Small Charitable Donations Bill

Public Bill Committee, 30 October 2012.

Clause 10 - Overpayments

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

It is a pleasure to be back in Committee this morning. We made good progress during the last sitting, and I hope we can do so again today because there are some very important issues to discuss.

It may therefore seem rather strange to take a stand on this clause, which on the face of it appears fairly straightforward and provides for overpayments and top-up payments to be repaid to HMRC. The clause states:

“If—

(a) an amount is paid to a charity under section 1, and

(b) the charity was not, or has ceased to be, entitled to it (because of section 2(3), 3(2), 4 or 9, or otherwise),

the amount must be paid to HMRC.”.

The Opposition are not suggesting that an amount paid to which the recipient was not entitled should not be repaid, but I want to ask the Minister a number of questions. How, for example, is it anticipated that such overpayments will be collected from the charity in question? Will the Minister also explain the issues that may arise for individual board members or trustees of particular charities if such amounts have to be repaid?

Are there circumstances in which HMRC would not seek to reclaim overpayments, and they would be written off? The Bill as drafted does not seem to provide for that possibility. In the case of child maintenance, for example, there are circumstances where, with the best will in the world, the Government might decide that it is impossible to reclaim the outstanding amount, or that doing so would cost more than the amount itself. However, there is no provision in the Bill before us to write off such an amount in such circumstances. Therefore, it would help if the Minister could provide an explanation, or if he told us that this issue will be dealt with in yet another set of guidance. I am beginning to think that if charities had a pound for every word of the guidance, we would rapidly be approaching the cap that has been set on the amount of top-up payments to be made under the Bill.

Also, is there going to be a link in terms of gift aid payments? For example, where such a payment has been made, rather than reclaiming it or having that sum paid back, HMRC has the option of taking back from gift aid payments that would be payable to the charity at some point in the future. It would be helpful if the Minister responded to those points.

Gareth Thomas (Labour, Harrow West)

Perhaps it would help if the Minister considered an imaginary but nevertheless plausible example: if the Second Bromsgrove Scouts made a claim and HMRC demanded it back. In what circumstances would they have to pay it back? In what circumstances would the payment, wrongly delivered, be written off?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

My hon. Friend puts in straightforward language exactly the type of questions that the Minister should answer. We have had a great deal of discussion about the Bromsgrove Scouts, and this typifies the kind of situation that many charities and small organisations throughout the country would be concerned about. People rightly worry about the powers of HMRC, about getting on the wrong side of that organisation. No one is suggesting that there will circumstances in which people should not pay money back if payments have been made inappropriately or they were not entitled to those payments. However, in the real world of small charitable organisations, all of us who have been involved with them know that there are times when funding comes in and is used to keep the organisation running and is spent on ongoing costs, and some small organisations may get into serious difficulty.

Fiona O'Donnell (Labour, East Lothian)

My hon. Friend makes an important point. The Minister and all of us need to remember that small charities, in particular, are made up of volunteers who may not be accountants or lawyers—who may not have that background—and if we do not want to deter them from taking advantage of this scheme it is really important that the Minister spells this out clearly for them.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I thank my hon. Friend and welcome her to the Committee. She has been in considerable distress because of her injury and because she has missed the Committee. I know that she wanted to make a number of points on behalf of organisations in her area, and I am sure she will have the opportunity to do so today. She makes a powerful point that I want to probe the Minister on. What are the responsibilities of board members and trustees of charities—or the people who run Bromsgrove Scouts or another such organisation—if difficulties arise over overpayments being repaid to HMRC? What will HMRC do in those circumstances? Will HMRC be able to arrange repayments over a period of time; will it take enforcement action if repayments are not made; what position will that put the charities and individuals involved in; and what is the position regarding the link to gift aid payments? Will there be a facility for any overpayments to be offset against gift aid payments due to come from HMRC at another stage?

I will not labour the point any further; I think I have raised the questions that charities and voluntary organisations will be most concerned about. I hope the Minister can give some immediate responses to those questions and some comfort to those organisations—that nothing will be done to make it more difficult for people to operate Scout groups or small charities at local level, or to deter volunteers from taking up positions on charitable organisations, boards and management committees. I look forward to hearing what the Minister has to say.

Nigel Mills (Conservative, Amber Valley)

It is a pleasure to serve under you again, Mr Turner. This seems an eminently sensible clause: none of us wants a small or even a large charity to claim something it should never have been entitled to, to have somehow been paid it and for us to have no power to force it to give the money back. We clearly need this clause, but it might be better if were titled not “Overpayments” but “Undue payments” or “Inappropriate payments: recovery thereof”.

The clause refers to getting money back from charities that have suffered a penalty and are therefore not entitled to claim; or charities which used the money that was donated not for the charitable purpose; or charities which were connected and therefore not entitled to make multiple claims. None of those are particularly contentious points. I wholeheartedly agree that we need to get the guidance right—we do not want HMRC carrying out ridiculously detailed, inappropriate audits, or clobbering charities for something they probably have not done. We need the clause. It is entirely appropriate and the key, as so often, is to make sure that HMRC implement it in a fair and constructive way, rather than as a proverbial baseball bat to beat people round the head with.

Fiona O'Donnell (Labour, East Lothian)

It is, indeed, a pleasure finally to be here to serve under your chairmanship, Mr Turner. I apologise for not having been able to join in so far, but I have been following proceedings. I want to raise some concerns about clause 10, as my local area is about to register our charity, the East Lothian food bank. Although we will have to wait three years before we can take advantage of the Bill, I want to know if the Minister will be issuing guidance to HMRC on whether the method by which it will recover the money will lead to that charity ceasing operation. Obviously, we do not want charities to fold because of the thought of having to repay money in a way that threatens their sustainability. As we know, the charitable sector is struggling enough now, so I want some assurances from the Minister that HMRC will always negotiate with the charity looking at its health and the health of the people using its services.

Sajid Javid (Conservative, Bromsgrove)

I thank the hon. Member for Kilmarnock and Loudoun and the hon. Member for Harrow West for their comments and questions, which I shall try to answer. I welcome the hon. Member for East Lothian to the Committee. It is nice to see her.

The clause provides for overpayments of the top-up payments made to charities to be repaid to HMRC. Clearly, all members of the Committee accept the principle behind such a provision. An overpayment can arise for various reasons: for example, if the charity incurs a penalty in respect of its gift aid claims so that it no longer qualifies for the top-up; or because the top-up received by the charity is not applied for charitable purposes.

As we have heard during the debate, certain conditions are attached to charitable purposes that must be met, such as the community buildings rule. If no charitable activity were taking place, that could cause an overpayment. Furthermore, an overpayment could occur because connected charities did not pool the donation limit before they made a claim. If an overpayment arises for such reasons or for another reason, the charity must repay the amount to HMRC. How HMRC will recover overpayments from charities will be set out in the small charitable donations regulations—the administrative framework of the scheme. When we consider the next clause we will discuss that framework and the draft regulations that have already been published.

I want to touch in a little more detail on how the provision might work in practice. Overpayments will be reclaimed by HMRC in the same way that it currently claims back overpayments for gift aid. A claim form for gift aid and the scheme will have boxes for charities to show whether they have already received an overpayment. In answer to the question from the hon. Member for Kilmarnock and Loudoun, overpayments can then be set against gift aid payments or other liabilities that the charity might have to HMRC, such as PAYE. As we expect, HMRC will exercise its collection and management powers in cases of genuine difficulties. Where the overpayment was clearly unintentional or a mistake, particularly in the case of a small charity that does not have enough resources, HMRC will have sensible discretion to negotiate with the charity.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I thank the Minister for that information. However, the provision is becoming more and more complex, so I shall perhaps return to it later. Can he give some comfort in the event that HMRC makes an error and overpays? Is it the intention that HMRC can seek to have that money returned? In what circumstances would that happen, and how will the process be carried out?

Sajid Javid (Conservative, Bromsgrove)

If HMRC makes a mistake and overpays, it is right that HMRC will seek to have the overpayment returned. That is standard tax practice, and there is nothing unusual or unprincipled about it. Clearly, in such circumstances it will be even more important that HMRC work carefully with the charity, because it was HMRC, not the charity, that made the mistake. I would expect HMRC to work with the charity flexibly, such as by making time-to-pay arrangements—in other words, a negotiation to ensure that although the money will eventually be returned to HMRC, the charity can meet that burden without a negative impact on its activities.

Gareth Thomas (Labour, Harrow West)

The Minister will not be able to do this now and I do not expect him to, but to help the Committee to reflect before Report on what he has said, will he provide us with an estimate of the level of error by HMRC in relation to gift aid payments? That will help Committee members understand whether we should probe the clause further or simply accept the standard practice.

Sajid Javid (Conservative, Bromsgrove)

To the extent that we have that information, I am certainly happy to find out more and provide the hon. Gentleman with it.

I want to say a word about guidance, which has been mentioned several times in the debate, including, understandably, by the hon. Member for Kilmarnock and Loudoun. It is not unusual in relation to such tax or finance measures that the guidance that clearly has to follow such a Bill is quite substantial. A Bill may be technical, and it is important that the guidance be sufficiently substantial and clear that those whom we expect to benefit from the Bill can make the most of it.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I asked the Minister whether there were any circumstances in which HMRC would decide that it was sensible to write off the debt and any repayment. As far as I can see, the Bill as drafted will not allow for that. Is that correct, or have I misunderstood?

Sajid Javid (Conservative, Bromsgrove)

I am not aware of any circumstances in which HMRC could write off an overpayment. However, I can foresee some in which the amount involved might be so small—or perhaps in which there is a particular unique situation—that pursuing and collecting it would not be sensible from the taxpayers’ point of view. I understand that HRMC could, under existing general rules, use its discretion to decide how to deal with overpayment of taxes, as well as this type of payment.

I want to remind the hon. Lady of the time when her party was in power. For the 66-page Tax Credits Act 2002 there were 400 pages of guidance, for the three-page Finance Act 2006 (Tobacco Products Duty: Evasion) (Appointed Day) Order 2006 there were 67 pages of guidance, and for the 108-page Climate Change Act 2008 there were 420 pages of guidance. There may have been good reasons for that, but I hope she is clear that having quite a bit of guidance on the back of Bills is not unusual.

Gareth Thomas (Labour, Harrow West)

By citing those examples, the Minister is now suggesting that charities wanting to claim gift aid and having to wait for three years to access the small payments scheme will have to wade through not only the 60 or 80 pages of guidance for claiming gift aid that are already on the HMRC website, but at least another 66 or more pages to try to claim a maximum of £1,250. His admission cuts to the very heart of the Opposition’s concern that this is an overly complex way for small charities to get a small grant from the Treasury.

Sajid Javid (Conservative, Bromsgrove)

It is a nice try by the hon. Gentleman, but it is not going to work. That is not what I am saying at all. I am merely dealing with the point that legislation is followed by guidance. It is not correct for the hon. Gentleman and the hon. Member for Kilmarnock and Loudoun to suggest, both in this debate and in previous sittings, that it is somehow not right to have so much guidance and that it should be in the Bill.

Mark Durkan (Social Democratic and Labour Party, Foyle)

Can the Minister give any indication of how wide or narrow the scope of “otherwise” in clause 10(b) will be in the guidance? Is clause 10(b) telling us that the reference will be to issues relating specifically to this legislation only, or will “otherwise” be cast widely? For example, if the Charity Commission decides that the Plymouth Brethren no longer qualifies as a charity, does that mean that HMRC would use that as a trigger point for recovery?

Sajid Javid (Conservative, Bromsgrove)

In the example that the hon. Gentleman gave, HMRC would clearly use other available information and be guided by the Charity Commission. HMRC will use a broad set of information when applying this clause.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

When I first spoke about the clause, I wanted to probe particular circumstances where overpayments may be made, perhaps because of arithmetical problems. However, we need to probe further something that the Minister said earlier about top-up payments received but not used for charitable purposes, which links to what my hon. Friend the Member for Harrow West said about the definition of charitable purposes. I now worry about how the use of top-up payments will be policed. Perhaps the Minister can throw some light on that.

Sajid Javid (Conservative, Bromsgrove)

As with most matters pertaining to taxation, other top-up payments and the gift aid process itself, which is linked to this programme, there will be a degree of self-policing. There is no process whereby HMRC will be able to check and triple check every piece of information that it receives. There will be an auditing process, as there is with tax in general, perhaps on a random basis, and if HMRC received some kind of tip-off from insiders at a charity, it would be prudent to investigate to ensure that the rules are being met. It is a self-policing process in the sense that once the rules are known, HMRC’s expectation is that charities will abide by them. If it has reason to think that a charity is, as in the hon. Lady’s example, using top-up payments for a non-charitable purpose, we would expect it to investigate.

Returning to the question of the hon. Member for Foyle about the word “otherwise”, if a charity ceases to be a charity, it will no longer be eligible for this scheme, but HMRC works with charities while the Charity Commission inquires into a charity’s status. I hope that that is helpful.

Mark Durkan (Social Democratic and Labour Party, Foyle)

I thank the Minister for that indication. How would HMRC deal with a situation where the Charity Commission in England indicates that it is no longer minded to regard a group such as the Plymouth Brethren as a charity, but the Charity Regulator in Scotland or the Charity Commission for Northern Ireland are offering no such indication and are saying, “No change”? How would HMRC reconcile the different interpretations among charity regulators? Would HMRC be specifically informed about such differences of interpretation when it considers the matter?

Sajid Javid (Conservative, Bromsgrove)

HMRC uses the Charities Act 2011 as the basis for whether a charity is a charity. As we have discussed on previous clauses, it is possible that the Scottish authorities could recognise an institution as a charity while for HMRC, using the 2011 Act as the definition of a charity, it could not be a charity. In such a case, the charity will not be allowed to use the scheme. We have discussed that before.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

The Minister’s last point on organisations that are recognised as charities in the devolved Administrations but are not recognised as such under the 2011 Act raises some serious issues. I recognise that this is not the clause under which we should discuss that, but these issues have been raised previously and we will have to return to them.

Mark Durkan (Social Democratic and Labour Party, Foyle)

The difficulty is that the Minister’s points sensibly deal with where charities are deemed to qualify for such payments, but the real issue with recovery is where charities are disqualified, and that is where an invidious situation could arise.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

My hon. Friend makes an extremely valid point and I hope that the Minister will reflect on it. We may have the opportunity to discuss it at a later stage.

No one would suggest that there should not be a provision such as clause 10 to recover overpayments. It makes perfect sense to have that, but a number of scenarios have been presented this morning that raise concerns. The way the Minister went on to speak about self-policing, tip-offs from insiders and all sorts of other things going on within charities will put fear into many of the ordinary volunteers who sit on the boards of charitable organisations. They already worry about doing the right thing and ensuring that they have not done anything outside the rules.

Fiona O'Donnell (Labour, East Lothian)

My hon. Friend will know that one charity very dear to the heart of the Government is the independent school, Eton. I wonder, in terms of self-policing, how vigilant the Minister intends HMRC to be about the independent schools sector’s use of this?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I take the point. [ Interruption. ] I hear hon. Members across the Committee shouting out the names of other independent schools. My hon. Friend makes a genuine point: there is an issue with organisations when not all their activities will be deemed to be for charitable purposes. That was the issue I was raising. Who will decide whether that particular top-up payment—remember that we are talking about £1,250—was being used solely for charitable purposes? The Minister has said that, in future, to a large extent, that will rely on self-policing, but, none the less, that HMRC would have the opportunity to come in and audit, spot check or do a whole range of other things.

I hope that the Minister understands that we are raising these issues in the context of proportionality. I do not know how many times he has mentioned fraud and all those issues in earlier debates, but we are concerned that more attention seems to be paid to potential fraud than to encouraging charities to take up the opportunity of getting the top-up payments. I do not want to reopen that debate at this time, but we have to ensure that whatever measure is there is proportionate.

The Minister’s tone is perhaps not in keeping with what we are trying to do at this point in the debate; he is possibly trying to make some party political attack on the previous Government in relation to guidance. I do not think anyone, during the course of our proceedings, has suggested that there is no need for guidance. However, we have been suggesting that it is not proportionate or sensible to build a structure around a relatively short Bill, which should do something straightforward—allow small charities and other organisations to get a top-up payment of £1,250—that would cost millions to implement, police, oversee, produce guidance and check the guidance, without even a review of whether it is working, from the Minister’s perspective. We are not saying that there should never be any guidance, but we are saying that it should help and encourage the charities and enable them to take up the top-up payments rather than become an end in itself.

In his earlier remarks, the Minister talked about connected charities. Again, I do not want to reopen the debates that we have previously had; maybe we will come back to them on Report. However, they have highlighted some of the difficulties, and I am concerned that he mentioned, in the context of potential over-payments, issues around connected charities. No doubt the Minister will say that the proportion that each charity would be likely to have to repay will again be covered in guidance.

I was pleased to hear the Minister say that HMRC would adopt what he believes to be a sensible approach and that there may be circumstances in which it would not be cost-effective to recover the whole cost. However, it is still unclear how individuals on the boards of charities or trustees could be affected and at what stage HMRC would decide that it was a sort of de minimus amount and not worth trying to recover. I am also concerned about the stress, the worry and everything else that would be there for charities—or for the Bromsgrove Scout troop, which has been mentioned several times—if an overpayment was made.

I am not suggesting that this clause should not stand part of the Bill; we need that information to be there so that overpayments are recovered when that is the right and proper thing to do. However, the Minister and his officials have some work to do in introducing a scheme that will give charities some comfort and will not put off volunteers from being on boards or becoming trustees. They should also address the points that my hon. Friends the Members for Foyle and for East Lothian made about the real world and the situations that charities currently face.

Clause 11 - Management of top-up payments

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I wanted to make only a few opening remarks, because it is important that the Minister has the opportunity to speak on this clause. Clause 11 specifies that the management of top-up fees is going to be administered by HMRC and provides a power for HMRC to make various regulations to administer those payments under the scheme and for the purpose of administering and implementing the Act, to which the Minister alluded in the discussion of the previous clause. Subsections (3) to (6) set out the scope of the powers and it is intended—the Minister mentioned this in previous discussions—that the provisions made under this power will mirror as closely as possible provisions that apply to the administration of gift aid exemption claims under the taxes Acts.

The Bill provides for regulations to include an appeals process—something that we welcome. The power to make regulations under clause 11 includes the power to make provision in connection with clause 12, “the Change of charity’s legal form”. I know that the Minister has tabled fairly substantial changes to that, which we will discuss in due course. I do not particularly want to focus on that.

Subsection (9) provides for any amount of money calculated under the scheme to be rounded up to the nearest whole penny, which is a helpful bit of attention to detail. The example given states that 0.5p will be rounded up to the next penny, which I am sure will help people to understand the situation.

However, will the Minister discuss some of the enactments mentioned in subsection (4)(a) to (g) and in subsections (5) and (6)? If the Minister wants to think about how he will respond to that with practical examples, I am probing the wording to ensure that we all understand the powers in this primary legislation. The paragraphs of subsection (4) state:

“(a) providing for the payment of interest;

(b) requiring the provision of information;

(c) conferring a power of entry onto land;

(d) providing for the imposition of a civil penalty;

(e) creating a criminal offence (including, in particular, offences relating to the provision of false or misleading information or failure to provide information);

(f) providing for enforcement of sums owed (whether by action on a debt, by distraint against goods or in any other way);

(g) providing for appeals.”

Will the Minister give us some information about the thinking behind those provisions? My worry, as with clause 10, is that any ordinary person who becomes a member of a local charity’s board or indeed the leader of the Bromsgove Scout group—

Gareth Thomas (Labour, Harrow West)

The second.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

The second Bromsgrove Scout group, which is becoming famous and immortalised in our discussions. Any ordinary person will look at these provisions and wonder what on earth is going to happen and what powers are being given to HMRC, particularly regarding civil penalties, criminal offences and the powers of entry on to land. It is important that the Minister can explain what that means in practice.

I also want to probe subsections (5) and (6). Subsection (5) states:

“A power conferred by subsection (3) to apply or incorporate a provision creating an offence does not include power to increase the level of any punishment for which a person may be liable on conviction for the offence.”

That seems fairly straightforward in drafting terms to ensure that the Bill does not cut across anything relating to other legislation where criminal offences are specified, but I would like the Minister to clarify that. Subsection (6) reads:

“A power conferred by subsection (3) to apply or incorporate a provision imposing a civil penalty does not include power to increase the maximum amount of the penalty.”

Is that also standard drafting to ensure that nothing done in this Bill or by regulations will change the regime of civil penalties elsewhere?

I apologise for having to go through the provisions in some detail, but, once again, a provision that—for good reason—exists to give HMRC the opportunity to make regulations about the administration of top-up payments and administering the Act, which, on the face of it, no one would necessarily argue about, creates a range of complexities and issues that are not fully explained. The need for further guidance or rules could cause some considerable concern for the charities and organisations that we would want to benefit from the scheme. I look forward to what the Minister has to say.

Sajid Javid (Conservative, Bromsgrove)

I thank the hon. Lady for her comments. She asked several good questions that I shall try to answer. I agree that the clause is important and that we need to go through it in some detail. It gives HMRC powers to make regulations to implement and administer the small donations scheme. On our first day of detailed scrutiny, we debated exhaustively whether HMRC should administer the scheme, so I do not intend to run through that issue now.

Clause 11 is one of the most important clauses in the Bill. As the hon. Lady recognises, it gives HMRC wide powers to administer the scheme, so I shall take some time to set out what it will do and how it will work. It provides powers for HMRC to make regulations for the administration of top-up payments for the purposes of fully implementing the Bill. Regulations made under those powers may include applying the primary legislation that is already in place for gift aid, which incorporates rules on gift aid exemption claims, income tax repayments, and income tax or corporation tax that is due and payable. They also include primary legislation relating to the collection or management of income tax or corporation tax.

In a sense, clause 11 is the engine room of the whole scheme. All the day-to-day rights and responsibilities of charities and HMRC will be delivered through regulations made under its provisions. HMRC has already published draft regulations for consultation, and we will return to the House to debate them in more detail following Royal Assent.

We discussed the policy objective of the scheme earlier, but it is worth repeating that the new scheme is an extension of gift aid. Its purpose is to allow charities to collect a gift aid-style payment on small cash donations for which it is impractical to collect a gift aid declaration. If the scheme were a tax relief, like gift aid, it would have to be legislated for under the Finance Bill process, and claims under the new scheme would have been automatically covered by the administrative provisions under taxes Acts, including the Taxes Management Act 1970, and various Finance Acts. Of course, we have to legislate for the scheme through a separate Bill, but it complements gift aid and has been designed to work closely with it.

Gareth Thomas (Labour, Harrow West)

The Minister will remember the evidence given to the Committee by Mr Clark, one of the experts who the Treasury consults regularly on charity taxes. Indeed, he was consulted about the preparation of the Bill. Mr Clark said that the original gift aid legislation was about 50% of the length of the Bill. The Bill’s provisions are therefore vastly more complex, yet the hon. Gentleman is introducing draft regulations and defending the amount of guidance he will have to publish. Will he tell us the length of the published guidance that he expects small charities such as the Second Bromsgrove and the First Isleworth Scouts to wade through to understand how they are to register for gift aid, and how they can eventually gain access to the scheme?

Sajid Javid (Conservative, Bromsgrove)

It is fair to say that the length of the guidance—whether that is 20 or 30 pages—is less important than its usefulness, because that is what charities will be looking for. As we have discussed, it is important that the first draft of the guidance is shared with the trusted working group with which HMRC has been working to ensure that that guidance covers all the bits and pieces that charities would expect, and that it is written in an understandable way. The draft guidance will be published at the start of the new year so that, before the whole scheme becomes operative, we can make sure that the charity community and other interested parties have the opportunity to respond to it and to try to improve it. I am sure that many will come up with some good ideas.

We want the provisions relating to the administration of gift aid claims to apply to the small donations scheme, although some will be modified slightly, when necessary. We do not want charities and CASCs to have to learn a new administrative framework for claiming under the scheme. Provided that charities know their responsibilities and entitlements under gift aid, they will broadly know their responsibilities and entitlements under the new scheme. The draft regulations that we have already published align the two schemes closely.

The provisions in the Bill specify the unique features of the scheme, including the amount of the top-up payment, the eligibility criteria and the community building rules. However, the general administrative framework for making claims under the scheme will be introduced through regulations, and that approach is intended to ensure flexibility in future. If the main tax administration framework changes, we will want the same rules to apply to the scheme, and we will not want to rely on the introduction of new primary legislation to ensure that the scheme follows the gift aid rules set out in taxes Acts. The effect of such regulations will be that amendments to relevant tax provisions will automatically apply to the scheme.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I thank the Minister for his explanation so far. I understand that he does not want to introduce new primary legislation whenever changes are made to tax laws, but will he explain the link between top-up payments and the regulations in paragraphs (a) to (c) of clause 11(3), which mention income tax and corporation tax? Will he give an example of how such taxes are linked to top-up payments?

Sajid Javid (Conservative, Bromsgrove)

If the hon. Lady will allow me to continue, I may come on to answer her question.

On the face of it, the powers under clause 11 are very wide, but they relate mainly to applying the rules on gift aid in existing legislation. HMRC will have the power to make regulations if there is nothing similar in place for gift aid—for example, when HMRC makes an overpayment of money to a charity. The administrative framework for overpayments of tax under gift aid does not fit the new scheme properly, so wholly new drafting has to be adopted.

The most significant and serious powers, such as the ability to apply a criminal offence, to which the hon. Lady has referred, will be done by keying into existing law. The power to apply such a criminal offence does not include the power to increase the level of any punishment, so HMRC cannot do whatever it wants. When it has to apply primary legislation to the scheme, relevant provisions will already have been debated and passed by the House, usually through a Finance Bill. A further safeguard is that clause 16 requires regulations to be made under the affirmative procedure, so there will be a further opportunity for the House to debate them before they come into law.

The draft regulations are technical—they mainly adopt the administrative provisions in the taxes Acts, albeit modified to apply to top-up payments—so HMRC has published a technical note to explain what they will do. They include provisions to apply criminal offences for certain non-compliant activities, which are necessary to deter—and, if necessary, to deal with—serious non-compliance and fraud. Those provisions already apply to gift aid claims. Fraudsters are likely to be attracted to the new scheme, as we have discussed several times, and without such provisions, they could attempt to abuse the scheme in the knowledge that there would be no real comeback if they were caught.

The non-compliance provisions will not affect the vast majority of compliant charities and CASCs claiming under the scheme, just as they will not affect those organisations already claiming under gift aid. The same rules and checks that HMRC follows when applying the provisions for gift aid claimants apply to the small donations scheme. The draft regulations also include the rules for charities that change their legal form under the provisions of clause 12, which we shall address in some detail when we debate that clause.

The hon. Member for Harrow West referred to the evidence session and talked about the length of the gift aid legislation. For his information, that legislation was 11 pages long; this Bill is 13 pages long.

The hon. Member for Kilmarnock and Loudoun asked about income tax and corporation tax. The gift aid rules are set out in the Income Tax Act 2007 and the Corporation Tax Act 2010, so the new scheme must be able to follow provisions in those Acts.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I thank the Minister for that explanation, but will he say more about why it is important that that is in the Bill? I understand how income tax comes into play in the context of gift aid, but I cannot understand why corporation tax comes into play for small charitable donations top-up payments. I might have misunderstood the taxation rules, so if he can explain the situation, I will be eternally grateful.

Sajid Javid (Conservative, Bromsgrove)

The hon. Lady asks a good question. If she will allow me, I will find out more and then let her know.

As I said, clause 11 gives HMRC the powers that it will need to make regulations to administer the scheme on a day-to-day basis. Charities will already be familiar with the rules because they mostly mirror gift aid, and there are in-built safeguards to ensure that HMRC applies its powers proportionately. I therefore commend the clause to the Committee.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I thank the Minister for his response to a number of questions and for offering to make further information available on several of them. I understand the points regarding subsections (4) and (5), which I wish to probe further. It is good to have that on the record. However, if someone involved with a charity reading that information was unfamiliar with how legislation is made about criminal offences and civil penalties, they might be rather frightened, concerned or worried, and they might wonder what on earth the powers were that could be used against them. Again, those are just some of the concerns about the drafting of the Bill.

The Minister is right to say that clause 11 is one of the most important clauses in the Bill. Partly because it is technical, gives powers to make regulations and is drafted in fairly technical language, charities and other organisations have not come forward with suggested amendments or changes. They have been more concerned about dealing with issues such as the matching provisions, the eligibility of charities, connected charities and community buildings, so it was important to debate and examine the clause in further detail.

As the Minister says, it seems that the clauses relating to gift aid have been transposed: the language and the drafting have been taken from other Acts and put into the Bill. There might be good reasons for putting all that in the Bill in the same way as in the legislation on gift aid, although I am still struggling to understand why some of the powers have been given here. I would genuinely like to hear from the Minister about the issues around income tax, corporation tax and so on, and how that fits with what was supposed to be a straightforward Bill to give top-up payments of £1,250 to small charitable organisations.

I will not prolong the discussion on this clause, but we may wish to return to it at a later stage if we are concerned about the powers that have been taken. I hear what the Minister has said about people being able to comment on the draft regulations and I agree that it is right that they should return under the affirmative procedure. On that basis, I do not suggest that the clause should not stand part of the Bill, but we may wish to return to it at a later stage.

Clause 12 - Change of charity’s legal form

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I beg to move amendment 32, in clause 12, page 7, line 37, at end insert—

‘(b) or a charity merges with another charity,’.

Andrew Turner (Conservative, Isle of Wight)

With this it will be convenient to discuss the following: Government new clause 4—Charity mergers: new charity taking over activities of one charity .

Government new clause 5—Charity mergers: new charity taking over activities of several charities.

Clause stand part.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

The Minister has a lot to say about the new clauses, so I will keep my remarks on our amendment short. There is a lot of substance and the Minister will want to give more explanation to his new clauses than can be provided in 50 or so words in the explanatory notes. Some of the representations that were made to us about changing charities’ legal form, including those from the Law Society of Scotland, sought, through our amendments, to ensure that provisions are adequate for all the circumstances in which a charity might opt to change its legal form. In the evidence sessions, the Law Society of Scotland noted that, while it believes that it is sufficient in respect of incorporation of charities, specific reference needs to be made in the case of mergers. Our amendment is simply to ensure that there will be a debate on this; it is simple and straightforward and may have been overtaken, to some extent, by the Government new clauses.

It is worth noting why this is important. Several charities may seek to merge in the current climate. There are many circumstances in which charities already share backroom organisation or project work; they may now decide that a merger would be appropriate. It is important that we do not disadvantage charities that have done that. Many people will be aware of organisations such as Help the Aged and Age Concern, Poppyscotland and the Royal British Legion, as well as several small, local charities, which have come together to work in this way. There are many circumstances in which that makes sense and we do not want charities to feel that taking that step, in order to be more efficient and work together, would cause them problems under the Bill.

It is important to hear what the Minister has to say about the new clauses, so I will let him speak and perhaps come back with questions, rather than focus on our small amendment.

Sajid Javid (Conservative, Bromsgrove)

I thank the hon. Lady. I recognise that the purpose of the Opposition’s amendment is to allow charities that merge to continue to benefit from the scheme. Clause 12 allows charities that change legal form to inherit the gift aid record from their predecessor charity; for example, if a charitable trust incorporates or a charitable company becomes a charitable incorporated organisation, it can continue to claim under the scheme if it was able to do so before. However, the clause does not apply to charities that merge, an issue raised during the public reading stage and by the hon. Lady on Second Reading. I have therefore considered the matter and tabled an amendment to take account of charity mergers, an intention set out in my letter to members of the Committee on 15 October. Let me set out the intention of our amendments, and why I believe the hon. Lady’s amendment does not quite achieve the effect that she intends.

We propose to remove clause 12 and replace it with two new clauses. New clause 4 would change how we treat a charity that changes legal form; for example, where a charity changes from being a charitable trust to a charitable company, it will be able to retain its gift aid history for eligibility purposes in the new scheme. The new clause differs from clause 12 in that it no longer requires the original charity to dissolve before the new charity can become eligible. We have been told by stakeholders that it can take some time to dissolve an old charity, even when the new charity is essentially the only one that is operating. We did not want to prevent new charities from claiming under the scheme while the legal details of the changes were being finalised, as that would unfairly disadvantage the new charities. Therefore, the new version of clause 12 sets out that, once the new charity has taken on the old charity’s activities, it can benefit from the old charity’s compliance history. To prevent abuse of that rule, we will require the new charity to have substantially the same purposes as the old charity. We will also require more than half of the charity’s managers to remain in place after the change of form.

The new charity must apply to HMRC before this provision can apply. Where the conditions are met, HMRC will certify that, in its opinion, the new charity was created with a view to taking over the old charity’s activities and that its purposes are substantially the same.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I thank the Minister for acknowledging that I raised the issue on Second Reading. I look forward to hearing further about the proposed changes. The Minister mentioned the 50% of managers criteria. Charities often merge or change when people move on to other posts. Perhaps there is an opportunity for streamlining in other ways. Has he given any thought to those circumstances?

Sajid Javid (Conservative, Bromsgrove)

I have given them some thought. That is why we have come up with the 50% figure, which we think strikes the right balance, and not 80% or 100%.

Returning to the certification requirement, where HMRC provides certification, the new charity can use the gift aid claims made by the old charity to establish its eligibility. That means that the new charity would not need to wait for three years after changing its legal form before it could claim for a top-up under the scheme. Some of the detail of how the rule will operate will be set out in regulations. HMRC will ensure that guidance is available to all charities before the commencement of the scheme.

The other major difference from clause 12 is that the provision for a change in legal form has been aligned with the new multi-charity merger provision in new clause 5. Charities will need to understand only one set of principles for changing form or merging, which leads me to the second proposed new provision, new clause 5.

New clause 5 sets out what happens when a charity merges with more than one other charity. It is a new provision and charities will welcome the extension of the scheme. The new clause will allow a new charity formed out of the merger of two or more separate charities to take on the compliance record of one of the old charities under the scheme. We need to prevent that rule from being abused by charities that have a poor or no gift aid record. Without any further restriction, such a charity could merge with an eligible charity to gain immediate access to the scheme. That is why I do not support amendment 32. We need to ensure that, to benefit from this provision, the newly-merged charity has a good compliance record. If each of the pre-merger charities is eligible to claim under the scheme, the new charity will also be eligible to claim immediately. HMRC will have had the opportunity to get to know each of the pre-merger charities already and assess their ability to claim gift aid correctly. HMRC can therefore be reasonably confident that the new charity will operate gift aid correctly, too.

There are special rules to determine which pre-merger charity’s gift aid history is adopted by the new charity. If any of the pre-merger charities is not already eligible to claim under the scheme, the new charity will take on the compliance history of that pre-merger charity. That pre-merger charity is the one that would have been the last to become eligible under the scheme if the merger had not gone ahead.

There is an extra rule if two or more charities that are not eligible on merger become eligible at the same time later. In that case, the new charity can choose which pre-merger charity’s history it wants to adopt. That rule avoids creating an incentive for charities with a poor compliance history choosing to merge as a way of gaining early access to the scheme.

As set out in earlier debates, these rules are important to ensure that the new scheme is protected from fraud. I do not intend to reopen the debate about fraud, but I remind the Committee that this scheme has a much lower level of paperwork, so there will be less of an audit trail between the donation and the claim under the scheme than there is with gift aid. HMRC will need time to get to know the charities and individuals to assess the risk of their claiming incorrectly under the scheme. If we did not have these safeguards, the scheme would be much more open to fraud and abuse. The Opposition amendment as drafted appears to allow only one charity to merge with another and so it would benefit fewer charity mergers than the Government new clause. Therefore, I ask the hon. Lady kindly to withdraw the amendment.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I am very happy to respond, although I have some other comments to make later. Given the Minister’s assurances, I will not push the amendment to a vote.

Sajid Javid (Conservative, Bromsgrove)

Following this debate, I hope that hon. Members now understand why these new clauses are necessary, and why they operate in this way. As I have explained, they allow charities to choose to benefit from their previous gift aid compliance history when they merge to form a new charity. They strike a fair balance between bringing charities into the scheme as quickly as possible and providing HMRC with some assurance that only charities with a good compliance history benefit. Where one of the pre-merger charities would not have been eligible under the scheme, the new clauses allow what history that pre-merger charity has to qualify towards the entitlement of the new post-merger charity.

Nigel Mills (Conservative, Amber Valley)

I fully understand what the Minister is trying to achieve, but could he explain why he has chosen the mechanism of HMRC having to certify following an application? Most of the tax rule changes in recent years have moved us to a situation where someone self-assesses and HMRC chooses whether to agree. We appear to be using a model whereby HMRC has to certify based on an application, with some discretion on its part. Is that what he intends, or does he expect the charity applying to set out what it thinks the right answer is and HMRC can effectively sign that off? Alternatively, will the charity have to set out a load of options and HMRC can choose which it thinks is most appropriate?

Sajid Javid (Conservative, Bromsgrove)

Let us take the case of two charities that decide they want to merge, or perhaps to close one structure of a charity but create a new structure for essentially the same charitable purposes. Before taking that action, we would like them to check with HMRC to confirm that what they intend to do would work as far as this scheme is concerned. HMRC will be able to go through the facts with them; it is intended to be a process where, if charities ask for advice or are not clear on some of the regulations, HMRC can advise them. The intention is to ensure that such a merger does not go ahead without HMRC being made aware of it first, in case the merger unintentionally does not quite meet the rules set out by HMRC. For example, one of the key rules is that the new or merged charity must have substantially the same charitable purposes as the original two charities. It is important that the charities make sure that they are fulfilling all the provisions in advance of going ahead; otherwise, it might turn out to be a little too late to reverse something that they have done.

Nigel Mills (Conservative, Amber Valley)

I am grateful for that explanation. It sounds much like a clearance application that businesses and individuals can make for various transactions. I am just a little intrigued by the drafting here: we are not proposing law that applies and people can then either interpret it themselves or seek guidance or clearance; we are actually proposing law which only applies if HMRC has issued that certificate. That is a slightly unusual way of making legislation in the modern world; it takes us back about 20-something years or something. I just wonder whether this an ideal way, whether we should just have the rules apply and have a clearance process rather than have an actual advance requirement.

Sajid Javid (Conservative, Bromsgrove)

My hon. Friend will appreciate that throughout our discussion of these scheme, one of the things that we have been most concerned about—rightly, because of the impact on public spending—is the potential for fraud. That is one of the reasons why it is important for charities to have to go through the process that I have outlined today to benefit from the merger procedures. The Government are adding flexibility. A number of charities have rightly raised the issue, and it is only right that we recognise that; but at the same time, we want to balance that in such a way that we minimise the opportunity for fraud. As we have discussed, there is a tiny number of people out there who have no charitable intention at heart and whose purpose will be to try to take advantage of generous tax breaks and this top-up scheme. We have to strike a balance to protect against that eventuality.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

The Minister is being generous with his time, and that is important because, once again, it is extremely important to get the provisions right. In his deliberations, has the Minister looked at the history of any particular charity mergers and learned any lessons from them? For example, can he set out some circumstances in which HMRC might decide, by whatever form, that the objects of the new charity were substantially different and did not meet the criteria? During his research before tabling the clauses, did he find any examples where charities would have fallen foul of that provision?

Sajid Javid (Conservative, Bromsgrove)

In researching the clause and the amendments and deciding how to frame them, I had a number of discussions with officials. They assured me that there such examples do exist, particularly when they administered new gift aid and other charitable schemes through HMRC. I cannot give her a particular example, but the information they provided assures me that they do exist. When HMRC has looked at charity mergers in the past, it has worked closely with the Charity Commission, staying in regular contact and swapping information to ensure that it has all the information it needs to make determinations on questions such as charitable purpose.

Gareth Thomas (Labour, Harrow West)

Does the Minister none the less accept that we should take seriously the concerns of the hon. Member for Amber Valley? Would he like to use this opportunity to point the hon. Gentleman in the direction of Opposition new clause 2, which would insert a formal review mechanism? If the hon. Gentleman still has serious concerns and he can convince the Minister and the rest of the Committee of their seriousness, the formal review new clause 2 would establish would provide an early opportunity to address those concerns.

Sajid Javid (Conservative, Bromsgrove)

I am sure that my hon. Friend has heard and duly noted the hon. Gentleman’s comments.

Sheila Gilmore (Labour, Edinburgh East)

We seem to be proceeding on the assumption that people will go to extreme lengths to create elaborate scams, but the notion that charities will decide to merge so that they can claim the top-up payment does not reflect the charity world to which I am accustomed, and if we do proceed on that basis, we end up having to create elaborate structures around the Bill. Unless there is clear evidence that people would go to such lengths to claim the payment, perhaps we should have started from a simpler perspective.

Sajid Javid (Conservative, Bromsgrove)

The hon. Lady touches on the need for the a structure in the Bill to protect the taxpayer against fraud. She is right to say that we as Members of Parliament have no reason to have come into contact with those who intend to commit fraud, using the Bill or the related gift aid legislation, but it does happen and the Committee has discussed it before. HMRC estimates that at least £10 million a year of fraud is committed against the taxpayer under the gift aid scheme. It is incumbent on us to ensure that that is kept to a minimum, but we must also avoid putting too many hoops in front of the vast majority of charities, which are entirely legitimate and intend only to do good work. I hope that the hon. Lady respects that we must strike that balance.

As I have said before, because the legislation is entirely new in form—it is a top-up payment system rather than a tax relief system such as gift aid—we do not pretend that every aspect will work exactly as we intended right at the start. As with all new legislation, we will learn as we go along, which is why I have committed the Government to reviewing the Bill in three years. There will be lessons to learn, and if improving the scheme means adjusting the protections against fraud, we will look at that.

I commend new clauses 4 and 5 to the Committee and I ask the hon. Member for Kilmarnock and Loudoun to withdraw amendment 32.

Mark Durkan (Social Democratic and Labour Party, Foyle)

It is a pleasure to be here again under your chairmanship, Mr Turner. Amendment 32 and new clauses 4 and 5 address what happens when charities merge; therefore, they all pick up on a genuine and legitimate question in the Bill. The extensive provisions of new clauses 4 and 5, including the rather clumsy introduction of HMRC advanced certification that has been addressed already, show that when we as legislators have to deal with a Bill and anticipate all the different questions, and indeed some of the possible temptations, that might arise, we risk getting into a predictive predicament, and that is exactly what the Minister is finding with new clauses 4 and 5.

The Minister has indicated that the provisions try to ensure that HMRC will have credible reference points when assessing what the real intent and purpose is behind any particular merger, but that means it has to look to what in other cases might be regarded as arbitrary reference points—for instance, the question of 50% of managers. If we are talking about large charities, how many people are we classifying in the bracket of managers? Are we talking about a single controlling personality or managers who have general control of the administration of the charity, which could include many people?

In Northern Ireland, we have legislation that uses particular thresholds of proportionality such as 50%, and that can often give rise to odd situations in which, to meet a numbers game, people are designated in a particular way for a particular time. They stay in a position for a short period, so that a 50% threshold at a given time is matched. Everybody knows that that is a purely temporary phenomenon, and at a future stage people move down or redesignate themselves in some other way. We want to ensure that the Minister is satisfied that the provisions in the clause do not give rise to a legitimate artifice that might be used for people to meet the terms of the certification. How long do managers have to remain in place post-merger to meet the 50% threshold? Does it have to be absolutely clear that it was intended all along that they would remain in place, and that if they moved subsequently, that was not going to lead to a question of overpayment, a review, an investigation or whatever?

Will the Minister clarify why new clauses 4 and 5 emphasise managers controlling the charity, whereas in clause 5, on connected charities, control centres on trustees or those who have the power to appoint or remove trustees? Clause 5 is about control on its own, whereas in the new clauses we are talking about the person having general control and management of the differentiation of a charity. Clause 5 deals with connected charities and the meaning of such charities. Its emphasis is on control in relation to trustees, but the other clauses have a quite different standard of control.

Did the Minister consider whether new clauses 4 and 5 should have included not only the question of managers, but should have allowed HMRC to refer to the position of the trustees as well when assessing who is in overall control of the merged charities and what the balance of interest and continuing influences is going to be? Mergers may happen when trustees and boards try to introduce more strength and rationalisation in their charity field, but that may or may not involve retention of so many managers from different charities.

Mergers take place across jurisdictions, and I bring the Minister back to the point that a charity in Scotland and one in Northern Ireland could merge together or with a charity in England. I would appreciate it if the Minister clarified that he is satisfied that new clauses 4 and 5 anticipate some of the issues that may arise. The new clauses make no reference whatever to the Charity Commission for England and Wales, and that for Northern Ireland, or the Office of the Charity Regulator in Scotland. The Bill has a “now you see it, now you don’t” syndrome.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

My hon. Friend is making a powerful case. I am sure he is aware that organisations such as the Rehab Group, which works not only in different parts of Scotland and England, but in Ireland, have a cross-border component. It is a merger of different charitable organisations, including one in Scotland.

Mark Durkan (Social Democratic and Labour Party, Foyle)

I thank my hon. Friend for making that point, which is a useful reminder that some issues will transcend different jurisdictions not just in the United Kingdom, but in these islands. The Minister will probably do what he has done previously, and go to the Batbelt, saying that everything will be done through guidance and review. I just hope he can assure us that the new clauses have been drafted, or will be revised or reconsidered, with an eye to accommodating several different issues that could arise. In particular, I return to the point about the Charity Commission for England and Wales, and that for Northern Ireland, and the Office of the Charity Regulator in Scotland.

Sometimes the Bill and HMRC seem to take their lead from the Charity Commission’s standards, but at other times HMRC seems to do its own thing with its own view of the charity world. To my mind, that can give rise to difficulties and concern for charities. For their own good reasons, charities may want to consider mergers, rationalisation and re-profiling, and if that is what they want, we do not want to create a feeling that they are under suspicion and must clear their motives, plans and intentions with HMRC.

Perhaps the Minister will tell us whether he is satisfied that the new clauses as drafted properly anticipate issues that may arise for charities with similar purposes and causes, but with different organisational profiles. Some charities may rely on a network of community buildings, and others may not. The Bill includes specific provisions differentiating various qualifying issues, and the new clauses should not cut across, contradict or cause unnecessary tensions with other provisions in the Bill.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

Some important points have been made about the new clauses. As I indicated to the Minister, I do not intend to press the amendment to a vote. We tabled it because we believed that clause 12 creates some difficult situations relating to charity mergers. That issue, as the Minister accepted, was raised both on Second Reading and at the Bill’s public reading stage. I mentioned the Law Society of Scotland’s representations, but we also had a powerful representation from the Hospital Broadcasting Association that states:

“HBA welcomes the inclusion of this clause, which addresses a potential problem caused by a change in legal form of a charity (e.g. from an unincorporated association to a corporate form) as it develops. However, HBA is concerned that the change of status is restricted to a change in legal form. HBA would like to see the facility extended to allow HMRC to certify that a new form of the charity is substantially the same as an old charity, even if the legal form remains the same.”

The submission continues to discuss mergers, where

“two charities might become a single new entity, legally distinct from either of the original charities, but possibly of the same legal form.”

The HBA made the point that it would be

“unfortunate if the new charity were ineligible to make claims under the Small Donations Scheme for three years after the merger, and might result in the merger not taking place because of the loss over three years of up to £3,750.”

The HBA says that that might be a small figure in some contexts, but it would be “very significant” to a small charity. I am pleased to hear that the Minister has taken those representations into account, and I will therefore not press the amendment.

However, the problem with removing one clause and replacing it with two fairly complex new clauses is that we always have to ensure that we are not creating more difficulties or unintended consequences. Much of our discussion has revolved around, as my hon. Friend the Member for Edinburgh East said, the risk of potential fraud, which was discussed—perhaps disproportionately —to the extent that anybody looking in from the outside would wonder what the Bill’s purpose was; or the unintended consequences of the Bill’s wording that could erect unnecessary barriers to charities taking advantage of the scheme.

In that context, I have a couple of questions relating to the point about 50% of managers, as outlined clearly by my hon. Friend the Member for Foyle. His description of the predictive predicament was powerful. In primary legislation, we cannot deal with absolutely every potential set of circumstances that may arise, but, in order to get the legislation and the rules and regulations right, we have to look at what is going on in the real world. That was why I asked the Minister whether examples of real-life charity mergers had been examined and whether any lessons had been learned. I asked whether there were any scenarios where well-respected charities had come together and whether any issues had emerged from their being examined, such as areas where people would have fallen foul of the new rules.

As I said, my hon. Friend the Member for Foyle made a powerful point about the definition of a manager. Are we talking about chief executives or the senior level of charitable organisations, or about operational managers out in the field, running the day-to-day activities? For many years, I was the manager or director of a charitable organisation in Scotland. I took that charity through the process of changing from an unincorporated organisation to a corporate body, did much work around charitable status and worked with a number of other organisations and local government. To all intents and purposes, I was the only person in the staff team who would have been described as a manager; the rest were operational staff working directly with young people in the care system.

At that stage, should we have chosen to merge with another organisation with a similar structure—one manager—and both managers had decided that there was the opportunity for a new broom to come in and take the new organisation forward, would the 50% rule have been fallen foul of? I had been seconded from a local authority for a number of years, so it would have been perfectly reasonable for me not to go forward as a manager.

Fiona O'Donnell (Labour, East Lothian)

I am well aware of my hon. Friend’s experience in the voluntary sector in Scotland and how that has informed her contribution. As a merger can often be an opportunity to reduce management costs, might it therefore be difficult for some newly merged charities to meet the 50% threshold?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

My hon. Friend makes an important point. That is one reason why I asked the Minister why he had settled on 50%, and he explained that he had not settled on 80% because he did not want the rule to be restrictive. In fairly large organisations, 50% would perhaps allow for some flexibility, but I worry about the scenario in which only a small number of people are deemed to be managers.

My hon. Friend the Member for Foyle asked whether people are expected to stay in post for a certain time or whether the rule is applied at the moment of certification by HMRC, when the merger is deemed to take place. We must be careful that unintended consequences do not get in the way of the Minister’s intentions. In this instance they were, I think, good intentions—to ensure that charities have the opportunity to merge and not suffer penalties.

Mark Durkan (Social Democratic and Labour Party, Foyle)

In my hon. Friend’s example of two charities that are deemed to have one manager each, the only way to meet the “more than half” rule would be to retain both managers. Is that really what the Minister intends?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

That illustrates perfectly the potential dilemma, and links with the point that my hon. Friend the Member for East Lothian made. Charitable organisations sometimes feel that they have to merge because of financial circumstances, and sometimes because they want to move up to a different level and do new things. In such circumstances, surely it would be an unintended consequence if the new organisation was unable to have a structure that allowed it to do those things.

There is still uncertainty and it would be helpful if the Minister clarified who will meet the definition of “manager”. Are we talking about the chief executive—the director of the organisation—or about front-line operational managers? Regarding who is in operational control of the day-to-day work of a charity and who is in overall control of the ethos, direction and accountability of the board or the trustees, there is a slight lack of fit between what was discussed under the connected charities provision and what we are discussing now under the merged charities provision. A number of Members who perhaps did not have the opportunity to do so before, are now giving some thought to the issue. I appreciate that the Minister has introduced the new clauses in an attempt to be helpful, and I welcome that, but we have to consider some points in slightly more detail.

The hon. Member for Amber Valley also made an important point about the language used. HMRC “certifying” is perhaps not language that we are familiar with. The Minister responded by saying that HMRC would be available to give advice, work with charities and do all of those things. I am not entirely persuaded, given the responses to earlier debates in this Committee, that HMRC will necessarily have the expertise, opportunity or time to do that to any great extent over the process.

There is a difference between HMRC certifying a proposal from the charities by rubber-stamping it and saying, “Yes, that’s okay,” and its actively working with two or more charitable organisations on a merger process and whether it is advantageous and meets the requirements of the various schemes. Although I welcome what the Minister is trying to do, there are issues that need to be probed further.

Nigel Mills (Conservative, Amber Valley)

Does the hon. Lady also agree that when we consider the new clauses, we must be careful about how they interact with the definitions of connected charities? If a new charity inherits more than 50% of the managers of an old charity, we fear that the new one will be connected to the old one because they had the same managers at some point in the tax year. If three charities merge into one, they may end up in the unfortunate situation of being entitled to only one third of the top-up payments claimed, due to an accidental mistake. I suspect that we do not intend to do that, but it probably means that the only way a merger can work is if it is done on 6 April.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

The hon. Gentleman makes an interesting point. Again, that is why I was trying to probe the Minister on the extent to which the actual practice of charities merging had been considered. What happens in the real world, what scenarios are thrown up by those circumstances, and would any of those mergers have fallen foul of the regulations or rules that will be put in place? Again, do we really want HMRC’s time to be taken up with ensuring, as the hon. Gentleman suggests, that charities merge only on 6 April, or do we want it to do other things? I do not want to reopen that whole debate, but we must ensure that we do not end up with the unintended consequences of more and more bureaucracy and red tape and less opportunity for charities to get on with doing their charitable works within local communities or at the national level.

The issue is not just one for the larger charities. Increasingly, groups and organisations at community level are having to come together to ensure that they get the most from the pot of money available to them, whether from regular donations, top-up payments or anything else. Charities have increasingly come under the spotlight to ensure that their administrative costs are not excessive and do not appear unfair given what they do and the contributions they receive.

Can the Minister give some reassurance on those points, particularly about managers, definitions and who will decide? Will he also clarify the role of HMRC? That would allow us to move on.

Sajid Javid (Conservative, Bromsgrove)

I thank the hon. Lady for her general support for the intentions behind the Government’s proposed changes. I also thank the hon. Member for Foyle for his questions. He made some good points, as did the hon. Lady. I will try to answer some of them now.

On the issue of managers, the hon. Member for Foyle asked what “managers” means. It is defined in the new clause as

“the persons having the general control and management of the administration of a charity”.

It is important to point out—hopefully this will give him some comfort—that the term is already well understood by many charities after the introduction of the fit and proper persons test. The concept of a manager of a charity and the differences between managers and trustees, which he also mentioned, are generally well understood. There are already examples in other HMRC legislation on gift aid, and other things that explain some of those differences. Of course, examples will be given in the guidance for this measure, but it might be useful if I give an example from my own experience. As I mentioned earlier, until recently I was the trustee of a charity that was called the Westminster Children’s Society but is now referred to as the London Early Years Foundation. Trustees are mentioned in clause 5, and they are the people who set the general direction of the charity and who have certain legal responsibilities. The hon. Member for Kilmarnock and Loudoun asked whether the manager would be the CEO, the CFO or someone who is responsible for the day-to-day management of the charity in discharging its activities. That is what HMRC sees as the manager. Again, it is important to point out that that term is well understood by many charities.

Fiona O'Donnell (Labour, East Lothian)

I realise the Bill, when it becomes an Act, will apply only to charities that have been in existence for three years, but perhaps the term is not well understood, especially among smaller charities. I refer again to my example of the East Lothian food bank, which has no employed staff, but trustees and volunteers generally share responsibility for day-to-day operations. So perhaps the Minister needs to provide more clarity on that. There may not be the understanding out there that he thinks there is.

Sajid Javid (Conservative, Bromsgrove)

The hon. Lady makes a fair point. Many small charities may not have anyone who is paid in any way—they are all volunteers—and the unpaid people who are managing and discharging the charity’s activities are also the trustees. Every charity will have trustees and, especially with small charities, they and the management are quite often one and the same. In such cases, a trustee can also be a manager, so it turns out to be the same individual. I do not think anything here says that that is not possible. Many larger and better established charities will have professional management, whether or not they are paid—and often they are paid—with unpaid volunteer trustees who have different responsibilities.

Mark Durkan (Social Democratic and Labour Party, Foyle)

The Minister rightly makes the point that clause 5 refers to trustees, but it refers to trustees as those who control the charity. Taking the example that has just been given of small charities that do not have professional managers and that rely on trustees merging, if part of the will for that merger is to create a more permanent management structure for the first time, it might be that none of the trustees of the merging charities see themselves as eligible or in any position to be a manager. So, the merged charities might have a manager for the first time. In the Minister’s example of small charities that do not have professional management, how could those charities qualify under the certification system if they do not have previous managers to be the managers? That is why he needs to address trustees.

Sajid Javid (Conservative, Bromsgrove)

I think the hon. Gentleman would accept that every charity has someone carrying out a management function. Otherwise, how would that charity discharge its charitable activities? If he is suggesting that the charity’s trustees—every charity will have trustees—are also acting as the managers, that may be the case. As I have said, in many small charities that probably is the case, but it is not the same as saying that the charity does not have managers. In such cases, where two small charities come together, they will have managers, albeit the managers may also be the trustees for both. It would be wrong to suggest that it is somehow possible to have a charity without a manager, because the next question would be how that charity actually discharges its charitable activities.

Mark Durkan (Social Democratic and Labour Party, Foyle)

Is the Minister saying that, in interpreting the provision and deciding about issuing a certificate, HMRC will look not only at who the management staff are or are planned to be, but at trustees? It might be that at least 50% of trustees might count.

Sajid Javid (Conservative, Bromsgrove)

To be clear, when the managers are trustees and there is no distinction between them—for example, if there are two charities, in both of which the trustees are the managers and there are no managers other than the trustees—HMRC will look indirectly at the trustees, because they are also the managers. It will not look at them as trustees, but because, to meet the requirements of the clause, they are also the managers of the charity.

Fiona O'Donnell (Labour, East Lothian)

The Minister is being good humoured and good natured in dealing with all our questions, but my point is about the real world in which charities exist. The fact is that, should two charities be merging with a view to appointing and paying a manager, their trustees, if they had previously acted as managers, are not—as trustees—allowed to receive any financial income from those charities. It is therefore unlikely that an existing trustee who has acted as a manager will become the new manager. Did the Minister follow that?

Sajid Javid (Conservative, Bromsgrove)

No. Will the hon. Lady explain the end of her question?

Fiona O'Donnell (Labour, East Lothian)

My point was that, should two small charities merge with a view to appointing a paid manager, trustees who, in the eyes of HMRC, have been managers until that point would have a conflict of interest and would not be able to take on a paid management role. Certainly in Scotland, that is set out in the regulations and rules for charities.

Sajid Javid (Conservative, Bromsgrove)

I thank the hon. Lady for her clarification. In her example of two charities having merged and having decided that they want a new professional, paid manager, that new manager could not be counted as part of the 50% of the old management team. Clearly, however, that is okay because, as I have said, it is not a 100% requirement, so there is some flexibility.

The principle still stands, however, that a post-merger charity must have 50% of the previous management team. I will make that clear with an example. I am just picking a number, but I appreciate that each case will be different. If two charities each have 10 managers, after the merger 11—sorry, 10—of them must be from those two teams, with at least five from each charity, who together represent at least 50% of the management teams of the old charities.

Mark Durkan (Social Democratic and Labour Party, Foyle)

The clause says more than that.

Sajid Javid (Conservative, Bromsgrove)

Sorry. It is 11, then. The hon. Gentleman has corrected me. In that example, the figure would be 11: if there are 10 in each charity, post-merger it must be 11 of the old teams to meet the condition in the clause.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

Does the Minister accept that, although large charities may have 10 managers, many small charities looking to merge may have only one manager? How can two charities coming together, each with one manager, meet the 50% rule in any sensible way?

Sajid Javid (Conservative, Bromsgrove)

I accept that point. As I said, I used the example of 10 managers only for the purposes of illustration. I accept that circumstances will be different for each charity, particularly for small ones. To take the hon. Lady’s example, if each charity has one manager, post-merger the figure would have to be two—the figure must be more than half, so it would have to be two. Please keep in mind that, in that example, if there were only one, it would be more of a takeover than a merger. It is fair to say that the concept of a merger is two charities coming together rather than one taking over another.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

With respect—the Minister is trying to explain a complex scenario—in the real world, when two charities come together but one manager decides to move on while the other remains in post, that would not necessarily mean that it was a takeover of one charity by another. That is a particular issue for small charities, in the sense that their expectation is that the two same people would be there at the point of the merger.

Sajid Javid (Conservative, Bromsgrove)

The hon. Lady has made a fair point. She will understand that, in framing the rule and rules in general to meet the eligibility criteria under the Bill, some bits can lead to an anomaly or something that is not intended. There is no perfect way in which to catch every possible eventuality of mergers.

The hon. Member for Foyle asked what would happen if some managers left post-merger, so the more than 50% requirement was no longer met. HMRC thought about that; we could have added new clauses and tried to capture such a possibility and say, “You can’t change for 12 months” or that the merger must stay in place for a certain period. However, we ruled out such a provision because guidance will be published on the matter. Given that the Bill is at least as long as the gift aid legislation, we do not want to overcomplicate it. We want to strike the right balance.

The hon. Gentleman used a good example of when some charities could change their management structure post-merger, but we must strike the right balance and find something that will work and deal with the worries that have been expressed. Hopefully, he will accept that we must draw the line somewhere; we think that the right balance has been struck.

The hon. Gentleman also referred to cross-border mergers of charities, as did the hon. Member for Kilmarnock and Loudoun. I assure them that nothing under the clause prevents the mergers of cross-border charities from happening, whether in England, Scotland or Northern Ireland, which the hon. Member for Foyle might have had in mind. He also asked whether the clauses would work for charities that are taking advantage of the community buildings rules. Yes, we were deliberately careful to draft the provisions to take that into account. If one charity benefited from the community buildings rules and was part of the merger, post-merger the new charity could still continue to take advantage of the rules.

My hon. Friend the Member for Amber Valley asked about mergers and connected charities rules. We dealt with connected charities previously and explained why the rules were in place. He also referred to tax years. Under the Bill, they can claim as merger charities after the merger or they can claim as individual charities before the merger. In either case, they would not be treated as connected. That is taken into account, and I hope that I have reassured my hon. Friend.

Nigel Mills (Conservative, Amber Valley)

The reason for my concern is complicated. The connected charities rules deem that if the arrangement applies at any point in the tax year, it applies for the whole of the tax year. It would be hard for a collection of three charities merging into a new one if, at the instant before the merger, there was not to be a connection between the new charities and at least one of the ones that merge in, because the same individuals will be managing the bodies. While we intend that such a merger will be fine, there might be an accidental impact just before the merger, when the charity in question has become connected and therefore tripped itself out of all the claims for that year. I accept that after the merger, things may well be fine, but I am not sure what happens before that.

Sajid Javid (Conservative, Bromsgrove)

Perhaps I did not make myself clear; if so, I apologise. When two charities come together, they will be able to choose how they wish to be treated. They can either claim as a merged charity after the merger, or they can claim as individual charities before the merger, which may be relevant to my hon. Friend’s example. That is designed to ensure that there is no conflict with the connected charities rules. We have considered this provision carefully and think that it works.

As I understand it, the hon. Member for Kilmarnock and Loudoun is prepared to withdraw her amendment. However, just to be clear, I will be voting against clause stand part, and urge the Committee to join me in supporting new clauses 4 and 5 when we vote on them.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I beg to ask leave to withdraw the amendment.

clause stand part of the Bill.

Gareth Thomas (Labour, Harrow West)

As I understand it, subsection (1) allows the Treasury to amend the £5,000 figure, which is the benchmark for the amount of small donations that need to be collected to achieve the maximum top-up payment available under this scheme of some £1,250.

Subsection (2), if I have read it correctly, appears to allow the £20 limit on cash donations to count towards that £5,000 figure—to be amended at some future point if the Treasury is so minded. My interpretation of the clause is that it is the Treasury’s “get out of jail” card. If all the other hoops that it has inserted into this scheme—the linking to gift aid; the requirement for three years of gift aid claims; the connected charities rule; the community buildings clauses; and the pages and pages of guidance that will have to be issued, never mind the complex issues that we have been discussing around mergers—fail to keep down the number of charities applying for the full £1,250 to the total sum the Treasury has thus far said in public it is willing to spend on the scheme, then the Treasury under clause 13 could bring down the £5,000 figure and could conceivably bring down the £10 cash donation figure.

If small charities jump through all those hoops, they could end up with less than the £1,250 they initially thought they would be able to achieve, or they could only register £10 of small cash donations, again making it even harder to claim the full amount. Admittedly, we on the Labour Benches and many in the charity sector that deal with the concerns of small charities do not believe that we are likely to see that scenario, but the Minister is defending a scheme that is so complex that far fewer charities than was claimed by the Chancellor of the Exchequer in his Budget statement will benefit from this small payments scheme. Nevertheless, it appears that the Treasury is taking a reserve power, almost, to limit still further the amount of money paid out to small charities.

Perhaps a more likely scenario, which we on the Opposition side can envisage, is that the Chancellor of the Exchequer might look for even more aggressive public spending cuts. It is worth remembering that we have already seen, by the National Council for Voluntary Organisations estimate, a likely £3.3 billion of support taken out of the charity sector by 2015 as a result of Government cuts.

So out of touch is the Chancellor of the Exchequer that no one on this side would be surprised if he changed his mind about the scheme. Perhaps he thought that the charity tax row—which appears to have influenced his mind in the preparation of the scheme, wanting to appease charities that were distinctly unhappy about the charity taxes proposed in the Budget—had been sufficiently forgotten that he could get away with reducing the amount of money available to small charities under this scheme.

We need to hear from the Minister in which scenarios he might want to use the two powers that he wants to keep under clause 13. One scenario that we posed on Second Reading was that the Treasury might want to increase the £5,000 figure in line with inflation; some charities clearly aspire for the Minister to show a generosity to them—he certainly did not when discussing the three years in seven rule, for example—and increase the £5,000 figure in line with inflation. Otherwise we risk seeing the 2.5% inflation that the Treasury expects to see year on year devalue the potential amount that charities can get under this scheme.

Let us take the example of the 2nd Bromsgrove Scout Association, one of the 40% of Scout troops in the Minister’s area not registered for gift aid. The 2nd Bromsgrove comes along to the charity event that the Minister is hosting in January, and which he is going to get HMRC officials to come to, and is persuaded to apply for gift aid. It waits for three years—possibly four years, depending on when it gets a gift aid claim in—and is excited by the thought of getting the full £1,250. However, if the Minister has not used the power under subsection (2) and uprated that £5,000 figure, the £1,250 that the 2nd Bromsgrove Scouts might have claimed will have substantially devalued because of the impact of inflation.

I do not know whether the Minister is worried about the 2nd Bromsgrove Scouts, but let us take another example. Stafford hospital, if there is such a hospital, may have a radio station. We do not know whether Stafford hospital is registered for gift aid, but let us assume that it is.

Jeremy Lefroy (Conservative, Stafford)

I shall put the hon. Gentleman out of his misery. Stafford hospital does have a radio station—a very good one.

Gareth Thomas (Labour, Harrow West)

I am delighted that Stafford hospital has a radio station. Although I am not sure whether the hon. Member for Stafford has had a chance to appear on it, I imagine his mellifluous tones would be very soothing for patients.

I also do not know whether Stafford hospital radio is registered for gift aid, but let us assume for now not only that it is, but that it has been for a significant time and has submitted gift aid claims for three of the last seven years. We shall assume, too, that a dedicated person is ready to read through at least—as I think the Minister said—another 60 or 80 pages of guidance, which is roughly the same amount that one has to wade through to register for gift aid and is what we expect will be produced to explain the scheme.

Let us assume that Stafford hospital has one such saint in its team, willing to go through that process. They put in a claim under the small grants scheme, expecting to be able to receive £1,250. Therefore, in 2015, they anticipate being able to get £1,250 worth of goods. However, in practice, because of inflation, unless the figure of £5,000 has been uprated, the value of what they can claim under the scheme will not be worth as much as it potentially would be in 2013.

It would be useful to hear whether the Minister intends to uprate the sum of £5,000 in line with inflation. I make no suggestion about whether he should; he will be weighing that up along with other questions, as part of examining the sorry state of public finances, which the Chancellor of the Exchequer has allowed to develop in his term in office. It would also be helpful to hear whether the Minister can assure the Committee that the figure of £5,000 will not be reduced at all between now and the next general election.

John Hemming (Liberal Democrat, Birmingham, Yardley)

This is not exactly on the point that the shadow Minister is making, but on a personal basis, I was a member of the 1st Lickey Scout Group, a Bromsgrove Scout group, and also of the 271st Birmingham Scout Group. As I understand it, there is no 2nd Bromsgrove Scout Group, although there is a 1st and a 3rd. Is he trying to get phantom scout groups money out of the system?

Gareth Thomas (Labour, Harrow West)

That is an interesting intervention, but I will not rise to the hon. Gentleman’s shocking attempt to draw me off the subject of my speech; I am sure that I would risk being out of order. However, let us continue to use the imaginary example of the 2nd Bromsgrove Scout Group, because helping to see how different parts of the Bill might affect real charities can only help to illuminate the practical impact of the legislation. Perhaps that will make it easier for the Minister and his advisers in HMRC to reduce the amount of guidance that is published.

It would also be helpful for the Minister to set out the context in which the figure of £20 might change. Mr Turner, as you are a dedicated reader of the Committee’s proceedings in Hansard, I know that even if you were not here when I gave this example, it will nevertheless be familiar to you. Imagine the situation, as we have before, of all the chief executives of legal loan shark companies such as Wonga coming together, wanting to make a donation.

Such is the amount of money that legal loan sharks make—and no doubt, the salaries that their chief executives receive—that £20 would be an extremely small sum. It is conceivable that the Minister might be persuaded to increase the figure for donations, although he has not done so yet. He has indicated that he believes that £20 is a reasonable sum. Nevertheless, he has the power, under clause 13(2), to vary it. It would be helpful to hear from the Minister in what context he might want to take advantage of that reserve power.

Perhaps one last example worth reflecting on is that of parent-teacher associations—charities set up to help state schools mainly, but others too. Some 84% of PTAs are not registered for gift aid, but let us imagine that the Amber Valley primary school parent-teachers association has the good fortune to be registered for gift aid, to have put claims in for gift aid in three of the past seven years, and to have someone sufficiently talented and patient to wade through all the guidance that the Minister will have to produce for the Bill.

That talented and patient person is looking forward to receiving the full £1,250. However, subsection (1) risks a situation where the Minister has reduced the £5,000 sum, potentially reducing the amount the Amber Valley primary school PTA might claim under the small grants scheme; alternatively, it might not receive full value for the £1,250 because Ministers have chosen not to uprate the £5,000 figure beyond 2013.

It would be useful to hear from the Minister how he sees those different examples playing out: Stafford hospital radio; the 2nd Bromsgrove—although following the intervention from the hon. Member for Birmingham, Yardley the Minister may want to focus on the circumstances of the 1st and 3rd Bromsgrove; I will not complain—and the Amber Valley primary school PTA. In those circumstances, what would he do about the £20 figure? In what circumstances might he vary that figure? Explaining that to us now might help to reduce the guidance by at least five pages. What are the circumstances in which he might amend the £5,000 figure, using the reserve power in subsection (1)?

Sajid Javid (Conservative, Bromsgrove)

I thank the hon. Gentleman for his comments. I particularly thank my hon. Friend the Member for Birmingham, Yardley for his superb intervention.

Clause 13 gives the Treasury the power to amend certain amounts set out in the Bill. The amounts that can be varied are the £5,000 limit on which charities can claim the top-up in a year, and the £20 limit on a small cash donation. The clause gives Government the power to vary the £5,000 annual limit for donations collected while running charitable activities in a community building, as well as the £5,000 limit for donations collected elsewhere. The power is included in the Bill to provide future flexibility for the design of the scheme without needing primary legislation. However, we have no current plans to use the power. Any change would need to be agreed by the House under the affirmative procedure.

The Government have announced that there will be a limit of £5,000 on small donations collected each year. Like all limits, it will be kept under review, but payments under the scheme must be restricted to keep a reasonable check on the overall costs of the scheme.

Gareth Thomas (Labour, Harrow West)

Sadly, we are not blessed with the presence of the hon. Member for Banbury today, but we know that he is an enthusiast for the Church of England. Has the Minister considered the potential disappointment of many Churches—the Church of England, the Catholic Church and the nonconformist community—that there are no plans to increase the value of the £5,000 in line with inflation to reflect the hard work that they put into claiming gift aid and wading through all the guidance, which he will issue as part of the scheme?

Sajid Javid (Conservative, Bromsgrove)

As the hon. Gentleman knows, in putting together the legislation we had discussions with charities both on a trusted basis and in the evidence session. The Church of England is happy with the initiative that the Government have taken to introduce the legislation. I think that it is pleased with the £5,000 limit; that is its approach, rather than expressing disappointment at the figure being £5,000, which many charities would consider a good step forward.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

To follow up the point that my hon. Friend made, the Minister has on occasion implied that the figure of £5,000 would have to be changed if the cost of the scheme increased. Does he agree that there is still lingering concern that that implies that there is an overall cap on the number of charities or the amount of money available?

Sajid Javid (Conservative, Bromsgrove)

There is no concern about the number of charities that might use the scheme. When the scheme is developed, the Government clearly need to take account of its overall cost to public finances. Within the terms of the scheme, as we have discussed, there will be eligibility criteria and there is no restriction on the number of charities that can take advantage of it.

We encourage all charities that meet the criteria to use the scheme. We are comfortable that the limits we have set—the £5,000 limit and the £20 small donations limit—will meet the spending envelope that the Government, with the help of the Office for Budget Responsibility, expect the scheme to cost. Although the two limits—£5,000 and £20—obviously have an impact on our overall estimate of the total cost of the scheme, we do not think of them as a limit on the number of charities.

Sheila Gilmore (Labour, Edinburgh East)

During our debates, Government Members have thought that the Opposition were being pessimistic about the ability of small charities and so forth to make use of the scheme. We may indeed be unduly pessimistic and perhaps large numbers of organisations will apply. Am I to understand that there is an inherent financial limit, so that if we are wrong and lots of people come forward, that limit might be reached and there would be an intention to vary it downwards?

Sajid Javid (Conservative, Bromsgrove)

I do not think that the hon. Lady is right to think that. The only financial limits imposed are the two that we are talking about now—the £5,000 limit on the overall amount of donations and the £20 limit on what can be classified as a small donation. To put her and the hon. Gentleman’s minds at rest, the Government have no intention of changing the limits, and that includes in a downward direction. We have no plans at all to cut the £5,000 or the £20 numbers. If she will allow me to finish, I may answer any other questions she has.

It is sensible, and normal in legislation of this type, for the Government to have flexibility in the numbers, so that if they or a future Government wish to change the limits, there is no need for primary legislation, although such a change would be debated in the House and require an affirmative resolution. It is sensible to include such flexibility in the Bill.

The hon. Member for Harrow West talked about the link to inflation. The Government have no plans to link the figures to inflation. As I said, we will monitor the scheme over time, and if the limits need to be changed, they can be. It is also useful for many charities, and particularly smaller ones, to have a nice round number—£5,000 and £20—that can be explained to volunteers and helpers, rather than numbers that by being linked to inflation would change by small amounts every year. That could add to the management pressures on smaller charities.

The hon. Member for Harrow West also asked about the figure of £20.

Gareth Thomas (Labour, Harrow West)

The Opposition certainly accept that charities will be nervous of any more complexity in the scheme, but if they go through all the different hoops and apply for a payment they will nevertheless want to feel confident that what they get will retain its value by being increased in line with inflation. Such are the difficult circumstances for small charities, partly because of the spending decisions taken by the Government. I suggest that the Minister should not be so complacent about small charities’ desire to maximise their income.

Sajid Javid (Conservative, Bromsgrove)

It would be grossly unfair to accuse the Government of a complacent approach. Both sides of the House have agreed on the general principles of the Bill and why it is good for the charitable sector.

We have discussed the £20 before, but it is worth repeating that it is about small cash donations to charities. When the Government proposed the Bill, they had £10 in mind, but that has been increased to £20. That was done after consultation with charities. It was important to get their feedback. It is fair to say that most charities with which the Government discussed the issue, or which gave feedback, felt comfortable that £20 was the right sum when trying to capture small cash donations.

Mark Durkan (Social Democratic and Labour Party, Foyle)

Clause 13(2) provides the Treasury with the power to amend paragraph 1(1) to the schedule. Will the Minister confirm that that power of amendment is to be used strictly in relation to the sum of £20 and not in relation to the form of donation? Given what the Minister has said previously about keeping matters under review, and about a three-year review, could clause 13 have been more widely drafted, so that the power to amend paragraph 1(1) would be the power not just to alter the sum, but to remove the restriction to cash payments? The form of donation, as well as the sum, might then be changed.

Sajid Javid (Conservative, Bromsgrove)

I confirm that the power can be used only to change the £20 limit, not the form of the donation. I will not discuss the question of the form of donation; we have discussed it before.

Clause 14 - Top-up payments not taxable

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I can be brief. The explanatory notes point out that the top-up payment received under the scheme is not taxable in the hands of the charity or the community amateur sports club.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

Just before we broke, I referred to the issue of top-up payments not being taxable. I had just begun to speak on that topic but had indicated that I wanted to put a couple of questions to the Minister with regard to a previous discussion around clause 11. Clause 14 states:

“A top-up payment is not to be treated as income for any purpose of the Tax Acts.”

Will the Minister explain whether there is any crossover between our discussion on clause 11, particularly with regard to income tax and corporation tax? Is there any other reason why clause 14 is necessary? Perhaps he could also supply any additional information about corporation tax, about which I questioned him earlier.

Sajid Javid (Conservative, Bromsgrove)

It is good to see you back in the Chair, Mr Robertson.

Clause 14 states that a top-up payment received under the scheme is not taxable in the hands of the charity or CASC that receives it. It has been included to bring the scheme into line with gift aid. Gift aid payments are repayments of tax, so are not themselves taxable. Grants are often taxable. As the top-up payments under this scheme are technically grants and not tax relief, without this clause, they might be taxable. The clause clarifies that they are to be treated in the same way as gift aid payments.

I hope that helps the hon. Lady. For extra clarity, I can clear up one point on corporation tax. If the top-up payment is used by the charity for non-charitable purposes, it would be subject to corporation tax. If it is used wholly for charitable or other qualifying purposes, it would be exempt.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I thank the Minister for that answer but, once again, it leaves me slightly more confused and concerned. I would have understood if it had simply been the case that the top-up payment was not connected to corporation tax. However, did the Minister not suggest earlier that any top-up payments that were not used for charitable purposes would potentially have to be repaid to HMRC? How can they be repayable if they are not used for charitable purposes and also count in relation to corporation tax?

Sajid Javid (Conservative, Bromsgrove)

The intention is that there would not be such a top-up payment. Ideally, if the scheme functions as it should, there should not be a top-up payment where it is planned to be used by the charity for non-charitable purposes. The whole purpose of the top-up payments is to support charities in their charitable activities. The purpose of clarifying that in clause 14 is to ensure that, in cases where a top-up payment is made, it is clear that it would be subject to corporation tax if it were applied in such a manner. That should not actually happen; it is worth making that point for the sake of clarity.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I genuinely had not expected the clause to be controversial. It seemed necessary and sensible to have something that outlined that the top-up payment was not to be treated as income for purposes of the tax Acts. However, given what the Minister has said, I am left with some confusion. Either a top-up payment that is used for non-charitable purposes has to be repaid because it has not been used for the purpose for which it was intended, or it is eligible to be counted as income for corporation tax. The two things do not logically sit side by side. If the Minister wants to intervene to give further information, that would be helpful. If he is not able to do that at the moment, perhaps he can let us know in due course. I am certainly not suggesting that the clause should not stand part of the Bill.

Sajid Javid (Conservative, Bromsgrove)

I can perhaps give a little more clarity. The way that this will work is that top-up payments are not subject to tax, however they are spent. The reason why it applies is that, if it turns out, once the top-up payment has been made, that it was wrongly used for non-charitable purposes—intentionally or otherwise—HMRC will be able to reclaim all or a portion of that top-up payment.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I absolutely understand that and I thought that we had got to that point earlier in the day. I am still struggling to understand how that relates to the corporation tax element.

Sajid Javid (Conservative, Bromsgrove)

If it is okay with the hon. Lady, I will happily come back to her to clarify that.

Clause 16 - Regulations and orders

Gareth Thomas (Labour, Harrow West)

It would be helpful to have some sense of the Minister’s envisaged time scale for the statutory instrument coming before the House to set up the key administrative parts of the Bill referred to in clause 16. It would be helpful to know the answer to that simple question.

Sajid Javid (Conservative, Bromsgrove)

Allow me just to say a few words about the clause. It provides that any regulations and orders under the Bill are to be made by statutory instrument. All statutory instruments are to be agreed under the draft affirmative procedure in the House of Commons. The requirement that a draft of the instrument has to be laid and approved by resolution in the House of Commons will ensure that regulations and orders receive proper scrutiny. The only exception to that procedure is for transitional provisions made in connection with the coming into force of any of the Bill’s provisions.

During the debate on clause 11, I explained that we have published the draft regulations to be made under the Bill for consultation, and they will be subject to the affirmative procedure. The draft regulations were published in the second week of September, if I remember correctly. Regulations will be made as soon as possible after Royal Assent has been given to the Bill so that the scheme can start as planned in April 2013.

Clause 17 - General interpretation

Gareth Thomas (Labour, Harrow West)

I beg to move amendment 34, in clause 17, page 9, line 18, at end insert—

‘(e) industrial and provident societies that operate as charities.’.

Jeremy Lefroy (Conservative, Stafford)

I endorse what the hon. Gentleman says because an industrial and provident society is an extremely useful vehicle for a number of charitable purposes. I will be interested to hear what the Minister says about where that vehicle lies within the Bill. I have been involved in setting one up, so I know how it can be used for charitable activities to which other bodies do not necessarily lend themselves.

Gareth Thomas (Labour, Harrow West)

I am grateful for the hon. Gentleman’s intervention. At the start of the Committee’s consideration of the Bill, his contributions hinted that he had sympathy with many of the positions set out by Labour Members, but then he went quiet, so I welcome his return to sympathising with some of our positions.

Mark Durkan (Social Democratic and Labour Party, Foyle)

Born again!

Gareth Thomas (Labour, Harrow West)

Let us see; we should not rush to a conclusion.

It would surely be a tragedy if those charitable organisations that are community benefit societies were to miss out on eligibility for the scheme simply because of a minor drafting omission.

I was lucky enough to introduce a private Member’s Bill that became the Industrial and Provident Societies Act 2002. That Bill enjoyed the support of the hon. Member for Christchurch (Mr Chope), who is well known for his enthusiastic support of private Members’ Bills. It turned out that Christchurch Conservative club was an industrial and provident society, and I was told at the time that it served very good pies. When I drew that to the hon. Gentleman’s attention, it helped to convince him of the need to be sympathetic to such societies. I do not know whether the Christchurch Conservative club is a community benefit society, but I suspect not. It is certainly difficult to think that anything labelled “Conservative” could be regarded as charitable, notwithstanding the intervention made by the hon. Member for Stafford. Nevertheless, it would be useful to hear from the Minister what analysis he has made of how the Bill will affect community benefit societies.

Let me cite two real-life examples of community benefit societies that are registered charities. North Lynn Discovery Ltd, which is based in King’s Lynn in Norfolk, runs a series of activities to support those at risk of being excluded from school, and of offending and entering the criminal justice system. It tries to help those not in education, employment or training by providing support, mentoring advice and educational programmes that help people to develop key skills. I understand that it is a registered charity, although time has not allowed me to check whether it is registered for gift aid. However, let us assume that it is, and that it meets the “three years in seven” category. Surely such a charitable industrial and provident society should be allowed to benefit under the Bill, providing that it meets all the Minister’s criteria and is willing to read the 80 pages of guidance that he sets out.

The second example is the Lydney community centre in Gloucestershire, which has taken over a former primary school. I understand that the volunteers who run the centre have set themselves up as an industrial and provident society, and specifically as a community benefit society. Although it is not yet registered as a charity, it could do so. In the longer term, it could benefit under the scheme, if charitable industrial and provident societies are covered. If they are not covered at the moment, that could be achieved by agreeing a suitable amendment on Report. Such organisations are doing the right thing in their communities, so surely they are well worth our support.

I would like to thank Ian Snaithe, a legal expert on industrial and provident society legislation, who drew my attention to this gap in the Bill. I am grateful for his work, expertise and guidance, and I look forward to hearing the Minister’s response.

Sajid Javid (Conservative, Bromsgrove)

I understand the intention behind amendment 34, but I ask the hon. Member for Harrow West to withdraw it, because it is not necessary. Clause 17 sets out definitions for several of the terms used in the Bill. Subsection (1) defines what is meant by a charity which, for the purposes of the Bill, includes a charity eligible for UK charity tax reliefs, and certain organisations that are not charities in law, but that benefit from gift aid. Those are community amateur sports clubs, as well as certain named organisations.

Amendment 34 would add a further type of organisation to the definition of a charity: industrial and provident societies that operate as charities. Industrial and provident societies are regulated by the Financial Services Authority, rather than the Charity Commission, but some of them are charities, as the hon. Gentleman said. Industrial and provident societies that are charities are entitled to claim UK charity tax reliefs, including gift aid, because they meet the definition of a charity as set out in subsection (1)(a). It follows that there is no need to specify that industrial and provident societies are a separate class of organisation to which the Bill will apply. When an industrial and provident society is not currently a charity, it is not eligible for the scheme. Those societies that are charities automatically qualify for the scheme, subject to their meeting the eligibility conditions.

Gareth Thomas (Labour, Harrow West)

I am grateful that the Minister has put that clarification on record because it will clear up any doubts. However, who will regulate the charitable status of community benefit industrial and provident societies that are charities? The sector has been concerned about that for a while, so can he offer any further information?

Sajid Javid (Conservative, Bromsgrove)

The hon. Gentleman is right about putting things on the record, and to the extent that doing so helps industrial and provident societies understand the intentions of the Bill, that is good. The hon. Gentleman gave examples showing that many industrial and provident societies do excellent work and we want to ensure that, where they are charities, they can benefit from the scheme.

Regulation of industrial and provident societies is a matter for the Charity Commission and the Cabinet Office. Where a charity is not required by law to be regulated by a regulator, it can still qualify for UK charity tax reliefs, including the benefits of this scheme.

Gareth Thomas (Labour, Harrow West)

I understand that responsibility for the Charity Commission is not within the Minister’s immediate scope, and I am grateful for the assurance that he has provided about the eligibility of charitable industrial and provident societies under the scheme. However, I also raised the wider concern about future regulation of the charitable status of industrial and provident societies. I appreciate that he cannot give me a direct answer now, because he does not have direct conversations with the Charity Commission, but will he use his good offices to give it the hurry-up to resolve this small issue, which is nevertheless important for this group of organisations?

Sajid Javid (Conservative, Bromsgrove)

I am happy to write to the Charity Commission on the hon. Gentleman’s behalf.

I ask the hon. Gentleman to withdraw his amendment.

Gareth Thomas (Labour, Harrow West)

The Minister has been helpful and given clarity to bencom societies that are charities, saying that they are covered under the Bill if they fulfil all the criteria that we have debated at some length. That will provide huge reassurance to those legal experts who advise industrial and provident societies, such as Mr Snaith, who is a distinguished former university lecturer and expert on the co-op and co-op law.

The Minister has also been helpful in agreeing to give the Charity Commission a gentle prod to resolve the more general issue, specific to these debates, of how charitable industrial and provident societies are regulated in future. I am grateful to him for that and I hope he will be willing to make his letter and the answer to it publicly available, or at least available to Members of the Committee. I will happily take an intervention from the Minister if he is willing to give us that assurance.

Sajid Javid indicated assent.

Gareth Thomas (Labour, Harrow West)

The Minister is nodding; I will take that as a yes. I am grateful for that, and as a result, I beg to ask leave to withdraw the amendment.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I beg to move amendment 33, in clause 17, page 9, line 23, leave out from ‘2011’ to end of line 26.

Sajid Javid (Conservative, Bromsgrove)

Amendment 33 would remove the reference to Scotland and Northern Ireland from the definition of “charitable purpose” in clause 17. The hon. Lady has explained her belief that the text that the amendment would remove is unnecessary, but I regret to say that I cannot agree. The reference to Northern Ireland is necessary, and the reference to Scotland is there for legal certainty. Charity law is a devolved matter, and the definitions of “charitable purpose” in Scotland and Northern Ireland differ from one another and from those used in England and Wales. For UK tax purposes, however, we use the definition under the law of England and Wales, which is in section 2 of the Charities Act 2011, because it is important that national taxes be applied in the same way across the United Kingdom.

Section 7 of the 2011 Act applies the English definition to Scottish charities in relation to matters that fall within section A1 of part 2 of schedule 5 to the Scotland Act 1998: namely, reserved matters of fiscal, economic and monetary policy. The small donations scheme is a reserved matter, so I agree that for Scotland the reference to section 2 of the 2011 Act might have been enough. The clause also refers to the law of England and Wales and the law of Northern Ireland, however, because the devolution settlement in Northern Ireland is different from that in Scotland.

Section 8 of the 2011 Act applies the English definition of “charitable purpose” for enactments that fall within paragraph 9 of schedule 2 to the Northern Ireland Act 1998, which are excepted matters relating to taxes and duties. The small donations scheme is not a tax or a duty, so section 8 of the 2011 Act does not do the same job for Northern Ireland as section 7 does for Scotland.

Without the explicit reference to Northern Ireland in clause 17, the small donations scheme might work differently depending on where the charity is located. Under clause 3, charities can use small donations only for charitable purposes. If the definition of “charitable purpose” were different in Northern Ireland, some charities would be able to spend money on things that other charities would not, depending on where they were located. That would not be right for a UK-wide scheme, so the reference to Northern Ireland in clause 17 is necessary.

The reference to the law of Scotland provides legal certainty. Confusion might result if clause 17 referred only to the laws of England and Wales and the law of Northern Ireland, because that might imply that the definition found in the 2011 Act did not apply for the purposes of Scottish law. Some people might take the lack of a reference to Scotland to mean that the Scottish definition should apply, which would be wrong.

I hope that that has helped to answer some of the good questions that the hon. Lady asked. The Government have drafted the clause correctly, and it is vital to have clarity. Now that I have explained why the reference to Northern Ireland in clause 17 is essential and that the reference to Scotland is there to give legal certainty, I ask the hon. Lady to withdraw amendment 33.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I appreciate the Minister’s detailed answer to that question and his concession that it might have been possible to word the clause without reference to the law of Scotland. He has, however, made it clear that he believes that the clause needs to refer to the law of Northern Ireland. I certainly have a good working relationship with our colleagues just across the water from my constituency and, bearing in mind the interests of my hon. Friend the Member for Foyle, would not want to do anything whatsoever to cause problems for any charitable organisations there. On that basis, I beg to ask leave to withdraw the amendment.

Clause 18 - Financial provisions

Gareth Thomas (Labour, Harrow West)

I am grateful for the opportunity to catch your eye and ask a couple of questions under this clause about the financial cost of the scheme. I think I saw somewhere the Minister say that in the first year of operation, 2013-14, the scheme will cost some £60 million, which is a rough estimate. That obviously assumes that there will be no problems with the new online computing system, to which the Minister has alluded. He says that he has received assurances that the scheme will be up and running and perfect. It would be helpful to hear from the Minister the specific amounts that he and his advisers in the Treasury have set aside for the first three years of the scheme. Those first three years are 2013-14, 2014-15, which takes us up to the general election, and 2015-16. The coalition will have set the budget for 2015-16, and we will be stuck with it, at least initially, when we come to power. As I understand it, the estimate is some £60 million for 2013-14. I think the Minister or his predecessor hinted somewhere that by 2015-16, when the scheme is fully running, the scheme will be costing the Treasury some £125 million. I may be wrong with those figures, so it would be helpful to get some clarity on the Treasury estimates for the scheme’s costs.

Sajid Javid (Conservative, Bromsgrove)

Clause 18 is a technical provision known as a “sink clause”. It specifies that the top-up payments under this scheme will be paid out of money provided by Parliament. The scheme is a public spending measure and clause 18 makes that plain, but the scheme would still be a spending measure even without clause 18. There is a specific purpose for including clause 18. By convention, any provision in a Bill that involves public spending must be printed in italics, but nearly all of the Bill’s provisions involve public spending—directly or indirectly—so without clause 18, most of the Bill would need to be printed in italics, and many people would find that hard to read, including, I am sure, the hon. Member for Harrow West. Actually, given his love for Latin and other things, perhaps it would help. The inclusion of a sink clause means that only the provisions that make direct reference to public spending need to be printed in italics, which is therefore necessary only for clause 18 and clause 1(1).

Turning to the hon. Gentleman’s specific question, the Government gave some estimate for the scheme in Budget 2011. I will remind him of the numbers.

Gareth Thomas (Labour, Harrow West)

Would it be helpful if I intervened?

Sajid Javid (Conservative, Bromsgrove)

No, it is okay. I can provide the estimates that have been given previously. I put it that way because we have tabled several Government amendments and, given those changes, it is normal for us to ask the independent Office for Budget Responsibility for an assessment of any impact on our original costings. Our current estimate is that for 2013-14—effectively, that will be the first year of operation—the cost will be about £35 million, for 2014-15 the cost will be about £65 million and for 2015-16 the cost will be about £70 million. After the first two or three years of operation, when the system is running at full steam, our original estimate is that the cost will be about £100 million a year.

Gareth Thomas (Labour, Harrow West)

I am grateful to the Minister for his helpful clarification about the italics in the Bill—at least that should reduce the guidance for charities by about five pages. It is also helpful to have clarity about the figures of £35 million, £65 million and £70 million for the first three years. If I remember rightly, the Treasury is either preparing a comprehensive spending review or will do so soon. What guarantees will he give those in charities who read our debates that those figures will not be affected during the Treasury’s negotiation of the comprehensive spending review?

Sajid Javid (Conservative, Bromsgrove)

In proposing the initiative and progressing with it, including by tabling amendments after listening to the useful input from charities and others, the Government have been committed to the Bill, as has been clear from our debates. I have given the hon. Gentleman an estimate of the costings. I stress that it is only an estimate, and should be prefaced by what I said earlier. To link this to our discussion on an earlier clause, once the Bill has received Royal Assent, we do not, because of the review that the Government want in three years’ time, anticipate making any significant changes for at least three years, so there should not be any significant changes to the costings.

Gareth Thomas (Labour, Harrow West)

To be clear, is the Minister saying that the Treasury is not seeking to reduce expenditure under the small charitable donations scheme? It is clearly seeking to reduce a whole series of other parts of Government expenditure, but will this scheme be untouched?

Sajid Javid (Conservative, Bromsgrove)

I reassure the hon. Gentleman that the Government have no plan to make changes to the scheme.

Gareth Thomas (Labour, Harrow West)

No plan at the moment.

Sajid Javid (Conservative, Bromsgrove)

We have no plan to make changes to the scheme.

Mark Durkan (Social Democratic and Labour Party, Foyle)

The Minister has helpfully confirmed the Treasury’s rolling estimates of the expenditure drivers in the Bill for the next few years. In relation to issues raised during our evidence sessions, is he in a position to clarify how much of that cost the Treasury believes will come directly as top-up payments and how much will involve increased gift aid, as more charities use it and are encouraged to use it more? Does he have any breakdown of the estimates between gift aid proper and top-up payments?

Sajid Javid (Conservative, Bromsgrove)

That is a good question. It is clear that when the Government make estimates and have the OBR look at them, we need to take into account behavioural changes. I think that that is what the hon. Gentleman is getting at. Changes to gift aid are likely, perhaps in both those directions. I hope that he respects that that is difficult to estimate, because it is a behavioural change and this is the first time that any Government have done something of this nature. I have no numbers that could give that breakdown, but as we progress past the first year and move into subsequent years that behavioural impact will become better known, and I hope that HMRC will provide further information at that time. We will discuss reporting in a later clause, but HMRC usually releases annual information and key statistics on the changes in claims for gift aid and other charitable reliefs, and I hope that that kind of information can be included.

Jeremy Lefroy (Conservative, Stafford)

As the Minister will know, a certain proportion of gift aid payments are attributed to overseas development assistance when making the calculations under the OECD rules. Would the same apply for donations made to charities giving overseas development assistance with these gift aid top-up payments as it does for the original gift aid?

Sajid Javid (Conservative, Bromsgrove)

Perhaps my hon. Friend can clarify his question. It was not quite clear.

Jeremy Lefroy (Conservative, Stafford)

I am sorry if that was not clear. The Minister will know that a proportion of gift aid—the figure ranges between £60 million and £100 million a year—is attributed to overseas development assistance expenditure under the OECD rules, as part of the total overseas development assistance that the United Kingdom gives. I am asking him whether the same procedure will apply for the gift aid top-up payment as it does to gift aid itself, where any proportion of that gift aid on donations to charities conducting overseas development assistance is included.

Sajid Javid (Conservative, Bromsgrove)

I thank my hon. Friend for that clarification. If I understood him correctly, he is effectively asking whether charities whose charitable purpose is overseas aid, perhaps for Africa or Asia or for schools or medical aid, are eligible for this scheme in the same way that they are eligible for gift aid. As long as they meet the other criteria within the Bill, those charities are not excluded. For example, if a small local community charity was collecting for an African school, as long as it meets the definition of a charitable purpose under the Charities Act 2011, it would not be excluded from this top-up scheme.

Jeremy Lefroy (Conservative, Stafford)

I am most grateful for that confirmation, but I want to go a little further. When one thinks about overseas development assistance as a percentage of GDP, under the OECD rules all the bits of overseas development—the hon. Member for Harrow West, who was an overseas development Minister, will know this—that do not necessarily come under the Department for International Development, but perhaps under the Foreign Office or the Ministry of Defence, are assembled, and a part of that attribution is gift aid. I am seeking confirmation that the gift aid top-up will be treated in the same way as gift aid for this OECD calculation. It may not be a very large sum of money, but it is significant and should be counted as part of Britain’s overall overseas development assistance, as gift aid already is.

Sajid Javid (Conservative, Bromsgrove)

I thank my hon. Friend for making that clear. I understand his question now. It is not something that I have specifically looked at, but it should be treated in the same way as gift aid is for the OECD calculation. I will look into it in a bit more detail. The concern is, if I have understood my hon. Friend rightly, that the total top-up payments in a specific year are treated, as far as OECD calculations for UK overseas development aid are concerned, in the same way as the total amount of gift aid that goes overseas. I believe it is the same way, but I will look at that. That is a good question.

New Clause 4 - Charity mergers: new charity taking over activities of one charity

New Clause 5 - charity mergers: new charity taking over activities of several charities

New Clause 1 - Annual report

Gareth Thomas (Labour, Harrow West)

I beg to move, That the clause be read a Second time.

John Robertson (Labour, Glasgow North West)

With this it will be convenient to consider new clause 2—P ost-legislative review—

‘The Government shall, within two years of this Act coming into force, undertake a review of its operation and lay a report of the review before the House of Commons.’.—(Gareth Thomas.)

Gareth Thomas (Labour, Harrow West)

New clause 1 seeks to add a requirement that the Treasury, within 12 months of the Act’s coming into force, publish a report to enable the House of Commons in particular to consider carefully how the Act is working and to provide an opportunity for us to make the case for further reform.

There has been much debate during the two weeks we have considered the Bill about the number of charities that will benefit from the scheme. It would be useful to see a report within 12 months to see how many charities are in practice benefiting. It was useful to have the Minister’s clarity about the Treasury estimates of expenditure under the scheme in each of the next three years.

Sajid Javid (Conservative, Bromsgrove)

This might be a good point at which to clarify the following. The hon. Gentleman asked me earlier for estimates; the issue also links to what the hon. Member for Foyle asked about behavioural changes. I have some further information that gives some flavour of the behavioural changes. It would perhaps be best for me to say the numbers for each year that can then be matched against the static numbers that I gave earlier. This is an estimate of potential behavioural changes.

In the first year, 2013-14, the total cost is estimated at £50 million; in the second year, 2014-15, it is estimated at £85 million; and in the third year, 2015-16, it is estimated at £105 million. The difference between the two sets of figures—the ones I gave earlier when we discussed clause 18 and now—is static versus behavioural. I hope that I have been helpful. I want the Committee to have the maximum information.

Gareth Thomas (Labour, Harrow West)

We are grateful to the Minister for his intervention. Nevertheless, a year after the Bill has been enacted, it would be helpful to know more specifically how much had been actually spent in the £35 million to £50 million range. It would give us a flavour of where, in the likely range between £65 million and £85 million in 2014-15, the ball will stop.

Fiona O'Donnell (Labour, East Lothian)

Does my hon. Friend think that it would also be useful to have the figures, as my hon. Friend the Member for Foyle mentioned, in respect of the increase in charities claiming gift aid? I am sure that that would incentivise many charities, especially smaller charities, to take up the scheme so that, in three years’ time, they will also benefit from measures under the Bill.

Gareth Thomas (Labour, Harrow West)

My hon. Friend has made a good point, as indeed did my hon. Friend the Member for Foyle. If the Minister is right, there will be a huge surge in the number of charities registering for gift aid in order to benefit three years down the line from the small donations scheme. It would be helpful to get some sense of whether the behavioural change predicted by the hon. Gentleman in that sense was coming to fruition. My hon. Friend the Member for East Lothian was absolutely right that one of the ways in which we could know whether that was happening would be to have the total expenditure on the scheme broken down in terms of the extra gift aid claims as well as the money spent under the small donations scheme.

Many attempts have been made by the Minister to justify the scheme’s level of complexity on the basis of the level of fraud. I repeat that Opposition Members are absolutely committed to taking proportionate measures to stop fraud under the scheme. It would clearly be helpful to hear, 12 months down the line after the scheme was in operation, HMRC say how much fraud it actually estimates in its operation. That would allow us to have a meaningful debate about the success or otherwise of the scheme.

Fiona O'Donnell (Labour, East Lothian)

Does my hon. Friend consider that it would be useful if HMRC said how much it has had to take back from charities? We would then know whether charities were struggling to operate the scheme within the rules. The arrangements could really affect charities’ cash flow projections and the management of their budgets in difficult times.

Gareth Thomas (Labour, Harrow West)

My hon. Friend is right. Perhaps I should have been slightly more clear in the drafting of new clause 1(2)(b) and referred to the total “net” expenditure on the scheme. That would have allowed the Minister even less wriggle room and made him be more clear about the level of overpayments. It would indeed give us a greater sense of the problems for HMRC in managing the scheme and, in turn, a sense of whether charities were benefiting from it.

Linked to new clause 1 is the suggestion that there needs always to be a review of the Bill’s operations after two years in practice, and I shall outline some reasons why. There is considerable scepticism about how the Bill has been drafted and, indeed, the method chosen by the Minister to provide what is an estimated £105 million grant scheme for small charities in the year when the next Labour Government come into power.

In the early parts of the line-by-line debates on the Bill, we had plenty of opportunity to look at the Government’s many other grant-giving schemes—many with equally low levels of fraud, sometimes even lower levels of fraud. New clause 2 would provide an opportunity for Government to consider whether the Bill, with all its complexity, and the scheme, with all its complexity written into its heart, are still the best way to administer this small grants scheme.

New clauses 1 and 2 are perhaps an opportunity to reflect on our two weeks of line-by-line scrutiny to see essentially what we have learned about the scheme and the Government’s motives and intentions. We set out at the beginning of this two-week process wanting to help the Government get the money to small charities. However, we were extremely concerned about the level of complexity in the Bill.

We raised a series of concerns reflected to the Committee by those who represent the charity sector about the requirement that access to this scheme be linked to gift aid registration; then the requirement that there could not be a benefit unless there were three years of gift aid claims. There were concerns about the wholly new concept of community buildings written into the scheme—a concept completely alien at the moment to most charities. It is not necessary to understand that concept at the moment. We have gone on to listening to the concerns of charities, to raise concerns about issues relating to charity mergers and the sheer amount of guidance set to be required.

We were also extremely worried about the potentially small number of charities, proportionately, that would benefit under the terms of the Bill. In its evidence to the Committee, the National Council for Voluntary Organisations suggested that only a third of charities across the country would benefit from the Bill. We were seeking to understand from Ministers why they wanted to exclude the other two thirds of charities from access to the scheme, given how much other moneys have been cut in Government spending from which charities might otherwise have sought to benefit.

The third area of concern we sought to raise was the divisive nature of the scheme. Members of the Committee will remember me posing, in terms that I hoped Government Members would clearly understand, the contrast between Eton, a charity registered for gift aid with considerable capacity to help those donating register for gift aid, and the charity linked to the best primary school in the country—the Friends of Newton Farm, based in my constituency. That is not registered for gift aid and therefore not able to claim under this scheme. Why do the Government think it fair that Eton should be able to benefit from the scheme while the best primary school in the country, that happens to be in my constituency, is not?

We heard two other examples of division under the scheme. We heard that English Heritage will potentially benefit from it; we heard that the National Trust will largely not potentially benefit from it. We heard that well established churches in the Church of England will benefit but churches that have been planted in communities—just getting up and running—are not likely to benefit. We were concerned about why the Government wanted to allow a scheme that pitted one small charity against another—that allowed one small charity to benefit from the scheme but not other small charities.

I cannot speak for every Opposition Member, but my instinct is that our concerns have deepened in those three areas.

We now know that the scheme will be far more complex than we even imagined at the beginning of these debates. Potentially 160 pages of guidance on the website—80 pages just to register for gift aid, as we heard as the result of an intervention from my hon. Friend the Member for Leeds East.

The Minister confessed in an interesting aside this morning that he expected the guidance under the scheme to be at least as long as that for registering for gift aid. If in January he is successful at his meeting for Bromsgrove charities in persuading the 2nd Bromsgrove Scout Association, if it is not already registered, to register for gift aid—the hon. Member for Birmingham, Yardley is not here, but perhaps the 1st and the 3rd Bromsgrove Scout Associations are not registered for gift aid either—it will have to wait three or possibly four years to get its gift aid claims in and to benefit, as a result, from a maximum of £1,250.

I suspect that the Minister will not say at the January meeting to the 1st, 2nd and 3rd Bromsgrove Scouts that they will need to wade through 160 pages of guidance on the website. He probably will say, “Speak to this excellent HMRC official that I have brought along today and he will help you to claim, fill in your forms for gift aid and get registered for this scheme”.

We have also learned during the passage of the Bill that the estimate that a third of charities would benefit from the Bill and that two-thirds would not benefit is not as accurate as we expected. A letter sent, I think, to all members of the Committee by the National Council for Voluntary Organisations, which I hope to come to later, appears to suggest that only a fifth of charities will be eligible. So the scheme is even more divisive than we had been led to believe. Four out of five small charities will not be able to benefit under the terms of the Bill. Only one in five charities will be able to benefit. As we have come to understand, it is even more divisive than we expected. We know about Eton versus the Friends of Newton Farm—

Greg Hands (Conservative, Chelsea and Fulham)

You’re obsessed!

Gareth Thomas (Labour, Harrow West)

The hon. Member for Chelsea and Fulham says that I am obsessed, but I pose it in terms of Eton to help Government Members to understand just how divisive the scheme is. Its pits the favourite charity of many Government Members against other charities. We are not trying to prevent Eton from benefiting from the scheme; we just want to make sure that other charities have the same opportunity to benefit.

What the hon. Member for Chelsea and Fulham has against the idea of the Fulham and Chelsea parent-teacher association, the First Chelsea Scout Troop, if it is not registered for gift aid or, indeed, the Chelsea and Westminster hospital radio station, benefiting from the scheme, I do not know. What we do know from the evidence presented to us is that the favourite charity of some Government Members will potentially benefit under the scheme, but many parent-teacher associations, many hospital radio stations and many scout groups will not benefit.

Mary Macleod (Conservative, Brentford and Isleworth)

May I request that the hon. Gentleman uses another example of a school? Most Government Members do not particularly relate to Eton, because we did not go there. I went to a local comprehensive in the north of Scotland. He should feel free to cite Chiswick community school, which might be a better example.

Gareth Thomas (Labour, Harrow West)

I am delighted to use Chiswick community school or perhaps an Isleworth community primary school, if there is one. Has the hon. Lady had the chance to check whether such a school has a parent teacher association, and whether it is registered for gift aid and has had three years of gift aid claims? She does not seem quite so sure about that, but that Isleworth community primary school risks not benefiting from the Bill. I suspect that she is a deeply influential Government Member, and I simply used the example of Eton versus the Friends of Newton Farm—I will now cite the example of that Isleworth community primary school—to encourage her to use her influence with the Minister to persuade him to reflect on the divisiveness of the scheme as it now stands and to introduce further amendments on Report.

We do not seek to hold against the Minister his descriptions of the merits of the clauses. Out of generosity, we understand that he has been in the Treasury only two minutes and that that is hardly time for him to demand and secure the rewrite that we gently suggest is merited for some parts of the scheme. On Report, he will have been in the Treasury a little longer.

John Robertson (Labour, Glasgow North West)

Order. May we come back to the clause?

Gareth Thomas (Labour, Harrow West)

You are right, Mr Robertson.

We look forward to the Minister’s being enthusiastic about using the opportunities given by new clauses 1 and 2 to persuade his officials to rewrite some of the Bill. Our concerns have grown and, as Opposition Members, we have seen one of our central tasks in Committee as highlighting, for the Minister’s benefit, the Bill’s complexity. New clauses 1 and 2 were tabled to give him the opportunity to reflect on what he has said.

Sheila Gilmore (Labour, Edinburgh East)

I said earlier in our debates that I hoped that some of our points about the complexity and the obstacles—the obstacle race, indeed—that smaller organisations will have to jump over and which might lead to people not taking up the opportunity to benefit from the scheme, would be looked at. As that has not happened, does my hon. Friend agree that it is important to have regular reports back to see whether our concerns are justified, so that changes might be considered?

Gareth Thomas (Labour, Harrow West)

My hon. Friend makes a good point. The purpose of an annual report or a review is to provide a trigger point for the House and the Treasury to recognise the difficulties inherent in the Bill, to begin further conversations about how to address concerns and to take appropriate action.

In support of new clauses 1 and 2, it is worth reflecting on what the Minister has said in recent sittings. On 23 October, in the sixth sitting, he said:

“The hon. Gentleman is right that the rules are complex”.

Later, he said:

“I readily admit that this part of the Bill is complex and that we do not know exactly how it will work until it comes into practice.”––[Official Report, Small Charitable Donations Public Bill Committee, 23 October 2012; c. 206-207.]

On 25 October, in the seventh sitting, he said that

“the very nature of trying to capture issues such as connectivity—whether it is here where we are dealing with charity, or in other laws where we are dealing with trusts—is complex.”––[Official Report, Small Charitable Donations Public Bill Committee, 25 October 2012; c. 225.]

I give those three examples to suggest that the Minister already recognises the complexity that he has had to defend.

Gareth Thomas (Labour, Harrow West)

I have already picked out three of the Minister’s most compelling clips, but there are two others. The three previous ones highlighted the Minister’s confession that the rules of this scheme were complex—that we would not know exactly how they will work until they are practised. In the fourth clip from the Minister’s speeches that is worth reflecting on in the context of the debate on new clause 1, he admitted that mistakes can be made. He said:

“Clearly HMRC is like any organisation; mistakes can always be found.”––[Official Report, Small Charitable Donations Public Bill Committee, 25 October 2012; c. 223.]

In the Minister’s fifth set of comments worth recording in Hansardfor the purposes of the debate on new clauses 1 and 2, he talks about a complicated clause being made even more complex. It was in the eighth sitting on 25 October at column 271. That, I suspect, was in the context of an amendment about which we were probing him. The fact that he admitted that the clause as initially drafted was complicated was revealing. We have four examples of the Minister admitting in Committee that the rules of the scheme are complex, and a fifth one of the Minister admitting that HMRC, like any organisation, can make mistakes. Those suggest that we need to ensure that we write into the Bill an opportunity for a series of triggers to examine how the scheme is working in practice.

We have not been blessed today with the presence of the hon. Member for Banbury (Sir Tony Baldry). When he was probing the Minister in the evidence session on 16 October, he asked Questions 98 and 99 at column 61 —questions that indicated that he, the much-respected elder statesman of the Committee, was not sure how the Bill would work in practice. So we have the Minister admitting that the Bill is complex and one of the most senior Members of the Committee clearly not understanding exactly how particular parts of the Bill would work. That suggests that we need to ensure that we have the opportunity to examine how the Bill would work.

I drew attention in the earlier part of my remarks on new clauses 1 and 2 to a further letter we received from the National Council for Voluntary Organisations exploring the issue of the number of charities that will benefit and will not benefit under the Bill as drafted. The letter from NCVO echoes some of the concerns that were forwarded to us from the Institute of Fundraising. It points out that at the moment there is limited information in the public domain to enable proper scrutiny of the scheme as it stands. It argues that that is because:

“HMRC does not release its data in a way that enables direct comparison with the Charity Commission’s data.”

That is a familiar worry in the charity sector.

The Minister would get at least one good mark if he were to endeavour to resolve the lack of comparability between HMRC data and Charity Commission data. NCVO said that published data from HMRC show that about 65,000 organisations made gift aid claims in 2011-12, which is, broadly speaking, a similar number of claims since as far back as 2006. In his evidence to the Committee on 16 October, the Minister said that there are about 100,000 organisations on the books with HMRC, presumably registered for gift aid but not necessarily claiming it consistently.

NCVO went on to say that HMRC has not received information that would enable further comparisons to be made of the different types of organisations claiming gift aid. Therefore, a range of organisations is not covered by Charity Commission data. For example, the Church of England’s evidence to the Committee referred to the possibility of about 12,500 Church of England parishes using gift aid, which suggests that the number of general charities consistently accessing gift aid is considerably lower than the 65,000 to which the Minister alluded.

Initially, NCVO suggested that about a third of charities could benefit from the scheme. Taking into account the new evidence about the number of organisations that claim gift aid, but which do not have to be registered with the Charity Commission, it argued that it is now more appropriate to use the National Audit Office’s estimate for the size of the voluntary sector—the one that Lord Hodgson used—and suggested that there are about 350,000 charities in the voluntary sector. So taking the 65,000 charities that claim gift aid regularly and setting that against the 350,000 charities that we know exist, only one in five charities is potentially able to benefit from the scheme. One of them is Eton, a provocative example to capture the attention of hard-hearted Government Members, such as the hon. Member for Chelsea and Fulham, and to highlight the unfairness of only one in five charities being able to claim under the scheme, and four out of five charities, including Isleworth community primary school parent teacher association and Stafford hospital radio station, not able to benefit.

Jeremy Lefroy (Conservative, Stafford)

It is simply not the case that such charities could not claim. If the Stafford hospital radio station were registered as a charity, it would be able to register for gift aid and, after time, to claim it. It is not the case that it would not be able to benefit from the Bill. It might not be able to benefit as soon as the Bill becomes law but, within a certain period, it will be able to do so. Does the hon. Gentleman not agree?

Gareth Thomas (Labour, Harrow West)

It is good to see Government Members waking up. I draw the attention of the hon. Member for Stafford to the evidence that we heard from Cath Lee, the chief executive of the Small Charities Coalition. As for the type of charities that are not likely to benefit from the scheme, she said at column 17 of her evidence on 16 October that the

“first is start-up charities, because it will be a huge challenge for them to develop and keep going to the stage when they can meet the three-year eligibility criterion. The second group is those charities that do not already use the gift aid system and whose main sources of income are not easily gift aidable or are not gift aidable at all… The third group is those charities that just lack the capacity to engage with the gift aid system as it is.”––[Official Report, Small Charitable Donations Public Bill Committee, 16 October 2012; c. 17, Q31.]

That is perhaps because of the pressure on the managers and trustees of the scheme.

I gently suggest to the hon. Gentleman that the theory may be that in the great scheme of things every charity could benefit, if they all had the same level of capacity as Eton, but Ministers should be dealing with the real world outside the House and demonstrate that they are more in touch with the situation that charities face. They should recognise the reality that four out of five charities are not likely to benefit under the Bill as it stands.

Jeremy Lefroy (Conservative, Stafford)

Does the hon. Gentleman not agree that the process for registering a charity, which is after all a given, is just as complex, if not more so, than the process for registering for gift aid? He underplays the skills and ability that many of these small charities have demonstrated in registering as charities with the Charity Commission. The engagement with HMRC over gift aid is therefore not a great step. I acknowledge that they will spend two or three years waiting if they are start-up charities, but after that they will be able to benefit from the scheme in a substantial way, because £1,000-plus a year is not an insubstantial amount of money.

Gareth Thomas (Labour, Harrow West)

I agree that £1,000 is not an insubstantial sum of money. For a small charity it could go a long way indeed. Rather than have a sterile debate in which I cannot persuade the hon. Gentleman to recognise the reality outside these walls and the number of charities that do not benefit, why does he not support our amendment and let us see the evidence in a year’s time? His encouraging intervention in the debate on clause 1 hinted that he would be sympathetic to the idea of an annual report and prompted a number of similarly supportive comments at different moments thereafter by other Government Members. If he is convinced that what the Minister has said will bear out in practice, why does he not support our amendment and let us see what happens?

John Robertson (Labour, Glasgow North West)

Order. Before we go any further, may I point out that we are discussing an annual report and a post-legislative report. We are not here to debate the whole Bill from start to finish again. I have been very lenient, but can we draw back in please?

Fiona O'Donnell (Labour, East Lothian)

Speaking very specifically to the matters that you, Mr Robertson, brought our attention to, my hon. Friend is right to highlight that there is a risk that the Government are out of touch here. With three food banks opening every week across the UK, £1,250 would feed many families and is not an insignificant amount.

Gareth Thomas (Labour, Harrow West)

My hon. Friend is right. Those charity food banks that are opening as we speak are not likely to benefit under the terms of the Bill until well into the period of the next Labour Government. Clearly it is a concern that many of those charity food banks will not benefit in the next two years.

Jeremy Lefroy (Conservative, Stafford)

The hon. Gentleman is being generous. I will take heed, Mr Robertson, and stick to the point about the report. My point in my intervention earlier in the Bill was that it will be quite possible—all hon. Members should make a diary note—in April 2014 to require through a parliamentary question or an Adjournment debate a report on the Bill’s impact. It is not necessary to have it in the Bill.

Gareth Thomas (Labour, Harrow West)

That is true, but equally would it not be better to have it in the Bill, rather than have to make the necessary diary note in the first place? Where there is controversy—as there clearly is on whether the eligibility criteria written into the scheme will benefit as many charities as the Minister says they will—surely it is sensible to have in place the mechanism for an annual report, and for a sensibly timed review of the Bill. We think that two years for a proper review is sensible, and that to help set the agenda for such a review we should have an annual report looking at the implementation of the Act after 12 months.

I encourage the hon. Gentleman to show the same flexibility of spirit that he hinted at in his speech on clause 1 and support us on new clause 1. I think he wants to. The hon. Member for Chelsea and Fulham is out of the Committee Room at the moment. Let us hope he stays out of the room. Perhaps the hon. Member for Stafford will feel less intimidated and want to be with us on the right side of the argument.

The NCVO, in its letter to us, went on to suggest that the Minister had perhaps inadvertently given the impression that a lot more charities would benefit under the terms of the Bill than will actually do so. I gently suggest to members of the Committee that the idea that four out of five charities will not benefit from a scheme that is potentially worth £105 million in the third year of its operation, when roughly £3.3 billion is set to be lost to the charity sector from Government financial support by 2015, ought to be seriously alarming for all of us, because that could mean that relatively huge numbers of small charities in all of our constituencies will not benefit in the way that they could have done.

It would be good if the Minister, before Report, committed to providing answers to a series of questions relating to new clauses 1 and 2. Let me set out what those questions are, because they will help to inform the run-up to publication of an annual report and to influence the context in the run-up to a formal review after two years. Specifically, how many organisations claim gift aid that are not covered by Charity Commission data? It would be helpful for HMRC, through the Minister, to release that figure. How many general charities are claiming gift aid? How many organisations have made claims for gift aid in three of the past seven years? How many of the 65,000 organisations that the Ministers hinted he thinks will claim in the first year under the scheme would be eligible if the track record was reduced to one or two years of successful gift aid claims, instead of three?

The Minister also hinted at flexibility on the matching rule. That was good to hear, but it would useful to know. The NCVO hinted that it thinks there are approximately 25,000 charities putting in gift aid claims in the range of £0 to £1,000. It is difficult to break that down further to see how many charities have claimed less than £625 per year. It would be helpful if the Minister was willing to ask HMRC to give us a bit more information, so we can break that down further and have a more meaningful debate on Report and, crucially, in the run-up the publication of the annual report and the review clause.

In the evidence session, we heard the NCVO's serious concern that a series of small charities might miss out because the harsh eligibility criteria, which the Minister insists on defending, have the potential to put them off. We heard about the Telford and Wrekin Senior Citizens’ Forum, the Wiltshire Rural Music School, Cumbria Action for Sustainability and Southside Young Leaders’ Academy. A review clause would give the Minister and HMRC time to reflect on whether more could be done to help such crucial organisations. I am sure that we can all think of similar organisations that do huge amounts of good in our constituencies, which would benefit from the £1,250 in full, but which are likely to miss out.

I suspect that the hon. Member for Brentford and Isleworth is secretly sympathetic to the concerns we have raised about the Bill. It was not clear from her facial expressions, I think it is fair to say, whether the Isleworth community school parent teacher association has registered for three years of successful gift aid claims. I am sure that she, with the background of the type of school that she says she went to, would not want that very worthy charity in her constituency to miss out. She will recognise the unfairness of Eton benefiting from this scheme and the Isleworth community school PTA not benefiting—it seems a huge unfairness.

I do not know whether the hon. Member for Stafford knows of the Telford and Wrekin Senior Citizens’ Forum, but I am sure that he will recognise a similar Stafford senior citizens’ forum and it seems a huge shame that such an organisation, perhaps registered for gift aid, but not for three years, should have to wait until he loses the election and a Labour Government reforms this system for it to benefit under the terms of the Bill.

The hon. Member for Congleton may not know of the Wiltshire Rural Music School, but perhaps there is a Congleton or a Macclesfield music school, perhaps it is a charity registered for gift aid but does not have three years of claims. An annual report and a review mechanism would allow her time to reflect on our exchanges today, perhaps allow her time to use her influence on the Minister, perhaps allow her time to do what the Minister says he is going to do and get HMRC to a charity day in her constituency and try to help charities benefit, not only from gift aid but from the small donations scheme.

Again, why should such a Congleton or a Macclesfield music school have to wait for the election of a Labour Government to get a review clause? Why does the hon. Lady not back our amendment and get an annual report locked into the framework of the Bill to serve as a useful trigger for an opportunity for her to use the considerable influence we saw in the debate about the matching rule to persuade the Minister to reflect on further changes to the eligibility criteria? I urge Government Members to recognise the merit of an annual report and to look at the detail of implementation of a formal review clause.

We hope that the Minister will be particularly persuasive on new clause 1 and new clause 2. We would not want to have to divide the Committee when there has been so much consensus, when we have been able to persuade Government Back Benchers to be so sympathetic to our concerns. I hope that the Minister is ready for the challenge of responding persuasively and articulately to convince us that he is willing to consider further changes to the eligibility criteria implicit in the Bill, such that an annual report and a review mechanism are not required.

Jeremy Lefroy (Conservative, Stafford)

I am interested to listen to the hon. Gentleman’s comments. When the previous Labour Government made changes to gift aid, did the legislation require an annual report on those changes?

Gareth Thomas (Labour, Harrow West)

To be honest, I have absolutely no idea. We are not debating the previous Government’s gift aid reforms; we are here to recognise that this scheme is vastly more complex. Gift aid has been a huge success, in no small part thanks to the many reforms made by my right hon. Friend the former Prime Minister to the terms of the legislation. Indeed, such was my right hon. Friend’s commitment to the charity sector that the House had a series of opportunities to debate whether the gift aid system worked and whether charities had sufficient other sources of funding.

Given that so much funding has been cut from the charity sector, it is particularly important that we are confident that this scheme will work in the interests of all charities, as opposed to just 20% of them, as the NCVO says it will. It is even more important that we have an annual report and the opportunity for a review clause. The hon. Member for Stafford was sympathetic to the idea of an annual report; I am not clear why he has changed his position, or whether it has anything to do with the presence in the room of the hon. Member for Chelsea and Fulham. Perhaps he will say in his intervention.

Jeremy Lefroy (Conservative, Stafford)

It has absolutely nothing to do with that; it simply has to do with my desire to keep legislation as short as possible and use other means for bringing out such information. However, I ask the hon. Gentleman this. Given that the very good gift aid reforms made under the Labour Government—the original gift aid, as was rightly said, having been introduced under a Conservative Government—were and are so successful, why is it a problem that so many charities are not registered for gift aid? That is the point I want to get at.

Can I persuade the hon. Gentleman to look at it for once as a glass half full rather than half empty? There is an opportunity for small charities that have not been able to register under the provisions—

John Robertson (Labour, Glasgow North West)

Order. That has absolutely nothing to do with an annual report. Can we move on, please?

Gareth Thomas (Labour, Harrow West)

Mr Robertson, I am grateful for your intervention. I am simply trying to encourage the Minister to recognise that Labour Members want to lift up opportunities for every charity to benefit from this comparatively small sum of money. We recognise that the eligibility criteria are not fair as they stand, and we have clearly not persuaded him to show enough flexibility at this stage. We hope that he will use the period between now and Report to show more flexibility, but we think that we should build into the Bill the triggers for an annual report and a review mechanism in order to ensure ongoing debate about the fairness or otherwise of the eligibility criteria that he has insisted on defending so hard for so much of the past two weeks. With that, I commend the new clauses to the Committee.

Mark Durkan (Social Democratic and Labour Party, Foyle)

I rise to support both the new clauses. I do not wish to rehearse many of the wide issues relating to the Bill that have been aired articulately by the hon. Member for Harrow West, but I wish to pick up on one point. Why should this Bill carry a clause for report and a clause for review? By clause 15, the operation of the Bill will become an excepted matter under the Northern Ireland Act 1998. As we know, the Bill requires legislative consent from the Northern Ireland Assembly, which has remitted primary consideration of that to its Committee for Social Development. That Committee has expressed an interest in the benefits that the Bill may extend to many charities, but has also voiced concerns about the eligibility criteria that it thinks need to be widened, the donations limits and the impact that the bureaucracy will have on charities in Northern Ireland.

One benefit of having a clause for report and a clause for review in such a Bill is that that would assure a Chamber that has to give legislative consent but has concerns that it will receive formal reports at clear dates. Such reports are tabled in the House of Commons, so they would also be available to the devolved Chamber and the devolved Administration. These issues will affect charities in Northern Ireland—and, no doubt, in Scotland—where charities have a different regulatory status, so when its legislation affects so many of the interests and activities falling into devolved areas, it would be good practice and good manners for this Parliament to receive formal reports.

With all due respect to the hon. Member for Stafford, it is not enough to rely on informal undertakings about some of us tabling parliamentary questions, to which answers with the amount of available detail may or may not be given. Of course, it would be helpful, when the sort of report posited under new clause 1 is received, if HMRC not only gave the aggregate figures for charities benefiting from the scheme, total expenditure and the level of fraud, but gave relevant territorial indicators, so that the devolved areas—perhaps including Wales—could see how they are affected. I know that not all charities operate on a definable or trackable territorial basis in relation to the different jurisdictions within the UK, but I am sure that HMRC can provide such information in a way that is articulate enough to allow people to see what is happening in respect of the overall intent of Parliament and in their own areas.

We have to be transparent and accountable, and to take responsibility as a Parliament for the legislation that we pass. Too often, it is very easy for us to pass legislation without taking responsibility as legislators. In Committee Rooms and the Chamber, we always hear the Government being cited—the last one as being responsible for all the legislation passed in previous Parliament, and this one as being responsible for all the legislation passed in this Parliament—but we, as legislators, have to take some responsibility. When, having put forward my name, I become a member of a Public Bill Committee, I actually feel some responsibility for the quality of the resulting legislation.

One good discipline for such a Bill is that several Members on both sides of the Committee recognise the worth of the positive measures, but wonder about the workings and workability of some of the detail and about whether it could not be made more accessible to others. If that is our shared spirit as legislators, we should give Ministers, HMRC and others the opportunity to modify and improve the implementation of the Bill—perhaps even to review its detail—by providing for such clauses. Given the range of responsible and measured concerns that we have received, neither new clause 1 nor new clause 2 would be a particularly radical or heady change to make.

To that extent, I commend both new clauses to the Minister for his consideration, although he will not be in a position to support them today. However, as the Bill goes forward, a report and a review clause would give extra assurance to those in the Assembly as well as to many charities that the intention is to review the Bill and its workings in their interest. The hon. Gentleman has oft promised us reviews after three years. Given that that has been his refrain during our debate, I do not understand why it would be so objectionable for him accept the new clause.

Sajid Javid (Conservative, Bromsgrove)

I take this opportunity of discussing the new clauses tabled by the Opposition and to thank them for their contribution to the debate. On Second Reading, they said that they would be supporting the Bill in principle, but would be providing constructive scrutiny. Those on the Opposition Front Bench have done that admirably throughout our proceedings, as have other members of the Committee, and have done a good job in bringing up issues and asking questions, which I shall try to answer.

I will be upfront with the hon. Member for Eton, West—sorry, Mr Robertson, I mean Harrow, West. I do not know why I said “Eton”. For some unexplained reason, it has been mentioned so often in Committee. Such places have two great public schools, one of which I am sure that the hon. Gentleman represents well.

I shall not be supporting the new clause. Before I set out my reason why, I wish to tackle the charge made indirectly by the hon. Gentleman that I have dismissed every proposal out of hand. I reassure Opposition Members that I have considered with care each amendment and new clause they have tabled. They will remember my saying that I will consider again the level at which the matching rate is set, following their amendment to clause 1. Will they also note the range of amendments that I have introduced to the Committee, many of which were in specific response to the arguments advanced by hon. Members on both sides of the House on Second Reading? For example, several hon. Members drew attention to their anxiety about the single shared trustee connecting two otherwise unrelated charities. I tabled an amendment on that matter. Mention has also been made of the difficulty that excluding commercial buildings from the community building rules would create for some charities, so we have made changes to reflect that view.

The hon. Member for Kilmarnock and Loudoun asked whether charities that merge can continue to be eligible for the scheme. We had a good debate about that earlier, as the Government had tabled an amendment to deal with that issue. The hon. Member for Foyle drew attention to his worry about charities that had received penalties, but had them suspended or repealed. We also tabled an amendment to take account of that. The Government cannot be accused of not listening to Opposition Members and charity representatives on the Bill.

I am opposing both new clauses not because I do not want such information to be in the public domain, but because we are already doing much of what they ask and it would not be a good use of civil servants’ time to duplicate such work. Let me start with the annual report. HMRC publishes national statistics on the cost of the various charitable tax reliefs three times a year. When the scheme is up and running, HMRC will include the cost of the gift aid small donations scheme in those regular publications, following the practice established for transitional relief. Those figures will be national statistics. I have said before that HMRC does not publish the details of fraud rates in particular schemes or tax reliefs. That would be tantamount to advertising them to fraudsters, so I cannot give a commitment to publish such information. It is not necessary to provide an annual report to Parliament. All the information that the hon. Member for Harrow West has asked for and that HMRC can reasonably publish will be published. Interested members of the Committee will be able to find all the relevant information on the HMRC website.

I move on to the review of the scheme, which the hon. Gentleman says should take place two years after the legislation comes into force. I have said a number of times during our debates on the Bill that we are committed to undertaking a review of the scheme three years after it has started. Three years will be enough time for the scheme to get up and running, and for charities to learn about it and get used to claiming under it. Any less time than that would mean that we would be undertaking a review that would not be representative of the scheme, as the scheme would just be starting up. A two-year review would be premature.

However, I do not want hon. Members to think that the scheme is going to start on 6 April next year and that no one will look at it for three years until the review happens. HMRC continually engages with charities; staff on the helpline will be speaking to charities probably every day about their experience of the scheme; and outreach and audit teams will be visiting charities, and hearing what they are saying about the scheme. In addition, HMRC has a charity tax forum that brings together a wide range of charity representatives every quarter to discuss all matters relating to HMRC’s interaction with charities. The forum has been discussing the scheme since it was first announced in March 2011, and it has a working group to discuss the scheme in a more detailed way. The forum will share experiences of the scheme as it beds down and it will identify areas for improvement.

Gareth Thomas (Labour, Harrow West)

Perhaps this would be a useful moment for the Minister to reflect on the five questions that were triggered for me by the NCVO's letter, which raised concerns about the comparability of the Charity Commission’s data and HMRC’s data. If he was able to get HMRC to try to provide answers to those five questions, I suspect that would be useful for the charity tax forum in its meetings with HMRC officials, so that it could probe the organisation and effectiveness of the scheme.

Sajid Javid (Conservative, Bromsgrove)

Yes, this is a good point for me to turn to some of the points that were made by the hon. Gentleman, including that particular point. He referred a number of times to the NCVO letter. If I remember correctly, he said that it claims that only one in five charities will be eligible for this scheme. I must say that that is not a figure that I recognise.

I will repeat some numbers that I have mentioned before during our debates. About 65,000 charities claimed gift aid last year, but not all charities claim gift aid every year. There are around 100,000 charities that are currently recognised by HMRC for tax purposes. The fact that that number is lower than the overall number of charities is not because gift aid is inaccessible to some charities. Many charities are reliant on income from other sources, such as private trusts or foundations, grants from charitable bodies or other statutory bodies, or public sector contracts. If a charity does not receive donations that are eligible for gift aid, clearly gift aid is not something that it will register for. Perhaps that helps to explain why not all charities are expected to benefit from this scheme or indeed from the gift aid scheme, but I repeat that the one in five number is something that I am sceptical about; I do not recognise it at all.

Related to that, the hon. Gentleman also raised the issue of complexity. As I have readily admitted in the past, the Bill is complicated in parts. However, it is worth pointing out that the complicated parts, for example those relating to community buildings and connected charities, will not be relevant to most charities, because in most cases charities will not use community buildings—we have discussed the reasons why that is the case—and will not be connected with other charities or going through mergers. So, hopefully the vast majority of charities need not be too bothered about the more complicated elements of the legislation.

We have often talked about the complexity that exists in some parts of the Bill and the need to have complete and good guidance. Again, I just want to make a few points clear; I may have mentioned them in the past, but it is important when charities are looking to get the most out of the Bill that HMRC provides good guidance. HMRC has already started working on draft guidance, which it will share over the next few weeks with representatives from the working group in order to get their feedback. Once they have the initial feedback, they will publish the guidance before it becomes final so that a wider group of interested parties can read it and feed in their comments too.

HMRC’s final guidance will be produced at two levels. One will be entry-level guidance setting out the rules in a simple and approachable way supported, for example, by flow charts. It is anticipated that most charities will need only the entry-level guidance. HMRC will also produce more detailed guidance setting out with detailed explanations and many more examples how the law works. That guidance will most likely be of use to larger charities; members of their management teams can take the information and explain it to branches or parts of the charity that use the community buildings rule, for example.

HMRC will also support charity representatives who develop their own guidance aimed at specific sectors or their members. I think that that is a good thing. Some charities are large enough to want to produce their own guidance, and HMRC will work with them at an individual level to help them produce it, get it right the first time and make it as simple as possible.

We will publish the draft guidance in full in the new year after the Bill has received Royal Assent, so charities will have plenty of opportunity to see it, understand it and comment on it before the scheme gets up and running. As always, and as we rightly expect, HMRC will keep its guidance under review in order to take any new developments into account.

Turning to the five or six questions asked by the hon. Member for Harrow West, I have noted his questions, as have officials. I will have that information collated where it exists, and I am happy to write to the Committee to provide it. If he wants to use similar information on Report, hopefully that will be useful.

The hon. Member for Foyle raised the issue of a legislative consent motion with regard to Northern Ireland only. I take his point. It is well intended, and he raises a valid issue. He might not agree, but I have given reasons: HMRC will provide information regularly, on a more than annual basis, and we as a Government have committed to review the provisions in three years’ time. If I understand correctly, he would like a commitment on the face of the Bill. For the reasons that I explained earlier and would like to avoid having to explain again, I do not think that it is necessary to put it on the face of the Bill. The Government have committed to a review of the Bill and its workings in three years’ time.

Mark Durkan (Social Democratic and Labour Party, Foyle)

In making some of that information available, will HMRC be able at some point to profile it on a territorial basis? I do not mean that absolutely every report should detail what the numbers are for Northern Ireland or Scotland, but can HMRC make a commitment that at some point from time to time, it will give an intelligible, articulate account of what is happening?

Sajid Javid (Conservative, Bromsgrove)

If the report does not go far enough in terms of the information that the hon. Gentleman is looking for—I am not sure how much detail he wants at a territorial level, but let us assume that some detail exists—once the Bill receives Royal Assent and charities start to benefit from the scheme, including, I hope, many in Northern Ireland, he can write to me when further information would be useful to him and his colleagues in Northern Ireland, and I will consider it carefully and respond.

I hope that I have addressed the points raised by the new clauses and assured hon. Members that they are unnecessary because the Government are already doing what they ask of them. I ask the hon. Member for Harrow West to withdraw the new clause.

Gareth Thomas (Labour, Harrow West)

The Minister was characteristically generous in his opening remarks and helpful in his willingness to get answers to the questions triggered by the NCVO's letter. We will reflect on what he said and his response to the new clauses. We take extremely seriously the point that my hon. Friend the Member for Foyle made about our responsibility not to forget the debates that we have in Bill Committees. It would be helpful to write into the Bill the trigger of an annual report, to ensure debate on the scheme’s eligibility criteria and how they have bedded in and played out in practice.

The hon. Member for Stafford encouraged us to see the scheme as a glass half full. I accept that it is a bad analogy, but the Opposition see the scheme as a glass 20% full, so we want to continue to press the Minister. He was not at the helm when the Bill was introduced and we accept that he has sought to respond to some of the charity sector’s concerns. Nevertheless, we hope that he will use the period between now and Report to recognise the case for further reform and that, with hindsight, he will welcome the trigger of an annual report as a means of delivering further reforms.

The Opposition recognise that the Minister is at the start of his career. We want to protect him from the charge of those hard-hearted souls on his Back Benches, who might want to cast him in such a light, that he is in danger of becoming the Minister for red tape. I gently tell him that 80 pages of guidance about registering for gift aid and another 80 pages to come about the scheme ought to worry him. It certainly worries us.

We fear for many of the small charities that would find £1,250, or even half that sum, extremely beneficial in keeping them in business. I say that on the day it was revealed that four fifths of the charities that belong to the National Association for Voluntary and Community Action—the smallest ones—expect their finances to get worse over the next 12 months. This £100 million scheme could be their saviour, but I fear that far too many will not benefit. For that reason, I am afraid that on this occasion the Minister has not convinced me to withdraw the new clause, so I wish to push it to a Division.

New Clause 3 - Complementary Gift Aid for small donations to small charities

Mark Durkan (Social Democratic and Labour Party, Foyle)

I beg to move, That the clause be read a Second time.

Before I speak directly about the new clause, given that we have ample time—until 8 pm—I want to pay tribute to the contribution to the overall working of the Committee by Members on both Front Benches. The Minister rightly acknowledged the contribution of Opposition Front Benchers and others. I have been impressed by the spirit of the contributions of all hon. Members in terms of practical questions and ideas about the content of the Bill and some of the amendments. I have detected in the discussions that many Members, not just Opposition Members, would like to see the scheme, which will be good and offer benefits to many charities, made a bit more effective, a bit more accessible—if not now, at least in the future.

When the Government first promised the measure, many people’s emphasis was on the small charities that would be able to get the equivalent of gift aid on small donations without having to go through all the gift aid forms. We were told that it was going to be a great reward for the tin shakers and everybody else who goes out and does good things in the context of the big society. However, without going into broad details, the Bill as drafted gives us much narrower grounds for anticipating who will benefit.

The hon. Member for Harrow West made the point that the NCVO and others have expressed concern that nothing like the broad sweep of charities that we all hoped would benefit from this change will be able to do so.

Gareth Thomas (Labour, Harrow West)

I should perhaps in my comments have highlighted the written evidence from Camphill Scotland and from other small charities worried about the complexity of the Bill and fearing that they will not benefit in the way the hon. Gentleman describes.

Mark Durkan (Social Democratic and Labour Party, Foyle)

I thank the hon. Gentleman for that point. The Committee received written as well as oral evidence that reflects that many small charities do not qualify for this scheme, may not qualify in its first year or two, and may find it testing to qualify at a later date. I will go into the reasons why some charities might find it harder to go down the gift aid route as a way of qualifying for the top-up benefits.

Earlier in our discussions, I said that the Government had produced a scheme for supplementary gift aid for those charities that use or will use the gift aid system. What I am trying to do with new clause 3 is effectively offer a complementary gift aid scheme that could be available to small charities that do not meet the eligibility criteria for the Government’s supplementary gift aid scheme. That would ensure that smaller charities can get the same benefits from the complementary gift aid scheme as larger charities using the gift aid scheme. It would also help some newer charities, not least charities that are formed in response to particular events, such as natural disasters, tragedies or the impact of serious crime on a community. We all know of many charities that are formed in those circumstances. It seems odd that we as parliamentarians should determine that such charities be excluded from a fairly modest top-up payment scheme with a maximum of £1,250 to complement £5,000 of donations.

I have posited before in Committee that, as well as the Government’s route 1 option, as provided for in the Bill, we may need to develop a route 2 option through which smaller charities not working gift aid qualify. That is essentially what I am trying to do with new clause 3. I know that it will take time for such a scheme to be worked up and that is why the new clause provides for a later commencement date. The complementary scheme for donations to smaller charities would not come in until 2014, because HMRC would want to be protected against fraud or abuse if it were to make payments of this nature to smaller charities that did not fulfil the gift aid criteria, for the reasons that the Minister emphasised. That is why new clause 3 indicates that, in developing such a scheme, HMRC could

“stipulate the supporting verification it may require from relevant agencies or authorities or designated persons in respect of any claims for complementary Gift Aid”.

We have referred from time to time to the fact that there are different charity regulators in different parts of the UK and the new clause refers to them. Given that many charities collect money on the basis of licences issued by the police, the police could indicate verification by saying, “Yes, we licensed that collection for this small local charity. We can confirm that that was the money that was collected.” It might be a role for the police and crime commissioners that are to be elected. I am not sure what they are going to do, looking on from Northern Ireland, but they might provide a useful point of liaison between the function of police licences and something that is then being administered on behalf of central Government. They could certify that the collections had taken place.

Often, when charities are set up in response to particular dramatic events in a community, local authority figures, whether the mayor or the chief executive, are used as trustees so that people are more widely reassured. Those are the sort of people who could be used as validators or verifiers for HMRC. Under the new clause, HMRC would also have the power to indicate that certain professional classes, for example, accountants, might be able to verify. The Committee’s attention was drawn to the fact that there is the defunct self-assessment giving scheme, and some of the logic and rubrics of that could well be used in this situation.

If the Government have conceived a scheme that is effectively a lean-to on the gift aid system and are absolutely minded to use it as their route 1 for most charities and for supporting giving by getting some money back from the taxman, because they want to ensure that they can build on the intelligence, understanding and rapport that HMRC has with charities on gift aid and because they do not want to set up a completely separate scheme from that which those charities would be using, it should not be beyond their ken to develop a route 2 option.

I do not pretend that all the details that I have—and certainly not the details that I do not have—on new clause 3 make this the perfect scheme by any means, and I have no doubt that a schedule and so on would be needed to go with it. I know that some Government Members are concerned that perhaps more charities should be included and eligible in future, and I hope that they will accept that there is merit in at least keeping open the option that there should also be a route 2.

I have ensured that the terms on which I have offered the new clause do not include any conflict with connected charities issues. Although I have reservations about the clauses on connected charities, I would not want any jiggery-pokery to enable people to apply under one scheme as a way of getting round the connected charities provisions that are stipulated elsewhere.

Equally, the new clause makes it clear that the amount of money involved would be the same as the small donations limit, which is currently £20. It would be the same for my scheme and, similarly, for the overall cap of £5,000, so £1,250 would be the maximum sum given.

There would be no conflict, and it would be a way of extending the logic and the benefit of the measure to other charities. The later commencement date would provide time for the inevitable work on the detail. That would include consultation with the devolved authorities, the charity regulators, perhaps some relevant Departments in the devolved Administrations, and other agents.

I do not repeat the problem of the matching principle, because there are some problems we would certainly not want to extend, but I took great heart from the Minister’s indication that that is one area that he is most minded to consider revising. The new clause would be free of some of the complications because the charities involved would not necessarily be caught up in all the difficulties that arise with community buildings.

Many hon. Members believe that this is a good scheme, so why would a few charities, in a few years, want to use a route 1 or route 2 way to obtain complementary gift aid, as opposed to every charity taking the gift aid route and then the top-up that the Government offer in the Bill? Many charities are convinced from experience and anecdote from others that the gift aid scheme is hard and not worth while, and will resist opting into the scheme as a way of trying to get the top-ups. If they have not used gift aid so far for what it can offer them, the suggestion that they would use it just as a way of getting top-ups is not convincing.

Some charities with a particular profile, or that fundraise in a particular way, such as those that rely on involving young people and schoolchildren and people going out and shaking tins or doing street collections, will not be particularly interested in asking people to fill in gift aid forms and to make the necessary declarations. The way in which some charities do their business is a reason why some of them do not do gift aid.

Some charities want to leave room for others, and to respect their different ambits. Many charities in my constituency are clear about going out and raising the money they need without intruding on the space or interests of other charities that may be more developed and established, and have a strong gift aid dimension to their fundraising. Charities can avoid apparent competition with one another and can complement one another by having different fundraising profiles, which are then reflected in whether it is feasible for them to rely heavily on gift aid.

In addition, as we heard in evidence sessions, some people are very resistant to making gift aid declarations, not least when it comes to smaller donations, because they feel a bit embarrassed about filling in a declaration for what might appear to someone else to be a small amount of money. Other people are reluctant to fill in gift aid declarations, because they suspect that that will be used by charities to target them with all sorts of postal requests, lots of books of raffle tickets and so on or that their details will be passed on to other charities. Many people have their own aversion to making gift aid declarations. Charities will have their own reasons for perhaps not wanting to invest a lot in the gift aid route. It may be that individuals are comfortable with giving donations and not having to make gift aid declarations, and that that is part of their relationship with particular charities. I think that that should be accommodated in the future. This is meant to be a Bill about the big society. It is a Bill on the principle of small donations, but it should extend to small charities as well.

I know that the hon. Member for Banbury cannot be with us this afternoon, but he has reminded us several times during our proceedings that the Church of England is very content with what the Bill does for it. I have no doubt that the Catholic Church, because of some of the particular issues that have been sorted out, not least in relation to community buildings and so on, will be very pleased about what the Bill does for it as well. However, I am sure that both those Churches, as part of their pastoral outlook, would have some concern or regard for the many other charities that their members participate in and support, and that other people who are not members of any Church might support very actively as well. There are many other smaller charities that are left out.

It is not enough for us to pick our charity or charitable interest and say that it is okay with the Bill. That is like what the old Tennent’s advert used to say: “I’m okay. I’ve got mine.” Yes, many Churches are okay; they have got theirs. Some of the bigger charities qualify immediately—from day one—for this scheme. That is no big effort for them. I think that we should try to see how, learning from this scheme and without doing injury to the scheme that the Government have carefully put together, we can open up the Bill to other charities. The Minister has resisted many Opposition amendments because he thinks they would open up all sorts of fraud issues or abuses, but this new clause offers a different way from the previous Opposition amendments of opening up the logic and benefits of the Bill to other charities. I therefore ask the Minister and other Government Members to consider it.

I know that the Minister will not be able to agree to the proposal today. Before any Government Members become concerned, I assure them that I am simply speaking to the merits of this new clause today. I will not be pressing it to a vote. I would not subject hon. Members to the difficulty of voting against a measure that I think many of them in their hearts support, and that I hope we can all look forward to supporting in the future. If that is not possible in the course of our proceedings, perhaps it can be part of the first review that the Minister has promised us.

Sajid Javid (Conservative, Bromsgrove)

I am grateful to the hon. Member for Foyle for tabling the new clause for debate. Throughout this debate and the others we have had, he has made excellent, thoughtful and very well intentioned contributions. The new clause is another creative attempt at an alternative way for certain charities to become eligible for this scheme, as I will go on to explain. In fact, it would create a new scheme altogether—a separate scheme for those charities not using gift aid and therefore not eligible for the small donations scheme. There are a number of problems with the hon. Gentleman’s proposal. First, I shall remind hon. Members why the link to gift aid exists. As we have said from the outset, this scheme complements the current gift aid system. It is a top-up system, as opposed to a tax relief system. As we have discussed a number of times, because the gift aid system requires declarations and information from people making donations, there is an audit trail that can be followed if HMRC needs to, so it comes with added protections—the fit and proper person test and so on. Under the Bill, we have a cash-based system. There are a lot of reasons for doing that, which we all agree on, but unfortunately they would open the scheme up to fraud if we did not have adequate safeguards. I will not run through all the safeguards that the link with gift aid provides again, but we have discussed why they are important. It is safe to say that without the safeguards, the level of risk to the public purse would be simply unacceptable.

The new clause suggests that for small or new charities, HMRC could gather information from other agencies to check that they are honest. That suggests a significant administrative burden on HMRC to verify each and every charity that applied through this route. Without strict eligibility criteria, HMRC would be required to make very subjective judgments about whether a charity is in or out of the scheme. It would mean that the Department would be constantly at the risk of legal challenge to the decisions it made.

Let us think about the case of a new charity starting up. It is small, and so is not required to register with the Charity Commission for England and Wales. It has just been set up so, until it has raised some money it cannot spend any, so there will be no record of its spending money for charitable purposes—or not, for that matter. How is HMRC supposed to be able to tell whether it is honest or not? What documentation could it rely on to tell it that the people behind the charity could administer a cash-based scheme correctly? That is why we have made a link to gift aid that helps HMRC to see how the charity operates and gives it a good guide to the charity’s likely compliance with the scheme.

That brings me to my next concern, which is about the boundaries regarding which charities are in or out of the new scheme. The hon. Gentleman has not specified what the definition of “smaller” or “newly established” charities would actually be. That prompts the question of how charities are going to know which scheme they are supposed to be using. It would require more subjective judgment by HMRC to decide who was in and who was out, and that creates more of a risk of legal challenge.

I appreciate that the new clause is well intentioned and encourages us to have a useful debate. I understand the hon. Gentleman’s concerns about charities that will not immediately be eligible for the small donation scheme, because they do not have a track record of gift aid claims. However, it is in charities’ interests to start using gift aid where they can, and we should be trying our best to encourage them to do so. It is not capped for each charity in the same way as this scheme, so charities can claim tax relief on all donations they get from gift aid declaration. For straightforward donations of money with no benefits attached, gift aid is a simple scheme to operate, and with the new IT system coming in next year it will be even easier for charities to claim.

I thank the hon. Gentleman for his new clause and the debate he has encouraged, but I kindly ask him to withdraw it.

Mark Durkan (Social Democratic and Labour Party, Foyle)

I thank the Minister for his complimentary observations. I have indicated that I do not regard the new clause as complete and perfectly formed, even for the purposes for which I am offering it, so I will of course withdraw it. I said earlier that I would not want hon. Members to vote against the spirit of something that many would probably like to see at some point.

The new clause would allow HMRC to stipulate the verification it needs, and essentially to draw up the scheme. It would answer our many questions about the practicality of the scheme and the associated regulations and guidance. If the Minister can resort to similar measures to deal with some of the vexed questions he has faced, I would like to do the same thing.

New clause 3 would allow HMRC to sift through the details it considered necessary. It could determine the definition of recently established charities and devise an eligibility test. I gave examples of recently established charities that often use people who are in local government as part of their set-up and assurance. HMRC would be able to decide how to satisfy itself of the bona fides of a charity; it would not simply have to take the charity’s word for it. HMRC could ensure that the verification arrangements were sufficiently testing to safeguard against possible abuse.

I am not saying that the scheme should be drawn up lightly or frivolously. HMRC must be satisfied that it will not be making payments to people who will not use them for the due purposes. New clause 3 does not offer an easy get-around, but it is an attempt to offer charities a genuine route to a benefit that many of them expected to get. The consultation exercise showed that many charities were disappointed because the Bill was not what they expected it to be. When the Government first announced the legislation, Members from all parts of the House welcomed it as a good idea and thought that it would really help small charities, because it would not rely on the red tape of gift aid. It was going to offer something beyond that, but, lo and behold, that is now what we have.

The Chancellor announced a worthy measure and a good initiative, but it is as though there is some sort of strange predictive text programme in the Treasury that takes a good idea and turns it into the gobbledegook that we see in certain aspects of the Bill, which pre-empt all sorts of possible wheezes and abuses that people might get up to. As far as the primary scheme in the Bill is concerned, I understand why the Minister has been wedded to such measures. I believe, however, that there should be a secondary scheme in the same spirit, under which HMRC can satisfy itself of the bona fides of a charity and the people who run it.

I do not accept everything that the Minister has said in opposition to new clause 3, although I could have offered some practical criticisms of it and the wrinkles it might create. I hope this debate shows that many of us in Parliament want to keep alive the option of admitting more charities to the scheme, and that we are not content to leave it at that, just because some of the Churches are content with their treatment. More should be offered to other charities, and I hope that after the oft-promised review, at least, an idea such as this will be allowed to grow legs. With that, I beg to ask leave to withdraw the motion.

Sajid Javid (Conservative, Bromsgrove)

On a point of order, Mr Robertson. May I first take this opportunity to thank you and your co-Chair, Mr Turner, for the way in which you have chaired proceedings? In both the evidence sessions and the scrutiny sittings, you have between you ensured that we made good progress and kept us on point when we were in danger of straying too far from it. I thank my hon. Friend the Member for Chelsea and Fulham and the hon. Member for Clwyd South, who have developed what I would call a good working relationship on the Bill through the usual channels.

I thank the Committee Clerks and the Hansard reporters, who had to make sense of our speeches over the past few days. My thanks to the doorkeepers and the police, whom we have not troubled too many times with Divisions—just once, I think. That leads me to thank the hon. Members for Kilmarnock and Loudoun and for Harrow West for their support for the Bill and for leading the Opposition’s scrutiny of it. I think they will agree that we have had a good, constructive debate. I also thank my hon. Friends for their contributions.

We have had an excellent debate on the things we have focused on—the key issues at the heart of the legislation. We have also discussed Kafka and the relative merits of Harrow and Eton. I cannot speak for other Members, but I certainly learned some new things during our debates. I very much enjoyed hearing from my hon. Friend the Member for Banbury about his enthusiastic support for his constituency’s branch of the Sea Cadets, but it was news to me that his Oxfordshire constituency is by the sea. I learned from the hon. Member for Foyle that he finds that HMRC officials have no social skills—for the record, that has not been my finding.

Lastly, I thank the Bill team and parliamentary counsel for doing an excellent job in putting together the legislation. Thank you, Mr Robertson.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

Further to that point of order, Mr Robertson. I, too, would like to add my thanks to everyone who has participated in the Committee and in getting us to a fairly speedy conclusion, given that we could have spent a great deal more time deliberating on the detail of certain clauses. It has been the Minister’s first opportunity to take a Bill through Committee, but I understand that he is about to move on to the next one, when he and I will face each other across the Committee Room yet again, discussing something else in the not too distant future.

Mr Robertson, I thank you and Mr Turner for some excellent chairing. You allowed us, as the Minister said, to explore the wide range of issues that needed to be explored; none the less, you kept us to task when we were in danger of drifting slightly too far from the clauses.

I add my thanks to the Committee Clerks and to the Hansard reporters, in particular when they had to make sense of some hastily scribbled notes or even of no notes at all. I thank the doorkeepers and police, whom, as the Minister correctly said, we did not give too much to do. I also thank everyone who has worked behind the scenes on the Bill to ensure that the Minister had inspiration when necessary and could bring forward information when we needed it.

I wanted to make special mention of the parliamentary draftsmen and women. I think I made a few references to them during the discussion, but I would not want them to think that that was intended as any personal criticism. I understand what a difficult and complex job it is to ensure that we have a Bill drafted in a form that allows us to take things forward.

Again as the Minister alluded to—I am beginning to worry that I am agreeing with him too much, and that we seem to be thinking along similar lines—the Bill has led us to discussions about not only Kafka but, in the early stages, Alice in Wonderland, which worried me slightly. I was relieved when we moved on to Eton and the 2nd Bromsgrove Scout Group, which seemed to become the focus of things in the real world rather than in our imaginations.

I thank the groups and individuals who gave evidence and provided briefings and real-life examples of why we needed to work to improve the Bill. The same applies to Members in all parts of the House. I thank the members of the Committee, not least my hon. Friend the Member for Harrow West, who gave us a record 17,000 words on a particularly complex part of the Bill—a feat that I was not able to match in any shape or form.

We have had an excellent series of sittings. The opportunity to consider all the issues relating to the devolved Administrations has also been important, and it has been useful to have Committee members who understood that. On that note, the Committee has shown that when we work together, we are better together.