I welcome the press and public to the 34th meeting of the Finance Committee in 2004. I remind people to turn off their pagers and mobile phones.
I hope that members all have my submission on the financial implications of the bill. My opening statement will very much follow the format of the submission.
Thank you. Your comments have been very valuable. Before we move to questions, I should point out that the committee is concerned more with the bill's financial implications than with any purely policy issues. Some of the points that you raised relate to policy issues.
The other submissions make a number of very valid points. First, the National Galleries of Scotland's submission refers to the extension to the National Gallery of Scotland building on Princes Street, which was at least partly funded by substantial grants from charitable grant-giving trusts. By and large, those trusts can give grants only to charities. If the National Galleries of Scotland had not been a charity, it would not have been able to receive that significant tranche of funding, which is set out in the submission.
Without going into any details, do you think that similar issues arise for similar organisations under the English legislation?
That has not happened, because the definition in that legislation is couched in significantly different terms. In principle, it allows all existing charities to retain their charitable status, although they are required to satisfy a public benefit test. As a result, the English sister organisations of the National Galleries of Scotland would retain their charitable status and, because all galleries are open to the public anyway, would certainly be able to satisfy the public benefit test. The question will not arise down there.
I am interested in your comments about OSCR's budget. Despite the fact that it has been significantly increased to about £4 million, you maintain that that is still not enough, because its remit is narrower than that of its counterpart in England. Have you been able to identify a more appropriate overall figure?
I am not quite saying that. In the paper, I said that OSCR's role is very wide. That role is not just to register and monitor charities, but to carry out investigations. OSCR must be properly funded to deal with all those issues. I am not in a position to say what the proper funding would be. I left OSCR earlier this year and things will have moved on immeasurably since then. I am heartened by the fact that there is additional funding for OSCR, which probably deals with my point. OSCR has a huge remit and a big task to take on. If it is not properly funded to carry out that task, it will not be able to do so properly. That is in no one's interests.
You referred to how the charitable status of independent schools might be affected. Could you develop that point and explain what your fears are?
It depends a little on how the public benefit test develops in Scotland. I understand that the Home Office bill is to be published today, which might cast some light on how the issue is being viewed in England. At present, it is difficult to predict what effect the proposals might have on independent schools, which receive substantial rates and tax relief. The loss of either of those two types of relief might have a significant effect. However, to an extent that will depend on the nature of individual schools. Depending on how the public benefit test is couched, many independent schools might be able to satisfy it.
I am in the curious position of almost wanting to come to the rescue of the Duke of Sutherland's art collection. At the same time, I am attracted by the idea that many independent schools might move into the local authority sector. I am confused about the potential outcome of this piece of legislation.
I have not yet read the English bill, which is to be published today but has not yet appeared. I cannot be definite about what the bill will do in respect of public benefit. It has been trailed that the Home Office might adopt the stance that Scotland has taken and set criteria for public benefit. Those criteria are not exclusive, but provide an indication of the sort of things that must be taken into account when deciding whether a charity provides public benefit. I do not know whether the Home Office will take that approach, but we will find out. Once I have had a chance to examine the bill, I could submit evidence on it to the committee in writing, if members would find that helpful.
What kind of policy approach could be adopted that might allow charities to continue fundraising? There is no doubt that the National Gallery connection could not have been built if there had not been a flexible arrangement that allowed endowments to be developed. There is a real peril that the bill will eliminate that arrangement.
There is. The way in which to approach this matter is to examine the actions of trustees once they are appointed. The question is, how do trustees act? Do they allow themselves to be influenced by third parties once they have been appointed? There will always be influences on appointments. In a small charity that is run by a committee, someone might say that they know a person who would make a good member of the committee, for example. To an extent, such influences operate in every charity in the land. The question is: do the people who are appointed act properly? That is a regulatory issue; it is for OSCR to examine how the charity is run after someone has been appointed. I suppose that a half-way house might be to require that fewer than 50 per cent—or whatever the number—of the trustees of non-departmental public bodies must be political appointments, but that would not obviate the need to examine what people do when they are in post and how they do it. It seems to me that that is how we must approach the matter.
I have been looking at the numbers. If we do a simple sum and divide the £4 million by 28,000 charities, it appears that the notional annual subscription in 2005-06 would be £142 per charity, compared with the current rate of £46 per charity. That would be a considerable uplift, even without considering the cost of expenses and wider access to the appeals process. Is such an uplift reasonable, given the different profile of the activity that OSCR will undertake?
To be frank, that is a difficult question to answer. I am sure that OSCR would have similar difficulties in speculating about the future. Part of the problem is that we do not have much knowledge about the charitable sector in Scotland. We think that there might be about 28,000 charities, but we are not even sure about that. There are a lot of uncertainties, but many things will become clearer during the next five years or so. In the meantime, there will be at least as many inquiries into charities as there have been in the past. Indeed, there will probably be more inquiries, because certainly in the initial few years after the bill is passed OSCR will uncover practices that might otherwise have continued for several more years. That is part of the bill's purpose, of course. More action might have to be taken against charities to enforce the new legislation.
I am intrigued by the rapid inflation in OSCR's budget. Would we have a better chance of controlling that if we were to match the English definition of charitable status and retain charitable status for all existing charities?
If the definition in the Scottish bill is retained, there will be many appeals to the tribunal, which could get very out of hand. Many charities will find themselves in serious difficulties because of the definition. Your suggestion might help to prevent that.
According to the briefing from the Scottish Parliament information centre, 67 per cent of charities—two thirds—have an income of less than £25,000. If every charity must pay a £2,000 subscription, a substantial element of charities' income will be spent on registration. As Jim Mather pointed out, that would represent a significant uplift for many charities.
I understood that there would be no charge for registration with OSCR—the situation might have moved on and I might have missed something.
Could a threshold be established? What would be an appropriate threshold for subscriptions?
I understood that there would be no charge for registering with OSCR.
Charities might be liable for administrative costs.
The Scottish Council for Voluntary Organisations certainly thinks that charities would have to pay £2,000, which would be unmanageable for many charities.
I think that you are talking about the potential cost of complying with OSCR's requests for information. Is that the context?
It might well be, but the committee briefing refers to a £2,000 "charge set for registration".
I do not think that OSCR will charge that sum; I think that that refers to the cost to the charity—
Paragraph 130 of the financial memorandum says:
From paragraph 130, we do not know how the charges will operate and what criteria will be set. How will the scaling be set? Will the charge be a percentage of turnover?
Any additional costs are significant for some small charities, but it is impossible to set up the sort of regime that we are talking about for OSCR without requiring charities to input to it; otherwise, the regime would be completely unrealistic. The new system will undoubtedly entail some costs for charities—you cannot make an omelette without breaking eggs.
I am not sure whether this is a political or a financial question, but will the bill improve the situation in Scotland, or is it a method of paying lip service to a problem that exists in the minds of the public? Many charities have a bad reputation, although many others do tremendous work. What percentage of donations should go to the good cause? Is 50 per cent an acceptable or unacceptable figure? People perceive that the percentage of donations that goes to the good cause can be extremely low, which is one reason for the bill. Do you have a ballpark figure for that?
The short answer is no, because charities vary enormously. For instance, it is difficult to say that, for all charities, administrative costs must be no more than 20 per cent of their income. Some charities have high administrative costs due to the nature of their work. To give what is in some ways a bad example, although it is graphic, the work of the Samaritans involves using the telephone a lot, which means that the telephone bills must be astronomical. It would be unreasonable for that charity to be required to have the same level of overheads, including telephone bills, as a charity that does different work. We cannot give an across-the-board figure. Even the Charity Commission, which has been dealing with the issue since about 1960, will not nail its colours to the mast. The matter depends on the charity in question and the nature of its work.
That was a good political answer.
Even if there is not a registration cost, there is an inevitable cost in putting information together and providing annual reports for the registration to be valid, which I think is what you were getting at. If I give money to a charity, I expect such information to be in the public domain and I do not think that there is a problem with that.
That would need a bit of thinking about. It is certainly not the way in which it has hitherto been organised, and there may be some difficulties with it. For instance, in the case of the National Galleries of Scotland one question that strikes me immediately is what would happen to the buildings. Would the charity have control over them or would some political control be needed? I do not know the answer to that. Difficult issues would be involved, particularly in relation to the funding and the building of the extension. Also, if the paintings have been left to the nation, there may be tax difficulties in them then being given to another body. I do not know. What you are referring to is complicated and would need to be thought about carefully. I would not reject it out of hand, but it might be awkward to achieve.
We have been discussing the costs of all this, but do we have any idea what the cash benefits would be? It seems to me that the benefits are either that we stop illegitimate charities, which are in effect swindling the public, or that we make some of those that are working work more efficiently so that they spend less on administration. I do not know whether there are any other benefits that can be quantified in cash terms, but do we have any estimate of the annual cost of the things that are happening at the moment? Does it approach the costs of the regulation that we are putting in place to stop them?
I do not have the figures at my fingertips, but no doubt OSCR's current budget could be ascertained. Until about this time last year, when OSCR was established, the Scottish Charities Office was undertaking inquiries into charities. I think that the budget of the SCO was in the region of £400,000—it was very small.
But what are the costs to the public of what may be being swindled from them—not swindled directly, but taken from them by maladministration and not spent effectively? Do we have a clue as to what those figures might be?
We do not, but it is rather like asking a senior police officer how much money is lost in credit card fraud every year. I do not think that he would be able to answer that question either. It is in the realms of speculation.
It is a question that is worth asking, because if we are going to spend more than £4 million solving a problem, we should maybe have an idea of what the cost of the problem is.
I can see that. Various other models were considered before the OSCR model was decided upon, some of which would have been a cheaper solution, and at least one of which would arguably have been a more expensive solution. I suppose that it is possible that things could be organised differently.
Part of our evidence—I think that it was from the SCVO—dealt with the cost of training in compliance with the requirement to provide accounts information and so on. The bill simply indicates that an annual report should be provided, but it leaves it up to OSCR to determine what should be within that; it could be half a page of A4 or it could be a substantial document. Are you aware of the typical requirements and costs of registration systems south of the border or elsewhere? Certainly, the SCVO says that it is unclear about the financial memorandum's costing for training requirements.
I have two points to make on that. First, I am sure that that the Charity Commission has figures on the cost to charities of preparing their annual reports, but I cannot tell you what they are off the top of my head. However, I am sure that officials would be able to obtain that information. Secondly, there is a lot of leeway on the length of annual reports. OSCR has been doing a monitoring project, of which you are probably aware, that uses a relatively lengthy questionnaire. Whether it should always be as lengthy is another matter. I would expect it to get shorter, but OSCR would have a better idea of that than I would.
I was interested in the point that you raised in your opening statement about charities that might lose their status. What would happen to the vulnerable people who depend on such charities? Obviously, it is difficult to speculate about how such people might be affected, but who would have to pick up the tab for them? Have you thought that through?
Presumably, local authorities and social services in some form or another would be involved. Another charity might also help. However, if one charity that provides particular services experienced difficulties with the new definition, it is likely that all charities that provide such services would have the same difficulties.
You said earlier that the galleries that receive paintings and other works of art on loan might, in turn, lend them on. It occurs to me that the Scottish Parliament plans to get into that line of business and take works of art on loan. I gather that the galleries are groaning with unshown works of art, some of which are likely to come to the Parliament. The Parliament will presumably pick up the tab for insuring them, but I assume that there will be a benefit in kind to the Parliament and that that will have tax implications.
I would think not, because the paintings will be on loan and will be available for the public to come to the Parliament to view them. That will probably be regarded as an extension of the galleries' obligations to put the paintings on show. I would expect that paintings on loan to the Parliament from the National Gallery would remain firmly in the gallery's ownership.
As a supporter of the clean walls strategy for the Parliament, I would prefer to get rid of some of the works of art rather than get more in.
I am keen to explore two points, which are not completely related, but which I think are of some merit. First, have we lost sight of maximising the possible positive effect of increasing public confidence in charities, and hence increasing markedly the amount of money that is donated to them?
There are arguments for different ways of registering. At least part of the consultation that has been going on for what seems like for ever but is actually about three and a half years has been examining other possible models. One could argue that what OSCR is doing is sufficient but that it is not sufficiently public and that the register is needed in order to create transparency and public confidence. I suppose that one could stop at various points along the route and assess how much requires to be done and at what cost.
The other thing that interests me is the possibility that, rather than put the burden so heavily on OSCR's shoulders, there might be a mechanism whereby we could respecify the nature of a charity audit and create a specialist requirement for the auditing profession to be somewhat more rigorous and perhaps focus on specific areas when carrying out a charity audit. In other words, perhaps we should delegate the audit out there and get it done at the coalface.
That might be one way of looking at it.
It strikes me that we could place a heavier emphasis on creating a healthier balance between compliance and cost control. I am thinking in particular of cost control and the public purse.
That is an issue that we could take up with Executive officials when they come before us next week.
I would have difficulty in saying much more on the issue.
I want to return to the issue of the national cultural institutions. The SPICe briefing suggests that the problem is not the fact that the charity trustees are appointed by Government, given that they are obliged to act in the best interests of the charity, but the fact that the charity would be directed by ministers. As I understand it, the problem relates to the ministerial guidance and direction.
Yes. There is at least a theoretical possibility of trustees being controlled by ministers. Two issues are involved: the question of who appoints trustees—and for what reason and with what remit—and the question of what control may be exerted over trustees once they are appointed. I think that a path can be found, if a bit more thought is put into the requirement on trustees for independence of action once appointed.
In that case, if the NDPB, or any cultural institution, was independent of Government, even though its trustees, or some of them, could have been appointed by ministers, is there still an issue about an artwork that is donated in lieu of taxation? Surely the work would be given not to Government but to someone independent of Government. Will that issue still arise?
It might. As I said, I am not a tax lawyer. I am sorry, but the detail of the question is therefore outwith my area of expertise.
If I may, I will pose a more fundamental question. If I get the gist of Malcolm Chisholm's letter right, we are looking at a trebling of OSCR's budget. If you wanted to put an additional £2.5 million into the charitable sector, would you put the money into supporting the Office of the Scottish Charity Regulator? I will leave that question hanging from the wall for a minute.
As I said, the argument on the subject raged quite a few years ago when the whole question of charity law reform began to be discussed. At the time, my view was that the remit of the Scottish Charities Office should be beefed up a bit more and that the SCO should be given more personnel. I also thought that the way to go was to have a much better register than the Scottish charity index that we have at the moment. That view has been rather overtaken by events. It was not the view that was adopted at the time and we now have the proposal for OSCR that is included in the bill.
I declare an interest. I was a member of the Kemp commission in 1997, which recommended significant changes to charity legislation in Scotland. However, I do not quite follow how those changes came to be consolidated into this large regulatory mechanism. That is not what witnesses at the time suggested should be done. Certain changes to legislation were required, but not the scale of regulatory structure that is now proposed. As someone who has been in the business for a long time and has perhaps been in more day-to-day contact with it than I have, can you shed any light on how we got here?
It was a very tortuous route. I am not sure that I know where the OSCR model arose. It is difficult to remember all the twists and turns. However, the model is of relatively recent origin and was not under discussion at the time of the Kemp commission. It would be possible to look back and work out how we got to this point, if that were thought to be useful.
In paragraph 2.2 of your paper, you indicate that a number of charities will fall foul of the new, more limited definition of a charity. You compare that with what I understand to be the current definition under the 1990 act and refer to
The two are significantly different from each other. Community development is an area of charitable endeavour that has been developed and covers activities such as volunteering. The overall public benefit test can be divided into many little pockets, one of which is the community development pocket. The language can be quite technical. We will have to accept that that is the way things are. In the new definition, we are trying to cope with 400 years of common law. Community benefit presses a particular button and relates to issues such as volunteering.
Is it possible for that to be made more explicit? Many existing charities that say that their purpose is beneficial to the community would also argue that it is beneficial to development of the community in which they operate and to civic responsibility. Presumably, it is for OSCR to decide whether that is the case. You indicate that it is likely that a considerable number of those charities would fall foul of the new definition and would need to lodge an appeal to ensure that there was an investigation. How explicit will the distinction between
The difficulty is in determining the basis on which OSCR will decide whether a charity satisfies the public benefit test. That is where the effect of 400 years of common law becomes apparent. At the moment, the bill tries to sweep the issue to one side and to say, "We are not having that." However, that is a completely impractical approach. Even if the previous legislation is repealed, it will still be examined in practice, as guidance. The existing definition will be retained in England, so it will still be highly relevant there.
Are you saying that the wider definition that refers to
Yes. England will keep all the little pockets around public benefit that we are sweeping away entirely. I will give you an accessible example. Paragraphs (j) and (k) of section 7(2) of the bill mention disability specifically. Paragraph (j) refers to "provision of accommodation" for the disabled and paragraph (k) refers to "provision of care" for the disabled. In England, there is only one term, which is "relief of disability". That term is wide and includes, for example, guide dogs for the blind and disability rights advice. It seems to me that neither of those is covered by "provision of accommodation" or "provision of care". Such issues around the definition cause me great concern. We have two paragraphs that cover disability, but they are narrower than the English provision on the subject.
Are you saying that under the tests the Guide Dogs for the Blind Association might not be able to register?
If it wanted to set up a Scottish guide dogs for the blind association, it would struggle on the basis of the definition in the bill.
It would be fine if it made sure that it looked after the dogs, under the advancement of animal welfare.
The situation is even more ridiculous than that. The association could train handlers to handle the dogs, but it could not train the dogs.
As the lead committee considers the bill, there will inevitably be many such issues. In my area there is a housing association that was set up to house people with mental health problems, and there could be a question mark over that. Every MSP will have their own issues and that committee will go into details.
I think that you and I probably know that that will be a difficult thing to achieve once the system has been set up.
That is on the record.
On guide dogs, I notice that one of the charitable purposes in the test is
I do not think so, because its work is not about care. It is about training a dog to do a job.
So we could have an anomaly whereby that wonderful charity is vigorous and strong in the rest of the UK but totally absent here—
Absolutely.
—with all the cost implications that would ensue.
No. Charities would find it beneficial to register south of the border, but they would continue to operate here.
They could distribute money here, but I do not think that they could operate here.
That might be the result. The Guide Dogs for the Blind Association will be required to register with OSCR if it undertakes significant activities in Scotland. I do not know where it will be left if it does not qualify as a Scottish charity.
There are obviously some UK charities—
The Guide Dogs for the Blind Association is an English charity, but one of the provisions in the bill requires charities that are registered elsewhere to register with OSCR as well if they conduct significant activities in Scotland.
I presume that they will have to pass the tests in the Scottish legislation.
Presumably so. There is a looming difficulty with that.
You have helped us to identify a number of questions to ask the Executive witnesses when they come before us on 18 January. I thank you for coming along today, and I indicate to everyone that we hope to sign off our report on 1 February. Anne, you offered to help us by telling us how we got here from the Kemp commission. Could you give us a short note on that?
I can do that, yes.
That would be helpful. Thank you for all your assistance.
Meeting continued in private until 11.33.