Plenary, 04 Mar 2004

Meeting date: Thursday, March 4, 2004

Official Report 638KB pdf

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Companies (Audit, Investigations and Community Enterprise) Bill

The next item of business is consideration of motion S2M-973, in the name of Margaret Curran, on the Companies (Audit, Investigations and Community Enterprise) Bill, which is UK legislation.

I am happy to move the motion and I will pick up on any points that arise from members' comments.

I move,

That the Parliament agrees to the principle that, in the contexts of provisions in the Companies (Audit, Investigations and Community Enterprise) Bill enabling charities to convert to become community interest companies, conversion should be regulated and agrees that the provisions in the Bill that relate to the power to regulate such conversion should be considered by the UK Parliament.

It is fair to say that when the Deputy Minister for Communities was at the Communities Committee last week, both she and the committee members grappled with the present and future implications of this Sewel motion and its impact on our charities bill, which we have yet to see. The motion suggests that the Office of the Scottish Charity Regulator should approve Scottish charities as community interest companies, but the minister struggled to come up with a single example of a Scottish charity that would apply to become a community interest company.

The process has been unnecessarily complicated by the fact that there is still no Scottish charities bill before the Parliament. I invite the minister to give at least an indication in her summing up of when we might expect a bill to be introduced. At the Communities Committee, I raised several concerns, including the fact that there is no Scottish appeal process in the UK legislation, and I was not satisfied with the minister's response. I invite the minister to make her position clear when she sums up. My colleague Campbell Martin raised his concern that Scottish charities that are presently accepted as charities could, if the Scottish Parliament changes the definition of charity, be stripped of that recognition, and that CICs are the fallback position.

I am concerned that, in accepting the principle of community interest companies, in effect we limit the Parliament's deliberations on public interest benefit before we even get to the stage of considering our own charities bill. An Executive official told the committee:

"The DTI recently published a set of regulations for the bill, which set out proposals for the community interest test. The idea is that the CIC would benefit a narrower range of people than we would expect a charity to benefit. It will be proposed that the test for a charity will be that it will have a wide public benefit, whereas the CIC … test could be … more restricted … perhaps it could relate to a community hall in a village, for example".—[Official Report, Communities Committee, 25 February 2004; c 655.]

In other words, we are being asked, in advance of our Scottish charities bill, to agree the scope of what a public benefit test might be when we eventually discuss it. The suggestion that the public benefit test for charities in the Scottish legislation will involve a wider geographic area than that of a village concerns me. We will not support such a provision when it is introduced.

Social enterprises or other companies can opt to become community interest companies under UK legislation. That matter is reserved to the Department of Trade and Industry under the bill. The acceptance or otherwise of the Sewel motion will not affect those companies' ability to choose that option. However, the motion puts the cart before the horse.

I share other MSPs' view that it is extremely unlikely that Scottish charities will seek approval to become community interest companies. If the Sewel motion is accepted, it might pre-empt discussions that are needed on the public benefit test that this Parliament should consider as part of the charities bill. If the Executive has made up its mind to have a limited public benefit test and if the Parliament cannot change that view when the time comes for us to consider our own charities bill, we need to preserve the option in the UK legislation, for those charities in Scotland that could find themselves stripped of charity status, to allow them to become CICs.

The Scottish Parliament is not permitted to give powers to the Office of the Scottish Charity Regulator under the companies legislation. Regrettably, that matter is reserved to the UK Government. However, the SNP has no wish for any current Scottish charity to be disadvantaged, so we will not oppose the Sewel motion.

I hope that members recognise the constructive contribution that I have tried to make to the use of the Sewel convention. The motion that we are discussing represents a highly appropriate and interesting application of the convention. If we agree to it, we will consent not to the exercise at Westminster of what are, strictly speaking, devolved powers, but to the exercise of a reserved power in a way that affects the Office of the Scottish Charity Regulator, which regulates a devolved matter. As a result, the Sewel motion is a sign of a much healthier relationship between two Parliaments that are, for the time being, tied to each other.

The only question is about the operation and purpose of the measure, which allows charities and companies to convert to CICs. After the Communities Committee discussion last week, which the Deputy Minister for Communities attended, I am none the wiser about why any Scottish charity would want to convert. Like Tricia Marwick, I am not sure whether the minister is any the wiser either about why any charity would want to convert and to lose the benefits of charitable status.

Did the member listen?

I did.

I need reassurance that charities will not be pressured and will not feel that they have no alternative but to convert.

The other reassurance that I need before I can support the Sewel motion is that CICs will be a genuinely positive development that is in keeping with the position of the social economy as one of the Executive's priorities. CICs should not be merely an opportunity for private profit-making businesses to hive off existing philanthropic operations—many of which are driven more by their public relations value than by a sense of responsibility—and by so doing receive a benefit or advantage at public expense.

Does the member share my concerns that CICs can be registered under sections 43 and 53 of the Companies Act 1985, which differentiates public limited CICs from other CICs, and that the existence of a facility for having public limited CICs is suspicious, as it provides businesses with a way of making part of their operation charitable?

I am certainly concerned about anything that offers private companies that exist for profit the opportunity to hive off part of their operation and give it something that people perceive as akin to charitable status. We discussed that after the Communities Committee meeting last week.

I understand that the two reassurances that I have requested lie right on the line between devolved and reserved issues and that ministers may not feel able to comment, but if they can give those reassurances, I will happily support the Sewel motion. Otherwise, I am minded to abstain.

Of necessity, this will be a rather brief contribution. I declare an interest as a former company lawyer. Company law is largely reserved to Westminster. I pressed my request-to-speak button on the assumption that the SNP members would oppose the Sewel motion, and I intended to take issue with them on that. Tricia Marwick has rather shot my fox, if she will pardon the expression, in the debate.

As other members have said, the only provisions of the bill that are relevant to Scotland are those that would create the new community interest companies. There is a possibility that charities in Scotland may want to convert to CICs. My Conservative colleagues at Westminster have broadly welcomed the idea of community interest companies, but we have expressed the wish to scrutinise the proposals to ensure that adequate care is given to delivering benefits to the voluntary sector, which all of us want. The provisions dealing with CICs are a small part of the bill. We have reserved judgment on the costs involved and some of the additional burdens that may be placed on business if the bill is agreed to. It is vital that the changes strike a balance and fine tune a system of strong controls, rather than overburdening business with yet more unnecessary regulation. We will test the proposals to ensure that they genuinely increase the confidence and trust of companies.

The bill deals largely with matters that are reserved to Westminster, as is the case for company law generally. We are happy to support the Sewel motion today.

I hope that we are setting a precedent in ensuring that Sewel motions are debated in a consensual way.

Tricia Marwick asked whether I had examples of organisations that would want to become CICs. I am aware that when I attended last week's meeting of the Communities Committee I did not have any such examples. Strictly speaking, the bodies to which I will refer are not examples of the sort that the member seeks, but they have shown an interest in becoming CICs. I cannot guarantee that they will pursue the matter once CICs are established. They include a community transport business; a not-for-profit clothing design and manufacture business that uses its surpluses to aid projects in developing countries; an association to promote the improvement of a local area in partnership with the local authority; a small voluntary organisation that is considering ways of changing its constitution to make it more accountable to the local community; a charity that encourages people to use their entrepreneurial skills to set up out-of-school clubs in their communities; a charity trading arm; and a non-charitable registered social landlord. Those bodies have shown an interest in becoming CICs, but we are not absolutely certain that they will pursue that option.

I understand why the bodies to which the minister has referred might wish to gain the benefit of limited liability. Why would they not choose the simple route, under section 53 of the Companies Act 1985, of becoming a private company and remaining a charity, as the Isle of Gigha Trust, which was responsible for a community buyout, did? A CIC is not a charity, but merely a company. Why would bodies see becoming a CIC as the way forward, rather than becoming a company while remaining a charity?

The only response that I can give is that the intention in establishing CICs is to create a brand and to give recognition and assurance that a body is operating in the public interest. Organisations may see that as giving a boost to their public profile. However, as I said at the committee meeting, it will be for individual organisations to say which route suits their purpose and is most effective in delivering the aims that they set themselves. At this stage, I cannot say whether they will pursue the option of becoming a CIC or take the route that the member suggests.

I return to the other issues that Tricia Marwick raised. We hope to consult on charities legislation later this year, probably towards the end of the spring and the beginning of the summer. Answers to most of the other questions that the member asked will be sought in that consultation. I appreciate that the timing of the bill is not ideal, given that we hope to conduct a consultation in the near future. However, if Tricia Marwick examines the issues that the Sewel motion sets out to address, she will see that it does not prejudice any of the discussions that we will have about charities legislation.

Patrick Harvie asked whether charities would be forced or coerced into becoming CICs. I reassure him that that is not the intention. Only charities themselves will be able to decide whether they wish to cease being charities and become CICs. Nobody else will interfere with that decision.

As various members have mentioned, the definition of a charity may change. The two tests are worded differently. Will the minister give a more explicit reassurance that charities will not find themselves having the charity rug pulled away from under them, with only the option of CIC status remaining?

The definition of a charity will be down to this Parliament. It is not for me to prejudge that definition, therefore I cannot give a more definitive answer to that question, other than to say that it is not the intention to force charities to become CICs. The decision on whether to become CICs will be solely theirs.

On Stewart Stevenson's point, the CIC regulator will be responsible for ensuring that any CICs meet the public benefit test. That will determine the kinds of companies that proceed.

The Sewel motion is required to allow the UK Parliament to include in its bill a provision to allow for a power relating to a reserved issue—that is, the power to authorise an organisation to cease being a charity and to become a CIC—to be given to a devolved body, that is, OSCR. As Patrick Harvie pointed out, that means that rather than taking decisions away from Scotland, the motion will give a devolved body the right to make decisions regarding Scottish bodies. I therefore ask members to support the motion.