In the House of Commons on 11th October 2016 Peter made the following contribution to this debate
May I begin by thanking all hon. Members who have made such valuable contributions to today’s debate? There were 11, alongside interventions, starting with the right hon. Member for Meriden (Dame Caroline Spelman), who talked about her involvement in the setting up of charities and the challenge she had in worshipping at the same time as filling out an envelope. She also talked about the demographic discrimination in relation to cheques and the need for them to be included in these proposals.
The hon. Member for Aberdeen North (Kirsty Blackman) welcomed the measures, but again raised the plurality of methods of giving and the challenges faced by smaller charities, which these proposals do not assist with. The hon. Member for Rochford and Southend East (James Duddridge) managed to get his wife, his mother-in-law and a shovel into his speech, which was an achievement, but importantly he also raised the issues of cheques, SMS messages and people’s ability to get their money into the charitable system through a plurality of methods of giving.
My hon. Friend the Member for Clwyd South (Susan Elan Jones) talked about the importance of supporting charities and the improvements that the Bill may bring and, again, raised the question of cheques as a way forward. The hon. Member for Taunton Deane (Rebecca Pow), who is not in the Chamber, referred to the bucket shaking that she does regularly and applauded those who go out collecting for various charities. She also welcomed the simplification introduced by these proposals.
The hon. Member for Foyle (Mark Durkan) also talked about the flexibility of methods of giving that are not in the Bill. He, too, pushed that issue. The hon. Member for Congleton (Fiona Bruce) also talked about the need for cheques and the ability of older people to participate by giving cheques. The hon. Member for Somerton and Frome (David Warburton), worshiping in his church, welcomed the simplification and the spontaneity in giving, as did the hon. Member for North East Hampshire (Mr Jayawardena), who again had a challenge: could the church get a contactless machine up the aisle at the same time as worshiping? That seems to have been a theme today. The hon. Member for Mid Dorset and North Poole (Michael Tomlinson) talked about the Great Santa fun run raising thousands of pounds and, touching everyone’s heart, the Waggy Tails Rescue dog re-homing charity.
We on the Labour Benches want to thank the charitable sector for all the remarkable work it does for all the communities we represent. Without its valuable role, many services in our communities would simply not exist, so the Opposition are broadly supportive of the content of the Bill. As such, I will keep my closing comments fairly brief. My hon. Friend the Member for Worsley and Eccles South (Barbara Keeley) has already made reference to our concern that loosening the eligibility criteria could increase the risk of fraud. That is important. The fact that a charity would not need to be registered for two years raises the question of whether just about anyone could set up a charity and relatively easily receive £2,000 of taxpayers’ money. That is an important point, so does the Minister have any figures on the amount of fraud that has taken place in the gift aid small donations scheme thus far?
The question of the risk of fraud is extremely important, given the inadequacy of the regulation of charity taxation. We hear about Government funds being mismanaged in elements of the charity sector or about charities being set up merely for the purpose of tax avoidance
Does the shadow Minister agree that the call should be to ensure that the appropriate due diligence must be undertaken in new charity registrations, in particular by the Charity Commission, before a charity registration number is issued? I take on board his point about potential fraud via this scheme, but of course any charity being registered can start collecting and we need the public to have that confidence.
I completely understand that. At the end of the day, the process has to be sufficiently robust to ensure that fraud does not exist.
In that regard, the Charity Commission has identified the estimated levels of abuse, mismanagement, fraud and money laundering in charities today, in a succession of reports entitled “Tackling abuse and mismanagement”. It has identified an increase in the incidence of fraud in relation to charities, and a range of cases in which the commission gave evidence in criminal prosecutions, including against trustees who stole £350,000 from a charity for the relief of the people of Afghanistan, which is shocking. The number of compliance cases brought by the commission almost quadrupled between 2012 and 2013, demonstrating both that the commission needs our support and that we ought not be complacent. In that light, when proposed legislative changes come before the House, it is incumbent on us all to be vigilant. I do not want to rain on the party, but we need to be vigilant.
The problem is not just straightforward crime. There is something worrying in our corporate and tax-avoidance cultures that see charities as a means of making money. In recent years, a prime example is the Cup Trust, about which the Public Accounts Committee produced a damning report in 2013, while there was a judgment in the High Court earlier this year about the same issue. The report summarised:
“Despite its declared charitable aims, it is clear that the Trust was set up as a tax avoidance scheme by people known to be in the business of tax avoidance.”
In the meantime, the Cup Trust has claimed gift aid of £46 million. Regrettably, such tax-avoidance schemes are not isolated. As Professor Alastair Hudson, an expert on these matters, put it:
“There is something about the ‘goodness’ associated with charities, which made people reluctant to investigate or to criticise them.”
It is worth noting that when Northern Rock collapsed in 2007, it came to light for the first time that the bank had created a corporate structure known as “Granite”. This included what has been explained by academic commentators as a discretionary trust involving a small charity in South Shields among its beneficiaries. It appears that the charity was named without its knowledge. Moreover, it appears that the only purpose of this structure was to be “tax-efficient”. The presence of the charity in the structure appears to have been unconnected to working “for the public benefit”. We cannot be complacent about the law on charities, while that sort of activity is considered to be an ordinary part of corporate life. While tax avoidance is legal, it is, as Lord Denning said, “not yet a virtue.”
Of the 164,000 charities in the UK, a large number still do not lodge accounts with the regulators. It is difficult to know whether they are moribund, carrying on work “for the public benefit”, or being used for other less charitable purposes, so to speak. That does charities no good at all—and we need to protect them. Even the highest-profile charities such as Kids Company can be sources of mismanagement and bad financial practice.
Notwithstanding the best intentions of these proposals —namely, the loosening of eligibility criteria—it is vital that sufficient safeguards are in place to prevent fraud when Government funding or tax breaks are provided, as in this case, to the charity sector. I think that sentiment would get cross-party support.
That said, and as I indicated earlier, we are broadly supportive of the measures contained in the Small Charitable Donations and Childcare Payments Bill and we will not oppose it on Second Reading. We will, however, seek to improve the Bill in Committee next week, and I hope that the Government will support us in that.