I am pleased that that new form of fundraising will now be controlled. For the record, I find "chugger" a most unfortunate term for a person engaged in face-to-face fundraising. The majority of those so-called charity muggers are hardworking young people who have taken salaried jobs working for a good cause. They are normally polite, well trained and committed. They have to be to stand for hours on freezing streets talking to strangers and at times taking considerable abuse from passers by.

When this new form of fundraising came to prominence I wanted to see what being chugged was like, so I decided to stop at the first three chuggers I bumped into. The chuggers I met from Shelter, Barnardo's and Scope were all extremely polite and well briefed. I decided to sign up to a direct debit there and then. A few weeks later I was contacted by post with well produced information about the charities' work, including information about the costs of their fundraising activities and how my money would be used.

The process felt appropriate and was efficient for those charities. In order to access my contribution they did not have to send out cold mailings to hundreds or thousands of disinterested parties, causing a nuisance on the doormat. These days, if I do not want to be chugged, I say politely, "Not today, thank you", and walk past.

I am aware that others do not share my positive view of face-to-face fundraising. I suspect that that is particularly the case for older people, who sometimes find the face-to-face fundraising operation intimidating. I also suspect that no one likes to feel the guilt of walking past a good cause. Therefore, if this highly effective form of fundraising is to be fully accepted and the potential benefits for charities realised, it is vital that appropriate controls exist.

I welcome the approach in the Bill of a two-stage process where the Charity Commissioner issues a certificate of fitness for the agency and the local authority is responsible for ensuring that there is capacity. That is important. Overcrowding of face-to-face fundraising is the biggest cause of irritation to the public. Local authorities can be responsive to the views of local communities and help to ensure that popular localities do not become overused.

In addition, there is the matter of payment of these workers and those involved in charity fundraising generally. I welcome the requirement that all fundraisers should declare the nature of their payment. In the case of chuggers, for example, that would help to dispel the myth that they are incentivised by payment of commission to put pressure on members of the public who are not interested. Transparency is essential in the charity sector, and that means transparency about how fundraisers are paid.

I will finish by making a point about self-regulation of charity fundraising. I am pleased that the Government have accepted that a self-regulatory initiative should be established, based on a new voluntary code of practice that would promote awareness of good practice in fundraising. An impressive consortium of umbrella organisations and those who represent the charity community is developing proposals for such a scheme. As it currently stands, we believe that the scheme will be self-financing, perhaps after an initial period of support from the Government. It will include a kite mark for fundraising materials, with secret shoppers and a binding complaints process, along with other measures. I agree that the advantage of self-regulation is that charities will be centrally involved in devising and implementing regulation and will be more positively committed to regulation, rather than dismissing it as yet more red tape, which is particularly an issue for small charities.

Charity fundraising is a fast-moving and innovative field. It is extremely competitive and becoming more specialist every day. It is in the interests of the charity sector to keep faith with the public and ensure that fundraising techniques do not abuse the sector's most valuable asset: the trust of the general public. I agree that it is right that the Secretary of State should have a reserve power to regulate fundraising if self-regulation fails. However, in order for self-regulation to be given a proper chance, it is essential that the sector really understands in great detail the criteria by which regulation will be judged. As such, I hope that my noble friend the Minister when he responds will give us some more details about the criteria and the process for consultation around those criteria.

I congratulate all those who have been involved in working so hard to bring the Charities Bill to this stage. I congratulate the Government on listening to the sector; the National Council for Voluntary Organisations and the Coalition for a Charities Act for articulating the views and needs of the sector so successfully; and the Institute of Fundraising and the Charities Aid Foundation for all the work that they have done to take self-regulation forward, which I see as promising.

2.13 p.m.

Lord Hunt of Wirral

My Lords, may I first draw attention to my entry in the register of interests as senior partner of Beachcroft Wansbroughs and as an office-holder in numerous charitable and other organisations in Wirral and elsewhere?

As my noble friend Lord Hodgson of Astley Abbotts so clearly stated at the start of this debate, we all believe passionately in the voluntary sector and would fight to the last against any measure that threatened to inhibit the unique energy and creativity that is to be found in voluntary activities. The law must protect against fraud or embezzlement by people of ill will, but it must always exercise a light touch so far as charities are concerned, lest it stifle or snuff out their initiative and vitality, or as the noble Lord, Lord Best, so correctly put it, their pioneering spirit. This is the first test that this Bill must pass. Will it encourage or restrict legitimate charitable activity?

Charities have by and large maintained their standing even as other institutions have become tarnished in the eyes of the Great British public. This leads me to the second critical test for this Bill: will it enhance and reinforce the already high levels of public confidence in the charitable sector? Ministers seem genuinely to have listened, to the many viewpoints that have been put to them, and they have come forward with a Bill whose fundamental architecture is sound and fit for purpose. I join with colleagues from all sides of the House in offering a broad welcome to this Bill. It is high time that our charity laws were simplified, codified and rationalised in a way that is readily understood; as the Minister put it, they need a modern legislative framework. I strongly agree with my noble friend Lord Hodgson and the noble Lord, Lord Phillips of Sudbury, that we really need some consolidating measure to put it all together in a clear and coherent way.

I am not suggesting that this Bill is in any way perfect. As my noble friend and others have already pointed out, some aspects of the Bill are unclear and mutually inconsistent and may unintentionally and unnecessarily inconvenience those legitimate charities that the Bill is supposed to help. In theory, everyone these days is in favour of reducing regulatory burdens, but I doubt whether this Bill can honestly be said to do that. Parts of it are rather complicated and prescriptive, perhaps unnecessarily so, and complexity is not inevitable. I hope that colleagues will bear these points in mind as we go through the Bill line by line.

Many of us on all sides of the House have been greatly heartened by the robust and positive response to this Bill from the Independent Schools Council. Let us hope that nothing will happen during the passage of this Bill through its various parliamentary stages that might cause the ISC to qualify or withdraw its support.

I also mention that there are a small number of commercial organisations whose ethos includes raising substantial amounts for charities. They enter into what are called "commercial participator" agreements with the charities, and those agreements are already regulated by existing charities legislation. If the commercial participators then sell products door-to-door, they may also be caught by public collections regulations. They now face having to comply with a new, more onerous regime under the unified licensing system. We ought to be looking for ways of encouraging these dedicated door-to-door collectors, rather than imposing additional burdens on them. I ask that Ministers should satisfy themselves that the effects of this Bill on that sector will be wholly appropriate and proportionate.

I reflect briefly on the fundamental questions that we need to resolve with regard to the Charity Commission, for whose leadership I have the highest regard, especially the new team of Geraldine Peacock and Andrew Hind. In this context, I warmly endorse the generous words of the noble Baroness, Lady Morgan of Drefelin. I know from my time as a Minister that when responsibilities are transferred, it is vital to ensure that resources are transferred accordingly. Resources must follow responsibilities. If we want public bodies to do a job, we must ensure that we give them the necessary tools. This leads directly to the all-important matter of the future status and standing of the Charity Commission. It is crucial not only that the commission should be insulated from all political pressure, but also that it should be seen to be insulated from all political pressure. Whether the commission is to be put truly at arm's length, or whether it is to go even further down the road to independence, its status will have to be carefully and unambiguously laid out in statute. If we are to fulfil the Minister's stated objective of "independent of government", then we need to get this absolutely right. I congratulate my noble friend Lord Sainsbury of Preston Candover, on an outstandingly good speech and for giving the very interesting comparison of the National Audit Office. I suspect that we may return to this question in due course.

I mention two specific clauses of the Bill to which I wish to draw particular attention at this early stage. The first is Clause 13. The principal purpose of that clause is to give the Home Secretary, the power to make regulations prescribing a body … as the principal regulator of an exempt charity or class of exempt charities. I know that a number of representations were made to the parliamentary Joint Committee with regard to the precise definition of the compliance objective for the principal regulator.

I had hoped that the regulatory objective of regulation, as defined in the Bill, would be to promote rather than to increase compliance by charity trustees with their legal obligations. Annexe 2 of the Joint Committee report on the draft Bill contains a helpful digest of the points that were made in written evidence to the committee. On page 126, referring to the equivalent clause in the draft Bill, there is a suggestion that "promote" should be substituted for "increase". It is stated in the column under "Comments by HMG" that, the Home Office is prepared to take this into consideration when the Bill is published". Sadly, that promise has not yet been fulfilled. I hope that it still will be.

I point out that recent legislation passed by the Scottish Parliament contains an obligation on a public body to "promote compliance". I refer noble Lords, for instance, to Section 2(3)(c) of the Public Appointments and Public Bodies etc (Scotland) Act 2003.

Furthermore, a large number of public bodies in England have a statutory duty to "promote". A notable example would be Section 22(2) of the Education Act 1997, which requires the Qualifications and Curriculum Authority to exercise its functions with a view to promoting quality and coherence in education and training.

Yet here in the Charities Bill, as it presently stands, we are still saddled with this extraordinary notion of continuous revolution. An undertaking to increase compliance, or virtue, or whatever, might be good for the soul, but I am not at all convinced that it makes for good law.

The objective to "increase" is at once nebulous and overprescriptive. There is also a risk of creating false impressions or implications. First, this clause may be taken to imply that trustees have been failing in their duty until now. Secondly, the impression may be created of an ever more onerous regulatory regime, which is precisely the opposite of the Government's stated objective.

We ask that charity trustees should do their jobs as competently and diligently as the human condition makes possible. Whether they are broadly succeeding or failing, the approach should surely be the same. If they are falling short, the job of the regulators is to remind them of their responsibilities; that is, promoting the rules. If they are doing a good job, we should be saying, "Excellent, well done, keep up the good work"; in other words, still promoting the rules.

Is it not, therefore, more consistent, more germane and more practicable to "promote" rather than to seek always to "increase"? I understand that the change to the compliance objective for principal regulators might require an equivalent change to the Charity Commission's compliance objective in Clause 7, but that would be a routine matter for Ministers and parliamentary Clerks.

Looking back to Clause 7, we find "increase", "promote", "increase", "promote" and "enhance" set out in the objectives. Public trust and confidence are to be "increased" just as compliance is to be "increased". Awareness and understanding of the operation of the public benefit requirement is to be "promoted", however, and so is the effective use of charitable resources.

Last but by no means least, the general accountability of charities is to be "enhanced". As noble Lords know, I am a lawyer and not a literary man and I can assure noble Lords that this is not just a question of pure semantics. This trumpet is sounding a worryingly uncertain note. Indeed, I point out to the Minister that if he wishes to be promoted, my advice is that he should enhance this Bill to increase its effectiveness.

I also have a particular concern about Clause 14. In paragraph 368 of the report on page 99, the Joint Committee, 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 endorses a simple principle, universal and readily understood.

It was, therefore, with disappointment and foreboding that I saw in Clause 14 only partial implementation of the duty to consult. What we have now is a pot pourri of requirements unnecessarily intricate and confusing. I shall speak in much more detail about that at Committee stage.

I believe that it would be simpler to dispense with this power altogether, striking out the notion of a relevant power in subsection (1) and deleting entirely subsection (2). After all, when is a power not a relevant power?

I hope that in this call for consistency and clarity the Minister will accept that there is a need to improve the Bill. We may never attain perfection, but Ministers still have the opportunity to turn a good Bill into a very good one.

2.26 p.m.

Lord Bhatia

My Lords, I commence by declaring my interest in a number of charities. They are the Forbes Trust, the Ethnic Minority Foundation, the Council of Ethnic Minority Voluntary Sector Organisations, AMREF, PREA, PRISM, the British Muslim Research Centre, the Local Investment Fund and Oxfam India. I have also been a member of Oxfam UK and the National Lottery Charities Board.

I welcome the proposed Charities Bill. We have lived with the current law, which is based on the preamble to an Act that is over 400 years old and in urgent need of reform. Therefore, the proposed Charity Bill will meet the needs of the 21st century in Britain.

The charitable sector has waited for this Bill for a long time and many have campaigned hard for it to reach this far. The charities Minister is to be congratulated on finally bringing it to Parliament and, it is hoped, having it passed as the new law on charities.

There are a number of points that I wish to make on the proposed Bill. First, it is absolutely crucial that the Charity Commission is able to perform and deliver well. It has a heavy duty of determining what is public benefit before registering a charity. It has the task of regulating the sector and finally has the role of an adviser.

In carrying out these duties it has to be an enabling organisation, sensitive and responsive to the needs of the sector and those who work in it and appear as a friend who is willing to give advice instead of reaching out for the gun at the slightest provocation, complaint or misdemeanour.

In order to deliver these services, the Charity Commission has to be properly resourced. My own observation is that currently that is not the case. We now have the chairman and the chief executive of the Charity Commission, both of whom come from the charity sector, which is very good news. The proposed charity will have a vastly increased work load and responsibilities. It is therefore vital that the commission is well resourced, otherwise the legislation we are promoting and supporting will not work.

In talking about resources, perhaps I may point out that while we may have a good Charities Bill and a good and well resourced Charity Commission, we will need a good charity sector to deliver the services to the communities. Among other things, the sector also requires more resources.

There are two areas of resources that I would like to point out. The first is the VAT aspect. The sector pays out about £400 million annually in VAT. With all the support which the Government give to the sector, it seems that they give with one hand and take away with the other. Can the Government say whether there are any plans to deal with this painful sore that constantly pains the sector? It is illogical to tax the sector but at the same to allow it to receive donations on a tax-free basis. Surely, the Government should realise that in many ways the sector is delivering services to the communities in the most cost-effective manner on behalf of the Government and therefore should not be penalised by the imposition of this unfair value-added tax.

That leads me to talk briefly about the sector itself. The charity sector comprises two major blocks. There are tens of thousands of voluntary organisations that actually deliver the services to the communities. Those organisations are dependent on grants, contracts, donations and, in some cases, the selling of goods. On the other hand, we have the grant-giving foundations and trusts that are in the business of giving grants and support to the voluntary sector.

The Bill covers both those parts. The trusts and foundations—let me call them the funders—enjoy enormous tax benefits by way of having their income tax-free on their investments. Those benefits run into millions every year and are indeed paid for by the taxpayers. Depending on the tax rates prevalent at any given time, that is about 25 to 30 per cent of the funders' incomes. I welcome that support, because it means ultimately more resource for the voluntary sector.

The issue for me is how the funders' resources are given to the voluntary sector by way of grants. My experience—I have sat on both sides of the table—has been that the relationship between the funders and the voluntary sector is not on a level playing field. Having funds to give places the funder in a very powerful position, and often the recipient is unable to defend itself or argue against the funder. I hope that the Charity Commission will be able to help in resolving the issue, as it will have the powers to deal with the funders and the funded.

I suggest that the Government look at the matter with a view to finding a mechanism whereby the compact which the Government have introduced could apply to the Charity Commission and the funders in the charity sector. I say that because few charities will have the resources or the will to go to the proposed tribunal, let alone the High Court. However, the compact could be a useful and easier mechanism to use whenever a charity disagrees with the finding of the Charity Commission, or a charity has a dispute with a funder. That would largely protect and help the smaller charities. The tribunal and the courts should be the last resort as they will take away vital resources from the sector.

The compact was agreed after unprecedented consultation and care, but its use has been limited. If the Charity Commission under its new mandate made the compact known to the sector and used it itself, it would be win-win for everyone. The compact applies to all government departments, quangos and NDPBs. I believe that the Charity Commission falls into that category as well.

I would like to touch on one of the important new categories of charitable purpose proposed in the Bill. It is the longest one, which is, the advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity". The charity sector comprises some 200,000 registered charities and another 300,000-plus non-registered charities, which are not-for-profit organisations. Of those 500,000-odd organisations, 10,000 form the ethnic minority voluntary sector.

That sub-sector is relatively new. It has come into being in the past 40 years or so, and has remained weak and vulnerable. Its capacity to deliver and manage is slowly being built up, but that is a slow process. The demands and expectations on the sector by its stakeholders are great and difficult to meet. My plea is that the sector needs greater support and attention. The wider charity sector has been around for more than 200 years and has learnt to work with the system. The ethnic minority sector is a relative newcomer and is sometimes unable to meet the requirements of the funders and the regulatory authorities. Its delivery of services is first class, as it understands the cultural needs of the communities that it serves.

This is a classical case of "one size fits all". The young ethnic minority voluntary sector is expected to operate under the same rules as the wider and more mature sector. It is like a child having to work as an adult. My plea to the Charity Commission is to have a more helpful and supportive approach to the sector, to allow it to grow. The funders—statutory funders, the trusts and foundations—need to be sensitive and enabling to allow the sector and its communities to move from the margins to the mainstream. The Charity Commission has a major role to play in that matter.

In conclusion, I repeat my full support for the Bill. In doing so, I emphasise that the Charity Commission has a key role to play, and we must ensure that the commission is properly resourced. We must judge it not by its past, but by its vision for the future. The vision that it has set out for itself is laudable. It has a heavy agenda to deliver and cannot do so without the full support of the Government. Under the new charity law, the commission has to carry out considerable work, including recruitment of human resources and internal restructuring with training of the existing workforce, to meet the new challenges. We will all do considerable damage to the charity sector if we do not resource the commission properly, to enable it to become a "fit for the purpose" agency.

2.35 p.m.

Baroness Warwick of Undercliffe

My Lords, I should declare an interest as chief executive of Universities UK and an elected trustee of the National Council for Voluntary Organisations. Universities UK is a charity and a member of the NCVO. With other noble Lords, I congratulate the NCVO on and thank it for its work to see the Bill introduced. As has been evident throughout the debate, it has been widely welcomed by the charitable sector. The principles of transparency and accountability, balanced by a desire for minimum regulation, are in my opinion a sound basis for charity law.

There is a considerable degree of consensus on the Bill, and I do not want to repeat those points made so eloquently by other noble Lords, so I would like to focus my few comments on the clauses of the Bill that directly affect higher education. As your Lordships will know, most universities are charities. Some are registered with the Charity Commission, but many have had exempt status. They are assumed to have charitable purposes under the 1601 Act, so although they abide by charity law they do not need to register with the commission.

If Chapter 3 of Part 2 of the Bill becomes law, exempt charities will have to prove that they are following charity law. When that was originally proposed by the Cabinet Office in its report Private Action, Public Benefit, Universities UK pointed out that higher education was a low-risk sector. It is also heavily regulated—some, including myself, might say over-regulated. One of my main concerns is therefore that the new arrangements do not add to that burden.

To their credit, the Government have recognised that danger. Instead of exempt charities having to register directly with the Charity Commission, they will be regulated by their current "principal regulator". The intention behind that is to avoid the duplication of regulation. Universities are held to account by a wide range of organisations and it is generally accepted that they have a heavy and complex burden of accountability. The proposal to make use of existing regulations, through the principal regulator, rather than imposing another layer is therefore most welcome. The use of the principal regulator is vital to achieving accountability without over-regulation.

There have been negotiations with the Home Office and the Charity Commission for some time, and it has been agreed that the Higher Education Funding Council for England would be the most suitable regulator in England. While the funding council does not currently consider itself a regulator as such, I hope that existing mechanisms such as audit and the financial memorandum will provide considerable assurance to the Charity Commission without the need to introduce additional burdens. Scrutiny of institutions should be in proportion to risk and should, as far as possible, be based on existing arrangements.

During the passage of the Bill, I hope that the working relationship between charities, principal regulators and the Charity Commission will be clarified. For universities, there are also questions around related charities such as student unions and endowment funds. So far as Wales and Scotland are concerned, according to the regulatory impact assessment published alongside the Bill, Welsh institutions will register directly with the Charity Commission. Scottish institutions will be covered by the charities Bill currently before the Scottish Parliament. The NCVO has urged the Government to work closely with the Scottish Executive to avoid anomalies and confusion between the two sets of legislation. This certainly applies to the higher education sector.

The second main theme I would like to address is that of public benefit. I am sure that no one, least of all in this House, would question the public benefit of universities. "The advancement of education" is included in the Bill as a charitable purpose, and this lies at the very heart of our universities. Teaching, research and knowledge transfer have wide social and economic benefits. Our universities train individuals in disciplines ranging across the private and public sectors, from engineering to the performing arts. Through their widening participation activities, they provide opportunities to individuals from across society. They even train our sportsmen, and are guardians of our museums.

As well as all these public benefits, we should also remember the benefits of a university education for its own sake, a point often forgotten in the obsession with economic returns. It produces individuals able to analyse and make their own judgments, which is surely a public benefit.

However, I have concerns about the accidental damage which could be done to universities' charitable status. My noble friend Lord Campbell-Savours will remember the heated discussion in the Joint Committee on the Bill, of which he was a member, about the charitable status of private educational institutions. Many noble Lords have already referred to that. Looking back at the proceedings of that Committee, I noticed that, although the debate was primarily about private schools, on occasion it was questioned why educational establishments as a whole should have charitable status. I am sure it was not the intention to include universities, but I would ask noble Lords to bear in mind that universities are also private educational institutions. As I said, I would not like to see accidental damage inflicted on universities.

Some institutions have also expressed concern about whether commercially sponsored research and knowledge transfer would be included as charitable activities with a public benefit. The Government have encouraged such activities in recent years and, as your Lordships will be aware, Richard Lambert, in his report, was very encouraged by universities' willingness to work with business. I am sure the Government would not want to threaten this activity. Following discussions between Universities UK, the Charity Commission and university leaders, the commission has written a letter outlining its position and setting out the criteria which research must fulfil to be considered of public benefit; it also covered the dissemination of that research and the position of intellectual property rights. This has satisfied the institutions concerned, but I intend to seek confirmation of this during later stages of the Bill.

I apologise for focusing so narrowly on the aspects of the Bill which affect higher education. However, it has become clear that, as the Bill progresses, these issues around exempt status and public benefit will also been seen to affect many other charities.

I welcome this Bill. Not only will it provide a modern framework for the charitable sector, and enable charities to evolve and grow; it will also do much to stimulate voluntary action, and ensure public benefit from the activities of charities. I congratulate the Government on introducing it.

2.43 p.m.

Lord MacGregor of Pulham Market

My Lords, like all others who have spoken before me, I warmly welcome this Bill. I have to declare an interest as a patron, office-holder or other involvement, in charitable organisations, not least in fundraising. I do not need to repeat all the arguments in favour of voluntary activity, because they were well rehearsed by my noble friends Lord Hodgson of Astley Abbots and Lady Howe of Idlicote, and by the noble Lord, Lord Phillips of Sudbury, among others. 1 agree with everything that they said.

As a Member of Parliament and a citizen in a rural area for over 30 years, I am extremely well aware what an important —indeed, vital—contribution the voluntary and charitable sector gives to the health and vitality of our rural communities. I had well over 100 towns and villages in my constituency, many of which depended on voluntary activity for that health and vitality. I am equally aware, however, how much bureaucracy can stifle enthusiasm. I was struck by what the noble Baroness, Lady Howe, said about the innovations that grow from very small voluntary seeds. Her reference to the National Association of Governors and Managers and pre-school playgroups struck a vivid chord with me because my own wife was deeply involved with the noble Baroness in those very early stages, and has since devoted her life to voluntary and charitable activity.

It is not only their time that people give to voluntary activity, there is a financial cost freely given by many because of the worthwhile and fulfilling nature of the work. There is no financial reward, very often the reverse. Bearing that in mind, too much bureaucracy can be a major disincentive. I echo all those who have already spoken in saying that the Government and the new Charities Commission must do everything to avoid it.

At this stage I want to make only four comments on the Bill. The first is about process and timing. I congratulate the Government on the exemplary way they have prepared this Bill. The Minister described all the various stages, so I do not need to repeat them. It does mean, however, that all the issues have had a lot of consideration, and most of them have already been ironed out. I cannot find a better model for approaching a Bill of this nature than the one the Government have pursued.

I wish I could say the same about the timing, however. To have the Second Reading after Christmas, bearing in mind—as everyone seems to be commenting—that we may well have an election this spring, gives us very little time indeed. I was heavily involved in the run-ups to the 1987 and 1992 elections, as a Cabinet Minister dealing with the legislative programme. I am therefore well aware of the tight constraints. Of course, we have to give the Bill proper scrutiny in this House, and various aspects have already been drawn to our attention. I very much agree with the noble Lord, Lord Shutt of Greetland, however, that we need to get on with it. This is the kind of Bill that, in the first Session of a new Parliament, finds itself crowded out because of the new governmment's need to get on with all sorts of important political Bills. For that reason, I want to see this Bill go through in this Session, if at all possible. I know from experience that it can be done, but it means that we must all have a clear idea of where we are going on the timetable. I hope that the Government can give us some indication of that.

The second point is about independent schools, to which the Minister and others have referred. I declare an interest as the deputy chairman of AGBIS, the Association of Governing Bodies of Independent Schools. I want to say a brief word—it can only be brief today—about the public benefit that the independent sector provides. There is first, of course, the educational benefit. This Government, building on various initiatives that the previous Conservative government took in relation to grant maintained schools, city colleges, technology colleges and so on, have tried to develop variety and choice in both the maintained and independent sector—particularly, of course, in the maintained sector. I wholly support all of that. The roles that the independent sector can play, however, help to enhance that variety and choice. Many of the educational innovations which have been taken up in general come from the independent sector. We are increasingly seeing partnerships between the independent and maintained sectors, which this Government are keen to pursue, as were we. There have been many developments, and the previous Secretary of State, Charles Clarke, who is himself a distinguished pupil of a distinguished independent school—Highgate School, of which my wife was a governor—has done much to promote that. This is encouraging from the educational point of view.

Then there is the wider participation. Today, nearly a third of all pupils at independent schools receive some financial assistance towards their fees. Forty per cent of all parents of pupils at independent schools did not go to independent schools themselves.

Finally, because I am being brief, there is the financial issue. We know now that about a third of all income to the charitable sector comes from government subsidies. In the independent sector, however, it is the other way round. The independent sector gains approximately £100 million from charitable status, through business rates and the tax relief associated with it. It gives over £300 million in bursaries, scholarships, grants and prizes—the vast proportion in help with fees to those who may not otherwise be able to afford it—widening participation in the sector. That is already a 3:1 benefit to the public sector. If you add to that the £2 billion in savings from the children in the independent sector not having to go to maintained schools, and the £200 million lost in irrecoverable VAT, there is something like a 25:1 benefit to the public sector from the work of the independent sector. So charitable status does not confer much financial benefit, but it is the recognition of public good, the difficult-to-define ethos and spirit, that matters.

My third point is the public benefit issue. I support the government position on that and the arguments have already been well rehearsed. It is clear that most charities, especially the NCVO, agree with the Government's position. I agree with the Minister that it is not practicable to try to obtain a clear definition on the face of the Bill that will last for all time. I have talked to charity lawyers and I know that there are differences of view, but some are experts who have spent much time trying to define something on the face of the Bill that would cover all the issues. They have found that impossible.

I agree with the Government's comments in their response to the Joint Committee about the social and economic changes that are taking place in society, to which my noble friend Lord Hodgson also referred, and the need for flexibility. That cannot be achieved by putting it on the face of the Bill. There will be many developments in the years ahead, not just for some of the sectors to which I have referred, but the whole of the charitable sector. Building on the present case law and leaving the matter to the guidance of the Charity Commission is the right approach, because, above all, if we insert something in haste towards the end of proceedings on the Bill, which, in a couple of years or so, we feel needs to be changed, it will be difficult to obtain the legislative slot for a short Bill to carry that through. There are always dozens of offers from each department in any legislative Session and a small change such as that might not be easy to achieve. So I agree with the Government's position.

My final point is in relation to the tribunal. I am a member of the House's Constitution Committee which recently published a report on the regulatory state, which was debated in this House just before Christmas. One of our major recommendations was an independent right of appeal in all regulation matters. The Higher Education Bill, passed in the previous Session, did not originally have that independent right of appeal against the decisions of OFFA—the Office for Fair Access. As a result of pressure in this House, the Government agreed to insert that in that Bill. I warmly welcome that—it is an important principle for all regulators and I am glad to see that it is in this Bill. But the advantages are obtained only if the process is speedy and cost-effective, which is, after all, the criticism of the present arrangements for going to the High Court. I hope that that will be very much borne in mind.

I shall end where I began. This Bill has all-party support, has already had substantial scrutiny and is not only welcomed but ardently and urgently wanted by those affected. I hope that we will take this opportunity to put it through now and not see it having to take its chances in later parliamentary Sessions.

2.53 p.m.

Lord Dahrendorf

My Lords, I begin by strongly supporting the points made by the noble Lord, Lord MacGregor, about the Bill being welcome and about the need, above all, to ensure that it will be enacted before this Parliament ends. It is also welcome that, after extensive scrutiny in a Joint Committee of both Houses, it should be introduced in your Lordships' House. Most Members of this House have an interest in charities. Many are trustees and quite a few chair trusts and boards or serve as patrons. Indeed, were the House to be abolished, or even turned into an elected Chamber, a great reservoir of responsibility for the voluntary and charitable sector would be lost.

My interest stems from the chairmanship of the Council for Charitable Support. It is an informal gathering of leading representatives of charities and voluntary organisations set up by CAF, the Charities Aid Foundation. Its first chairman was the late Lord Goodman. He was succeeded by the late Lord Whitelaw. I shall soon hand over to another Member of your Lordships' House.

In the years of my chairmanship of that council, I have been able to follow important developments, notably in the relationship between the charity sector and government. This relationship has grown ever closer in recent years. It was, therefore, no surprise when, in introducing the Bill, the Home Office press release stated: The voluntary and community sector is uniquely placed to become a more active partner with Government in shaping policy and delivery". All that is welcome, and yet it leads me to question whether it has, perhaps, become a little too much of a good thing. Does the embrace by government squeeze out some of the air of freedom which charities need to breathe? Is there even a sneaking doubt over whether the public benefit test in Clause 3 is either undesirably vague or equally undesirably exclusive?

I come to the subject from another angle than most. For me, a thriving civil society is the basis of a liberal order and a thriving civil society consists of a creative chaos of voluntary and essentially private activities by individuals and their associations. This is what some of us encouraged when we went to the post-communist countries after 1989 and set up foundations, publishing ventures, private colleges and much else. This is what many all over Europe and the wider world have always admired as they looked at the United States of America and also at this country.

In recent years, however, we have watched what I would call a growing functionalisation of civil society. When one hears that the health service is crucially dependent on large numbers of volunteers, or that the delivery of care services would be impossible without charities, and then considers a document like the compact to regulate relations between state and civil society, one begins to wonder. Is this still what we had in mind when we praised Britain's civil society? Or has the third sector become a semi-governmental sector of public life? I quote again the Home Office press release on the Bill. There are, it states, increasingly complementary roles that Government and the voluntary sector play in the development and deliver) of public services". For a long time, I was inclined to resist such a trend. But I am not Don Quixote. The windmills will grind on regardless. My more considered conclusion was, therefore, that we are in fact witnessing a split in the charity and voluntary sector, which sometimes runs right through the same organisations. On the one hand, there is a para-governmental third sector, which is independent in status, but part of the public sphere, notably when it comes to public services. On the other hand, there is still a truly non-governmental third sector. There are associations which make no contribution to government-led public policy. They are useless in the narrow terms of public benefit and yet they are the lifeblood of a free society. They range from brass, or even rock, bands to bridge clubs, from esoteric study groups to foundations with highly idiosyncratic and politically incorrect purposes. I remember the newly created MacArthur Foundation in the United States setting up a scheme of "genius fellowships", which provided large sums for the most gifted who were in no sense disadvantaged. Is that public benefit? Some such associations are just fun; others may even be a nuisance to some—they fit into no ready schema and neither want nor need a compact. Yet they deserve the same advantages that more functional charities enjoy. They certainly do not deserve to be disadvantaged in any way.

My friends in the third sector have tried to persuade me that whatever an association does, one can always construct a case for their "public benefit". Maybe so, but then the test begins to lose its meaning. Fortunately, the criteria of charitable purposes leave little doors open for associations which do not figure as internationally recognised NGOs. Above all, the Charity Commission continues to have a degree of discretion in what one might call the practical definition of charities.

Nevertheless I want to register a plea for charities, foundations and voluntary associations which neither endeavour to serve government-defined public purposes nor can be construed to do so. This country has managed to avoid becoming a state-dominated society. This distinguishes it from many of its European neighbours. A loose and generous regime for charities is part of the secret of Britain's civil society. The Bill will, I hope, leave enough space for keeping this great tradition alive.

3 p.m.

Baroness Byford

My Lords, it is a huge pleasure to follow the noble Lord, Lord Dahrendorf, in his very moving contribution. I am reminded that I made my maiden speech following a Wednesday afternoon debate which the noble Lord moved. That was looking at voluntary work in this century following the Deakin report. At that time he gave an equally succinct and impressive introduction to a well worthwhile debate.

Like other noble Lords, my interest in the Charities Bill arises because at an early age one was always encouraged to contribute to charitable causes and to give of one's time, too. Like others, that early upbringing has shaped my adult years and I have to declare that I am President of the Leicestershire Clubs for Young People and of Concordia, which places young people in work experience internationally.

In principle, I welcome this Bill and approve of its main aspirations. However, like other noble Lords I have concerns that we will debate at later stages. From 1961 to 1976 I was on the county staff of the Women's Royal Voluntary Service in Leicestershire. When my noble friend Lord Hodgson spoke in this debate, he reflected that back in those early years the work of voluntary organisations was not always so readily welcomed, not only by local authorities but also by those who worked within the union sphere. I am pleased to see that that has lessened over the years and there is a greater understanding of the benefits that voluntary organisations bring.

I particularly welcome this Bill because in some cases charities today are run, organised, sponsored and helped by some of us who might be described as slightly more mature in age. We are looking to this Bill to take us through the next 50 years. It is increasingly important that whatever arrangements the Bill brings forward, it encourages the aspirations of today's young people who have very different ones from those that we had 50 years ago. They are particularly motivated by small causes, small appeals, even one-off events. Their contribution may be in and out, unlike ourselves and our predecessors, who had a long-term understanding with voluntary organisations and charities. I am anxious to ensure that in particular we protect the smaller charities.

From the paperwork that supports the Bill, I see that the Government intend, in reforming the legal framework, to ensure that charities may, expand and modernise to create a more vibrant and diverse voluntary sector", something we welcome. However, that strikes me automatically as being a problem with the legislation.

It is clear the Government have attempted to keep the burden of transparency and accountability light. There is reference to consultation and to public perceptions and expectations. I would be interested to know from the Minister whether the responses received were analysed according to whether the respondent was a practising volunteer for one or more charities or whether it was from the professionals in that charity.

Like other noble Lords, I pay tribute to all those concerned with charities. Those who support raffles, tombolas, street collections and clattering tins. And also those to whom I referred earlier who give of their time to help others in a wide variety of activities. Their efforts are greatly appreciated by those they help and by those who have help in caring for others.

The noble Lord, Lord Shutt of Greetland, mentioned the three-month time limit within which the commission is to respond in writing to the larger unincorporated charities who have applied to spend capital. Like him, I am concerned by this. What penalty awaits the commission for non-achievement of that target? Based on current performance, I should not be surprised if the three-month timescale proves to be beyond them, certainly in the first couple of years. Will the Minister tell us how the commission is to be monitored and what sanctions will be available to the Secretary of State in the event of failure?

When I considered, the Bill following the horrendous events of 26 December, I wondered whether the appeal and the response of millions of people would have fallen within its remit. The appeal and its response still continues. The independent radio companies ran an appeal for money to help children orphaned by the tsunami. By 9 a.m. they had raised more than £500,000; by 2.30 p.m. that figure stood at more than £1.3 million. I wonder whether most of this money raised in the past three weeks would have been legal under this Bill.

Money from individuals and companies poured into the established international charities like Oxfam and the Red Cross. Shops, supermarkets and petrol stations began to put buckets by their tills. Most buckets were marked "Tsunami Appeal" with no small print. Village shops promised to donate a percentage of their takings on a particular day and then put up notices stating the amount raised. People queued in banks and building societies to transfer money to an account nominated by a company for the purpose.

In many places people collected soft toys and items of clothing to forward on to the charities which did not know they were going to receive them. There was no full-time statutory timetable prior to the appeal. No-one had to register the tsunami appeal but people gave millions anyway. Does a bucket sitting unattended beside the checkout counter fall within the remit of the Bill, or should there have been a Section 49 certificate and a Section 56 permit? If so, this is a very dire state.

Under this Bill, what would have been the legal position of banks and building societies? Their halls surely count as public places. What regulations would the many collectors of toys and other goods have contravened? In most cases there was no promoter. What happened was simply spontaneous but it was very far from local. Everything was being done to aid people on far shores and help to relieve the terrible suffering in the countries affected. I pay tribute to the wonderful response which shows how the British public react. However, in the same vein, would the annual Children In Need appeal fall foul of proposals within the Bill?

Sadly, natural disasters are likely to occur in the future. So how will the provisions of the Bill cope with, for example, a winter disaster in Europe which leaves hundreds of thousands of people homeless and without possessions? Will those willing to collect blankets, clothes or toys have to wait a prescribed time for their notification to the council to take effect? If Help the Aged decides to do door-to-door collections on behalf of the Red Cross, will it fall foul of the same rules?

A high proportion of village dwellers are well known to and trusted by their neighbours. When disaster, local, national or international, strikes, it is to them that the community turns for help, ideas and organisation. How will Clause 49 apply to them? Should they accept slips of paper recording name, address and value of donation in order that the receiving charity may reclaim the tax? Will they be liable for a level 5 fine under Clause 45? These seem trivial issues but it is very important that we get them right.

The core of this Bill is contained in Clause 60, page 59. It gives the Secretary of State the power to make all the regulations that will govern the operation of the Act. I suspect that many noble Lords' hearts sink, like mine, when a matter is left to regulation and the powers are given to a Secretary of State. Will those regulations allow for the sudden, unexpected occurrence that demands an urgent, multi-faceted, generous response, as we have seen recently?

The noble Lord, Lord Dahrendorf, touched on an immensely important matter. He talked of giving charities the freedom to work. The noble Lord, Lord Best, said that there must be flexibility within the system and I strongly support that. I accept that there has to be accountability but I think all noble Lords today are saying that that must be done with as light a touch as possible, whether it applies to a small charity or to a big NGO. At a later stage I may ask questions about the political lobbying of some NGOs.

I am sure that all noble Lords wish to see a Bill which is fair, proportionate and will constitute a humane new law for charities in the future. As I said at the beginning of my remarks, in general I welcome and support the Bill. However, I hope that during later stages improvements will be made to ensure that proportionate, fair and reasonable regulation is established.

3.12 p.m.

Baroness Howarth of Breckland

My Lords, as many other speakers have testified, the voluntary and community sector brings added value, innovation and specialist knowledge to the delivery of services across a very wide spectrum of people and concerns. It is a very powerful force for good in our society. But in order to inspire and keep public confidence we need proportionate, clear and well defined self-regulation and consistent standards of conduct.

After all, charities are a bridge between members of the public who want to give to causes, either directly or through their taxes, and recipients of programmes and services. As has been said, through their communications, services and campaigns, charities contribute to the education of the general public and therefore to our civil society.

I cannot remember when I first became a trustee and will not list the various trusts with which I have been involved. However, I need to declare an interest in those that influence my thinking at the present time. I declare an interest as president and trustee of the disability charity, John Grooms, as vice-chair of the Lucy Faithfull Foundation treating victims and perpetrators of child abuse and as chair of the Stop it Now campaign, as patron and trustee of Little Hearts Matter, a charity caring for children and families with complex heart development conditions, and as patron of the National Youth Advocacy Service. I was also chief executive of ChildLine and have experience of the sector as an executive as well as a non-executive member, and am now its vice-president.

That experience leads me, with others, to ask for clarity for charities that operate across the UK in different legal jurisdictions as that will add another layer of complication for those charities with broader responsibilities. I also chair Child Helplines International based in Amsterdam so have experience of a different jurisdiction. I suspect that the next Charities Bill—if it is as far ahead as this one in its outlook—will have a more global and international flavour.

As a trustee of several organisations I am enormously grateful to the Government for the power to apply to the Charity Commission for relief from personal liability in appropriate circumstances. Most trustees act honestly and reasonably but things can go wrong and if people are to take on the responsibility of being a trustee, particularly in innovative organisations where risk is involved, they must feel safe, unless, of course, they have acted unreasonably or fraudulently—something rare in the sector. I also welcome the provisions that enable charities to become charitable incorporated organisations and put an end to the odd activity of dual decisions. On several occasions I have found myself talking to myself within the space of half an hour. I have never thought that trustees should be paid, apart from in appropriate and defined areas as mentioned in the Bill. I hope that those arguments have been laid to rest.

So like others I welcome this Bill, providing, as it does, a clear definition of what "charity" means and underlining that the fundamental test of charitable purposes will be public benefit. Like others, I believe that is enough. I look forward to hearing more about how the Charity Commission will carry out its programme of public character checks to ensure just that, how it will define areas outside the presumption and how it will engage the public and charities on this subject. No doubt there will be other areas to be clarified. Along with the Law Society I am unclear whether amateur sport defined by physical skill and exertion excludes chess and bowling. The bowling club is a central part of my local village.

I believe that the new leadership in the Charity Commission will bring change. Having been involved recently, with the noble Baroness, Lady Pitkeathley, in working with an organisation that had had considerable difficulties, I know how important it is that new leadership trying to bring change is encouraged and is not subjected to constant criticism although, of course, we have to keep them under scrutiny.

Over the years many charities have benefited from advice and help from the Charity Commission in its previous form. While welcoming the reform of the commission and recognising that determining public benefit, registering charities and acting as the regulator may seem to some to be in conflict with the giving of advice, many modern regulators in other fields consider that it goes hand in hand with gathering evidence of good practice and sharing knowledge. I understand that the commission will offer guidance, but will it continue also to offer individual advice to charities and, if not, what will replace it? Many charities have sat with the commission and hammered out details and difficulties which would otherwise have been done with the enormous cost involved in employing lawyers.

Independent appeals mechanisms are now part of most regulatory bodies and the sector will welcome the new charity tribunal making it easier for charities to challenge the commission's legal decisions. I know that there are those who lobby for a "suitors' fund", provided by government to enable important cases to be taken to the High Court. I assume that we shall hear more on that matter. I will be interested to hear the Minister's view on this concern, and from those who press for it, regarding the criteria for "important cases". On the one hand it would be a pity if charities went to a higher appeal every time they failed in a case, but on the other hand it might lack justice if cases of principle could not be tested in the courts. I clearly have not made up my mind and look forward to hearing the arguments.

Like the noble Lord, Lord Dubs, I am concerned whether campaigning issues have been resolved and whether the balance is now clear between charity objectives and campaigning for policy change. There is guidance but will this withstand changing times? Can it be easily revised where a government department is discomforted by a particular campaign? Indeed, as a good deal of the detail of the Bill will be provided by regulations from either the Charity Commission or the Home Office, will the Minister assure the House that these will in no way undermine the understanding and expectation of the legislation when it is implemented?

In conclusion, perhaps I may stray a little outside the brief of the Bill—after all, others have done so. The Bill ensures that more information will be available about charities. They will be more accountable, more transparent and their outcomes more open to scrutiny. All this is positive for the recipients of services and the general public who support the causes. Charities will benefit from closer scrutiny by a strengthening of reputation, so long as it is proportionate.

Many depend on central or local government grants for payments for their future and have cause to be grateful to their sponsors for helping them to provide for their service users. But on occasion, this can be impeded by inconsistency of approach, late payments, unexplained funding decisions and inadequate commissioning, as outlined in the report published recently on the compact of relations between government and the voluntary and community sectors.

Although the conclusion of that report concentrated on the strength of the relationship and how far work had progressed, issues of proportionality in auditing and monitoring requirements and notice and uncertainties about financial requirements continue. Will the Charity Commissioners have the capacity to comment on this and see how it influences the effectiveness of charities? How will the Charity Commission relate to and work with other regulators, such as the Audit Commission, in taking a strategic overview of how the charitable sector is moving forward?

This is a positive Bill. Partnerships between government and the voluntary sector are, on the whole, good and mature, as illustrated by the compact. Like the noble Lord, Lord MacGregor, I hope that we will all work to make sure that this Bill reaches the statute book. Indeed, while taking a good look through scrutiny, I hope in his words that we will get on with it.

3.21 p.m.

Lord Swinfen

My Lords, like other noble Lords I, too, have interests to declare in relation to this Bill. While the noble Baroness, Lady Howarth, was trustee of the John Grooms Housing Association for disabled people, I was one of her employees. Although I have not had anything to do with it for several years now, I was with it for some 15 years. I am currently an adviser to the Leonard Cheshire Centre of Conflict Recovery and some years ago my wife and I set up the Swinfen Charitable Trust, which we both still run. That sets up telemedical links to hospitals in the developing world in post-conflict situations, to provide them with free medical consultants' advice.

I think I am the only noble Lord taking part in this debate who took part in the proceedings on the Charities Act 1992. At the time the Bill had its Second Reading it was obvious that the Government's advisers—from both the Charity Commission and the Home Office—had not the faintest idea how charities raised their funds. The Bill had been drafted in such a way as to make it virtually impossible for charities to continue fundraising. As we were leaving the Chamber at the end of the Second Reading, I had the opportunity to speak to my noble friend Lord Ferrers, who was the Minister taking the Bill through the House. I suggested that I put his advisers in touch with what was then the Institute of Charity Fundraising Managers, which over the Christmas Recess would be quite willing to teach them fundraising. He was happy provided that his officials were too, which they were. Lo and behold, when we came back late in January to the Committee stage of the Bill, the government had put down most of the amendments that the charity sector wanted—because they now understood their position and how charities worked.

I wonder whether the Charity Commission and the Government's advisers have learnt how charities really work since then. Can the Minister assure the House that his advisers now have a much better knowledge of charities and how they work than they did some 12 years ago? Charities are much more varied than industry or commerce. Selling eggs is a little different from selling cars, but not much different as you are selling something. Charities have a much wider remit, doing a great many more interesting and unusual things in moving society forward.

I agree wholeheartedly with my noble friend Lord Sainsbury of Preston Candover and the noble Lord, Lord Phillips of Sudbury, that we need a statutory obligation on the Charity Commission to use its powers proportionately, fairly and reasonably. The Government, I know, have rejected that. But they are all in favour of putting up reminder speed limit signs on the roads. When you are on a road with a 30 miles per hour speed limit—or a limit of 40 or 50 miles per hour—at regular intervals along the road a smaller sign reminds you of the speed above which you should not be travelling. The same applies to the Charity Commission. It would do the Charity Commission no harm for that to be in the Bill. I am sure it would be beneficial.

I want to move on now to the position of the Charity Commission in appointing receivers, managers and consultants. At present the commission can, with a complete lack of accountability, select, appoint, direct and control receivers, managers and other consultants. If the commission were forced to pay for such appointments, instead of the charities which are often the unwilling recipients of them, many of the most serious abuses relating to the lengthy, expensive and sometimes unnecessary appointments would cease. I wonder whether it is either a legal or proper use of charitable funds when these advisory people are paid, bearing in mind that if a donor makes a gift to a charity for a particular purpose and the charity is not going to use it for that particular purpose, the donor has the right to have the gift returned.

I have an example with me. I understand that in September 2003 the Charity Commission criticised the Cancer Care Foundation for not distributing enough of its income to the hospices it supports—and consequently appointed a very expensive firm, PricewaterhouseCoopers, as receiver and manager. Since their appointment, I am told the consultants have charged at least £325,000 to the Cancer Care Foundation up to May 2004, plus £300,000 to the charitys trading company, Caring Together. As both these administrations are continuing, the total fees charged to the charity and its trading companies are likely to be over £1 million.

What is more, I understand that since the appointment of PricewaterhouseCoopers the hospices supported by Cancer Care Foundation have not received any donations at all. Yet the charitys donors continue to donate funds in the belief that these are being used for the hospices. In the autumn of 2004, Cancer Care Foundation was holding donated funds of some £800,000. Was that being held back to pay the receivers and managers? Can the Minister say whether that is a wise use of charitable resources and to what extent the Charity Commission is protecting, as is its duty, the assets of that charity?

The charity appeals system needs to be robust and accessible. It should include powers to award compensation for financial loss to charities where they have been abused by the commission. I understand that the Government have already rejected this recommendation by the Joint Committee because they prefer complaints to remain with the independent complaints reviewer and the Parliamentary Ombudsman.

The ICRs contract allows her only to recommend, but not to award, consolatory payments—not compensation for financial loss—and only to a limit of £5,000. It is clear that the Government's response to the Joint Committees recommendation entirely misunderstands the point that the ICR cannot award or recommend full or any compensation for financial loss.

In paragraph 24 of their response they say: In the Governments view compensation should be payable where the Commissions standards of conduct or service fall below acceptable levels and cause a loss to a person or organisation. These matters will not be within the remit of the Tribunal, remaining instead within the remit of the Independent Complaints Reviewer and the Parliamentary Ombudsman. For that reason the Government does not believe it appropriate to give the Tribunal power to award compensation". Clearly, the Government accept the principle of compensation for financial loss, but are suffering from the illusion that the ICR has the power to award it. In any case, one must question whether the Independent Complaints Reviewer is sufficiently independent to make such awards. After all, she is appointed by, paid by and her terms of reference are set by the Charity Commission.

Where the ICR lacks adequate powers and independence, the Parliamentary Ombudsman has ruled that he will not consider trustee complaints about the commission's conduct or decisions on grounds that there is a right of an appeal to the High Court. But there are many obstacles facing a trustee considering making such an appeal. There are technical obstacles, such as needing the commissions permission, financial obstacles as there is no legal aid, and perhaps most importantly, there are significant legal obstacles. The commission is represented by the Attorney-General and previously the court has refused to examine the commissions behaviour, even though it recognised that that was the issue in the Little Gidding Trust case.

The idea that the ombudsman deals with abused charities and trustees is a fiction, and the idea that charities and their trustees can access a reluctant High Court first is a fantasy. The High Court might as well be on the moon for all its accessibility to trustees.

In short, the present system that the Minister favours does not work, and the Minister seriously misunderstands the present system regarding the power of the ICR and the accessibility of the ombudsman. It is vital to the integrity of the commission that the tribunal has power to award compensation commensurate with the financial losses to charities, trustees and others when the commission has got it wrong. Only this will produce the necessary internal motivation which will improve the commission's behaviour. No doubt we shall return to this and other matters at Committee stage.

3.32 p.m.

Baroness Pitkeathley

My Lords, my declarations of interest are as stated in the record, although I shall mention specific ones as I go through my remarks. Like many other noble Lords, I have worked in or closely with the charitable sector or, as it is fashionably called nowadays, the third sector, most of my working life and could not be more delighted to be here today at this Second Reading. It feels as though it has been a long wait.

I want, as others have done, to pay tribute to the Government for bringing this Bill forward; to the scrutiny committee for the truly excellent job it did in improving the draft Bill; and to all the charities and pressure groups, led by NCVO, which have campaigned tirelessly for its introduction. We shall, as is our custom, give the Bill a thorough going over and I have no doubt that some improvements will be made to it during its passage. However, I think it is important to state that even if the Bill left your Lordships' House in exactly the format in which we see it today, it would still do the job for which we have been campaigning for so long.

The other point that needs to be made is, as others have said, that it would be a great pity if a parliamentary timetable regarding an election caused the Bill to fall. It is in everyone's interest to get this Bill on the statute book and I hope all noble Lords will bear that in mind as we proceed.

Before I say anything specific about the Bill I want us to bear in mind that it does not stand alone. It sits in a constellation of other measures which this Government have taken to encourage, to modernise and to develop the third sector. That sector has long wanted to come to the negotiating table as an equal partner, and to have a less patronising relationship between the state and charities. Everyone agrees that the charitable sector is a good thing, but it cannot participate as fully as it would like, or be the force for societal change and improvement that it has the potential to be, if it is always seen as the poor relation constantly going cap-in-hand for money.

The cross-cutting review and the acevo commission of inquiry envisage the possibility and vision of the sector at the heart of delivery of public services, while the establishing of the Futurbuilders fund and its evaluation will show us how this can be done. I must declare an interest, as it has been announced today that I am to chair the Home Office advisory group which will evaluate the success of Futurbuilders. This is a decisive break from the concept of the third sector as an ancillary activity, which has as much interest in meeting the needs of its volunteers and trustees as the needs of disadvantaged groups and individuals.

Of course, there are risks in this change and some parts of the third sector are as resistant to change as anyone, fearing loss of independence and a curtailment of their lobbying pressure group role. I have no such fears, as I have sufficient experience of the determination and passion of those who work in the sector not to worry about that danger. Moreover, I have experience of leading a very successful lobbying organisation while in receipt of substantial government funds.

The voluntary sector has changed hugely in the past 20 years, but it has lacked a regulatory and legislative framework that encouraged, facilitated or even recognised those important changes. This Bill provides us with that framework.

I am delighted that the number of heads for charitable activity has been increased from four to 12 and that they now include human rights. I remember the great struggles I had to get caring recognised as a charitable activity and the hoops we had to go through to prove that carers were a proper category. Of course, the people whom they look after are a proper category, and the carers are probably, but not necessarily, poor. Are they concerned with education, religion, or the relief of poverty? It is a problem that the Bill will remedy.

I also believe that it is right for all charities to have to conform to the concept of public benefit. I am personally content with the Charity Commission making those decisions, although I know that there are anxieties about the strength and robustness of the concordat that has been reached between the Home Office and the commission.

Recently I have been in contact, through correspondence, with Geraldine Peacock the chair of the Charity Commission and have received ample reassurance. I quote to your Lordships her words: I just want to clarify that the commission will be robust in upholding and implementing the spirit of the concordat with the Home Office, indeed to the extent of removing charitable status from existing charities where necessary if in the light of removal of presumption they fail to meet the new public benefit test". That commitment was confirmed in the briefing sent out yesterday by the Charity Commission, which will have been received by many of your Lordships.

The redesign and re-empowerment of the Charity Commission also find favour with me. Like many people, I have not always had the happiest of dealings with the commission. There was far too much confusion between its regulatory and advisory roles and it used to be restrictive rather than flexible. Indeed, when I was trying to merge two charities in the 1980s—surely something that should be encouraged— I received several different sets of advice, most of which was, "It can't be done".

I am glad to see that the noble Lord, Lord Phillips of Sudbury, has just entered the Chamber. I want to mention my eternal gratitude to the noble Lord who, wearing his lawyer's hat, managed to find a way through the intricacies of the legal process, for which carers everywhere should be grateful to him.

I understand from charities which have recently been through a merger process that the current Charity Commission is now extremely helpful and facilitative. While I have every confidence in the new team at the Charity Commission—Geraldine Peacock and Andrew Hind, both of whom I have worked with over many years—safeguards cannot rest on personalities. I welcome the fact that the Bill sets out a new role for the commission so clearly and establishes an appeals process. I cannot see why the Charity Commission cannot also be subject to an independent review process. I would like the Minister's view on that.

Indeed, it is perfectly reasonable and common for many non-departmental public bodies to be subject to independent and external review and inspection. The non-departmental public body which I currently chair, CAFCAS, is subject to more inspection than one can possibly imagine, so I do not see why the Charity Commission could not be subject to it also. I understand that the leaders of the Charity Commission have no objection. I would be pleased to hear the Minister's views on that.

Having struggled myself with incorporation and seen many others spend far too much time and energy on it, I welcome the new legal form for charities, but would welcome a response from the Minister about the position of charities which are currently unincorporated or seeking incorporation. Will there be a cut-off point and what is the timetable proposed?

The changes proposed to trustee liability are extremely welcome to someone who was, I am sorry to say, one of the unfortunate original trustees of the Diana, Princess of Wales Memorial Fund.

In conclusion, there are two aspects of the third sector in our society which I believe the Bill has the opportunity to encourage. The first is volunteering—and here I declare another interest as president of Volunteering England. Will the Minister say how specifically he feels the Bill will encourage the volunteering to which we are all so committed?

The second is philanthropy and giving, as several noble Lords have mentioned. We have seen recently that British people are generous. How does the Minister feel that this willingness to give is specifically encouraged by the Bill?

This is an historic Bill. I wish it a helpful but above all speedy passage through your Lordships' House.

3.41 p.m.

Baroness Rawlings

My Lords, I support my noble friend Lord Hodgson in welcoming the Bill in principle. I am encouraged, too, by the Minister's introduction and that the Government are still willing to listen to ideas, especially as we have all received voluminous, concerned communications from the charitable and voluntary sectors. I am also grateful to the Joint Committee for all its detailed and constructive work.

This has been an extremely interesting debate, with so many of your Lordships deeply involved in the voluntary and charitable sectors. I should at this stage declare some interests—I would feel quite bereft if I did not have any after all the impressive lists that we have heard—despite the fact that we all have to declare these annually in writing.

First, I am most honoured to be president of the NCVO, especially as it has been such a moving light in the preparation of the Bill. All my adult life I have been involved with the British Red Cross, now as an honorary vice-president and formerly as an active voluntary member since the 1960s, and last but not least as chairman of the council of King's College, London. Time prevents me listing all my other charitable involvements that are important to me. However, they can be seen in the register of interests.

The Bill has been described as the most dramatic reform to charity law since the 1601 statute of Queen Elizabeth I, and indeed there are many welcome improvements. As we have heard, it will provide a legal and regulatory framework that accurately reflects the reality of what the modern charity sector does and how it does it. It creates an independent Charity Appeal Tribunal and widens the number of situations in which decisions of the Charity Commission can be appealed. That is very welcome, provided the cost of using the tribunal does not become prohibitive.

Before I turn to the Bill itself, there is one point that I would like to clarify. The voluntary sector is not simply a collective term for non-governmental organisations (NGOs), even though they form part of it. Many are highly professional and are staffed by paid officials assisted by volunteers. The voluntary sector is staffed by volunteers—people who do a job of some sort for nothing. I am not seeking to make a moral judgment but simply to draw a distinction.

The noble Lord, Lord Phillips of Sudbury, told us that very nearly half the British adult population— about 25 million people—are volunteers. They do essential work which would otherwise have to be done, and paid for, by the public or private sectors. The value of this is about .50 million, and they do it for nothing. So they benefit the economy enormously.

Who are these people? They cover a wide spectrum of activities. Let me give a few examples, by no means a comprehensive list: ambulance crews, paramedic staff at big public and sporting events such as the Red Cross and St John Ambulance; wardens at wildlife sanctuaries, the RSPB and others; auxiliary teachers and other helpers in schools; school governors and chancellors of universities; youth group leaders, scouts, guides, and so on; helpers at health clinics; fundraisers for local amenities; lifeboat crews; domiciliary care for the sick and elderly; judges, members of non-stipendiary magistrates courts; choirs and bell-ringers in parish churches; Samaritans, prison visitors, hospital visitors, and so on. The list is endless and eclectic. I am sure many of your Lordships are in there too, as we heard from my noble friend Lady Byford.

I, too, have spent most of my working life in the voluntary sector. Naturally I believe passionately in the importance of the charitable and voluntary sector and the public benefit, as mentioned by my noble friend Lord MacGregor of Pulham Market.

As my right honourable friend the Leader of the Opposition said in a speech in November 2003, Just because the State pays for services, it doesn't always have to provide them. Involving the voluntary or private sectors helps to drive up standards—benefiting everyone. Voluntary organisations are often more flexible and more responsive than the State. They tailor their services to the communities they work in". AS we have seen recently with the terrible tsunami disaster in Asia, people are generous if there is a major disaster, but they are less so when they feel it is a government responsibility.

However, there is cause for concern and I would like to make two points at this stage. Some areas within education and health are receiving less and less government support. Universities, schools and hospitals will in future have to find new methods of serious funding.

Keeping in mind the enormous importance of the higher education sector to this country, which I know even Her Majesty's Government recognise, I fear that we will face ever-growing cutbacks in funds in five or 10 years' time. The only route for survival will be spending more and more on financing from the private and charitable sector, often through endowments. Some key services will soon be in a very bad way if this is not remedied.

I am aware that over the past decade many new schemes have been devised to help charitable donations in relation to tax advantages. If we really want to encourage big donations we might well look further to the American model. Philanthropy is taken far more seriously than in this country.

This leads me to my last point, so ably developed by my noble friend Lord Sainsbury of Preston Candover in his eloquent speech, with which I fully agree. The Charity Commission and the Bill do not appear to distinguish between "charitable foundations" which give away their own money—£2.2 billion of it at the last count—and charities, large and small, which raise money from the public.

Surely the foundations need to meet only two tests: are the recipients of their donations proper charities, and are their expenses reasonable and legitimate? To impose on foundations, whether trusts or charitable companies, the full rigours of the Companies Act, accounting regulations and so on must increase their expenses to little benefit and considerable cost. Can a way not be found to reduce the legal and accountancy expenses that reduce rather than increase the funds available for charitable purposes? I repeat what my noble friend Lord Sainsbury said about the vital necessity of anonymity.

The need for a strong and independent regulatory body is clear, and indeed public support for charities is encouraged by the perception that stable regulation and monitoring is in place to detect fraud and abuse. This is even more important at this time, as we heard from my noble friend Lady Byford, when billions have been raised for the tsunami disaster. However, we must avoid the tendency to overregulate.

The NCVO and others remain concerned that the Bill expands the advisory role of the Charity Commission beyond that required for a modern regulator. Equally, the Bill requires the Charity Commission to report annually to the Secretary of State on its work, but for true accountability, and to remain truly independent, it should report directly to Parliament.

We have heard that the Bill does a lot to simplify and clarify legislation concerning the charity sector, and it is indeed long overdue. However, many important and legitimate issues raised by my noble friend Lord Hodgson and others on all sides of the House remain to be addressed. The noble Lord, Lord Dahrendorf, talked of a civil society. This reminded me of when I visited eastern and central Europe in the early 1990s, stressing exactly the thrust of what we have been discussing this afternoon.

A thriving voluntary sector is vital for the health of a nation and is the mortar that binds the building blocks of democracy. I look forward to going into further details at the next stages of the Bill.

3.52 p.m.

Lord Dholakia

My Lords, we now come to the concluding part of this very important debate. I thank the Minister for a very detailed explanation of the Bill. I also add my thanks to the noble Lord, Lord Hodgson of Astley Abbotts; his contribution was very constructive and focused.

There is a consensus about the Bill, and we will ensure that it has our general support. We should all work to ensure that it is on the statute book before the general election.

We also agree that the reforms proposed are long overdue. The Bill has received thorough scrutiny from the Joint Committee, and it is to the Government's credit that they have accepted a substantial number of the committee's recommendations.

Like other noble Lords, I should like to declare my interests. I am a trustee of a number of charitable organisations, stretching from penal reform to museums and art galleries. The list is contained in the Register of Members' Interests.

We certainly welcome the emphasis on the modernisation of fundraising regulations and the reform of the regulatory body, the Charity Commission. Your Lordships' House is in a unique position to scrutinise the Bill further. The noble Lord, Lord Dahrendorf, made a very important point. This is because many noble Lords undertake a lot of charitable work. There is a strong relationship between the voluntary and community charitable sector and many noble Lords in the Chamber. The letterheads of almost any charitable organisation show Members of the House of Lords to be identified with it. Their unique experience is reflected by the contribution all noble Lords have made to this debate.

The charitable sector is vast. We are told that the voluntary or not-for-profit sector is estimated to include more than half a million organisations, and almost the same number of people work in it. But it has required legally qualified people to keep them on the straight and narrow path of our charity laws. The legal expertise these lawyers offer is unique. I single out my noble friend Lord Phillips of Sudbury, who has done so much in his professional capacity to advise charities in this country. I knew him as a good charity lawyer before I discovered that he was a Liberal Democrat. I was not surprised—being good and being a Liberal Democrat go hand in hand. For that reason, we should listen carefully to what he and others have to say and see, even at this late hour, if amendments would improve the Bill. The Minister should not be surprised if we table probing amendments to ensure that we do not miss out on the opportunity of making the Bill even better.

Charity laws have been very difficult to interpret. My first experience of the Charity Commission and charity laws came in 1965, when I was instrumental in setting up race relations structures across the country. Working to promote good race relations at that time was not charitable. We had to disguise our objective; we had to revamp the constitution so that such activities were carried out under the guise of advancement of education. This was the time when Enoch Powell reigned supreme in the field of race relations. Can you imagine me, an Indo-Saxon, addressing a predominantly white meeting and telling them that I was there to advance their education?

I am delighted that Clause 2(2) includes a list referring to, the advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity". It would be helpful to include the definition of a religion, strongly advocated by my noble friend Lord Lester of Herne Hill. If the Minister were to respond to my noble friend's contribution, that would assist the debate in Committee.

We need to examine the Charity Commission in the context of its responsibilities and whether it has adequate staffing resources at appropriate levels to carry out its tasks. The point was made by the noble Lord, Lord Sainsbury of Preston Candover, and well advanced by the noble Lord, Lord Bhatia. We need to ask if the objective of public benefit and the need to promote awareness and understanding of this objective is attainable within the existing resources of the Charity Commission. We need to ask if the existing procedures of the Charity Commission are fair. We need to ensure that there is greater independence and appropriate scrutiny by Parliament in the work of the Charity Commission.

In essence, I very much subscribe to the view expressed by RNID: It is essential that charities law is modernised to create a clear and effective framework. It is vital to build public confidence and trust in charities and to ensure openness and accountability through effective regulation". A number of noble Lords have asked what is public benefit. The Bill does not define what is meant by public benefit. That is governed by existing case law. Each case has to be considered on its own merits. However, I understand that benefit is assessed in the light of modern conditions. Do these modern conditions take into account the political upheaval in various parts of the world? I understand that a charity ought not to be furthering the interest of any political party or securing or opposing any change in the law or in the policy decisions of central government or local authorities, whether in this country or abroad.

I do not believe that political purposes take into account the work of organisations in this country which confront dictatorial regimes abroad that cause poverty and damage to their own communities. That point was well made by the noble Lord, Lord Dubs, and supported by an example from my noble friend Lord Phillips of Sudbury.

I would have thought that it would have been a supreme charitable act to have a political strategy that could overthrow such regimes as that of Mugabe in Zimbabwe. I shall not pursue this point further, but suffice to say, each situation demands appropriate consideration about the charity status of such organisations. I very much hope that organisations such as Amnesty International, Justice and Liberty will now be able to claim charitable status, which was previously denied to them. In essence, human rights should now be included in the wider public interest.

Charities demonstrate the civilised values that we hold. The points on public collections have been partially addressed. However, we will have to wait for some time to evaluate the effectiveness of that position. My concern is that costs and practicalities may place a fair burden and that the situation ought to be monitored very carefully.

However, the position of the trading subsidiaries has not been adequately resolved. Its advantage over the private sector is not an issue because the trading subsidiaries effectively pass their profit to the main charity. I suspect that the Government have failed to grasp the unnecessary complexities involved with running trading subsidiaries.

This question was posed by the Joint Committee. Is it right that the Bill does not include the recommendation in the Strategy Unit consultation paper that charities should be allowed to trade as part of their normal activities without the need to set up a trading company? I am afraid that the Government have ducked that issue.

I was a trustee of the Save the Children Fund for some years. The current rules and guidance governing which transactions should be routed via trading subsidiaries are complex, inconsistent and very difficult for charities to get right. This is not the appropriate time to go into details, but perhaps I may write to the Minister so that adequate consideration can be given at further stages of the Bill.

Let me stress that the response to the Strategy Unit report stated that conducting trading activities within the text-exempt structure of charities would offend the principle of a level playing field with private sector business. The reality is that charity trustees ensure that charities maximise their incoming resources by arranging for trading subsidiaries to covenant or gift aid their profits to the charity to maximise totally the tax effectiveness. In reality, no extra tax benefit would be achieved by routing the transactions through the parent charity.

It should be no surprise that I disagree with the Minister on that point. However, I agree that this provision should be dealt with in the Finance Bill and not in this Bill. I do not believe that there are any compelling reasons to reject the Strategy Unit's recommendations.

Over the years, we have laid much emphasis on what good citizenship is all about. It is not what we take out for ourselves but what we put in to make things better for all our citizens. Charities perform that task usefully. The concept of giving to charitable organisations is deeply enshrined in our culture. The Bill will go a long way to improve existing law, based on a 400 year-old Elizabethan statute. This is one Bill where the voluntary sector has been at the forefront of reform. Let us ensure that we do not fail it.

4.3 p.m.

Baroness Seccombe

My Lords, this has been a characteristically high calibre debate today in your Lordships' House. Like other noble Lords, I wish to declare an interest, which I had until 2001. I was deputy chairman of the trustees of Nuffield Hospitals, which at that time was the fourth largest charity in the country. I align myself with my noble friends Lady Byford and Lady Rawlings as, of course, like them, I have done my share of fundraising and other charitable activity.

We are extremely fortunate to have among us so many noble Lords who have an unparalleled experience of the charitable sector. From the speeches that we have heard today, it is clear that the experience is broad and reflects the diversity of the sector. It is all too easy to think of charities being the NSPCCs and Cancer Researches of this world. In fact, the charitable sector embraces far more than that—from the small kitchen table-type charities to vast international organisations; and from foundation and grant-giving charities to those that raise money and receive grants.

We have heard today that there are 10,000 exempt charities and more than 100,000 excepted charities, which will for the first time be brought within the regulatory remit of the Charity Commission. Against that background, we must ensure that the Bill is proportionate, as agreed by so many noble Lords, and that the Charity Commission regulates equally, fairly and effectively for small charities, such as regimental army charities and church groups, as well as for Oxfam and the Red Cross.

As my noble friend Lord Hodgson said, we broadly welcome the Bill and its positive objective to maintain the current public confidence in charities with clear regulations, while updating charity law to keep the sector abreast with modern times. Enforcing clear regulation while supporting a culture of philanthropy can only be encouraged. While we are in agreement with the basic principles of the Bill, there are several issues in particular that we will wish to press and scrutinise.

Much of the Bill concerns regulation. Clear regulation is, of course, a must, but a degree of flexibility must be retained as we certainly do not want to constrain and stifle the sector, preventing growth that everyone wishes to see. Therefore, the Charity Commission is of paramount importance. We wish to see the commission avoid using a "one-size fits all" approach, which has been mentioned by so many noble Lords. The difference in charities in this sector is vast, as I mentioned earlier.

Under the terms of the Bill, the powers of the commission would be significantly increased. We wish to ensure that they are proportionately and reasonably used, as my noble friend Lord Sainsbury of Preston Candover so eloquently expressed. The guidance of the commission is also important, particularly whether it will distinguish between advice and regulation.

The issue of public benefit, mentioned by most noble Lords, is very important. We are happy to see that it remains undefined in statute and remains interpretable through common law. However, we will probe how far the Home Office is involved in the defining of public benefit, in particular whether the concordat on public benefit between the Home Office and the Charity Commission carries any weight.

That is perhaps the most controversial area of the Bill. We have heard today from many noble Lords who have serious concerns about what this means for our independent schools and hospitals. It is certainly an area where we will seek from the Minister some reassurance that the concordat will stand robust into the future.

There have been some concerns about the original difference of interpretation between the Home Office and the Charity Commission on this matter and we would like to be clear that the present compromise will not be subject to alteration. On this note, we will also probe the functions of the commission and the difficulties that might ensue with it performing on behalf of the Crown.

The new Charity Appeal Tribunal is also an area we will wish to probe. How broad will the remit of appeals be drawn? Will the tribunal be fully accessible, particularly to the smaller charities? The full details of the tribunal are not covered in the Bill as they are to be explained by further regulations, always a difficulty. We need to see these regulations so that we can give the tribunal the thorough scrutiny it demands.

The interaction of charities with the public is clearly of particular importance to us all and we will therefore look carefully at the details concerning public collections and fundraising in Part 3 of the Bill. To what degree will the public concerns over street fundraising and door-to-door fundraising be allayed? How big a burden will the extra costs of issuing permits and certificates be upon the Charity Commission and local boroughs? We must not forget the underlying necessities of funding and resources, both for the Charity Commission and local authorities, if they are to carry out their new powers granted under the Bill efficiently and effectively.

Other areas will need careful scrutiny. The consequences of the removal of charitable status have not been fully accounted for in this Bill and need further explaining. Similarly, the implications of mergers between charities need to be given a full airing. The function, practicality and expected popularity of the new form of charitable status, charitable incorporated organisations—CIOs, as no doubt they will be called—needs to be examined, discussed and fully reviewed. At the moment, the Bill gives us scant detail of the nature of these new CIOs.

The noble Baroness, Lady Scotland, told the House that the relevant documents had been published today, but so far the Printed Paper Office has no knowledge of them and there is no mention of them on the website.

We will also probe whether it might be prudent to loosen regulations in certain areas. If a charity wishes to trade, there is still a requirement to set up a subsidiary trading arm. Is this still entirely necessary? Charities have shown their competence in trading; need they suffer the rigmarole and extra costs of setting up a subsidiary body? Similarly, is trustee remuneration set at the right balance? Should it be loosened further or will such changes begin to blur the unique not-for-profit character of the third sector?

The Charities Bill is a rare opportunity for Parliament to ensure that the laws in this vital part of society are set at the right level. The sector has been anticipating the Bill for quite a while and we look forward to ensuring that the Bill is not rushed, is fully considered and meets the approval of the charitable sector and the public alike.

We have in this country a charitable sector of which we can and should be immensely proud. It has enjoyed great public confidence and has been widely admired internationally. We will endeavour while scrutinising the Bill to ensure that, in modernising and overhauling, the Bill does not prove detrimental to this good record and does not leave our charitable sector overburdened with regulation. We on these Benches, along with all noble Lords who have spoken, look forward to the next stage of the Bill when we can look at these issues in detail.

4.12 p.m.

Lord Bassam of Brighton

My Lords, it is with some considerable trepidation that I approach the Dispatch Box today having listened to in excess of four and a half hours of debate of the highest possible quality and calibre on a subject which is probably close to the heart of nearly every Member of your Lordships' House. Like everyone else, I ought to declare my interests and the interests of the noble Baroness, Lady Scotland, and say that all of our charitable concerns and interests are, of course, in the register.

As I listened to the many fine words that have been spoken during the course of the debate it occurred to me that I was brought up in the world of charities, non-voluntary organisations, the third sector and NGOs as a child, my mother being one of those doughty, redoubtable characters who was very much at the core of village life. We were involved in just about every village organisation and a number of charities as part of that commitment to civic activity. I guess that it is from those early years that I have learnt what I have learnt about the voluntary sector and its importance and its flexibility.

The debate has been characterised by its constructiveness. As a government Minister with experience of bringing foward and being involved in Bills for some five and a half years, I cannot remember a time when legislation that the Government have brought forward has attracted so much support from so many corners of your Lordships' House. The noble Lord, Lord Hodgson of Astley Abbotts, said that he welcomed it in principle. The noble Lord, Lord Shutt, said that he gave it a warm welcome. I think his expression was:the best-ever Bill before Parliament". The right reverend Prelate the Bishop of Southwell said the Bill was helpful in detail and he praised its flexibility. The noble Lord, Lord Phillips, who is an energetic critic of many government Bills, described it as a Bill without enemies and praised the consultative process that had got it to where it is. The noble Lord, Lord Dahrendorf, having given us a very interesting discourse about the importance of civic involvement and civic investment, gave the Bill a warm welcome. The noble Lord, Lord Hunt, said that he thought that we had got the architecture of the Bill about right. I welcomed particularly the endorsement we received from the noble Lord, Lord Best, who said the Bill buttressed the independence of the charitable and voluntary sector. My noble friend Lady Mcintosh said that it was necessary and timely.

A number of your Lordships referred to the Government's timeliness in bringing forward the Bill. I do not know when the general election is going to be; nobody else in your Lordships' House does either. Whenever it is, I am sure that, by that time, given the paeans we have heard for the Bill today, we will have passed it into law. I know how much that will be welcomed right across the charitable and voluntary sector.

In reflecting on some of the issues, it is valuable for us to understand how extensive the charitable sector is. Some figures were given during the debate. As we understand it, there are 190,000 registered charities. Twenty-five thousand of those are subsidiaries of other registered charities. In 2003, an additional 1,000 charities were registered in number, but. in total, some 6,200 charities were registered in that year. I am advised that the total annual income of registered charities is £32.5 billion—a massive enterprise. In terms of the efficiency of the regulator, the costs of the Charity Commission, as opposed to the total annual income of registered charities, amount to just 0.1 per cent of their overall income.

One thing that emerged powerfully in the debate was the breadth of charities, certainly with regard to size. There are about 500 charities with an annual income of £10 million or more, but, in contrast, there are 95,000 registered charities with an annual income which is below £10,000. They represent 50 per cent of the charitable sector.

So a vast range of charities is carrying out many and diverse activities, whether in the arts, culture or sport or providing services directly or indirectly to the public. Today's debate has touched on many of the issues that are covered in the Bill—and not covered in the Bill— which are going to be of concern. I guess that the core issues for your Lordships' House in considering the Bill will be the role and the independence of the Charity Commission; the definition of the public benefit test; whether we have got the balance right in regulation; and the development of the appeals tribunal. The noble Lord, Lord Lester, raised the important issue of the definition of religion and belief and its relationship to the public benefit test. An important issue, particularly for the noble Lord, Lord Dholakia, was that we deal with and consider further trading exemptions. He made a powerful plea on that. The noble Baroness, Lady Seccombe, asked whether the concordat would be robust enough to meet the challenges of that difficult relationship which exists between the state, in the form of the Home Office as a sponsoring department, and the Charity Commission.

I can tell from just that quick run-through of some of the issues that have been raised that we shall have an interesting and lively Committee stage. Peers on all Benches have offered to propose probing amendments in a constructive way. That is welcome, and I am sure that we shall try our best as a Government to respond intelligently and sensitively to the probing amendments that are tabled.

In that context, I welcomed the comments of the noble Lord, Lord Dahrendorf, about the appropriateness of the Bill starting in your Lordships' House, given the breadth of experience here on the charitable sector. The noble Lord is right and it bodes well for the Bill's consideration.

I have a massive sheaf of notes as a product of the debate. I shall try to work through the issues as best I can in turn. The noble Lord, Lord Hodgson of Astley Abbotts, asked early in the debate why the Government had not considered the consolidation of charitable statutes. I have inherently a great deal of sympathy for the issue, because like other lay people I find it irritating when I have to go in search all over the place for guidance on how the law works. I understand the frustration that people suffer when they have to do that.

This is a matter not for us but for the Law Commission: it is not a direct governmental issue. We have been in touch with the Law Commission about the feasibility of consolidating the charitable statutes, so it is being given fair consideration. The noble Lord, Lord Hodgson, also raised the regulatory approach to be adopted by the commission. The commission currently publishes guidance on its regulatory approach. It is based on the principles of risk and proportionality, which were referred to a number of times. No doubt that will continue.

The noble Lord also raised the need for early discussion of the regulations required for the Charity Appeal Tribunal and the way in which it is established. Those regulations will be for the Lord Chancellor to make, but their preparation will begin at an early stage and there will be full consultation on the draft regulations conducted, I trust, in the same spirit in which we have been consulting on the Bill's preparation as it has made its way into your Lordships' House following lengthy consideration and much pre-consultation.

The noble Lord, Lord Hodgson, also asked an interesting question about the development of the community interest companies and whether any had yet been established. The short answer is none so far, because none has been set up within the remit of Sections 60 and 63 of the Companies (Audit, Investigations and Community Enterprise) Act 2004, which was put on the statute book last year. I understand that 30 notices of intention to apply for CIC status have been received. Registration will be a relatively simple process that is expected to take about two weeks.

The noble Lord also asked about the current state of play with GuideStar UK. The best I can do is to advise him that GuideStar as an independent charity was awarded a £2.9 million grant from the Treasury as part of the Invest to Save Budget. It has been established to build a database of comprehensive information about the organisation, finance and activity of UK charities. The public will have free access to the database on a website due to be launched later this year. GuideStar is currently in discussion with the Home Office, the Charity Commission and the Treasury with a view to securing its long-term future. We will be making an announcement shortly.

The noble Lord, Lord Shutt, made a good point about the clause that often appears in Charity Commission letters, and made a plea for more user-friendliness in its approach. Like any responsible body, the Charity Commission has to clarify its position with regard to correspondence. I am sure that it will have heard his ardent plea today and I hope that it will take note. I am sure it will. Perhaps I can use my position at the Dispatch Box to encourage it to write to the noble Lord, perhaps without the three-month caveat on the bottom of the letter.

The noble Lord also asked about the relationship of Scottish charities operating in England with the law and how it will work. A charity has to register with the commission only if it is established in England and Wales, but Scottish charities that fundraise in England will have to comply with the fundraising regulations here, so they will be subject to that jurisdiction.

The right reverend Prelate the Bishop of Southwell raised the important issue of public benefit in relation to religious charities. As I understand it, the Charity Commission accepts that public benefit in religious charities is recognised as broadly based and diverse. The commission is willing to meet representatives of religious bodies, and does so on a continuous basis, to discuss the operation of the public benefit requirement. Clearly, those kinds of discussions will need to take place as the legislation comes closer and takes effect. Religious charities will be covered in the commission's guidance on public benefit, on which religious and other charities will have a full opportunity to comment through the consultation.

The noble Lord, Lord Dubs, raised some interesting points, in particular with regard to the campaigning nature of charities, which has given rise to concerns in the past. We propose no change to the law on campaigning by charities, and charities have not asked for or invited any change. The basic rule, which the Government believe is a good one, is that charities must not have political ends, but may use political means such as campaigning and lobbying, with which we are all familiar, to achieve charitable ends. As we all understand, a charity cannot support a political party. My guess is that on this issue attitudes in the commission have changed. The approach experienced some years ago by the noble Lord, Lord Dubs, is perhaps less likely to be adopted now. The noble Lord also asked about the operation of the Charity Appeal Tribunal. It is for charities, not the Charity Commission, to appeal to the tribunal. A charity that wants to resolve a dispute informally with the commission, as the noble Lord, Lord Dubs, was encouraging them to do, would not be compelled to use the tribunal approach, so that form of pre-tribunal mediation will be available.

I know that many noble Lords were interested in and engaged by the comments made by the noble Lord, Lord Sainsbury of Preston Candover. I listened carefully to what the noble Lord had to say, particularly his comments on the independence of the Charity Commission, and its status as a Crown body, which was referred to by a number of noble Lords who contributed to the debate, not least the noble Baroness, Lady Mcintosh. The fact that the commission staff are civil servants does not compromise its independence in any way. We greatly value that independence.

The commission is a non-ministerial department. The Bill allows Ministers to ask the commission for advice on regulatory matters, but that effectively is where Ministers' powers end. The Bill gives Ministers no power to direct or control the commission's decisions. The commission has, and will continue to have, complete operational independence in making decisions and exercising its powers in relation to charities. The Prime Minister's Strategy Unit report said that the commission should have access to government without being seen as part of government. We agree with that, and that principle of independence is right. By continuing the status of non-ministerial department, we can best achieve that and guarantee the Charity Commission's independence.

The noble Lord also raised issues relating to the competence and resourcing of the Charity Commission, and that theme was raised by a number of those who contributed to the debate. The Joint Committee recommended that professional advice be sought to review the ability of the commission to meet its enhanced responsibilities under the Bill. The Government agree that a review is necessary, and before the Joint Committee reported we had already sought a strategic review of the commission, which is to be concluded by July and will report to my right honourable friend the Chief Secretary to the Treasury. This review already benefits from the use of outside consultants and advisers, for example, in carrying out the stakeholder review. The Charity Commission has a new non-executive chair, Geraldine Peacock, and a new chief executive, Andrew Hind. New commissioners have been appointed, and when the Bill is enacted the number of commissioners will be increased to include more representatives of the voluntary and community sector. So the advice and support that it will bring by extending its range of membership will help to contribute towards ensuring that the professional advice and resource is greatly enhanced.

The noble Lord, Lord Sainsbury, also referred to the Better Regulation Task Force study. That is also a body which is independent of government and we cannot tell it what to review. But we welcome very much the task force's interest in the sector and how it is best regulated. It is free to review parts of the sector such as small and grant-making charities if it believes that there is a particular problem with potential over-regulation. It is important because as the noble Lord, Lord Sainsbury, made clear, overregulation is the kind of activity which could spell the death knell of many important, but small charities. That point was made very forcefully by many during the course of the debate.

The noble Lord also made reference, as did the noble Baroness, Lady Seccombe, to the dangers of the one-size-fits-all approach to regulation. I believe that we can all agree on that. I believe and argue that the Bill has moved away from that approach in the way in which it works.

The noble Lord, Lord Phillips, with his long experience as a lawyer involved with charities and charitable issues, added a very powerful commentary on the Bill. I greatly welcomed his wise support for it based on his experience. One of the issues which was raised by the noble Lord, and others, was the question of defining public benefit. The definition of public benefit and how it works will be set out in guidance, as I have said before. It will be fuller and clearer than what we believe are sometimes merely indicative criteria that are put in Bills. Putting indicative criteria in the Bill would in our view give only a partial indication of what public benefit is, which we believe could be confusing and, in some circumstances, even misleading.

We also believe that there is a further disadvantage and that is, as the noble Lord, Lord MacGregor, made clear, that the tendency to over-define on the face of legislation to squeeze out future problems, leaves one with a rather rigid approach. We do not want that. From what has been said in the Chamber today, that is not something which would be welcomed in general. We need flexibility because, as we know, the sector is extremely flexible in its operation.

The noble Lord also raised the issue of proportionality. The noble Lord and I have had arguments on that subject as regards many pieces of legislation. I certainly understand what the noble Lord means. The view has been expressed many times on this issue at the Dispatch Box, namely, that it is unnecessary to put proportionality into the Bill because the Charity Commission, like other public bodies, already has a duty in administrative law to use its powers fairly and reasonably. Therefore, we cannot see what extra benefit that would bring in legislating. The noble Baroness, Lady Howe, raised the issue of the burdens of regulation resulting from Charity Commission activity and accountability. I entirely agree with the noble Baroness on the need to keep new regulatory burdens to a minimum. I have made that clear during the course of my response to the points made. However, it is important that we have clarity in regulation and that the regulations exist so that the probity of the independent, voluntary and charitable sector can be properly protected.

The noble Lord, Lord Brooke of Sutton Mandeville, raised the important issue of rural preparatory schools, which was also referred to by a number of other speakers. Like all the other organisations seeking charitable status, they will have to demonstrate public benefit. That will be judged by taking into account all the factors in each case, and each case will be judged on its merits.

For example, it must be acknowledged that the social, geographic and economic circumstances of small rural schools are very different from those in large urban areas. No doubt that will work its way into the manner in which the definition and the test are applied.

The noble Lord, Lord Lester, raised the subject of the definition of religions. I have no doubt that we will spend some time in Committee on that, because he is dedicated to making sure that we get such things right as a government. To qualify as a religion under charity law, there has to be a belief in a supreme being and acts of worship of it. The supreme being does not have to be analogous to the Judeo-Christian concept of God. As the noble Lord knows, the common law definition of religion was most recently considered in the commissions decision on the Church of Scientology, which appears on its website. The commission has accepted Hindu, Buddhist and Islamic organisations as charitable orders in the current legal definition. That definition will no doubt be developed in case law and will evolve in time, taking into account the ECHR considerations as well as other important factors.

In his customary way, the noble Lord, Lord Best, made a very important contribution. His long experience in the charitable sector, particularly in housing, is well known and respected in this House. I can simply reinforce the point that I have made on a number of occasions—that we agree that independence from government is of paramount importance in the way in which we approach the Charity Commission and the consideration of the Bill. He was certainly right about the value of pre-legislative scrutiny; we have all benefited from that in considering the Bill today.

The noble Baroness, Lady Morgan, asked about criteria for judging whether fundraising and self-regulation were working. We welcome the support given to the self-regulation scheme. Work on that is well advanced, and a consultative paper is in development. It will cover the criteria with which my right honourable friend the Home Secretary will assess the success of self-regulation, which we expect to reflect and publish a document on in the very near future.

The noble Baroness also commented on fundraising chuggers. I can only endorse her observations that, although some people find chuggers irritating, they are very polite and well mannered, and are usually quite well trained in what they do. The directness of their approach is obviously very beneficial to charities. We have to ensure that the highest possible standards of conduct and good practice in fundraising apply, and I have no doubt that the Bill will assist in that development.

The noble Lord, Lord Hunt, gave notice of some very important questions with regard to the role of the principal regulator in the education sector. The issue has exercised several noble Lords. The Government have been in correspondence with Sir Howard Newby, the chief executive of HEFCE, and as I understand it a letter is to be dispatched on the points raised today.

It may be worth saying that the role of the principal regulator and its objective in relation to compliance with charity law is well understood. The Government have accepted the Joint Committees recommendation that that should be expressed in terms of promoting rather than increasing compliance. I am sure that the noble Lord will welcome that. Due to pressure of time, we were not able to amend the relevant provisions before the Bill was introduced, but it remains our intention to do so and suitable amendments will be brought forward during our discussions.

The noble Lord also questioned whether the effects of the Bill would be proportionate in terms of collections. I hope that they will be. In its general effect, the Bill is deregulatory so far as house-to-house collections are concerned. Organisations wishing to conduct those will require a public collection certificate issued by the Charity Commission. They will then need only to notify the relevant local authority to be able to conduct that collection. That seems a sensible and proportionate response to the issue.

There was concern generally about the charitable status of independent schools. The advancement of education has always been a charitable purpose, and will continue to be so under the Bill. Organisations that provide education—schools, colleges, et cetera— can qualify as charities if they are for public benefit. It is not our intention to interfere with the way in which that operates at present. We argue that the way it is going to be worked through in the legislation creates a level playing field. I hope that the assurances that have been received by the independent schools sector have been accepted. I know that they have been accepted, in the main, and it is not our intention to disturb effective and current working arrangements.

I have now spoken for nearly half an hour. I am happy to relieve your Lordships' House of my going on for much longer. I know you would like to listen to all of the points that have been covered during the course of the debate, but I will probably only do them a disservice if I try to pursue every last issue that has been raised. I am more than happy to cover, in correspondence, some of the points that I have not covered, although I have strived to cover as much as I possibly can.

I will look forward to working with all of those who have participated, and others who will no doubt wish to express their view in Committee. I welcome the constructive and comprehensive approach that all Members of your Lordships' House have adopted in bringing the Bill forward today. I beg to move.

On Question, Bill read a second time, and committed to a Grand Committee.