Unrevised

Oral Evidence

Taken before the Joint Committee

on Tuesday 25 November 2014

Members present:

Lord Hope of Craighead (Chairman)

Baroness Barker

Lord Hodgson of Astley Abbotts

Baroness Warwick of Undercliffe

Lord Watson of Invergowrie

Viscount Younger of Leckie

Mr Bernard Jenkin

Mrs Emma Lewell-Buck

Mark Menzies

Sarah Teather

________________

Examination of Witness

Witness: Sir Stuart Etherington, Chief Executive Officer, National Council for Voluntary Organisations, examined.

Q56 Chairman: Good afternoon, Sir Stuart. Thank you very much indeed for coming to give evidence to us this afternoon. I will explain for the sake of understanding that the proceedings are being webcast and also a transcript is being taken of the public part of the proceedings. You will be shown a copy of the transcript in due course. I would encourage you to look through it. If there are any errors or corrections you would like to make, please let the proper authorities know.

Sir Stuart Etherington: Thank you, Chairman.

Q57 Chairman: I will begin with a fairly general question, which is looking at the nature of the task we are seeking to perform. We are trying to establish the scale of the perceived problems that we are being asked to address. How widespread are they for the main regulatory charities and how widespread is the need for them to be addressed, reformed or corrected?

Sir Stuart Etherington: There is no evidence to suggest that abuse is widespread in the charity sector. Cases of deliberate wrongdoing in charities are quite rare. Often I think the majority of charities and trustees act in the best interests of charities and their beneficiaries. Most charities that find themselves in regulatory difficulties do so as a result of what might be termed honest incompetence rather than deliberate wrongdoing.

All the surveys show that levels of trust in the sector are still very high. There is an issue in relation to some isolated cases where abuse has occurred, and that needs to be addressed. That is why we are broadly supportive of increasing the powers available to the Commission, along the lines in the draft Bill. We want to ensure that those powers are applied appropriately and well. We need to look at the particular powers to ensure that there is not too much discretion for the Commission to operate those powers. That is the general thrust of the points that I would make to you.

Chairman: That is a very helpful start. Thank you very much.

Q58 Baroness Barker: Sir Stuart, your words were “honest incompetence rather than deliberate wrongdoing”. In view of your feeling, based on evidence that has been consistent over several years, do you think that the Commission does need new powers, or could it simply make better use of its existing powers and make its guidance clearer?

Sir Stuart Etherington: There are a lot of circumstances in which the Commission has not applied the powers that it has, but there are some useful areas where additional powers might be useful. I can go into detail later perhaps, or now if you wish. For example, the issue of being able to disqualify certain trustees is appropriate. They do not currently have that power. That is important, although I think it is important to examine in more detail exactly what it would involve.

In general, there is a need for some of the powers that are being sought. The issue for us is not the powers that are in this Bill. In the consultation we had some anxieties about the level of powers that were being sought. We still have some anxieties about the level of discretion in the powers that are being sought, but in general we think the powers that are in the Bill would be beneficial to the Commission.

Q59 Baroness Barker: It might be helpful if NCVO were to tell us which of the existing powers the Commission has that you feel are not being fully utilised. That is not a question that we have but is something you have just raised. That would be helpful. One of the things NCVO said in its submission was that you did not think that the examples cited in the consultation were very helpful, or were perhaps somewhat unusual—bad cases upon which to try to make law, I would say. Could you tell us a bit more about that?

Sir Stuart Etherington: Yes. Some of the case studies that the Commission put forward were of course fictitious; they made them up to illustrate particular points. They were not necessarily drawing on actual cases. I can pick out a couple where probably the existing powers would be appropriate, or other powers. For example, one was where they cited the fact that the trustees failed to carry out an action plan and call an AGM. In that case the trustees would of course be in breach of their legal obligation and would have refused to co-operate with the Charity Commission, so the Commission would not require further powers in relation to that, it seems to me.

The other is where they had a preventive power to stop charities taking further action—something we have some anxieties about. The example given is where a charity plans to give a platform to a speaker who is likely to incite racial or religious hatred. What the example really illustrates is the potential problem of the Commission being put under pressure to act in certain circumstances in which it may lack expertise when, for example, another authority such as the police is more suited to act but is failing to do so. Those are two examples where I do not think the position they are taking is justified.

Baroness Barker: Thank you very much. That is helpful.

Q60 Lord Hodgson of Astley Abbotts: I should say to the Committee that I was President of NCVO until two years ago. Obviously Stuart and I worked closely together for the preceding five years.

You expressed a view in your submission that the provisions for disqualifying trustees on the basis of past convictions are too broad. Could you give us a bit more detail on that? Is it the number of offences, or the type of offences? If there are any offences in the list in the Bill now, which ones should be omitted, if any?

Sir Stuart Etherington: We tried to structure the type of offences that might lead to automatic disqualification in our submission. We listed them under three headings. One was asset-based crimes such as dishonesty, deception, fraud and bribery that, if committed, would make an individual unfit to hold property on trust and would lead to automatic disqualification. We also had a category of offences that, although not directly related to an individual’s suitability, were probably so repugnant to society that they would disqualify someone from being a trustee. An example might be somebody who shows no remorse having committed a serious crime. Then, specifically, where the Commission would need to use judgment would be where a crime may be relevant to a particular charity’s objectives. It would not be a general power of disqualification. You could not imagine, for example, somebody who was involved in animal cruelty becoming a trustee of the RSPCA.

The other area of course is the issue of terrorist offences, which is where the Commission has been particularly keen. Obviously we are not in favour of convicted terrorists becoming charity trustees. That would clearly be absurd. The problem is not necessarily the Commission; it is the breadth of the counter-terrorism legislation. In fact you could be inadvertently involved and still convicted. Indeed, the independent reviewer of terrorism has pointed out some of the difficulties there would be in applying that strict rule to some NGOs operating in some of the most difficult areas of the world. It is a particular problem. We are in favour of disqualification of convicted terrorists, but there is an issue that requires review by the Home Office, the independent reviewer of terrorism and the Charity Commission to explore how the objectives of anti-terrorism law can be met without prejudicing the ability of NGOs to deliver humanitarian aid.

Q61 Chairman: Is one of the problems the definition of terrorism in statute? It is very broad.

Sir Stuart Etherington: Yes. I think it is more inadvertent. The independent reviewer indicated that when you are operating in very difficult areas and you are a humanitarian charity, you often take quite a lot of risks in relation to getting resources to where they need to be, and that could, in a sense, draw you into the remit of anti-terrorism legislation. It is a difficult one to crack and I do not envy this Committee trying to unpack it. It is just that we would not want to see a rigid application of that actually preventing humanitarian aid from getting to very difficult places. It is a difficult one to weigh up, but it might be worth the Committee just exploring a little bit more how you would define that.

Q62 Lord Hodgson of Astley Abbotts: Your concern was that some of these bases are too broad. I got No. 1 and No. 3 in your list, but offences that are so repugnant to society could be pretty broad.

Sir Stuart Etherington: It could.

Q63 Lord Hodgson of Astley Abbotts: What individually would we find repugnant? How would we get that into parliamentary statute?

Sir Stuart Etherington: It is a difficult one, because you have to create a little bit of discretion for the Commission, and some guidelines as to how you would do that. I was trying to think about it myself. If somebody had committed a heinous crime, had shown no remorse and was not involved in any rehabilitation attempts, would you really want that person to be the trustee of a charity? How you would define that is quite tricky. I think you would have to give some form of discretion to the Commission to do that.

Q64 Sarah Teather: I want to come back to the point you were making a minute ago about getting drawn into terrorism legislation, because I think that is really quite important, particularly with the large number of NGOs based in the UK that are attempting to get aid into all sorts of difficult areas in the middle east at the moment. I can see that being an increasing problem. Certainly charities have raised with me difficulties around accountability that put them in breach of this kind of issue. Could you be a bit more specific and give us some recommendations? You threw it back to us and said that it was a big job for the Committee, but from my perspective as a Committee member I would welcome your specifics about things we could look at and maybe explore with other people.

Sir Stuart Etherington: We have been doing some work with charities not just in terms of the regulatory environment but also in terms of their banking environment, which is where they have even greater concerns, because of the banking regulations. Sometimes charities have their banking facilities withdrawn with no reason given and that is very difficult for people. Ms Teather, it might be useful if we write to you on this matter to spell out the detail, rather than my trying to generate it here.

Q65 Baroness Warwick of Undercliffe: I should declare that I was a member of the board of trustees of NCVO for several years, so I have worked with Sir Stuart. I want to pursue the issue of the concerns of NCVO. One of them is the perceived politicisation of the Charity Commission. I gather you are conducting a review of the governance structures of the Commission. Do you think that the perceptions of the Commission have affected public confidence and therefore affected public trust in charities? Perhaps you could say how the Commission could be held accountable for the use of its regulatory role.

Sir Stuart Etherington: I am not laying anything at the door of this Commission or its commissioners or staff, who are doing a difficult job in difficult circumstances because their resources have been reduced. The issue is not so much to do with perceived politicisation; there might well be perceived politicisation that occurred under the last Commission as well. It is more to do with another debate that is running parallel to this debate, which is the future financing of the Commission, and whether or not it should in some way charge those it regulates. If that does happen, and I am sure there will be a consultation about that—it is not in the Bill but there will be a consultation—the nature of the appointment process will inevitably come to the fore, because the sector might well be asked to part-fund the regulator.

My own view is that if the sector is willing and able to finance a part of or the whole of the charity regulator, the appointment process needs to be outwith ministerial control, because there is a perception out there that it has been politicised—not necessarily to do with the current regime but generally. There are a number of ways forward. We are looking at the ways in which a number of other regulators are appointed—for example, the NAO, the Electoral Commission and others. It could well be that a way forward might be an appointment process based on a similar Committee to this—both Houses with an independent Cross-Bench peer involved. That would give some reassurance to the sector. That is not a matter in the Bill, but I think it is something that will inevitably follow from a debate about the financing of the Commission.

Q66 Baroness Warwick of Undercliffe: So this is really about the adequacy and the ability of the Commission to exercise its regulatory role in a way that you think appropriate?

Sir Stuart Etherington: I do not know that there is any evidence of political intervention in what the regulator is doing. I have certainly seen none of that involved. I think the perception could be improved if the appointment structure was no longer ministerial but perhaps was actually parliamentary.

Q67 Mrs Lewell-Buck: In answer to earlier questions you indicated support for preventing disqualified trustees from acting in a position of power in a charity. As you know, that has not been included in the draft Bill. If it was included, what kind of safeguards do you think would need to be in place? Who would hold the power of prevention? Would it be the Commission, courts or a tribunal?

Sir Stuart Etherington: It is not in the Bill. I am sure that the Commission will try to persuade you that they would like to bring it back. First, you have to be a bit more definitive about what a position of power actually is. It is a pretty vague term. Is it a trustee, the chief executive, the finance director—what is it? I think you need to be very clear about what it is.

The other thing is that the power should not lie with the Commission in those circumstances. It should lie with the courts or the tribunal. The wording of the proposal was taken directly from the Company Directors Disqualification Act, as I understand it. The regime and the safeguards contained in that should also be followed here. As I understand it, under that, disqualification is by order of the court and in most cases is subject to a maximum term, so there is a very clear constraint on the use of that power, which I think we would want to see should people want to reintroduce that notion.

Q68 Mrs Lewell-Buck: Pardon me, but I am not familiar with the legislation that you have just referred to. What are those safeguards, for my benefit, and perhaps the rest of the Committee?

Sir Stuart Etherington: The decision ultimately rests with the courts.

Q69 Mrs Lewell-Buck: That is the only safeguard that you are saying would be in place.

Sir Stuart Etherington: Yes, and I think it is time-limited.

Q70 Chairman: Could I follow up a bit on the procedure? Would it be feasible for the Commission itself to apply for the individual—let us assume that he is appointed to be a secretary or a director—to be removed? Somebody has to take the initiative.

Sir Stuart Etherington: Yes. I think it would be appropriate that the Commission applied for that.

Q71 Chairman: The court will not do it off its own bat; somebody has to present a case to it and it has to be intimated to the person concerned so that he or she can respond. The procedure would be of that kind, would it?

Sir Stuart Etherington: Yes, I think so. Obviously somebody would have to refer it, and I think the Commission would be in the best place to refer it.

Q72 Chairman: Have you any familiarity with that kind of procedure being adopted by other bodies?

Sir Stuart Etherington: No, I do not, but we can certainly have a look at that for you.

Q73 Chairman: Again, if you are writing us a letter perhaps you could give us some examples. That would be very helpful because one has to have some kind of structure.

Sir Stuart Etherington: I certainly will, Chair.

Q74 Lord Hodgson of Astley Abbotts: Do you think that in the real world the tribunal could ever operate fast enough? When these things are going wrong they are going quite quickly. If things do not happen quickly, you will be shutting the door after the horse has bolted. It is a question of how quick it is. Do you think the tribunal could ever be set up to operate at reasonable speed?

Sir Stuart Etherington: I think it could. There is no reason why it couldn’t. One of the issues with the tribunal is that, certainly initially, when the tribunal was referred to, it was almost like a court. There has been less formality in more recent cases and I see no reason why they could not do that.

Q75 Viscount Younger of Leckie: You said earlier that in most of the cases the Commission deals with they are in essence honest mistakes rather than deliberate misdeeds. Those were the expressions used. In your view, do you think more work is required to make clear the minimum requirements needed to be a trustee? Who should be responsible for that? Should it be the Commission or sector representatives like your good self?

Sir Stuart Etherington: It is a very good question. I am not in favour of having to have a formal qualification to be a trustee. It is a voluntary act and people engage in it. Most charities are tiny and they operate in communities. People put themselves forward voluntarily. I do not think the idea that they are going to have to be a registered trustee or something of that nature would work. However, it seems to me that there is a big capacity-building issue in relation to trusteeship. We have been at it for a long time. I would encourage people to go on courses, come to conferences and network with other trustees. We have a big programme in this area. It is an interesting programme; in passing, we do some work with banks, particularly Barclays, to identify senior managers who might want to be trustees. We train them in what it is like to be a trustee and what the voluntary sector is like and, through an organisation called Trustees Unlimited, we actually place them.

It seems to me that capacity-building mechanisms like that should be there. Historically, the Commission provides guidance in the form of documents and frequently asked questions, but it has been up to institutions within the sector itself to do this training and development. There is a magazine called Governance which helps. There are a lot of things out there. I would not go for a formal qualification, but probably investment in trustee development would be money well spent.

Q76 Viscount Younger of Leckie: That is very interesting. On the basis that there might not be a minimum qualification required—I can understand why you said that—do you think there could be a need to have character references? For example, if somebody did not have any professional background, and they were somebody who everyone thought was a good person, might a proposer or a seconder to become a trustee from, say, a solicitor be an idea?

Sir Stuart Etherington: It is possible. We wouldn’t necessarily be opposed to some way of endorsing a particular candidate, but we have to remember that there are hundreds of thousands of trustees. Most of them operate in tiny charities. Frankly, convincing people to become a trustee is difficult enough. The famous test is, “It will only be once a month,” which nobody ever believes. You have to balance the requirements against the desire to get volunteers to come forward.

Q77 Mark Menzies: The Charity Commission seems keen to revisit the consultation suggestion of a power to issue directions to charities without first having opened a statutory inquiry. Your organisation, NCVO, expressed reservations about the idea. Could you explain to the Committee a bit more about the proposal and what your thoughts are?

Sir Stuart Etherington: We are opposed to that suggestion. We think it gives too much discretion in terms of regulation. It is also a terribly important principle of charity regulation that the Commission does not interfere in the administration of a charity directly. If it was able to intervene without the safeguards around a statutory inquiry, that would be a bridge too far. They may tell you that it is very difficult and very onerous to open a statutory inquiry. I do not believe it is. I do not think it is that difficult. I think the existing powers are fine. If you opened it up to a situation where you could intervene at that level without the need for a statutory inquiry, you would remove some essential safeguards.

Q78 Chairman: Is there an alternative? I think the suggestion is there because it is thought there is a bit of a gap. Obviously the statutory inquiry is one thing, with its safeguards, but short of that is there anything that you might suggest?

Sir Stuart Etherington: They have a hierarchy of interventions now, so I am not quite sure what additional powers they are seeking in relation to this. It seems to me that that is one of the areas where it is pretty much covered anyway.

Q79 Sarah Teather: Do you support the intention of clause 6 of the draft Bill, which is consultation proposal 17, for the Commission to have the power to wind up a charity in certain circumstances? Are there enough safeguards applied for the use of that power? In particular, do you think that there are safeguards in place to ensure that a charity that perhaps was being difficult politically could not be wound up using those powers?

Sir Stuart Etherington: We welcome the fact that there is clarification that the new power will be limited to specific circumstances. That is one safeguard. We suggested that the test for this power should be an open inquiry so that people knew. The test for using the power appears to depend on the subjective view of the Commission that the charity does not operate, or that its purposes could be more effectively promoted if it were to cease to operate. I think that is a bit broad. It is not clear enough when it would be applied. We have argued that we want to see some more statutory guidance on how the power would be applied, and safeguards to address the concern. In summary, it is a power that is a bit too wide, and we would like to see more clarification on how the power would be used.

Q80 Sarah Teather: Can you be more specific? You have asked for more safeguards, but which safeguards? What would you want recommended?

Sir Stuart Etherington: It could be that, for example, the Commission decided that a particular campaign being run by a charity was not appropriate. I think they have existing powers to deal with that under their guidelines. They might, for example, decide to wind up a charity on that basis. I do not think they would, but they could if the power was drawn widely. We would like to see the basis on which this power would be used. I am not sure I understand why they need a power with such wide discretion. Is it that the charity is failing in some way? Is it failing to file its accounts properly? What are the particular circumstances that lead to a winding up?

Q81 Sarah Teather: You remain very unconvinced that they need this power. I just want to be clear that I have understood what you said.

Sir Stuart Etherington: Yes. I am not convinced that they need this power, and certainly not with this level of discretion.

Q82 Chairman: Is there a risk of political judgment coming in here— that if the use of the power was given to the Commission without closer regulation, it might be used because a charity was pursuing some object that was thought to be politically unacceptable?

Sir Stuart Etherington: It is always possible, and that is why I think we would want to see very clearly when such a power would be used. It is very clear already what charities can do in relation to political activities. For example, they cannot be partisan, and that is a very important principle of charity law.

Q83 Mr Jenkin: Another power is the formal power to issue warnings. Why do you oppose the Charity Commission having that power?

Sir Stuart Etherington: They can issue a warning currently, I think. They can say, “We are warning you that we want you to do X, Y and Z.” I do not think the power to issue official warnings adds a great deal of value. It is quite possible for them to do that anyway, to be frank with you.

Q84 Mr Jenkin: But it formalises something they already do and it means that they can issue warnings without them being statutory warnings. Wouldn’t that be quite helpful?

Sir Stuart Etherington: If they can do it anyway, why do they need a statutory power to do it?

Q85 Mr Jenkin: You need a distinction between a formal statutory warning and an informal one. If you want the Charity Commission to be able to operate informally without tangling itself in legal consequences for what it unintentionally did, “Oh, we have already issued a warning,” wouldn’t it be better to distinguish between an official warning and a non-official warning?

Sir Stuart Etherington: We could live with the idea of an official warning if we knew what the reasons for issuing it were.

Q86 Mr Jenkin: Generally, your presentation is about suspicion about the Charity Commission taking more powers, isn’t it?

Sir Stuart Etherington: Our submission is about ensuring that when those powers are applied people understand what those powers mean and what the constraints or limits of those powers are. That seems to me to be important.

Q87 Mr Jenkin: That wasn’t a no, was it?

Sir Stuart Etherington: Well, it wasn’t using the word “suspicious”. I am never suspicious of the Charity Commission.

Q88 Mr Jenkin: Why have you launched a review of the governance of the Charity Commission?

Sir Stuart Etherington: I go back to a point that I raised earlier. There is a debate out there about the financing of the Commission. It is one that we welcome. We have not formed a view, but we will be consulting widely with charities about any proposals that the Charity Commission puts forward. If you change the financing of the organisation, it seems to me that you might want to look at whether the governance of the Commission should be ministerial appointments.

Q89 Mr Jenkin: How certain are you that your conduct of a review of the Charity Commission falls within the remit of your own body?

Sir Stuart Etherington: Very clear.

Q90 Mr Jenkin: Can you explain under which bit of your remit it falls?

Sir Stuart Etherington: Education.

Q91 Mr Jenkin: Education?

Sir Stuart Etherington: Yes; educating the public about appropriate regulation.

Q92 Mr Jenkin: So this is not actually to review the Charity Commission at all; it is an exercise in educating the public.

Sir Stuart Etherington: No. Our position is that, as the representative body for charities, we can quite appropriately intervene to look at the governance of the regulator.

Q93 Mr Jenkin: Where in your remit does it say that you are representative of the charitable sector?

Sir Stuart Etherington: Well, we are. We have 11,000 charitable members.

Q94 Mr Jenkin: But where in your remit does it say that you can conduct a review? You have not explained where in your remit it actually says that.

Sir Stuart Etherington: Well, it does not say that we cannot do it.

Q95 Mr Jenkin: Fortunately, remits do not provide a blank cheque on the basis of what you omit. Where in your remit does it give you the power to conduct a review of the Charity Commission?

Sir Stuart Etherington: Will you give me some time to reflect on that?

Mr Jenkin: Yes, I will.

Sir Stuart Etherington: Thank you.

Q96 Chairman: Can I bring you back to the question that was originally asked: the difference between an informal and a formal power to issue warnings. I think the position is that the Charity Commission finds that a proportion of its informal notes of guidance are not responded to at all. Are you aware of that?

Sir Stuart Etherington: Yes. It is about 20% to 30%.

Q97 Chairman: Yes, that is the figure we have been given. That does suggest that the present regime is lacking teeth of some kind. It is really in that context that Mr Jenkin’s question began with the idea that there might be a distinction between a statutory power and the informal system. That might suggest that there may be cases where some statutory backing is helpful.

Sir Stuart Etherington: There may be cases where that is the case. I think we would like to know in what circumstances those cases would exist.

Q98 Lord Watson of Invergowrie: Sir Stuart, we heard last week in evidence from the Charity Commission itself that there has been a significant increase in its compliance powers, possibly as a result of criticism in the last 18 months or so. They have now made greater use of those powers. From the NCVO perspective, is this more proactive role something that you would support? Have you actually seen any evidence of it in the 18 months since it has been tracked?

Sir Stuart Etherington: Yes. The Commission has become a more active regulator. They have opened more statutory inquiries. They have been more on the case, as it were, and that is something we welcome. We have always felt that in prior years the Commission sometimes blurred the role between being an effective regulator and being a friend—if you like—of the sector. It is a difficult role to play but we welcome the fact that the Commission has focused more on regulation, as evidenced by its activities over the last few years. We think that is a good thing.

Q99 Lord Watson of Invergowrie: Is the view of the NCVO that the Commission is hampered by limited resources? Would it benefit from greater resources, or would it be the organisation’s view, as you say—I like the analogy: “The Commission can make sure charities aren’t skipping school…it’s our job to make sure they get good grades” by taking some of the Commission’s responsibilities away, or perhaps allowing them to retain the resources? Would that enable them to be more effective, in your view?

Sir Stuart Etherington: They have been badly cut over the last few years. The statutory income has gone down significantly. They need additional resources to do their job well. Where those resources come from, of course, is a matter for debate—whether it comes from the Treasury or from the sector itself—but I think they would benefit from a higher level of resource to do the job that we are asking them to do. Ultimately, good regulation acts for the benefit of the charity sector, because the Commission is there to act in the public interest. If it is under-resourced, it will not be able to effectively regulate the sector, which would be ultimately detrimental to public trust and confidence.

Q100 Baroness Warwick of Undercliffe: There are several bodies involved in the regulatory process. The NCVO has called for greater co-operation and data sharing between the Commission, HMRC and other bodies such as Companies House. Can you explain for our benefit what specifically you would like to see happen, what the benefits would be, and indeed if anything has yet been done?

Sir Stuart Etherington: This is a recommendation that has been made by a number of people over the years and very little has happened. We have called for greater co-operation in data sharing between the Commission, HMRC and other bodies such as Companies House. Charities are still required to register separately with both the Commission and HMRC for tax relief. There is no joint registration; the two processes are separate and in some ways different. As far as I can see, no progress has been made in relation to joint registration, which I think is important. I am sure it is not impossible to devise a joint registration form for HMRC and the Charity Commission. I think that needs to be addressed. I do not really understand why it has not been possible. Some people in this room made that recommendation fairly clearly and nothing has happened.

Q101 Baroness Warwick of Undercliffe: Is that the thing that you place most emphasis on in terms of data sharing and co-operation?

Sir Stuart Etherington: Yes, it is. You have these two systems, and I think it could be streamlined considerably.

Q102 Baroness Warwick of Undercliffe: I have a further question about data. What about the data the Commission itself produces? You have also said that it should be much more open in the way it shares data and in offering the opportunity to outside bodies to analyse it.

Sir Stuart Etherington: We are in discussions at the moment with the Commission and the Statistics Authority about the best way of doing that. The almanac that we produce, which is pretty much the definitive view of the state of the sector, is drawn from Charity Commission accounts. I think we could do more by sharing data about charities. I know that they want to put a lot of it into electronic form and that would be helpful.

Q103 Mr Jenkin: The Cup Trust saga put the Charity Commission very much in the frame. When they are not a tax collection body, they do not have the resources to audit a charity’s tax affairs. They are very much a receiving house for audited accounts rather than auditors themselves. Isn’t that the kind of data sharing between HMRC and the Charity Commission that would enable the Charity Commission to do its job, if it was able to subcontract suspicions it might have about tax affairs to HMRC? If they were able to share data, that would enable HMRC to do its job better.

Sir Stuart Etherington: I think that is true. If they were able to share information, it would make that a lot easier, yes.

Q104 Lord Hodgson of Astley Abbotts: I would like to go back to the workings of the Commission and the tribunal, and whether you think any of the powers in the draft Bill require changes to those processes, particularly schedule 6, which is a very long schedule about who can appeal when. There is a timetable that imposes huge restrictions on charities and makes the whole thing very clumsy. Would you like to give us your views on that?

Sir Stuart Etherington: I think the tribunal is a good thing. Being able to review decisions more easily than taking it more formally to the courts is a good thing. In its initial stages it became slightly more formalised than it needed to be, because everybody turned up with their QCs and the whole thing became not what it was intended to be. Any attempts to make it easier for individuals to appeal decisions in a less formal way would be good. I think this has happened to a certain extent more recently. I would encourage perhaps an easier relationship between the Commission and the appeal tribunal, and also making it slightly easier for people to take cases. At the moment it is still a bit difficult.

Q105 Lord Hodgson of Astley Abbotts: This is quite complex. Would you be able to tell us specifically what changes should be made? I get the thrust of what you are saying, but to go from the general to the particular is quite complex.

Sir Stuart Etherington: Can we come back to you on that point?

Lord Hodgson of Astley Abbotts: It would be helpful if you could come back with how this could be made more effective.

Sir Stuart Etherington: Yes.

Q106 Chairman: Thank you very much, Sir Stuart. We have given you a bit of homework. There are a number of questions to write to us about, but it would be extremely helpful if you could think about these matters and let us have your comments. Might I suggest within two weeks? Could you manage that?

Sir Stuart Etherington: Yes.

Chairman: Thank you very much indeed; we are most grateful.

Examination of Witnesses

Witnesses: Professor Debra Morris, School of Law and Social Justice, Liverpool University, and Professor Gareth Morgan, Professor of Charity Studies, Sheffield Hallam University, examined.

Q107 Chairman: Good afternoon, both Professors. It is very kind of you to come and give us the benefit of your evidence. You have had the advantage of hearing the previous witness. If you feel there are points you would like to make about the evidence you have heard, in response to some of the questions you are being asked, please take that advantage. One benefit of your hearing the evidence was exactly that: you were able to hear what was being said and are then able to comment on it. I will begin again with a general question. I would ask you in turn to identify the main problems relating to the charity sector from the regulatory point of view. Professor Morgan, perhaps you would like to begin.

Professor Morgan: Thank you very much, Lord Chairman. I should disclose an interest as a trustee of various charities. I have done research for the Commission and have some books in this field.

I would say that from my work across the whole remit of charity regulation we are in quite a problematic era. I referred to it in my written evidence to you as a crisis of charity regulation. I think it is quite a difficult time at the moment for charity regulation in England and Wales, because of three main factors. First, there is the under-resourcing of the Charity Commission, about which you have heard quite a lot. Secondly, there are problems with many existing powers that are already enacted in the 2006 Act but are still not yet fully implemented. Thirdly, the whole framework of excepted and exempt charities means that a very large number of charities in England and Wales are not even on the Charity Commission register, and therefore do not come under their direct ambit. Okay, the Commission has certain powers over them but they are not receiving regular communications or making regular returns to the Commission.

Q108 Chairman: We may come back to you on that very particular point. Professor Morris?

Professor Morris: As an independent observer I have researched the area of charity law and the laws as they relate to charities over many years; I have written many articles and been involved in many texts in this area. My view of the current situation is that a lot of the problems relate to perception of the regulation of the sector. First, there is the sector’s perception of the role of the Commission. Remember that the statutory objectives are wide- ranging; you have the obligation to increase public trust and confidence in charities, but also to promote the effective use of charitable resources and then to promote compliance by charity trustees. These do not always sit well together.

The Charity Commission has, in my view rightly, refocused its activities away from its role as friend to the charity sector and more towards its role as regulator. This message has been given loud and clear by the Commission. I was pleased to hear what Sir Stuart said just now, but my view is that the sector still looks to the Charity Commission to be its champion and advocate. As I say, this does not always sit well when the Commission speaks out in ways that are considered critical of the sector. That is one issue: the perception of the sector in relation to the Commission.

Secondly in relation to perception, there is the Commission’s own perception of its role. Whilst the message is being given that the focus is now on regulation, my observation is that it is taking the Commission itself a long time to take on board this message. The culture has always evidenced a reluctance to exercise its most rigorous powers against charities. The Commission itself is slowly moving towards this new role. We see this through the fact that it has largely been very reactive in terms of its regulation rather than proactive. It is good to hear that things are changing, but I suspect that it is going to take a long time to have full effect, and the current restructuring in terms of priorities may not go far enough. In terms of that reactive approach, clearly we can see that the Commission’s most rigorous interventions are often as a result of communication to the Commission from a member of the public or from media reports, and not from activities that the Commission has undertaken on its own behalf.

Finally in terms of perception, there is again the issue relating to the general public and their perception of charity. There is a worrying trend in a slight lowering of public trust and confidence in the sector. Although it still remains high, it has gone down slightly in recent years. Part of that relates to the problems that I have already suggested. Because of the Commission’s tendency to act in response to scandals or crises that come along, we only seem to hear about the Commission taking action when that happens, and we associate charity and the regulation of charity with negativity. Media pressure means that we often see a reaction from the Commission that can cause alarm within the sector generally. It can stir up discontent—particularly, for example, in the very few cases where terrorism-related concerns have been raised in the context of charities. There was one example yesterday. From reading the newspapers, one could get the impression that any money paid into any charity collection box was going straight towards the funding of terror. These perception issues are a major part of the regulatory concerns that we have in the sector.

Chairman: Thank you very much indeed. We will no doubt come back to those points bit by bit as we go along. Lord Hodgson, would you like to begin the detailed questions?

Q109 Lord Hodgson of Astley Abbotts: Before I ask my question I just need to tell the Committee that I wrote a favourable foreword to Professor Morgan’s book on CIOs—charitable incorporated organisations—which are very important as they give trustees of trusts limited liability without becoming a company. My question is this. Do you, on the one hand, think that the Commission has the right tools to deter, identify and tackle abuse, or do you agree with the NAO, the Extremism Task Force, the Home Affairs Select Committee and indeed the Commission itself that additional powers are needed?

Professor Morgan: Broadly speaking, I think the Commission has some fairly extensive powers under the 2011 Act; nevertheless I accept, as indicated by the consultation leading to this draft Bill, that there are some significant holes, as you drew out yourself, Lord Hodgson, in your review of the 2006 Act. I think there are some holes that need to be filled. But I have some slight questions on whether this is the top priority for charity legislation. I suggested in my written evidence that what has been proposed in the Bill is relatively minor in terms of tackling some of the problems in charity regulation. Nevertheless, I accept that there are some holes in the Commission’s powers and for the most part I welcome the Bill as useful in filling them in, but I think there is much more that could be done to improve charity regulation.

Q110 Baroness Warwick of Undercliffe: We have obviously been looking at trying to get a balanced view of the extent of the problem. We have had the recent reports of the NAO, the PAC and the PASC focusing on the Commission’s lack of effectiveness as a regulator. Do you consider, on the evidence that you both have, that those concerns are justified?

Professor Morris: Can I just go back to the question before and then answer that one? Generally, the Commission does have the right tools but they need to be deployed more effectively. To come to your question, it goes back to my comments about the Commission’s reluctance in the past to take on its policing role to full effect. Some of this reluctance in recent years may well be due to the significant cuts in funding that the Commission has suffered, but at the same time much of it is down to the culture within the organisation, as I said already, of avoiding confrontation where possible and perhaps lacking somewhat in confidence in its own ability to regulate and to be very robust as and when needed in a small number of cases.

Some of that may be down to an unwarranted fear of being appealed to the Charity Tribunal, which is obviously a relatively new phenomenon and has only been in operation since 2006. In my view, as an independent observer, an appeal to the tribunal should not be seen as a disaster for the Charity Commission. One of the main objectives of setting up the tribunal included clarifying and developing the law. I would certainly welcome appeals to the tribunal so that issues get ironed out, and then we know how to proceed as we move forward. The Commission does a lot of work around other areas relating to registration and the provision of guidance and so on. That kind of work should also be taken into account when we look at its regulatory role.

Q111 Baroness Warwick of Undercliffe: Would you mind addressing that point, Professor Morgan, because it is quite interesting? If the PAC and others had looked at the guidance role in addition to the regulatory role, would they have developed a different picture?

Professor Morgan: Yes, that is an important point. The reports you highlighted were all focusing on the regulatory role of the Commission. The Commission has styled itself in recent years as “the independent regulator of charities”, but of course it is both the regulator and the registrar of charities. The registration function is incredibly important, and if the Commission were not there it would not be possible for new charities to be registered. In the case of the CIO form that was referred to, the Commission is actually the body which incorporates the charity. Those functions are crucial. Likewise, there is the whole role of giving statutory guidance on the public benefit requirement. It is absolutely essential under the 2006 Act for that requirement to be worked out. So there are a huge number of roles beyond the strict regulatory role which are extremely important in the Commission’s functions. The NAO report did go some way to showing how the Commission’s finances were spread across those different roles, but nevertheless a lot of the criticism has focused purely on the regulatory aspect.

Q112 Baroness Warwick of Undercliffe: Do you think the criticism was justified?

Professor Morgan: Not all of it; some of it, yes. Broadly speaking, I would agree with Debra on the cases where one would wish the Commission would exercise its powers where they have not done so. But I also think that a lot of the criticism failed to understand that wider role.

Q113 Mr Jenkin: On the one hand, you want the Charity Commission to be more robust in its regulatory role. On the other hand, you do not want it to have more powers in order that it can act more freely without fear of litigation. Then you say, litigation is fine; let it all go to the tribunal. Have you any idea how much it costs to go to the Charity Tribunal? At a time when resources are pressed, how can they be justified in getting more and more into litigation? One of the reasons why they have been cautious in their regulatory role is that they fear the cost of litigation sucking resources away from the other things that you want them to do. Wouldn’t it be better just to give them more straightforward powers?

Professor Morgan: I do not think either of us quite argued that position, if I may say so, Mr Jenkin.

Professor Morris: I think we need to be clear that we are not arguing that the Charity Commission does not need more powers or should not have more powers. In general terms, the powers that it is seeking seem to both of us—

Q114 Mr Jenkin: I am sorry, I misunderstood you. I do apologise.

Professor Morris: We were both in agreement that they are relatively minor useful additions to the Commission’s inventory of powers. We have specific concerns about a few little issues, but in general terms the increase in powers is not an issue.

Q115 Chairman: You are not criticising the Bill as it stands on that ground.

Professor Morris: No, not in general terms.

Professor Morgan: Broadly speaking, we are both welcoming the draft Bill. We are just saying that there are much bigger issues of charity regulation beyond those in the Bill.

Q116 Baroness Barker: I have listened to a number of the points you made. You both have long careers in this field. I was struck by the number of things you said that could have been said about the Commission at any time in the last 10 to 15 years, and indeed in some cases have been said about the Commission in the last 10 to 15 years. Do you think the process of the Commission focusing on its role as primarily a regulator has gone in parallel with some of the other bodies that do other pieces of work, like issuing guidance and support to charities generally? Is there a disconnect in the relationship between the Commission and the other bodies, including other statutory bodies like HMRC, which could do some of the things that are being attempted in this Bill, or not?

Professor Morgan: I don’t think there is a disconnect. On the whole I think there is a pretty good working relationship between the Commission and the various sector umbrella bodies. Of course, one has to bear in mind that every registered charity—I point out that it is the registered ones—has regular contact with the Commission. There is nothing to force a local charity to have anything to do with NCVO or any other kind of advisory group, but of course they have to have a relationship with the Commission if they are a registered charity. That means certain things can only reach all charities if they come through the Commission. Some of the guidance that the Commission has to issue are statutory requirements that it must issue, like the public benefit guidance that is required under the 2011 Act.

Professor Morris: I would reiterate that there are many small bodies—okay, they have to be over the registration limit—for whom the Charity Commission and its publications will still remain the main source of advice and information, despite the fact that there is encouragement from the Commission for entities to rely more on umbrella bodies. Not all small organisations are going to be part of those organisations.

Q117 Lord Hodgson of Astley Abbotts: I have one very quick follow-up to Professor Morris about the tribunal. You said that you thought the tribunal was meant to be informal and help pave the way to developing charity law. Leaving aside the first, do you think it has made any progress on the second at all?

Professor Morris: In developing charity law? Yes, I do.

Q118 Lord Hodgson of Astley Abbotts: When you write to us, can you possibly give us some examples of how you think that has happened?

Professor Morris: Absolutely, yes; I will.

Q119 Viscount Younger of Leckie: Professor Morris, I was quite interested in what you said about the lack of confidence to regulate, and about the culture. You made quite a big play, if I may put it that way, on those points relating to the Commission. How important do you think those two aspects are in relation to the issues? Am I right that that focuses on individuals really, rather than necessarily other types of resources?

Professor Morris: I am not sure if it is individuals or an institutional personality that the Commission has taken on over the years, and has carried on through the different iterations of the Commission, and with different people involved. Things are changing. We have seen evidence of that from the increased use of powers and so on, but it is in the very recent past that these changes have taken place so it is going to be some time before we see significant effects. I think that some of it is down to resources, because to make that shift, certainly in terms of being more proactive, is going to cost money.

Q120 Lord Watson of Invergowrie: Professor Morgan, you make it quite clear in your submission that you do not feel that the Bill addresses the main problems that you have identified in the sector. I was particularly struck by a comment that you made. You talked about the excepted and exempted charities. I have a two-pronged question. First, do you feel that they ought to come within the remit of the Commission? Secondly, you make a comment here which I would just quote. Apart from the excepted and exempted organisations you say, “there are many organisations which should be registered with the Commission but which have omitted to do so and it is extremely rare for such organisations to face any sanctions.” Could you say what some of these organisations are and what is your feeling as to why they are not being taken up by the Commission?

Professor Morgan: Just to clarify the point about excepted and exempt, excepted charities are subject to the Commission’s regulation, but they are not required to register with the Commission, and therefore they do not receive any kind of regular communication or make returns. Even exempt charities have some oversight from the Commission, but it is through other principal regulators. In both cases I think those arrangements are rather flawed, and I would argue for a system such as applies in Scotland, and is coming into effect in Northern Ireland, where for all charities you cannot call yourself a charity without being registered with the relevant registrar. I think it would improve charity regulation in England and Wales enormously if we could move towards that. The Charities Act 2006, now consolidated in the 2011 Act, includes quite extensive powers for Ministers to bring excepted charities on to the register and to remove certain categories of exempt charities. Those powers have only been used so far to a very limited extent.

On the question of the charities that should be registered but are not, as you highlight, it is an explicit duty in the 2011 Act for the trustees of any organisation with over £5,000 of income, which is established for charitable purposes and does not fall into the excepted or exempt category, to apply for registration. I have never come across a case of the Commission taking any action against anybody who has not done so, except in the case of an occasional very high-profile organisation that has come to a lot of public attention. There are misunderstandings around in the sector. It is part of the role of advice work to make sure that everybody setting up voluntary groups is challenged to think about this particular issue: “Are we a charity and should we be registered?”

There is also a role for funders. Quite a lot of small groups, for example, have gone over £5,000 income as a result of a grant from the Big Lottery Fund. At one time they were drawing this to people’s attention, but I do not think that has been happening recently.

Q121 Lord Watson of Invergowrie: In terms of what you identified as the shortfall in the Bill, you suggest that a Regulation of Charities Bill is really required, and you list five points. I will not list them but they are there for all members to see on page 5 of your submission. Do you feel that any of those might be incorporated in the Bill that we are considering at the moment when it eventually emerges as a full Bill?

Professor Morgan: I have two comments. First, I think a lot of the regulatory provisions in the 2011 Act are somewhat confusing. It might be clearer just to repeal them and have a complete new Act dealing with the regulation of charities.

The second issue, which I know is a more complicated legislative process, is more joining up between charity law and tax law on these issues, particularly between the roles of HMRC investigating charity tax abuses and the role of the Commission in investigating abuses of charitable assets. In the mind of the public the two issues are very similar and I think more joining up would be very helpful.

Q122 Lord Watson of Invergowrie: It would seem that you agree with the NCVO on that point. Professor Morris, do you agree with the position advanced by the NCVO that really it is their job to give advice and to be the champion for the sector, and not the job of the Commission; and that the Commission really should concentrate on its regulatory role?

Professor Morris: In the financial situation in which the Commission now finds itself—it is not going to improve to a great extent—they have to focus on their main role, which must be the regulation of the sector. My concern about an umbrella body, as I said, is that it does not reach out to all the organisations. Maybe it is the best that we can do in the situation. I would not like to see the Commission drop the advice role entirely. The publications that it produces are heavily relied on in the sector. In my view, the quality of those publications has increased tremendously over the years.

Again, it is an area where the Commission could be a little more robust in terms of giving clearer guidance and being less vague in some situations. That is not to say that they should overstep the mark and say, “These are legal requirements,” when they are not. That has been an issue in the past; there has been criticism of the Commission, and that it has suggested that certain things have to be done in a particular way, when it is clear that the law does not require that. When the law is clear or when there is agreed best practice in relation to an area, I think it is something the Commission should be promoting as strongly as it can.

Professor Morgan: Could I just add for the Committee’s benefit that we both agree that, although the Commission produces good publications, getting them out there is a real problem. Certainly there are all sorts of issues at the moment about the Commission’s website. The only regular communication with charities is a very brief Charity Commission News sent electronically. There are some real issues about getting this advice out there.

Q123 Chairman: Is that another resources problem?

Professor Morgan: Indeed.

Q124 Baroness Barker: The Bill proposes a new range of powers which are designed to do two things: strengthen the Commission and strengthen public trust and confidence in charities. To what extent do you think that the powers outlined in the Bill would do both of those things?

Professor Morris: Obviously the provisions will strengthen the regulatory powers of the Commission because they are adding powers to the powers that they already have. What will then have to happen in order to strengthen the regulation is that the Commission will have to use the powers and will have to use them in appropriate cases. That is going to require a more proactive approach. It might also require resources. I do not think it is just a case of giving the Commission powers. The Commission then has to use the powers.

In terms of bolstering public trust and confidence, there is an opportunity for that with the coming into effect of those powers. A lot will depend on the PR and the messaging that is given by the Commission. For example, if clear information is put out by the Commission that it has new powers to disqualify certain trustees, which most right-thinking people will think is the right approach, this would be a good message to send out: “This is the sort of power that the Commission now has. It did not have it before.” That can only have a positive effect on trust and confidence.

Professor Morgan: I am not quite as optimistic as Debra on that. Yes, these powers would strengthen the Commission, but whether they would have a big effect on public trust and confidence, I am not so sure. More resources to exercise its existing powers would have much more of an effect than just these small additional powers, although, yes, I think there will be a marginal benefit. But it will be marginal.

Q125 Viscount Younger of Leckie: Looking at the Bill as it is drafted, do you believe that it is going to achieve its policy objectives? If not, what changes do you both see as being necessary in order for it to be able to achieve its objectives, or indeed perhaps the Cabinet Office’s objectives?

Professor Morgan: It depends a little bit on what one conceives as the policy objectives of the Bill. We have read the Cabinet Office foreword to the publication document. In terms of the policy objective of remedying some specific holes in the Charity Commission’s powers, I think it is pretty effective. But in terms of the broader policy objective of strengthening the regulation of charities and public confidence in charities, I personally do not think that it is going to make a very big difference.

Professor Morris: I agree with what Professor Morgan said.

Q126 Chairman: Public confidence is a very elusive thing to achieve, isn’t it? Can you be a little more specific in your advice as to how it is to be done? Can you elaborate a bit on that?

Professor Morgan: There is a very important principle of charity law that the public should have confidence in charities. If someone does not feel, when they give a gift to charity, that they have reasonable confidence that it will be used for charitable purposes, the whole concept of charity breaks down. Whole reams of charity law, going back to 1601 and before, focus on that issue of protection of charitable assets and charitable gifts. We know from surveys that are done, as you heard in previous evidence, that the level of confidence in charities is fairly high compared with other institutions, but of course you get occasional scandals which can damage things quite severely. I have doubts whether this Bill would be enough to remedy the problems that exist, although, as I said, I basically welcome it as a small step forward.

Q127 Chairman: Is confidence in the Commission different from confidence in charities as a vehicle for public good?

Professor Morgan: Yes, but of course they are related. Part of the confidence in giving a gift to charity, as I said, is that there is somebody out there—a watchdog—who will take some action if my gift to charity is not properly applied. That is one of the great strengths of our framework of charity law in England and Wales, and to a similar extent now in Scotland and Northern Ireland, as opposed to countries that do not really have any system of charity law in our terms.

Professor Morris: It encourages certain funders, for example, to set up their organisations within the regime in this country, because they respect the regime that is in place in terms of knowing that there is an independent regulator, and that charities in general terms are registered and their accounts are monitored and so on.

Q128 Chairman: On that view, the two are closely linked. The existence of the Commission and the systems that it operates are part of maintaining confidence in the sector. Is that what you are saying?

Professor Morgan: Yes, I think we are.

Professor Morris: Yes.

Q129 Viscount Younger of Leckie: I have a follow-up question on that. Do you think that if the PR, publicity or communications from the Commission were improved—I am not necessarily saying they should be improved, but if they were there and fulfilled a function better than they do at the moment—that would be a strong and very good argument for persuading charities to give money to the Commission, because there would be a direct benefit?

Professor Morgan: I think the answer is yes to both strands of your question. It is reasonable for charities to pay something towards the work of the Commission. I think that view emerged from Lord Hodgson’s review of the 2006 Act, and it is quite reasonable. As he said in his report, it must be on the basis that this is additional funding, but if the Treasury were to use that to cut other funding, then no. In most fields where organisations are subject to some kind of regulation, there is a fee to the regulator.

The argument against that is that it has always been said that, if you force people to pay for charity regulation, it is going to discourage charitable giving and all sorts of things. If you accompanied it with a regulatory framework whereby you could not describe yourself as a charity or have access to charitable tax reliefs without being registered, it would be reasonable, but of course that is quite a big step forward from what we have now in terms of the charitable framework in England and Wales.

Professor Morris: That would certainly be something that the sector would need to be closely consulted on. I am not sure it is something that I would feel able, on behalf of the sector, to express my views on. Without the charities paying for PR, which is what you are suggesting, I think the Charity Commission could be doing a better job of getting out the good stories about how charities are regulated. This is all part of that proactive approach. It is not just about discovering the hidden scandals but also giving out those good messages about what charities do, how much money is raised and what changes have been effected as a result of charitable contributions from members of the public.

Q130 Lord Hodgson of Astley Abbotts: I want to ask you about your description of the Charity Commission as a regulator. You paint this picture of them regulating 160,000 charities. That is 750 sets of accounts every day if you do it on a 250-day year, let alone another 160,000 that are not covered at all. To describe this as being part of public trust and confidence cannot be right. No body could possibly handle that volume of paperwork, and inquire and follow it up. Very often they do not respond at all because they are running it from the kitchen table of their house. Are we seeking a nirvana that does not exist?

Professor Morgan: Yes. There are some people who have quite impossible expectations of the Commission along those lines. There are some people who say, “I know this charity that didn’t do that in their accounts and nobody ever spotted it.” One can never expect the Commission to review every set of charity accounts in detail. I am glad they are now sampling some, although I would like it to be a rather larger sample; steps along that road are important.

However, we need to bear in mind that charities are not just regulated by the Commission. All those with over £25,000 of income are subject at least to an independent examination, and those with over £500,000 are subject to audit. The role of auditors and independent examiners is incredibly important to the whole framework of charity regulation, and I urge the Committee to reflect on that. The more their duties can be strengthened, clarified and greater publicity given to them, the better. I have come across quite a lot of cases of funders who are just completely unaware, for example, that a charity’s accounts are already subject to scrutiny by an auditor or independent examiner unless it has income of under £25,000.

Q131 Mr Jenkin: Unfortunately, the largest companies and the largest organisations can be involved in the most terrible frauds. When we think about this regulator we need to think in terms of its being a fire engine or an ambulance rather than thousands of police on the beat. Would you agree?

Professor Morris: Yes, but when it sends out its fire engine or ambulance there could be some sort of strategy around when that happens.

Q132 Mr Jenkin: They have a hierarchical system in deciding what their priorities should be.

Professor Morris: Indeed. When we talk about all these accounts coming in, it is not just a case of, “Oh, what do we do with all of these? We will have a look at this one today and that one tomorrow.” There has to be a strategic and clever way of using the resources they have.

Q133 Mr Jenkin: How about getting Companies House to register the accounts and doing away with dual regulation, and getting HMRC to make sure they are complying with their tax obligations so that the regulator itself is free to deal with things as they arise rather than having to check 180,000 sets of accounts every year? It cannot do it.

Professor Morgan: It is not 180,000. It is only those over £25,000 that have to submit their accounts to the Commission. That is quite a small subset of the total because there are many at the bottom. Only about 20%—

Q134 Mr Jenkin: But it is regulating all 180,000 charities.

Professor Morgan: It is indeed, yes. Of course, only about 20% of charities in England and Wales are structured companies and therefore have to submit their accounts to Companies House. There are all the charitable trusts and associations and now CIOs—

Q135 Mr Jenkin: But that was one of the suggestions we made—that Companies House should be set up to do the work.

Professor Morgan: I have to say that I didn’t necessarily go along with that particular recommendation in your report.

Q136 Mr Jenkin: More particularly, there are seven proposals in the Cabinet Office consultation which are not included in the draft Bill. Off the top of your head, are there any of those that you would like to see included in the Bill? I am sorry that I misunderstood what you were saying earlier. I understand you were saying that you wanted the Commission to be more proactive with the powers it has, but you weren’t saying that it should not have more powers.

Professor Morris: Correct. In terms of the proposals that are not included in the Bill, I do not consider that any of them are necessary to enhancing regulation so I am happy that they are not in the Bill.

Professor Morgan: I would go along with that. I felt that the Cabinet Office’s reasoning for not taking the provisions forward seemed to be quite sound. They all had quite significant problems or they could be addressed in other ways. Some of them raised the possible risk of the Commission intervening too much in the day-to-day operations of a charity. For all those reasons I agree, and I am happy they are not being taken forward.

Q137 Chairman: Professor Morris, you used the word “necessary”. One might ask the question, “Are any of them desirable?” which is a rather different standard.

Professor Morris: The ones that have been excluded?

Chairman: Yes.

Professor Morris: Not in my view, no.

Q138 Chairman: You would go along with what Professor Morgan was saying—that the disadvantages outweigh any advantages.

Professor Morris: Yes. Bearing in mind that I do not feel that strongly about the provisions that are in the Bill, in that I do not think they will have a massive impact, I would not be advocating any additional extra powers.

Q139 Sarah Teather: Clauses 8 and 9 of the draft Bill deal with disqualification of trustees. Do you have any comments on those provisions? Would you also specifically comment on the discussion that we were having with Sir Stuart, and that I think you both heard, around terrorism and the potential for that to impact on the ability of an NGO to provide aid in a war zone?

Professor Morgan: I share Sir Stuart’s reservations and concerns on that issue, though I readily admit that I am no expert on it. It does seem to me that the drafting of those provisions is somewhat broad. I think the Committee will be taking evidence from others who are more expert in those particular issues, but it would be extremely damaging if we had the situation where charities felt they could not do X, Y or Z because they felt that somehow there was going to be a risk of overlap with terrorism legislation. Of course, a lot of these things depend on how the actual provisions, if this becomes an Act, are explained to the sector. As it stands I am a little bit nervous, for example, about the interaction with terrorist asset-freezing legislation and whether that is going just a little too far, but I am not an expert so I would not want to comment further.

Professor Morris: In terms of the new discretionary disqualification system and the explanation that is given as to how that will apply—if you are familiar with it there is a table in the explanatory notes to the Bill and a flow chart—I am presuming that the flow chart is supposed to make it easier to work out when the discretion will be exercised, but it seems quite complicated to me. This is the sort of snakes and ladders approach to whether a person ends up being disqualified or not. It will have to be made simpler. I accept that we need to have these safeguards in place in terms of the discretionary areas, but it would be helpful if it were a little bit clearer.

I have some concerns over some of the areas that are considered in those discretionary disqualifications—things like accepting a caution for a disqualifying offence. I know it is not an automatic disqualification but I would not want to see that power exercised too easily by the Commission. There are lots of reasons why somebody might accept a caution, particularly now with significant cuts in legal aid; for example, somebody might simply not have the resources to fight a case. I would not like to see that being used as a reason to disqualify somebody from being a trustee.

In relation to the conviction for equivalent offences overseas, it might be an equivalent offence and it might be called the same thing, but the way in which somebody had been convicted of that offence, the burden of proof, the trial system and so on might well be quite different from what operates in this country. I would be quite concerned about how those discretionary powers are exercised. This is a new area for the Commission. It would be an area where they would need to carry out quite a bit of work. I would expect that that might give rise to resource implications.

Q140 Mr Jenkin: This is a sort of “Moral Maze” question without requiring you to have any expertise. Should a charity operating in a war zone, for example, that has to pay to get through checkpoints, pay money to a checkpoint controlled by a terrorist organisation? I do not know the answer to that question.

Sarah Teather: It is the least of what they have to do in a war zone.

Mr Jenkin: I am just using it as a very simple example. What is your view?

Professor Morgan: My general view is that, yes, that is a legitimate use of charitable aid. If ultimately that will enable you to reach beneficiaries you could not otherwise reach, I think it is fairly widely accepted at the moment that that is justifiable. You do not want your trustees being disqualified for something like that, which is clearly thought through and justifiable in pursuit of the charitable purposes.

Q141 Sarah Teather: You said you thought we were taking evidence from other people. Do you think we have the right kind of people to tackle this issue because it seems to have come up quite a lot? Is there anybody else that we should be asking for further information on this point around NGOs operating within those sectors?

Professor Morgan: I know there is a lot of concern in Muslim charities who feel that sometimes they are particularly targeted by these kinds of provisions. It would be very helpful for the Committee to take evidence from faith-based charities, in particular in the Muslim field.

Q142 Chairman: We are going to be covering that later on. If there are particular people or organisations that you have in mind, could you write to us and let us know? We will see if we can fit them in.

Professor Morgan: Indeed.

Q143 Mark Menzies: Are you content with the workings of the Charity Commission’s appeals process and the Charity Tribunal?

Professor Morgan: Perhaps I can comment briefly. Debra has done a lot more research on the tribunal. Broadly speaking, yes, this has been one of the major success stories from the 2006 Act. It is now possible to appeal and challenge Charity Commission decisions. There are problems. You cannot, of course, necessarily appeal against everything. The recommendation has been made that it should be possible to appeal against any legal decision of the Commission, but broadly speaking I am positive.

Q144 Mark Menzies: Would any of the powers in the draft Bill require changes to existing processes?

Professor Morgan: On the processes, no, I don’t think so. But I am concerned about the new provision allowing the Commission to give a warning. There is nothing in the draft Bill that would allow people to appeal that to the tribunal. It is one thing to give a private warning, but if you are going to give an official warning that goes on the public record it seems to me extremely important that someone could appeal that to the tribunal; otherwise it could seriously damage the reputation of a charity, if the warning had been made in error, for example.

Professor Morris: I would agree very strongly on that point. If you look through the Bill, some of the provisions are specifically appealable to the tribunal. In relation to that warning there is no appeal to the tribunal. The problem of the complexity of the list of areas where there is an appeal to the tribunal, where there is not an appeal to the tribunal and who can and cannot make that appeal is going to become more complex as a result of the introduction of these clauses. It strengthens the argument that Professor Morgan has just made that it would be more desirable for the jurisdiction of the tribunal to be widened so as to give a right of appeal against any legal decision of the Commission.

In terms of whether the tribunal has done a good job and is operating successfully, I agree with Professor Morgan that that is the case. After a slow start, and the very formalistic approach that was being adopted at the beginning, things have started to improve. A lot of ordinary day-to-day cases coming to the tribunal are resolving issues that would not have had a chance to be appealed in the past because of the resource issues. At the same time, some very important areas of law have seen the light of day within a judicial context, which again is unlikely to have happened under the old system. As Professor Morgan said, I think that the tribunal is a success story from the 2006 Act.

Q145 Mr Jenkin: I am very interested in that. One of the concerns we found in our Committee was that the original intention of the tribunal system to make litigation much simpler and cheaper had not really been achieved. Why do you think it is getting better, and how will it carry on improving?

Professor Morris: In some of the high-profile cases at the beginning there was a tendency for each party to come in with its big guns in terms of its legal representation and so on. What has happened more recently is that the Charity Commission has been representing itself. There have been quite a lot of litigants in person in relation to the charities. The tribunal has gone out of its way to facilitate those litigants in person, and there have been some triumphs for the small person in terms of getting an outcome that they would not have had had they not had the opportunity to appeal in that way.

Professor Morgan: One would add that of course the tribunal does have resource implications for the Commission. It has created a lot more work at a time of diminishing resources. That has been really problematic.

Q146 Chairman: We have a few moments left. Would you like to add anything to the evidence you have been giving. Are there any points that we have not raised with you which you would like to raise, each of you in turn, just to complete your evidence?

Professor Morgan: I would like to come back to Ms Teather’s points about clauses 8 and 9. One of the key things is the provision in clause 9 that would allow the Commission to disqualify someone as a trustee who had been found by HMRC not to be fit and proper to be involved in the management of a charity. This is a pretty clear case where there is a real mismatch between charity law and tax law. The terminology is completely different across the two sets of legislation. If someone were found in this situation, we have two potentially different appeal processes. If it was a decision by HMRC that someone was not fit and proper, they would effectively be ruling that the charity was not a charity for tax purposes, so it would be appealed by the charity. On the other hand, suspension of a trustee by the Commission is much more an individual thing where the individual can appeal. One really wants that brought together with, if possible, the same language in both pieces of legislation and just one appeal process if someone is found to be deficient in that respect. Of course, this creates issues around the devolution settlement, because tax law is not devolved but charity law is, but I don’t think it would be beyond the will of humanity to come up with a system that would work across all three jurisdictions.

Q147 Lord Hodgson of Astley Abbotts: May I take you back to the appeal process? Do you not think that you are setting up the poor old Charity Commission to fail? If every single additional power they have is appealable, and it takes a week, 10 days or a fortnight to get the appeal through, when things have gone wrong in the meantime no one will ever say, “It was because the appeal tribunal was working.” They will say, “The Charity Commission has failed again.” They have to be able to act with decision, and quickly. These things go wrong very fast. If you slow it down, all you are going to do, if we have a lot of these cases, is undermine public trust and confidence.

Professor Morgan: I would not have thought so. When someone is suspected of an offence, they are arrested but they are not necessarily convicted immediately. There is a process of trial in between. Is there not a parallel?

Q148 Lord Hodgson of Astley Abbotts: This is giving notice of all these things and suggesting that people should be disqualified. We are trying to get into the process. This is about getting the process rolling forward.

Professor Morris: On that basis you would give unlimited powers to an entity that could not be subjected to review. That cannot be right.

Q149 Mr Jenkin: It can be subjected to judicial review.

Professor Morris: That is very unlikely to happen in the majority of cases. A lot of these are mundane decisions that the Commission is taking, yet they can have a significant impact on an individual, small organisation which I feel quite strongly should have the right to appeal.

Professor Morgan: But, equally, of course, the tribunal has the power to throw out appeals that are meaningless or lacking substance, and it does so very frequently. I think the spurious appeals can be stopped fairly quickly.

Professor Morris: If there was a wider right to appeal, it would also stop a lot of the waste of the tribunal’s time at the moment, which is concerned with these jurisdictional issues. A lot of the cases that have come before the tribunal, have simply been determined not to be within the jurisdiction of the tribunal. But all that takes time.

Q150 Chairman: I will ask a final “Moral Maze” question, if I can adopt Bernard Jenkin’s terminology. One of the problems with public confidence is that so often you hear about the Charity Commission when something has gone wrong. Of course, if something has gone wrong, people then blame the Commission and that just elevates or enhances the problem of confidence. Is there some way that the Commission can get over that, by getting in first or communicating better with the public so that they understand that it is actually in advance of the problem instead of reacting to it all the time?

Professor Morris: I think that is what I have been suggesting as I’ve gone along. In terms of you saying that people blame the Commission, I do not think that is always the case. That has been highlighted as a result of the intense scrutiny that the Commission has been under in recent years, with the ongoing onslaught of review and committee after committee. If you look at the sector’s response to a lot of the criticism that has come out of those committees, the sector has been largely supportive of the Commission and has pointed consistently to its lack of resources being a significant contributor to some of these issues.

Professor Morgan: When something goes wrong with a charity it is not the fault of the Charity Commission in general. In most cases, it is the fault of the trustees or a member of staff or somebody. There may be an issue that is sufficiently big that it raises regulatory issues for the Commission, but that is a second-level issue. There are a few people around in the sector who somehow think that their whole job in running a charity is to please the Commission, whereas of course their job in running a charity is to carry out charitable purposes for public benefit. The Commission is simply there to oversee that broad legal framework.

Professor Morris: When crimes are committed it is not automatically the fault of the police.

Q151 Chairman: On that note perhaps we should end. We express our very great thanks to you for your evidence. I think we have asked you at least, Professor Morgan, to add something in writing on dealing with the problem of Muslim charities. If there is anything that either of you would like to indicate to us in writing, please feel free to do so.

Professor Morgan: Thank you very much, Lord Chairman.

Professor Morris: Thank you.