Unrevised

Oral Evidence

Taken before the Joint Committee

on Tuesday 16 December 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 Nick Hurd

Mrs Emma Lewell-Buck

Mark Menzies

Sarah Teather

Chris Williamson

________________

Examination of Witnesses

Witnesses: William Shawcross, Chairman, Charity Commission, and Michelle Russell, Director of Investigations, Monitoring and Enforcement, Charity Commission, examined.

Q401 Chairman: Good afternoon both of you, and welcome back to Michelle. I imagine that you both know this, but these proceedings are being webcast, so you should be aware of that fact. Also, of course, they are going to be the subject of a transcript, which I encourage you to study when it is issued so that if there are any inaccuracies, they can be drawn to our attention.

May I begin with a fairly general question? Perhaps I can ask Mr Shawcross first and Michelle Russell afterwards. We have received, as you know, hints of considerable criticism about the performance of the Commission in the past, but it has been quite striking in the evidence that we have heard that the work of the Commission has been considerably more positive over the past 12 months or so, which is very encouraging. Given that assessment, do you think that the new powers in the draft Bill, which were probably constructed before this improvement began to make itself felt, are really needed?

William Shawcross: Thank you, my Lord. It is an interesting and important question. I am glad that you have had testimony to suggest that the Commission has improved. I have been there two years now—since October 2012—and it has been my priority to improve the Commission. You probably know, and Nick Hurd certainly remembers, that at the end of 2012 and early 2013, we had a big crisis when a charity that we had inadequately dealt with turned out to be a gift aid tax avoidance scam. We were severely criticised by the PAC for this, and I made it my job immediately to set about reforming the Commission. That summer I appointed a new board, who were much more engaged and much more proactive than before; and we recently appointed a new chief executive, Paula Sussex, from the commercial sector, in order to effect the re-management or reorganisation of the Commission, reflecting the fact that the budget of the Commission has dropped from around £40 million to £20 million in the past five years, which is a serious constraint upon our work. That is the background. We have started to change the culture of the Commission very radically.

As for your question on whether that means we do not need the new powers, in a way, I think we need them more. We are now a more effective organisation than we were two years ago, I believe, and testimony suggests that to you. We have adopted a much more proactive approach to bad charities, and I want to stress that they are a tiny minority. Most of the charitable world is run by superb, trustworthy, decent volunteers, who have the charitable purposes of their charities totally at heart, and they will not be affected by these new powers one way or the other, but there are a few bad charities that spoil the reputation of the whole sector. Our statutory duty is to promote and enhance the reputation of the sector, and these powers will help us to do just that.

Q402 Chairman: Ms Russell, do you have any further comments on this particular point?

Michelle Russell: In terms of the powers we need, the consultation document and the examples that we gave in it were based on real case studies. They are the types of cases where we wanted to use those powers, but because we did not have them, we were not able to take the action that we wanted. That is the only thing I would add to what William said.

Q403 Chairman: It might be suggested—this is a follow-on from my previous question—that a longer period of thought and consolidation was needed. We cannot predict precisely when the Bill will come forward, if it is going to, but there is just a possibility—this is speculation—that there may be a gap some time in the summer, just after the election and before the winning party gets its programme in order, when there might be space for one or two things, and this might be a candidate. Would that be too early? Would it be wise to have a little longer, and perhaps to wait for another 18 months or so?

William Shawcross: I do not think so. Michelle has been at the Commission much longer than I have, and she knows very well, because she is an extremely effective head of our investigations, what we are able to do and what constrains us. These powers will lift several important constraints upon us, which have been obstructing our effective regulation for a long time. We have considered this for a long time, and I am delighted that the Bill has now had the opportunity to come before you. It would be marvellous for us if it could become law next year.

Q404 Chairman: There is another aspect of general performance that has come up in the evidence, and that is the balance between the two main areas of activity—the regulatory side, which is what these powers are really about; and the informing, encouraging and managing side of the business. For example, it has been suggested to me that there are considerable delays, in some cases, in new charities achieving registration. Somebody else commented to me on the length of time that it takes for letters to be replied to, I think because your target dates are very long. What about that? Are we focusing, as we are looking at the Bill, too much on the regulatory side? Is there more that needs to be done by way of legislation to encourage or assist you on the other side of your work?

William Shawcross: The point you make is perfectly fair. The problem, as I mentioned before, is the cutback in our resources. We are not able to give as much one-to-one advice to charities as we used to, say 20 years ago. I regret that because, as I said at the beginning, most charities are run by decent people who may seek help from us. We have had to stress to charities that they must go first to the website. There is a lot of advice on the website. It is quite a good website, and most people who use it seem to think so. A lot of assistance can be gleaned from that in the first order. Then there are still ways to get through to us if people really have questions that are not answered on the website. I know that registrations have been taking too long, and that is one of the areas that our new chief executive, Paula Sussex, is hoping to reorganise to make it more efficient but, basically, her task is to fit the Commission within the cloth that we have—the £20 million a year.

We were very lucky this year to get an extra £8 million from the Treasury. I argued to the Chancellor and others that we really could not sustain the constant salami-slicing that had been going on over the past four or five years, and that the Commission at some point would cease to be effective at all. The Chancellor took this on board, and gave us a very welcome £8 million extra capital expenditure spending over the next three years. That will enable us to reform and rebuild the Commission, to make it much more effective and to get over those delays, which I totally agree should not be there.

Michelle Russell: The only thing that I would add on the specifics is your reference to the lots of queries and calls that we get at the front line in the First Contact area. That deals with huge amounts of the Commission’s business. In fact, most of the Commission’s business is resolved in its First Contact area; there are thousands of phone calls, e-mails and letters, but if trustees e-mail us, the time line for our response is five working days.[1] In most cases, that target is met on the simple and straightforward queries. Yes, if it is more complex and considerative, it gets referred to the specialist teams. I thought it might be helpful to clarify that point.

Q405 Chairman: Do you have a time line for written correspondence?

Michelle Russell: My understanding—I can confirm it afterwards—is that it is 15 working days in relation to queries that we receive by post rather than by e-mail.1 We have different time lines, depending on the complexity of the queries that come in, but I know that, for simple and straightforward queries that come by e-mail to the First Contact, it is five working days.

Q406 Lord Watson: On that specific point, may I ask if those writing to you get holding responses, either by e-mail or in writing, to say, “We’ve received your communication and we’ll get back to you within either five or 15 days”?

Michelle Russell: Everyone who goes through the front portal should get an automatic straight back, informing them that the e-mail has been received and what time line we should be working to. It then depends on which unit the piece of correspondence is referred to—whether it is permissions or consents, or to the compliance team. They all have different time lines, but we should be aiming, particularly when it is a fair period of time, to make sure that the person knows, if it is not being dealt with by the time we specified, why, and when they can expect to receive it.

Chairman: Viscount Younger, you wanted to ask a supplementary.

Q407 Viscount Younger: Yes, indeed. It was good to hear that a more proactive approach was being taken to finding out which charities are bad, as I think you put it. How were they found out before? What has changed? How are you now being more proactive in finding out that charities are bad, and what more can be done in that respect?

William Shawcross: With registration, for example, we look much more carefully to spot red flags, as it were. One of the charities over which we got into trouble—before my time, I am glad to say—was the charity to which I have referred already. It had a sole corporate trustee registered in the British Virgin Islands. That is the sort of red flag that would now make us think that we had better look carefully at a request for registration—much more carefully than before. We respond more quickly, and I hope that the reorganisation that Paula Sussex is effecting will enable us to respond even more quickly to any other warning signals that we get. We have launched many more inquiries in the last two years than before. I know that there are likely to be other questions on that, but do you want to respond now, Michelle?

Michelle Russell: On the point about being proactive, other than in registration, William is right that we are looking more closely at registration and proactively following up if there are concerns but, in other areas, one of the ways in which we are being more proactive is through better use of the data that we have and that we are given by charities. It is in the public domain that we have recently joined CIFAS, which is another database for us to check, for example, on registration applications, and whether or not an individual has an imprint on that. The other crucial area is our work with other agencies—the police, HMRC and some of the other regulators that we work with.

Q408 Baroness Warwick: Mr Shawcross, your chief executive Paula Sussex has said that it is the culture of the Charity Commission that needs to change; and you, in your opening answer, said exactly that. I wonder whether you would tell us what needs to change, and what progress has been made so far. Given that she also said that previous change has not been sustainable, how confident are you that the changes that you are introducing will be sustainable?

William Shawcross: The culture has been changing for the last two years, and certainly since I appointed the new board in the summer of 2013. Paula’s appointment is an illustration of that change; we went outside to get somebody very skilled in change management. The culture change, as we have been discussing, is for us to become more proactive, and to take more seriously our statutory duty to enhance public confidence in the charitable sector.

As the Chairman said, there is a dichotomy. On the one hand, there is support for the sector, in which the vast majority of charities are terrific and with whom we have no concerns and never need have concerns, and then there is regulating those that are not so good or that make mistakes. Some make mistakes, which we try to correct, and some—a very few—are what one might call bad apples, and they can infect the whole sector. We are, I think, more diligent and more active in pursuing them. I am very keen that Michelle should have more investigators under her in the transformation that we are now working through, which Paula is heading. I am sure that that is going to happen. One of the purposes is to build up Michelle’s investigations unit.

As to whether we can sustain it, that depends in part, I suppose, on the determination of the board, the chief executive and the staff. We have many excellent staff, who are feeling liberated and encouraged by the changes that I have instigated in the past two years. It is very welcome to me that that is so. The other thing for sustainability, of course, is finance. I know that this is a time of austerity. I know that that all Government agencies always ask for more money, but it is absurd to do that. We were very lucky to get the £8 million that we got from the Chancellor, and I do not expect that that will be repeated very soon, but I shall continue arguing with the Treasury after that injection. It will help us to improve our IT, which is pretty awful, and I hope that it will make us more efficient, but I shall continue to argue with the Treasury that we should not be further salami-sliced. That, I hope, will enable us to sustain the programme of change.

Q409 Baroness Warwick: I wonder whether you have put specific measures in place to be able to demonstrate that that change has indeed taken place, so that when you go back to the Treasury they will be a convincing argument.

William Shawcross: I think we can. As Michelle mentioned, we can show the number of inquiries that we have launched, and I hope that we can show a speeding up of our investigations generally so that they come to conclusions more quickly. Again, it is a question of resources, and that is why I am determined that we should move resources out of the back offices of the Commission and into the front line under Michelle.

Q410 Mr Hurd: In my experience luck plays no part in getting money out of the Treasury, so I think that you made a good argument and you won it. Congratulations on that, and on the change that you are managing and which people are noticing.

William Shawcross: Thank you.

Q411 Mr Hurd: My question is about one aspect of that change, which is the move to a system of risk-based regulation. More proactive targeting is part of that. Could you share with the Committee a bit more about your process and criteria in terms of risk analysis?

William Shawcross: It is really difficult. Risk-based regulation is a term with which I was not familiar before I came to this job, I have to admit. Basically, it is a rather smart word for quite a simple thing. It means that we have to be cleverer in managing our limited resources to analyse all the data that we have and to employ those resources more effectively in that case. As Michelle said, we have joined CIFAS, which gives us a huge new database; for example, all our trustees have been run through the CIFAS washing machine, to see if any of them come up with anything questionable against them. There were quite a lot of names that came up in that process, but some may be victims of crime as well as anything else, so we have to be careful about that. That is an example of how we can check on possibly dodgy trustees.

Data management is crucial, and Michelle has already mentioned that in part. Better data management will include all the information that we have on every one of the 160,000 charities that we regulate. That is part of the process of transformation on which we are engaged at the moment. At the centre of the process will be a databank, which Michelle and others can tap into much more effectively and get quick answers to the questions that arise. That is a really important part of risk-based analysis. Michelle, do you want to add anything?

Michelle Russell: At the heart of where we are going on risk-based regulation is linking it back to the statutory objectives that we have been given by Parliament. Core to that is public trust and confidence. We are trying to focus on where the greatest risks are to public trust and confidence in charities, and there are different dynamics in that. One the one hand, it means that we need to take into account that when mistakes happen they are quite often honest mistakes, but there is a graduation into negligence or recklessness. Then there are those, albeit smaller in number, where it is deliberate abuse. The trick, the key driver for us, is ensuring that we are placing our resources and opening our inquiries and our compliance cases where we can have the greatest impact and effect in terms of protecting public trust and confidence.

Q412 Mr Hurd: Is a clear and established set of criteria and processes underpinning the system now, or is that still evolving?

Michelle Russell: We already have, and always have had, a risk framework. We consulted the sector on that and we consulted our partners, and it is published on our website. The criteria for when we open an inquiry fall out of that risk framework. As we are doing our exploratory work, in terms of ensuring that we are shifting our risk-based work so that it falls squarely into promoting public trust and confidence, we will be looking to update that risk framework. That work is in train at the moment.

Q413 Mr Hurd: When would you expect to achieve that?

Michelle Russell: To some extent it is evolving, but we expect that by March next year we should have a clearer idea. We have been doing some piloting behind the scenes, testing out different ways of doing things and where we can have the best impact. We are evaluating some of that pilot work and about to carry out a little more of it. I imagine that by about March we should be in a clearer position about where the adjustment should be.

Q414 Viscount Younger: For clarity, as I may have picked this up incorrectly, if we look at the 168,000 charities—indeed, it may be less—are you saying that all the trustees of those charities have gone through your CIFAS process? That must be rather a lot of trustees. If that is the case, what percentage of those trustees has been highlighted as what you, Mr Shawcross, called dodgy but I would call problematic?

William Shawcross: I said that some might be victims, and some might be dodgy.

Michelle Russell: In terms of our existing processes at registration, when new charities come in, each of the trustees goes through certain checks automatically by us. For example, we check whether they are disqualified from acting as a trustee under our own register; we check whether they are insolvent and on the insolvency register; and we check whether they are disqualified directors or undischarged bankrupts. We do all the things that we can have public access to.

The move to CIFAS will enable us to access that database as part of those checks, but we have carried out as well an exercise to see where the risks lie across the sector. It is fair to say that it throws up different things. As William was saying, it will sometimes throw up a hit where there is a mark on the register against an individual that they have been a victim of a fraud, so we have to delve down into the individual results to see whether that is something of concern. We are analysing that work at the moment.

Q415 Chairman: Before we leave this question, I wonder whether you would tell us how you organise your priorities. Clearly, when you have a matter for investigation, somebody in the Commission focuses on that, but are you open to the criticism that you spend too much time on the regulation and investigation side and not enough time on the advice and support aspect of your functions?

William Shawcross: That criticism has been made of us. It is true that we have had a pretty clear steer from Parliament over the last two years that we have to be a more effective regulator—underlined. That is important to fulfil our statutory duty, as I said before, to enhance the reputation of the charity sector, but I am very clear that it should not force us to disregard the vast majority of charities, who need support and who do wonderful jobs.

I am always mindful of that wonderful phrase of William Beveridge, who said that English charities are a golden thread in the living tapestry of our national history. He said that in 1948. It was true then and it is true today. It is our job to protect that golden thread. One of the important ways we do that is by tough regulation, but of course I want to support the vast majority of charities, who do terrific work, often unsung. Part of my job, in speaking around the country, writing and doing other things in the public forum, is to celebrate that. I hope that we can celebrate the charitable world as well as regulate it, but you are completely correct that there is this division of responsibilities.

Michelle Russell: Perhaps the other bit of reassurance I can give is that part of the £8 million transformation programme—in fact one third of it—is specifically to look at digitalising the front end—permissions and transactional work, the vast volumes of work where charities come to us for assistance, or permission to sell land or permission to do certain things. The aim with improved digitalisation and a better IT infrastructure is that much more of it can be done online much faster, which will be of benefit to the vast majority of charities. Those savings will then not just be redirected into the investigations area; the plan is to redirect some of that resource into the registration area as well.

Q416 Lord Hodgson: The areas where you come into focus have been, of course, tax and overseas aid. I would like to hear about how you feel your relationships with HMRC and the law enforcement agencies are going. When I wrote my review, I formed the distinct impression that you were the junior partner, and that you had the crumbs from the table until something went wrong and then you were at the head of the table.

William Shawcross: I am not sure that I totally accept that analogy, my Lord, but we are the junior partner of the police and other agencies in the sense that we are not a prosecuting authority, and we do not conduct criminal investigations. The area you describe is extremely important, and it was for that reason that I put on our board Peter Clarke, the former Head of Counter-Terrorism at the Metropolitan police. He has been an enormous asset to us in the 18 months since he joined the board in just these sorts of inquiries. I am sure that Michelle will agree that he is hugely helpful to her; he can open doors in Whitehall, and he knows senior officers and officials at every branch of government. That has raised not only our profile but our ability to respond and act quickly and effectively. He was put on the board for that reason, and he has had a great effect.

As for our relationship with HMRC, I totally agree that it is an extremely important relationship. We had a new, or refreshed, memorandum of understanding with them last year, and we will continue to work on that. With suspected terrorist abuses of charities or frauds, we work closely not only with the police but also with Counter-Terrorism Command in the Met, regional counter-terrorism units and the security services. In my conversations with senior officials in the Home Office and elsewhere, I have been told that they are pleased by the way in which the Commission has changed in the last two years, and that we are now much more effective in this area, which unfortunately has become much more important to the country.

Q417 Lord Hodgson: As you rightly say, you are not the prosecuting authority, but you are left in a difficult position, are you not, unless they are prepared to take much more responsibility for some of these areas? They know about tax and they know what is happening overseas in a way that you, with the best will in the world, and no matter how much money you were given, do not have either the technical or the financial resources to grapple with.

William Shawcross: We certainly do not have the financial resources, but we grapple with it as best we can. As I say, Peter and Michelle are a very good team in these areas, but Michelle might respond in more detail on how we have changed in this regard.

Michelle Russell: I would also say that it is about partnership. In the same way as we do not have all the criminal skills and legal expertise, neither do the police nor the other agencies have charity law expertise. Sometimes we assist the police and other agencies in their investigations, to make sure that we can, for example, say, “No, that’s perfectly normal behaviour to see in a charity. That’s not unusual.” It works both ways.

That said, you are right; sometimes people interpret it such that if there was a crime then the police would investigate and there would be a prosecution, but that is not always the case for various reasons, such as resourcing, or because the evidence does not meet the threshold. Sometimes, when the evidence does not reach the criminal threshold, we have a civil regulator (the Charity Commission), which works on the balance of probabilities in the civil jurisdiction. That means that sometimes we still have to engage.

Q418 Lord Hodgson: We are doing the pre-legislative scrutiny of the Protection of Charities Bill. This is your opportunity to say, “We would do better if”.

William Shawcross: That is certainly what we are saying and have been saying. I know that Kenneth Dibble and Michelle have already testified before you on the technical aspects of the law and the ways in which the changes in the law would help us.

Q419 Lord Hodgson: On top of that, there is a blank sheet of paper. Is there nothing else that you would wish to have?

William Shawcross: I hope that this afternoon’s questioning will bring those things out.

Q420 Lord Hodgson: We need to be guided by you as to where to be looking.

Michelle Russell: There are two levels to this. There are the powers that we need; where we are the agency that needs to engage, we need to do so effectively. That is what this is about. We have some loopholes in our existing legislation, or the sanctions that exist are criminal and not effective for where we are; or, because of the complexity of the work, we do not have the tools that we need to do the job. But there is the layer on top of that, in that powers on their own—

Chairman: I am sorry to interrupt proceedings, but there is a Division in the House of Commons, and our House of Commons members are going to have to leave us to vote. We shall stop for approximately 10 minutes. Mark Menzies, you won’t be able to come back.

Mark Menzies: I shall see you at the next session.

Chairman: Yes. We shall pause until the House of Commons members come back.

Sitting suspended for a Division in the House of Commons.

On resuming—

Chairman: Thank you very much, everybody, for coming back. We were in the middle of a question. Lord Hodgson, I do not know whether you would like to rephrase your last question, if you can remember it, so that we can get a more complete reply from the two witnesses.

Q421 Lord Hodgson: It was whether there is anything in particular in these areas that you want. This is the time for the wish list.

William Shawcross: You know that we would like all the clauses in the Bill to become law. We have worked closely with the Government on this Bill, and we are very much in favour of the whole thing. We also asked for three extra powers, which are not in the draft Bill. For example, one is to stop disqualified trustees of charities being able to act in another position in the charity, as treasurer or chief executive. The reasons for that seem to me to be pretty straightforward. Another is the power to take preventive action to stop charities doing things that are unwise or wrong—for example to stop a student charity inviting an extremist speaker. The third is the power under section 84 to be able to make directions when that would be more appropriate than opening an inquiry—when an inquiry would add nothing significant in practice, but would add to bureaucracy both for the charity and for ourselves. I know that those clauses are not yet within the Bill, but if the Committee saw fit to include them, we would be very pleased.

Q422 Baroness Warwick: I wish to ask a small supplementary question on datasharing with the bodies that we were talking about earlier. In your view, is that now adequate and there is nothing, therefore, that you want to add to the data that is shared with you through HMRC or other bodies?

William Shawcross: It is true to say that we probably give HMRC more data than they give us, and we would like that imbalance to become more balanced.

Q423 Baroness Warwick: I would be glad if you could be a bit more explicit.

William Shawcross: Of course.

Michelle Russell: In totality, we engage with all sorts of agencies and exchange information with them. It is not just HMRC and the police. If you look at the totality of it, you are right that the Commission tends to give more than it receives, but that is part of the work that we were talking about. It is about partnership, and encouraging some of those agencies to share data with us. It is nothing to do with legal powers; it is about the strength of the strategic and operational relationships, which sometimes take a long time to mature, to ensure that there is trust between the agencies. Picking up on what William said in relation to HMRC, it was true in previous years that there was a significant difference, with us giving much more information than we were receiving from them, but over the past year or so that imbalance has started to be redressed. There is a much closer working relationship with HMRC than there was in previous years. I hope that that gives you some assurance.

William Shawcross: As I think I mentioned earlier, our relationship with the Home Office has improved enormously in the last 18 months. We collaborate with it at every level that is necessary.

Q424 Mrs Lewell-Buck: Michelle, earlier you spoke about trying to make things a bit easier for people online, but a number of witnesses said that the information materials on the new Government website were quite difficult to access. What are you doing to ensure that it is no longer difficult to access and that people can actually find the information that they want on that site?

William Shawcross: We did not want to move to the Government website. We were very happy with our own website, but we had to move. It is certainly true that being on the Government website means that we can no longer present all our material in a structure specifically designed for charities and those interested in them. There have been teething problems, and I am sure that people have to find their way around the new website’s structure. On the other hand, there are some advantages. All Government data are now in one area, and the search engine is much better than before. In fact, the good news in all this is that the number of visitors to our website has increased quite substantially in the last few months, since we moved to the Government website. We are obviously working to improve the website all the time. We continue to do that. It is critical that all organisations do that, and we will.

It is also important that, whether or not the reach is as great, we continue to hold and increase the number of public meetings that we have every year to reach people and trustees throughout the country to explain our work. These are usually quite well attended. I have done quite a lot of writing and speaking about the work of the Charity Commission, and I hope that over the next 12 months, as our transformation programme gets embedded, I can do that much more often. The information delivery is not confined to the website; we have a communications department dedicated to doing that, and I must do more of it. The website is improving. The website is fundamentally good, and there is a lot of information on it. However, the transition to the Government website had teething troubles.

Q425 Mrs Lewell-Buck: I wonder whether the number of visitors has increased because they are not getting what they want the first time, so they have to keep going back. I am assuming that you can’t track that.

William Shawcross: I don’t think that is the case, is it?

Michelle Russell: We hope that is not the case. Just to pick up on where I think you are coming from with your concern, I echo that part of this transformation programme and the invest to save is to make sure that the transactional work, as opposed to the information finding, is smart and slick, and that people from charities who want to get services from us can do so swiftly and effectively, through better online forms and online directions.

Q426 Mrs Lewell-Buck: In my previous life, before becoming a Member of Parliament, I was a local councillor. I was on the management committees of lots of community centres, and they always said that the information coming from the Charity Commission was really complex and detailed. A lot of the people on those management committees, including myself, did not really understand the information. Are you trying to make it more simplified and a lot easier for people to digest? For many of the people on those management committees, it was not a day job, but something they did in their spare time. They need something that is easily digestible and quickly understandable.

Michelle Russell: We recognise that some of our guidance is huge, and quite complex and technical. One of the challenges is that the sector is so diverse, and the people involved in it are so diverse in their needs, in terms of our range of publications. We need to adapt much more smartly, and use different ways. People get “CC News”, the Commission’s electronic newsletter, with soundbites and simple explanations of things. We have started using alerts, which are simple one-page summaries of some of the key issues to be aware of from the compliance perspective. We also use Twitter, social media and things like that. We are trying to diversify the way we communicate so that it is not just a publication of 60 pages that sits on the website. We are always open to engaging with trustees and the public, in terms of listening to the different ways they want to receive that information.

William Shawcross: Michelle is absolutely right—some of our guidance is too long and we are going to shorten it. It should be much more brief and precise, and that is one of the tasks for the next year. It must be user-friendly in every way.

I would only add that when I first came to this job one distinguished charity lawyer made a speech at our AGM. She started by saying, “Charity law is very hard.” That is true, so that is why the guidance is sometimes rather complicated. It is very hard, as Lord Hodgson knows very well.

Q427 Lord Watson: I was a little concerned, Mr Shawcross, when you said you were very happy with the website, but that you had to move. We are now in a situation where, according to the evidence of a witness from the Charity Law Association, “Unfortunately, it is incredibly difficult for charities to find the guidance that we know is available.” It seems to me to be a situation akin to the old maxim, “If it ain’t broke, don’t fix it.” It wasn’t broke; it’s been fixed and now it’s broke.

William Shawcross: As I said, we did not seek to move to the Government website. All agencies were required to do so, including ourselves. I noted what the Charity Law Association has said, and I have noted your comments. We are trying to make things much simpler. I don’t think it is as bad as that—I really don’t—but we will improve it further.

Q428 Lord Watson: Have you had many complaints specifically about your website?

Michelle Russell: We have had some complaints. As William said, the search engine is better than the one we had before, so those who know which document they are looking for can find it much faster and more easily. The feedback that we have had is where people are struggling—they are not quite sure what they are looking for and want to browse. That has been fed back to our infrastructure team, who are working on that. We want to hear comments like that so that we can improve the service.

Q429 Chris Williamson: I want to ask about warnings. Do you think that the power to issue a statutory warning to charities when the Commission has concerns would be anything more than a symbolic measure?

William Shawcross: It would actually be an important new power if we can be granted it. We are a quasi-judicial body. We would exercise the power in that way as it would enable us to be more proportionate and fairer in dealing with breaches of statutory provisions or fiduciary duty. A statutory warning would be more serious than mere guidance, but much less than the sledgehammer of suspension, the removal of trustees or, indeed, a statutory inquiry.

Other regulators already have the power to issue such warnings. As I say—I risk repetition—it would make us fairer and more proportionate. It would enable us to target specific problems, but not be excessive. We always have at the front of our mind that we must act according to the principles of best regulatory practice, and this extra power would help us quite a lot to do that.

Q430 Chris Williamson: Would you accept that a warning might harm the reputation of a charity? Would you publish a warning in every case?

William Shawcross: No. That is a really important point. We would definitely not publish all warnings. That would be very unfair on all charities.

Q431 Chris Williamson: How would you determine which ones you would publish and which you would not?

William Shawcross: That is difficult. It would have to be on individual circumstances. We do not seek the power to publish all warnings. We do not want to do that. We might publish a warning if we thought that potential donors ought to be aware of the concerns that we have over a charity. We would probably publish warnings if it was something clear cut, like persistent non-submission of accounts, which often can be a warning sign of maladministration. The ability to publish—the fact that charities know that we might publish—would itself probably be a useful tool, or an incentive for compliance by those charities, but we welcome the right not to have to publish. I do not want to be unfair to charities. I am always aware that publishing our concerns about charities is a two-edged sword. We were urged by the PAC to publish much more and to be much more transparent, which I understand, but on the other hand there is the important matter of natural justice. We do not want to publish things that would be unfair and unnecessary.

Q432 Chris Williamson: Would people be able to gain access to an unpublished warning?

William Shawcross: I do not think that they would.

Michelle Russell: They are potentially disclosable under the Freedom of Information Act, but if you think of it in terms of the principle, it is the same approach that we would take to our existing discretionary power to publish a statement of the results of an inquiry. The core of that is whether it is in the public interest to do so. The approach that we take there is that we publish the criteria so that, where we might want to publish, or we say that we are going to publish, the charities have an opportunity to say that they are not happy with that, and we take that into account in deciding whether to go forward. Our starting point is that we would mirror our existing regime and approach to the publication of a statement of the results of an inquiry: public interest; clear criteria that are published on the website; and an opportunity to object.

Q433 Chris Williamson: To some extent, that brings us to my final question on this. We heard evidence from the CQC, which said that prior to publishing a warning, an organisation that was a subject of its inquiry would be able to challenge it on the basis of a factual inaccuracy. Are you saying that you operate in that kind of way?

William Shawcross: We would do exactly the same thing. In fact, we go further than the CQC. If a charity can show that a warning that we are planning to publish does not meet our own criteria for publication, we might well desist. The CQC example is a very good one.

Q434 Chris Williamson: But you would go further than that.

William Shawcross: Yes.

Michelle Russell: Our existing regime in relation to the discretionary power to publish an inquiry report is exactly that. It is two-stage. We say why we are doing so, and they have a chance, if they want it, to object. They have a period during which they have the opportunity to comment on factual accuracy. We take seriously the comments that charities make when they respond on the statement of the results of an inquiry, and sometimes they change the actual report. That is why our inquiries do not complete until the report is published. We take that quite seriously. Our starting point is that we would like to roll out something similar in relation to this particular power. The final thing to say is that this will not be a surprise. If we use the power at the end of a case, we should have been engaging with the charity, so they should know on what basis we are intending to take sanctions. It is not just a matter of going in very quickly and issuing it. It should not be a surprise to the charities that it is coming.

Q435 Chairman: If I may, I shall follow up on that point. At the moment, as the Bill is framed, it does not require the Charity Commission to give notice of an intention to publish. Is this something that you would accept ought to be written into the Bill—that it should say that, before publication, notice would be given to the charity concerned?

Michelle Russell: We would start from the basis that we do not think it is necessary because of the way in which we naturally engage with all charities in relation to this. Where there has been a breach, they would know that that was coming in the first place. If there was a provision built in, clearly we would work with that, but our starting point is that we do not think that it is necessary to include it on the face of the legislation.

Q436 Chairman: Perhaps I might make a further point. At the moment, the Bill does not contain any mechanism for appeals against the exercise of any of these powers. As you know, in the 2011 Act, there is a long schedule with all sorts of decisions that are open to appeal and, failing that, the only alternative challenge is judicial review. I do not know how one would balance these two remedies from your point of view, but would you prefer to see something like this—a warning system, for example—as the subject of a provision that would allow somebody to appeal against the decision, or would it be less troublesome for it to be open to judicial review?

Michelle Russell: Our starting point is that we would prefer it to be subject to judicial review. That remedy is used at the moment, in terms of some of our other powers. We were in court on Friday last week in relation to a judicial review, so it is used by some charities. The balance is making sure, on some of our powers, that they are not constantly challenged when we are in that proportionate and more reasonable area, rather than being more invasive and serious. We recognise that there is a balance to be struck, but for this particular power we think that judicial review is the right remedy.

Q437 Mrs Lewell-Buck: My understanding of judicial review is that it can be incredibly costly and can last quite a long time. Surely that is not the best way to go about this.

Michelle Russell: That is a fair point. It is costly. All litigation is costly. The other thing to bear in mind is that it is not just judicial review. There is the Commission’s own internal decision review process, which a lot of charities take advantage of. It has no cost to them. They do not have to employ solicitors or to have legal representation, and we are quite used to dealing with that. Again, even before judicial review or the tribunal kicks in, there is the ability, simply and quickly, to go through our decision review processes.

Q438 Mrs Lewell-Buck: How many judicial reviews have there been in the past year, would you say?

Michelle Russell: I do not have that figure off the top of my head.

Q439 Mrs Lewell-Buck: It would be interesting to see how much they cost, because they are at the high end.

William Shawcross: As Michelle says, there is the decision review process first. The charity can demand that we do an internal decision review, and if they are not satisfied with the outcome of that, they can go to the lower tribunal.

The whole tribunal was set up, as you know, under the 2006 Act. The lower tribunal was designed to be a relatively uncostly process of going to law. Charities or individuals are encouraged to use it, without hiring expensive lawyers, and they are perfectly able to do that if they so wish. That was the purpose, as Lord Hodgson can explain much better than I can, and people do that. But, as Michelle said, if you hire lawyers, it always becomes expensive; it is only a last resort to go to the tribunal.

Q440 Chairman: It has been suggested in the course of debates about judicial review that a number of them are solved without going through the entire process in the court. The service of a petition for judicial review is good enough to focus on the point at issue. Has that been your experience in practice, or are the judicial reviews that you have been talking about contested all the way through?

Michelle Russell: My understanding is that we have had a mix. Sometimes the response, in terms of a judicial review, may resolve matters. Sometimes it does not, and it goes forward. In other cases, we have had judicial reviews struck out as being of no merit. There is that filter in the courts to make sure that things do not go forward if there is no merit in litigation, to ensure that costs are not expended. My understanding is that there has been a bit of a mix, but if the Committee is interested in this area, we would be more than happy to put in a paper for you answering that area on judicial reviews and tribunals.

Q441 Chairman: The feeling is that it would be helpful to have a bit more information about the use of this. Following on from your question, Emma Lewell-Buck, the other aspect is the relative cost to the charity of using the appeals system. Presumably that costs money as well.

William Shawcross: We would be delighted to give you that information.

Q442 Baroness Warwick: It is clearly better to have the internal review and resolve issues in a reasonably amicable way, if that is possible. I wonder whether you could add to the data the number of times that an internal review is requested, and whether you have any data on the outcomes.

William Shawcross: Yes, definitely.

Michelle Russell: We have that data. Rather than reading it out now, we will send it in.

Q443 Baroness Barker: Would we be right to assume that you reserve the opening of a statutory inquiry only for serious cases?

William Shawcross: The statutory inquiry is indeed our most serious investigatory instrument, which implies the seriousness of the case if we open one. We have opened many more such inquiries since I came to this job, and Michelle can give you the figures for that, but I am really aware that we have to do it carefully, because we have to be proportionate and accountable. The criteria under which we open an inquiry are published on our website, and that is transparent and available for all charities and for the public to see. Michelle, do you want to add details or numbers?

Michelle Russell: Last year, there were 64 statutory inquiries. We have had an increase this year, as you can see; by the half-year point, 68 statutory inquiries were opened. I should air a note of caution in relation to that. Part of our more proactive response to charities that do not file accounts for a number of years has included a class inquiry. The class inquiry is included in those figures. Nevertheless, the number of inquiries we are opening has increased, and I can envisage it increasing further.

Q444 Baroness Barker: That would be the logical outcome of the change of culture that you talked about earlier.

William Shawcross: Yes.

Q445 Baroness Barker: You also talked about constraints in one of your earlier remarks. It has been put to us that the opening of a statutory inquiry is a bureaucratic process. Can you explain what the bureaucracy is?

Michelle Russell: The opening of a statutory inquiry is exercising a quasi-judicial power. That has been confirmed in the Supreme Court in the recent decision in Kennedy, where great importance was attached to opening a statutory inquiry, particularly in terms of special treatment under freedom of information.

The context in which we open our inquiries has changed. It is about public assurance. It is also about making sure that we are responding more effectively to public trust and confidence, so the environment has changed. Since the 2006 Act, the power to open a statutory inquiry has been subject to appeal. That has changed from where we were before. In addition, in the exercise of our powers we have to have regard, under section 16 of the Charities Act 2011, to the principles of best regulatory practice, which say that we should be targeting our action only at cases where we most need that action to be targeted. We also have to comply with Human Rights Act obligations and those of the Equality Act. There is an envelope and an environment around an inquiry that is quite important. As raised by the previous questioner, a degree of reputational harm to a charity may come from opening an inquiry. It is a balanced and careful decision that we take on whether or not to open an inquiry.

Q446 Baroness Barker: The point that we are struggling to resolve is why the power of statutory warning, which could have an equally devastating effect on the reputation of a charity, is going to be significantly less bureaucratic, in your words, than a statutory inquiry. It has been put to us that the processes—what you have to do—are straightforward. You know what they are in both cases. Therefore, bureaucracy is not an argument. It would be very helpful if you set out in writing how you see the two processes— the initiation of statutory warning and statutory inquiry, and the appeal mechanisms, in parallel—so that the Committee can look at the distinctions between them.

William Shawcross: We can certainly do that. As I said before, a warning is significant, but not nearly as difficult for a charity as an inquiry would be. It is therefore a more proportionate use of our powers in a less serious case than is needed for an inquiry. That is the basis of it.

Q447 Baroness Barker: It would be helpful to have those additional details.

William Shawcross: By all means, we will give you those details.

Q448 Chris Williamson: On the disqualification of trustees, do you think that extending the list of disqualifying offences risks removing opportunities to rehabilitate former offenders?

William Shawcross: I obviously understand that rehabilitation is vital both for individuals and for society. You are right that this would create a small obstacle to rehabilitation in some cases, but only to a limited extent. Being a trustee is not the only way in which an individual can help a charity and work for a charity. It would not be absolute, as in many of the other instances we are discussing; individuals or charities could always seek waivers from us, and we would look at them sympathetically. It seems to me that it is a sensible safeguard for charities to have.

Q449 Chris Williamson: Unlock, which, as you know, is the organisation that works with people to overcome long-term problems associated with convictions, told us that, in all but one of the past 10 years, no more than six waiver applications were made to the Charity Commission. They suggested that the waiver was a poorly understood process, and some found that the questions were intrusive and off-putting. Is the waiver process working adequately? What would you do to make it more accessible?

Michelle Russell: We have met Unlock as part of this process, which was really helpful in understanding some of the concerns and issues that it raised. You are right. In terms of the number of applications that we have had, it is a relatively small number. Since 1992, there have been 75 applications for waivers, and most of them were granted—over 90% in the last 10 years.

We think that there is something about people not being as aware as they should of the ability to get a waiver. We want to do more in our guidance, and we promised to make our guidance more accessible and more understandable in terms of process to make it simpler for people who want to apply. We have already appointed an officer within the Commission who would be able to look at the waiver applications when they come in, to make sure that there is a consistent and fair approach between people who might apply. It is a fair criticism in relation to some of the things that they said. Nevertheless, we think that the waiver mechanism is the right safeguard.

Q450 Chris Williamson: Do you anticipate, with the changes that you talk about bringing in, that it will be used more freely, because 75 is pretty pathetic, isn’t it?

William Shawcross: We only had 75 requests.

Michelle Russell: Before we were doing some of the checks that we now do, one of the difficulties for us was identifying who was disqualified from being a trustee. In 2011 we had 20 applications, and we had a project that was looking at who had an IVA, a voluntary arrangement that meant that they were disqualified. That produced more waiver applications in that year. I can see that perhaps if more disqualification orders were being made by the Commission, or if there was greater awareness of this, it might raise the number of applications for waiver. The thing to say about waivers is that they depend on the circumstances. There will be circumstances that may well justify the waiver being granted, but each case will need to be looked at on its own merits.

Q451 Chris Williamson: What will you do to address the concern that Unlock raised about questions being intrusive and off-putting? Is there a way of tackling that, or is it in their very nature that they are going to be intrusive and off-putting to some extent? Does that then mean that it is going to deter people from applying?

Michelle Russell: The very nature of why people would be seeking a waiver means that they will be sensitive questions. We need to make sure, if we are asking questions around it, that we are being sensitive in our reply to the individuals coming to us, as well as complying with the Data Protection Act safeguards that are in place, because sometimes we are dealing with sensitive personal data. We want to make sure that we are being as sensitive as we should be, and perhaps in the past we have not been.

William Shawcross: As Michelle said, most of the waivers that have been requested have been granted.

Q452 Chris Williamson: Yes, but it is a very small number, isn’t it?

William Shawcross: Yes, but the process of requesting a waiver has to be self-started.

Q453 Chris Williamson: I suppose it is a chicken and egg story.

Michelle Russell: We recognise, partly through this process, that, even if it was not there, we would probably need to do some more work on improving our guidance, making it more accessible, and easy to read and understand, and making the process a bit simpler and more accessible. We accept that.

Q454 Chris Williamson: Do you accept the point that Unlock is making? You say that there are other ways in which people can serve a charity, but do you accept that fulfilling a role as a trustee is potentially an important part of rehabilitation? Do you acknowledge that?

William Shawcross: I accept the fact that becoming a trustee of a charity is an important part of rehabilitation, but it is not the only one, although it can be for one individual.

Chairman: I take you back to the issue of statutory inquiries. There is another aspect of this matter that we would like to ask you about.

Q455 Mrs Lewell-Buck: As you will both be aware, one of the consultation proposals was in relation to the Commission being able to exercise powers without the safeguard of a statutory inquiry. So far, our witnesses have been for and against this. I am curious. Do you feel that there is a compelling case for it, or not?

William Shawcross: We have not asked for open discretion on this issue, but we have asked for the specific power under section 84 to be able to make directions, where that is more appropriate, and when the opening of an inquiry adds nothing specific or significant in practice but would add to what we have been discussing already—the bureaucratic demands on us and on the charity. We think that is a way station before opening an inquiry.

Michelle Russell: To understand it a bit more fully, the existing power of direction under section 84 requires, first, a statutory inquiry to have been opened and, secondly, that there is sufficient evidence of misconduct or mismanagement, or risk to charity property, and then that the action that is being asked for is expedient in the interests of the charity. The case where this issue came up was when we had been engaging with a charity in an operational compliance case for about six months; we had done a books and records visit, and there was no more information gathering or investigating to do, but we found evidence of misconduct, mismanagement and risk to charity property. The only bit that was missing was the opening of the inquiry. It seemed ludicrous then to have to go through opening the inquiry, effectively for a day or two, with the public attention that comes with it and the publication of the report at the end of it, simply to exercise that power. It was in those limited cases, where effectively all the work that would have been done in an inquiry, in that bubble, had already been done. It was those sorts of cases.

I know that the sector’s response—or some of the sector, or the lawyers’ response—is just to open an inquiry and do it, but we think that in those sorts of cases it is a bit of a nonsense and not what Parliament intended in terms of the safeguards that should be imposed. That is a sort of parallel to the argument in relation to official warnings.

Q456 Viscount Younger: This is an adjunct to that question, because I want to bring up the issue of whistleblowers. Could you comment on the role of whistleblowers within the Charity Commission, particularly on what is being done or perhaps what more could be done to encourage charities to report misdeeds? We all know that whistleblowers can play an important part in the protection of any organisation. The final question—perhaps the most important one—is whether in your view there should be a statutory duty to enable entitlement for whistleblowers to have a hearing, on the grounds that if they speak up they must be heard.

William Shawcross: Michelle is the person whistleblowers mostly turn to, in her section.

Michelle Russell: Just to be clear, there are probably four types of whistleblower that we see. There is the whistleblower who is an employee of any organisation—a charity is one—and they are protected under Public Interest Disclosure legislation. We are one of the bodies that an employee of a charity can get protection from if they make a whistleblowing response to us. There is the statutory whistleblowing that was introduced by the Charities Act 2006, around auditors and independent examiners who whistleblow things that they find in their audits. Then there is self-reporting by charity trustees. There are different regimes, and we receive reports in all those different categories, from charity trustees, from employees and from auditors, as well as from members of the public. That is the first important thing to say.

In terms of whether or not they should receive a hearing, our starting point would be to look at each of them individually. If we think that we need to interview by telephone, or by bringing in the whistleblower or the complainant, we should be doing that already. I would not have said that it was necessary, in legislation, to insist that that is the case. We would be failing in our role if we should be taking that evidence and we are not. That should be happening.

Chairman: Returning to the disqualification issue, Lord Watson.

Q457 Lord Watson: Mr Shawcross, you said that all the clauses in the Bill are ones that you as an organisation are seeking. I was going to ask whether you felt that disqualification on the basis of a caution was appropriate, so I take it that you do. It seems to me that that is the first of the six conditions under clause 9 for disqualifying. Is that something you are comfortable with, on the grounds that there could well be people accepting cautions—albeit, I accept, for a disqualifying offence—who were left with little option but to do so? The most extreme example of that would be somebody who did not have the financial resources or access to legal representation to contest a case. How comfortable are you, therefore, with the question of cautions?

William Shawcross: I am comfortable with it. It would be used only in particular circumstances, and quite rarely. In the consultation, we found an example of someone who had accepted a caution for stealing money from a charity, but that did not lead to automatic disqualification, although we did feel that it was grounds for not being allowed to continue as a trustee.

On the question of safeguards that you raise—as in all these issues, it is incredibly important—there are safeguards to stop us using this power capriciously or unfairly. Anyone we tried to disqualify on this basis could make representations to us or could appeal to the Charity Tribunal without legal representation, and I have every confidence that the tribunal would hear them fairly.

Q458 Lord Watson: Would waivers apply to somebody in the position of having accepted a caution?

Michelle Russell: The starting point is different. The caution has been added to the discretionary disqualification power, and we think that is right. It is not per se. It is one of the conditions that we would look at if we were considering a discretionary disqualification. We would have to look at the factual circumstances of the individual case. My understanding is that it would not be automatic.

Q459 Lord Watson: It is my understanding that cautions remain on the records of the Disclosure and Barring Service for six years. This section of the Bill allows for disqualification for up to 15 years. Do you foresee any conditions whereby a caution that had disappeared from DBS records would still be something that you would take seriously, in terms of disqualification?

William Shawcross: We would look at every case individually.

Michelle Russell: I would need to triple check, but I think that there is a provision in the clauses as drafted that says that we have to have regard to the Rehabilitation of Offenders Act in relation to that. We would have to take that into consideration when setting the period for disqualification. That is how I see it operating in practice.

Q460 Baroness Barker: The power to prevent trustees taking up positions of responsibility in other charities has, not surprisingly, attracted quite a lot of criticism from some of our witnesses. Mr Shawcross, you answered earlier the first part of the question that I was going to put to you about what you consider to be a position of power. I think you said that it was a treasurer or chief executive. Is that as far as you would go on that? The second part of the question is how far should that power of discretion be exercised? What discretion do you want to have?

William Shawcross: Again, we would look at every case individually. It is an important and rather straightforward proposal. It seems odd that, if someone is disqualified from being a trustee on the grounds of fraud or a terrorism offence, the same person could still go on to become the chief executive or chief financial officer of a charity. A number of witnesses who have come before you in the last few weeks supported the clause for that very reason. It adds an extra safeguard to the management of charities. Michelle can probably tell you more about the specifics of what we have encountered and how it might work.

Michelle Russell: First, it is not completely new territory to us in terms of paid positions and the exercise of our powers. Our existing suspension and removal powers enable us, when there is misconduct within a charity, to suspend or remove paid employees when they have been guilty of misconduct or mismanagement. We have some powers that veer into that territory. But it seems absurd that someone who has public custody over funds and who is in the position of being a trustee, and who we are saying is unfit to be trusted to do that, can then come in by the back door and effectively exercise that control in different ways.

You are right that we mentioned chief executive and treasurer or finance director. There are several ways of doing this. You can go to the Company Directors Disqualification Act and look at some of the definitions there: for example, people who promote or form or manage a charity, such as the director, manager or secretary or similar office. There are also parallels in relation to the HMRC fit and proper purposes test, which has a wider definition than charity trustee. It extends to those who have general control and management over the running of the charity. It means that the HMRC test would be the same as this test. There are some bits of imprint that may be helpful in answer to your first question.

The second question was about how far you should go. I suppose that there are two ways of doing this. You can either start from the position that it is automatic, and then work backwards; or it may be, for example in a discretionary disqualification regime, that at the same time as making an order to disqualify a person from being a trustee we can give consideration as to whether we should go further and disqualify the person from holding those other positions. There are different ways of doing it, to achieve that end.

Q461 Baroness Barker: Following that up, from my experience of working with trustees in particular, it is extremely difficult to put a case for somebody to be disqualified if there is no financial element to their misdemeanours. I think that we are talking disproportionately about financial matters.

On what grounds can somebody appeal? You were talking about terrorism charges. We listened last week to a quite compelling case from some of the Muslim charities about instances in which people had been, in their view wrongly, deemed unfit to be trustees.

Michelle Russell: Again, it depends on how it is framed. The waiver provision would take more prominence in relation to that—being able to grant a waiver. If we refuse to grant a waiver to an individual charity, there should be an appeal in relation to it. The second way is that if it is part of the exercise of discretionary disqualification, which has the appeal mechanism built into it, it could be picked up there. It depends partially on how the clauses would end up being framed as to where the appeal or representation mechanism would come in.

Q462 Baroness Barker: But you accept that there should be a right of appeal.

Michelle Russell: I think so, particularly if it worked on that discretionary basis. If we were making the decision in that individual case, we would expect there to be representations or a right of appeal in those circumstances.

Q463 Sarah Teather: We are neatly moving on to terrorism—Liz has already started. You were quoted in The Daily Telegraph as saying that you began scrutinising 86 charities that could be at risk of extremism, including 37 related to humanitarian efforts in Syria. As you heard from Liz, we had some quite compelling evidence last week from Bond and from the Muslim Charities Forum. Could you tell us a little about why you focused on those particular charities, and how you make sure that there is not a disproportionate focus on Muslim charities, or charities that might be working around international development and humanitarian relief?

William Shawcross: That is a really important question. I think I said that we currently had 86 cases involving allegations of terrorism, and cases in which charities were at greater risk of abuse by virtue of the difficult places in which they were working, in particular at this time in Syria. These cases include abuses linked to terrorism and/or extremism. Not all of them were statutory inquiries. The cases arise probably from five different sources. First, there are complaints from the public. Secondly, there are allegations in the press. Thirdly, there are serious incident reports from charities. Fourthly, it is where we have pre-warned the charity that a certain action could lead us to inspect them, and, fifthly, where we are working with the police—for example, when they have stopped someone carrying large bundles of cash across the frontier, alleging without proof that it was bound for a charity overseas.

As you know, we have had for some time concerns that some of the charities operating in Syria are under serious threat of abuse, and we have been monitoring them particularly carefully. We issued an alert earlier this year about the risk to aid convoys to Syria, and how charities should protect themselves. We wanted charities to scrutinise their work and the risks to them in Syria very closely, and we have tried to encourage them to do that. The reason for doing this is pretty obvious. It is to protect both the public and the charities themselves. We are not targeting any particular groups. That would be awful, and it is not true. Many Muslim charities do great work, which we applaud. I met a group of Muslim charity leaders earlier this year, and made the point to them that we are there to help to protect them as well as the public. I said that if a charity of any sort was linked to an atrocity on the streets of London, like the murder of Lee Rigby, it would be appalling for the charitable sector. Everyone would be damaged by that, and we sought to prevent it happening. They understood that.

Q464 Sarah Teather: Can I return to a couple of things you said? You said that you had warned in specific cases of things that they were doing that you wanted them to stop doing. Could you give us a bit more information so that we can understand what you mean? I also wonder to what extent you have had detailed discussions with charities that are operating inside war zones so that you understand whether your advice is realistic. In practice, if you are operating inside a place like Syria, depending on where you are operating, you are going to be doing business either with a regime that we do not approve of, or with Daesh, or with al-Nusra in other areas. You are going to be pretty stuck if you are trying to operate on any level. How is your advice formulated? Is it formulated on the basis of direct experience of people working in the field, or is it rather UK in its perspective?

William Shawcross: It is a really difficult and tortured subject, and has been for decades. I remember working in Vietnam as a war correspondent in the 1960s and ’70s. The diversion of aid from agencies to warring protagonists was something that they all sought to prevent, but it was very difficult in a war zone.

Q465 Sarah Teather: Impossible, probably.

William Shawcross: Yes, but it is much more difficult and dangerous now, as you suggest. Michelle, do you want to take that?

Michelle Russell: I think you asked two questions. The first was quite quick, around the warning we have done. It is on two levels. We issued an alert in February of this year to charities working in Syria, particularly those running aid convoys, for which there were some particular issues. We warned them all collectively that we would be scrutinising their processes to make sure that they were complying with existing charity law provision on their due diligence and monitoring—making sure that they were safeguarding their volunteers and those sorts of things. There was a collection of work in that area. There are other charities where we have gone in and done inspection visits—for example, where they could not produce the records or the things that we would expect a normal charity to have in that connection. We have given them an action plan and gone back six months later to make sure that they have made the improvements.

Q466 Sarah Teather: Are they UK-based records, or records from inside Syria?

Michelle Russell: They are records in the UK. It is about being sensible.

Moving to your second question about the officers doing the investigations, we need to up our game and make sure that we understand the context in which charities are working, and the local rules of engagement on the ground—for example, in Syria, they are not the same as in x high street in the UK—to make sure that we are adapting to that. Some of the officers we employ are ex-charity employees who have worked with large international aid agencies and have that experience. Some are from that sector, and some are from other regulators. There is a real mix of people to make sure that there is a blend.

I can reassure you that, particularly over the last year, we have been trying to make sure that we are getting out and talking to some of the charities that are operating there. We have had numerous visits—myself and my officers—to charities to understand the context, and what is achievable and what is not. We are working closely with DEC agencies as well; if it is not realistic or achievable for them, it is not going to be realistic or achievable for a smaller organisation. To give you a little reassurance on that, we are very alert to it and doing more.

Q467 Sarah Teather: One other thing came up in the written evidence from the Muslim Charities Forum was that it said in particular that any form of investigation or cloud of suspicion, particularly if it involved the Charity Commission, would have huge implications for the charities that are part of its membership group. It said that it was incumbent on the Charity Commission, if it had done an investigation and found nothing wrong, to take an active role in rehabilitating the reputation of that charity. I wonder whether you have taken that on board in any way, and, if so, what action might you consider taking?

Michelle Russell: We have. We have also made clear, for example, that if charities come to us early on, before the problem escalates, we will give them credit for that publicly, in terms of making a serious incident report. We will put it into our public notice, and we will put it in the inquiry report. There have been two cases recently where, although there were some compliance issues, we identified some good practice. We want to make sure that we give credit to charities for the areas they are doing well in, and doing better than others, at the same time as dealing with non-compliance issues. There is more we need to do on that, and we are conscious of it, but the other element, of course, is making sure that the inquiries do not go on for too long. We need to get faster on how long we are taking with inquiries, and to get it as short as possible.

Q468 Chairman: In this group of questions, we have been thinking about Syria. I wonder whether you have been scrutinising charities operating in Gaza, and whether there is any experience that you can bring to bear on how you are dealing with them in this same problem—the problem of differentiating between those who are trying to achieve a humanitarian purpose, but are locked into a system that requires them to deal with proscribed organisations, and those who are plainly trying to assist proscribed organisations.

Michelle Russell: Yes, we have some cases involving concerns and issues in relation to getting aid safely into Gaza, and giving assurance particularly in relation to the banking sector around that. We have had lots of meetings with DEC, the British Bankers Association, the NCVO and the Charity Finance Group on some of these issues to try to find a way through. It is not just Gaza and Syria; it happens in different conflict zones. We have had cases in relation to Al-Shabaab in East Africa, and the conflict zones in Afghanistan. It is not confined to those areas, and it is not confined to Syria either.

Q469 Chairman: Would I be right in understanding that there are established mechanisms for dealing with this problem, which the bodies you have been referring to know about and can operate?

Michelle Russell: There are, but there are practical difficulties that a lot of the charities delivering humanitarian aid on the ground are finding, both in terms of the safety of their individual staff members and the extra things that they need to do there, and in terms of the practical arrangements, particularly when sanctions are imposed in relation to banking issues, in trying to get the money safely over there.

The other area is in relation to the fact that not all of them have offices out there. They rely on local partners. How do they know that the local partner that they choose to rely on to deliver their aid is, first, one that is safe for them to use, and, secondly, that they are going to make sure that the money that they are giving them, which has come from the British public, is going to go where it should. There is a host of practical, legal and operational challenges, not just in charity law but other aspects for the charities that work in that field.

Q470 Baroness Warwick: In a way, this is a consideration of what you are saying. I wonder whether there is a sort of lapse in timely communication. Both Bond and the Muslim Charities Forum, having expressed concerns about all that, expressed willingness to develop guidance for charities working in challenging conditions overseas. I wonder if that is something the Commission would be willing to do, clearly in a slightly more formal way than I think you have indicated so far.

William Shawcross: We have good relations with Bond and the Muslim Charities Forum, and we have been discussing that in some detail.

Michelle Russell: We have. We met individually with Bond and Muslim Charities Forum members over the summer. Without veering off subject, but given the impact of the banking de-risking piece, we have already started work with the Disasters Emergency Committee in trying to support them. We have offered the NCVO and the Charity Finance Group that, if they were to work up some best practice standards, we could help to endorse them, which would make it clearer for some of the charities that are working there.

The other thing is that we have already issued guidance for charities in relation to terrorism legislation, on moving monies overseas and how to do so safely, and on due-diligence monitoring for the end use of funds. We have given some guidance and practical tools on the legal charity law aspects, but some of what they are looking at is the best practice element. We think that they should lead on that, but we are happy to support them through the relevant umbrella bodies.

Q471 Baroness Warwick: Perhaps I could follow that up with a more general question. We have had evidence from a number of witnesses, including the independent reviewer of terrorism legislation, David Anderson QC, who argued that the terrorism offences referred to in the Bill are very broad, and therefore have consequences for people operating in these areas. I wonder if you share those concerns. More specifically perhaps, he pointed to the fact that Australia and New Zealand have provisions in law that provide legal cover for charities providing humanitarian relief. I wonder whether you have any comments on that as a proposition.

William Shawcross: On your first point, I read his evidence to you. He is a distinguished lawyer. I do not think that the new powers that we are asking for are too broad. They are pretty specific. Although it is important that those in desperate need in war zones like Syria are assisted, it is also very important for us to be able to do everything that we can to see that British charities are not infected by extremism. That risks bringing the whole charitable sector into disrepute, and, as you know, that is a growing concern. Charities must operate within the law, and not deal with proscribed organisations.

Your second question, raised by David Anderson, was about Australia and New Zealand. It is an interesting point. The exceptions that he has talked about are not completely new. For example, the UN allowed charities to deliver aid in the war zone in Somalia some years ago, when it was clear that they had no control whatsoever over where it was going. A lot went to the needy, but not all of it. The change that he was describing, to bring us into line with Australian and New Zealand law, would obviously require primary legislation, and that would be something for Parliament.

Q472 Baroness Warwick: It is not something on which you have taken a position.

William Shawcross: No.

Michelle Russell: No. The only other thing I would add is that there are probably some mechanisms under existing legislation—not charities legislation, but parts of other legislation—that charities perhaps do not take enough advantage of. For example, charities are under an obligation to report their concerns under section 19 of the Terrorism Act. We have identified that, but we do not think that charities are sufficiently aware of it to make sure that they have some protection. The other way is under the SAR regime—the suspicious activity report regime—where they can apply for consent for a particular transaction. That is probably underused by charities, if they are looking for protection when giving a financial transaction to a particular group or area. It does not solve all of it, but there are some mechanisms that are probably underused.

Q473 Baroness Warwick: That might be part of the discussions that you have with the charities that we referred to earlier.

Michelle Russell: We are planning to issue an alert in relation to the section 19 reporting issue. We have been waiting for some cases to finish, and we are going to do that collectively with some of our partner agencies, including the National Crime Agency, the police, DFID and others.

Q474 Chairman: If I understood him correctly, David Anderson’s remark about breadth, the definition being broadness, was directed to terrorism legislation and not the Bill that we are looking at. The problem as far as the Bill is concerned is that it has to lift out the statutory mechanisms for offences, and it cannot differentiate between the definition of terrorism for your purposes and what is in general legislation. Do you take on board his point that you would require to be careful in applying the broad definition of terrorism when looking at individual cases that people suggest are within the definition?

William Shawcross: Yes, absolutely. We would be very careful, clearly.

Michelle Russell: Where the terrorism offences are listed in the legislation, there will have been a conviction and due process. Effectively, it will have gone through a judicial process—police investigation and a judicial process—for people to know that they have been convicted of a particular terrorist offence before the automatic provisions would kick in.

Q475 Chairman: That, in a way, is the easy side. What about the discretionary disqualification power, particularly where there has been a caution?

Michelle Russell: We would certainly be very careful in doing that, and we would also work closely with our agency partners to take advice on that.

Q476 Viscount Younger: I move on to the power for winding up a charity. Would you briefly outline for us the process that would be followed in the event that the Charity Commission decides to wind up a charity, and what opportunities there might be for those involved in the charity, and perhaps the wider public, to contest the decision? Will there be some sort of appeals process, perhaps? Will there be a notice period, and how will it be publicised?

William Shawcross: It would be a power that was used only rarely. It is a power to direct trustees or others to wind up a charity themselves. The public trust and confidence condition is designed to ensure that it would be used only in extreme circumstances. Of course, in terms of an appeal, like many of the other things that we have been discussing, it would be subject to decision review within the Charity Commission, and then appeal to the tribunal if necessary.

Michelle Russell: It is fair to say that the period of notice or public consultation is probably not one that we had considered previously, but we would be happy to explore that further with the Cabinet Office. The only thing that I would say on the process and qualifications, although it is not easy to read on the face of the Bill, is that we would only be able to use this power if a statutory inquiry had been opened and there was evidence of misconduct or mismanagement, or risk to charity property. Quite a lot of safeguards are in place before we can get on to considering the final test that William referred to.

Q477 Mrs Lewell-Buck: Regarding exempt and excepted charities, do you feel that there is a need to change the registration arrangements and thresholds? Do you also think that the Commission should be communicating more proactively with those charities to ensure that best practice and guidance is spread to all charities?

William Shawcross: Exemptions and excepted charities is a really complicated issue. It certainly appears to be rather confusing. It has arisen over many years, and I think I would describe the way in which we are handling it as pragmatic and workable. I won’t take you, unless you want to be taken, through all the different categories of exemption and excepted, but there are about 14,000 exempt charities, which have another regulator as their primary regulator under the Charities Act, such as English universities. We have a strong relationship with the principal regulators of the exempt charities, to ensure consistency, and we only use our investigation and enforcement powers if the principal regulator asks us to do so. The system works quite well.

The excepted charities are not registered with us, but they are fully subject to our regulatory jurisdiction, and that in itself is obviously confusing to outsiders. They include about 80,000 small charities with an income of under £5,000 a year, and groups of charities that are excepted and which have an income of under £100,000 a year, such as guide and scout groups, and there are about 75,000 of these. The intention of the Charities Act 2006—Lord Hodgson would be able to speak to this eloquently—was to phase out the charities excepted by regulations by lowering the income threshold for exceptions, which, as I said, is currently set at £100,000.

We agree that there should ideally be a level playing field for all such charities, but if the 75,000 excepted charities—I am sorry, this is really quite confusing—came under us, we would need additional resources to meet the costs of registering and regulating them. It is quite a large number of charities, and almost half as many again as we already have. It is a long-term issue, but I am sure that in the long term the two thresholds will come together and more of them will be registered.

Q478 Mrs Lewell-Buck: You said that it would be a costly exercise, but would it not just be simpler in the long term to bear the brunt of that cost, and to have all charities registered? Then you would not have this complexity.

William Shawcross: You are right, but it would have cost implications for us. It would be another 75,000 charities on top of the 160,000 that we already register and regulate. We would have to go cap in hand to the Treasury and say that we needed more money to be able to regulate these extra charities.

Q479 Mrs Lewell-Buck: This is the case just in England and Wales, isn’t it? It is not the same in Scotland, and Northern Ireland is moving to something different.

Michelle Russell: I am not sure.

William Shawcross: I shall check that for you. Do you think that Scotland and Northern Ireland have an example for us that we should look at?

Q480 Mrs Lewell-Buck: I think they might. I might be wrong of course.

William Shawcross: Thank you. That is very interesting, and we shall look it up. It is a complicated issue. It is historical rather than anything else. In the long run it should be regulated; it should be clarified, but there are implications.

Q481 Chairman: May I ask about your relationship with the Charity Tribunal? It has been suggested that the work of the tribunal has created a lot more work for the Commission, which has been a problem for you, particularly, as we have been hearing, in a time of diminishing resources. Is that a fair assessment of the position?

William Shawcross: It is a fair but partial assessment of the position. The tribunal does, of course, create quite a lot of work for us, and some appeals to the tribunal are mischievous or a delaying tactic. However, as against that, the more important point is that the tribunal is a crucial part of the 2006 Act. It is a court of appeal against our decisions. It is absolutely crucial that anyone who feels that he or she or their charity has been misjudged or mishandled by us should have that right of appeal.

The tribunal was set up by Parliament in the 2006 Act, and reconfirmed in the 2011 Act. It is an entirely proper and helpful part of our process. It is quite right that if we make a decision that we think is correct, such as if we decline to register a new charity, and that charity thinks that that is outrageous, it should be able to go to another court of appeal and have the tribunal. The lower tribunal, as I mentioned before, was designed to be relatively costless, or uncostly. Neither charities nor individuals are compelled to take expensive lawyers to the lower tribunal. In some cases they still do, because they want good representation and they think that they cannot do it on their own. None the less, it has the option of being a relatively cost-free process. I conclude by saying that, yes, we regard the tribunal as an essential part of the 2006 Act, with which we work very willingly.

Q482 Chairman: I think I am right in saying that there are mechanisms other than the system of appeal built into the 2011 Act. There is a system of references, and I wonder whether that particular channel of communication between the tribunal and yourselves is much used, or is it really an appeal process that you are concerned about?

Michelle Russell: We can clarify this when we provide you with the follow-up, but I think that it has been used once. My recollection is that the reference has to come from the Attorney-General rather than from the Commission. I could be wrong on that, but that is my understanding.

Q483 Chairman: I think that you are right, but it would be interesting for us to know the balance between the various processes, which are defined at quite some length in the statute.

Michelle Russell: I think it is exceptional for the reference to be used. Most of the appeals are on registration. We had a couple of schemes—for example, the Bath recreation ground case—but we are seeing an increasing number of appeals in the tribunal against the decision to open an inquiry. As William indicated, one of the concerns that we have at the moment is that it should not be used as a tactic to frustrate the Commission in getting on with its investigation. That is something that we are mindful of. We want to be speedy in those cases and to respond quickly as the Commission, and the tribunal is open or alert to that possibility.

Finally, as more cases come before the tribunal and more appeals happen, I can envisage appeals being done on the paperwork, so there will not be a need for lawyers on either side. It would just be a matter of someone looking afresh at the paperwork that was relied on in the decision. That, of course, would reduce costs for both sides. As it matures—as we mature, the tribunal matures and the process matures—things like that will find their way, but we need to watch that space.

Q484 Chairman: Finally, if I might add to your paperwork, would you give us a little more background information about the use being made of these mechanisms? That would be very helpful.

William Shawcross: By all means.

Q485 Chairman: We are going to have to stop now. We are extremely grateful to both of you for giving up so much time this afternoon. It has been very helpful to discuss these matters with you at this stage, after having heard the evidence. It was good of you to come back, Michelle Russell, to help us with your knowledge and experience. Thank you both very much indeed.

William Shawcross: We are very grateful to you for all the work that this Committee is doing to see the Bill through, and I hope that you will in the end decide that it is worthy of legislation.

Chairman: Thank you.

[1] The Charity Commission subsequently confirmed that in the past, it had two separate targets in order to encourage more people to make submissions online, rather than by hard copy. As the bulk of incoming correspondence received by the Commission now comes online or via email, the target response time has been normalised to 15 working days for all correspondence. Year to date response rate within 15 days is 74%. Everyone who contacts the Commission through the online portal gets an automatic response. There is no automatic acknowledgement for written submissions.