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Charities Bill [HL]

My Lords, I thank all noble Lords for their valuable contributions today and, in particular, I congratulate the noble Baroness, Lady Barker, for having ploughed through the Law Commission report and all associated documentation. I had naively hoped I might be able to get through all your Lordships’ points in my closing speech, but I feel quite a long letter coming on. I will write to your Lordships about anything I cannot cover in the next 20 minutes.

My noble friend Lord Hodgson, and the noble Lords, Lord Ponsonby and Lord Stevenson of Balmacara, all highlighted the importance of effective implementation and the need, in the words of the noble Lord, Lord Ponsonby, to “sort out the rules” and make sure they are clear. This is a really valuable point. We will publish an implementation plan before the Bill completes its passage and aim to prioritise the implementation of provisions that will most benefit the sector. There will be need for new or updated guidance from the Charity Commission, which will need to change some of its systems and processes to support the new measures. The Charity Commission recognises the importance of clear and straightforward guidance for trustees, and I commend the new five-minute guides for trustees to any of your Lordships who have not seen them. They have proved extremely popular in the last year.

The Law Commission’s recommendations relating to expanding the range of advisers qualified to advise charities on land transactions and the matters to be reported on in such advice will require secondary legislation subject to the negative procedure, which DCMS will take forward in 2022. Similarly, the requirement to review various financial thresholds in the Charities Act 2011, with the view to increase them in line with inflation, will also be taken forward by the department in 2022, also via regulations subject to the negative procedure.

I will deal next with the recommendations from the Law Commission that the Government did not accept, starting with the one raised by my noble friends Lord Hodgson and Lady Rawlings, the noble Baroness, Lady Barker, and others in relation to the role of the Attorney-General in references to the charity tribunal. I understand that my noble friend Lord Hodgson is unhappy that the Government did not accept this recommendation. However, the Attorney-General has an important and valued role as protector of charities, and it would be wrong to change this as a result of a single complex case, as cited in the case of the Royal Albert Hall. To put this in context: references to the tribunal are rare; there have only been two since it was set up in 2009.

My noble friend Lord Naseby, the noble Baroness, Lady Barker, and my noble friend Lord Hodgson also referred to recommendation 40, which suggests that

“it should be possible to obtain authorisation to pursue ‘charity proceedings’ … from either the court or the Charity Commission in circumstances where”

there may be a conflict of interest on behalf of the Charity Commission. The existing arrangements protect charity assets by preventing charity funds being wasted on litigation that is without merit and ensure that disputes are dealt with in the appropriate forum. The Charity Commission is concerned that allowing applicants to seek authorisation from the court directly would significantly weaken these protections because the court would not be expressly obliged to consider whether the dispute could be resolved by the commission.

In the small number of cases where a conflict arises, it should be dealt with in a more proportionate manner that does not risk losing the protections discussed above. For example, the Charity Commission could institute robust information barriers and ensure that the case officers and legal advisers who consider the Section 115 application are not in any way involved in the substantive claim.

I welcome my noble friend Lady Fraser of Craigmaddie and all her expertise. I look forward to picking her brains and discussing many of the issues in this area. She and the noble Baroness, Lady Hoey, talked about the territorial extent of the Bill. In particular, the noble Baroness, Lady Hoey, asked about the extent of Clause 24 and Schedule 1. Clause 24 makes amendments to, and repeals sections of, the Universities and College Estates Act 1925, which applies to named institutions in England and has UK-wide extent. Schedule 1 makes the changes necessary to remove redundant references to that Act from other legislation. Some of the provisions that are amended by Schedule 1 also extend to Scotland or to the UK.

I turn to permanent endowments, which were raised by the noble Viscount, Lord Chandos, and a number of your Lordships. The reforms to permanent endowment in the Bill maintain the core principle of such an endowment: that it is intended to be preserved in the long term. However, the reforms aim to give trustees the flexibility to achieve that aim by looking across the portfolio as a whole, as I explained in my opening remarks. The noble Viscount questioned how this would work in practice; I think he probed the example given in the Explanatory Notes of 50% of a charity’s endowment being put into a social investment where there would be an anticipated loss.

There are a number of ways that this will work in practice. First, it is worth being clear that trustees can decide not to use the power if it is not appropriate for them. Secondly, they can review the distribution ratio in their grant-making if they feel that the overall return from the portfolio might be reduced in financial terms but that the social impact would be enhanced in line with their mission. They might also be able to offset modest losses by maintaining an existing investment policy or, potentially, take on higher risk in the portfolio. I know that your Lordships are aware that charitable foundations will take varying degrees of risk with their assets. I accept that one would have to have a very conservative existing investment policy for the 50% example to work out in real life without having to take on significant additional risk.

The noble Viscount asked why this provision was included in the Bill. It was at the request of the Association of Charitable Foundations. He also asked

whether the Charity Commission would issue guidance that would include limits on the concentration of risk. The commission will consider the factors that trustees will need to have regard to in relation to their investments in this area.

The noble Baroness, Lady Goudie, asked about borrowing from a permanent endowment. Where charities borrow from their permanent endowment, they will have to report on their borrowing in accordance with their obligations under the statement of recommended practice. The Bill also includes provisions requiring the trustees to seek directions from the Charity Commission if they face difficulties repaying any borrowing. The noble Lord, Lord Ponsonby, also raised this.

My noble friend Lord Naseby asked whether there should be a fixed percentage that could be borrowed from a permanent endowment. I can confirm that the percentage is set out clearly in the Bill. Trustees can borrow up to 25% of the value of the fund, subject to a maximum repayment period of 20 years.

The noble Lord, Lord Stevenson of Balmacara, asked how these provisions would be monitored. He also asked about provisions relating to failed fundraising appeals. The department and the Charity Commission will do that monitoring. There is flexibility in the Bill to make changes by secondary legislation to financial thresholds to address any concerns.

Moving on from permanent endowments, the noble Baroness, Lady Goudie, asked about commercial fundraising partners. Several protections are already in place where charities engage with external commercial fundraising partners. They are designed to ensure transparency and were last updated in 2016.

The noble Baroness, Lady Hayman, and the noble Lord, Lord Ponsonby, asked about responsible investing. I can confirm that the Bill will have no impact on the Charity Commission’s guidance. It has been concerned with understanding how best to help charities invest responsibly. The consultation results are expected to be published later this summer. The commission is clear that trustees of all charities are free to decide whether to adopt responsible investment practices and trustees should have confidence that they can, under the current law, invest in a particular manner where they choose to do so.

The noble Baroness, Lady Hayman, asked about responsible investing and the role of the regulator in relation to net-zero obligations. Climate change is obviously a factor that trustees may take into consideration when investing. The law currently gives trustees broad discretion in this decision-making, but when trustees make decisions about responsible investing or any form of investing they need to balance the immediate and the longer-term needs of beneficiaries. The noble Baroness will be aware of things such as the UN principles for responsible investment, which have been adopted by many charitable foundations. They are creating quite a lot of information and helpful examples for trustees.

My noble friend Lady Fraser asked for examples relating to Clause 6. The Bill requires trustees to identify the donor, as my noble friend explained, which could be a single person or a group of people. There are cases in

law where multiple people are treated as one person—for example, a husband and wife can together be a single tenant under a lease. The Bill also requires the donation to be identified, and whether that includes or excludes fees will depend on the individual circumstances of the case. There is also flexibility to decide what steps should be taken to trace donors, so that could include additional steps to track down donors of large gifts. The requirement is “reasonable” steps, and that needs to be agreed with the Charity Commission.

The noble Baroness, Lady Greengross, made a good point about the need for checks and balances, particularly for fundraising appeals. However, the current law requires charities to contact donors to offer to return their donation. This can sometimes be disproportionate to the size of the individual donations. I hope she agrees that this change protects donors’ wishes while reducing administrative burdens.

The noble Lord, Lord Stevenson, asked for an example of how the ex gratia elements in the Bill would work in practice. For example, it could be that a testator has left money to a charity in their will and gave their solicitor instructions to leave some of the money to a family member instead, but died before the will was changed. Legally, the charity could and must take the money, but morally it might wish to make a payment to the family member.

The noble Baroness, Lady Prashar, and the noble Lord, Lord Stevenson, asked about sufficient resources and powers for the Charity Commission. Parliament strengthened the commission’s powers in the Charities (Protection and Social Investment) Act 2016. We published our review of that Act in March last year, which concluded that the powers were being used proportionately and effectively. The Charity Commission received additional funding in 2018 and in its 2019 and 2020 spending review settlements to reflect its increased caseload.

My noble friend Lady Rawlings, the noble Baroness, Lady Hoey, and I think the noble Lord, Lord Bilimoria, agreed with these principles about the importance of transparency. My noble friend Lady Rawlings also made important remarks about levels of executive remuneration. If I may, I will deal with those first. We recognise that executive remuneration in charities remains a public concern. The Government’s position is that charities should be transparent about executive remuneration so that members of the public can decide whether they want to support a charity. Currently, registered charities, apart from the very smallest, are legally required to provide details of the number of staff in pay bands over £60,000 in their annual return. This is now available on the Charity Commission’s register of charities, which is also available online. Some charities go further and publish full details of executive remuneration as a matter of good practice, following advice from the NCVO.

My noble friend raised issues about overheads and administration costs. I think some of the wider issues around transparency relate to the fact that we use “charity” to cover organisations made up only of volunteers with an income of just a few thousand pounds—or maybe even a few hundred pounds—a year, and we use the same term for charities that spend

hundreds of millions of pounds a year and are, for example, important delivery partners to government and local government. In some ways it is unhelpful that we do that.

However, I say to my noble friend and the noble Baroness, Lady Hoey, that some of the requirements for administration costs relate to requirements put on charities by their funders. I hold my hand up and put central and local government in that in terms of requirements for accountability and regulation to relation to safeguarding, but I take the points made by both noble Baronesses.

There were a number of other points, which I may need to cover in writing. The noble Lord, Lord Bhatia, asked whether I agreed that charities led by people from black and other minority communities are weak. I think he is right that many of those organisations have historically struggled to access funding. As part of the community match challenge, which my department did with a number of philanthropists and foundations, charities led by people of colour and other minority communities were prioritised in a number of funding streams. We are looking forward to hearing how that worked in practice.

My noble friends Lord Hodgson and Lady Rawlings and the noble Lord, Lord Stevenson, asked me to clarify whether we would be returning to some issues in Committee. I remind your Lordships that, as a Law

Commission Bill and with agreement from the usual channels because of its uncontroversial nature, the Bill follows the Special Public Bill Committee procedure. Amendments can therefore be proposed but the Government would resist any amendment that is not directly related to implementing the Law Commission’s recommendations. I genuinely welcome debate on issues covered in the Bill and any other issues that noble Lords wish to raise, and I would be delighted to meet any noble Lord separately to discuss issues which are outside the scope of the Law Commission’s recommendations.

As ever, I am out of time. In closing, I reiterate the purpose of the Bill: that the time and money spent by charities to unpick unduly burdensome and arbitrary processes should instead be channelled into their valuable work. We have a duty to shape legislation to work for those delivering such vital work, especially in unprecedented times when charities have been working tirelessly to help those in need. Many noble Lords have rightly celebrated the role that charities have played during the pandemic, and I echo their sentiments. I look forward to further detailed discussion on the Bill and the important changes it will bring that are much anticipated by the charities sector.