Charities Bill [HL]

My Lords, I am grateful to the noble Lord, Lord MacGregor, for bringing this amendment back after such a long gap. It has provided a useful opportunity for Members who took part in debates in Committee to re-examine it. I hope that my comments will be helpful and will offer some reassurance to the noble Lord, Lord MacGregor. As the noble Lord, Lord Phillips, said, this is a tricky area and the law of unintended consequences may well be at work if we interfere with a fair settlement of the legislative position. It will continue to be for the Charity Commission to ensure that organisations claiming charitable status satisfy the public benefit requirement as well as having purposes which are charitable. The commission—and the law—recognises that charities cover a diverse range of purposes. While every charity must be set up for the benefit of the public, the law does not adopt the same practical measures to assess public benefit in every type of case. This means that the ways in which public benefit can be demonstrated can differ for different charitable purposes, so there is flexibility. The commission will of course be under a statutory duty, in performing its functions, to have regard to the principles of better regulation; that is, the principles under which the regulatory activities must be proportionate, accountable, consistent, transparent and properly and effectively targeted. Its functions to which these principles apply include consulting on public benefit guidance and determining whether the public benefit that particular organisations deliver is enough to satisfy the public benefit requirement. There might, however, be some charities which the Charity Commission, in carrying out public benefit checks, finds are not meeting the public benefit requirements. That is what the amendment identifies and what the noble Lord, Lord Shutt, was thinking through in his contribution. The clear majorities of charities found not to be meeting the public benefit requirement would be likely to be capable of meeting that requirement if they changed the way they operated. We all understand that. The Charity Commission would, to the extent of its powers, facilitate the making of such changes by the charity’s trustees. But other charities—and a small number, we believe—might be, as it were, institutionally incapable of meeting the public benefit requirement however they sought to operate. It is these few cases with which the noble Lord, Lord MacGregor, is concerned. What happens to a charity’s assets if it ceases to be a charity? The current law is based on the notion that, once assets have entered the domain of charity, it is desirable to keep them there so that they can be used in perpetuity for charitable purposes. The rule that gives effect to this position is the cy-près rule and we have discussed that on a number of occasions. It allows the court or the Charity Commission to alter the purposes for which assets are held once those purposes have ceased to be charitable. In altering purposes in those circumstances, the court or the commission would ensure that the altered purposes were charitable ones very similar to the original ones that had ceased to be charitable. I stress ““very similar”” to reassure the noble Lord that the assets of an educational charity would always have to be used for educational purposes. Therefore it would have that necessary and important constraint. So in those few cases the Charity Commission could make a legal scheme changing the charity’s purposes in the way that I have described. The assets would remain within the realm of the charity, either in the hands of the same trustees or, if the scheme transferred the property to another charity, in the hands of different trustees. That would be the preferable outcome. The effect of the amendment of the noble Lord, Lord MacGregor, would, by contrast, be to remove the assets from the realm of charity, since a community interest company can—even if its purposes are wholly charitable and it meets the public benefit requirement—never be a charity. A community interest company does not receive the favourable tax treatment that a charity receives, so there would be a real financial disadvantage as well. It is for those reasons that we believe that the amendment of the noble Lord, Lord MacGregor, would be counter-productive. That is not to say that it has not been useful in enabling us to flesh out some of our thinking and raising some of the awkward issues that might arise if—