Subordinate Legislation Committee, 22 Mar 2005

Meeting date: Tuesday, March 22, 2005

Official Report 196KB pdf

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Regulatory Framework Inquiry

I welcome members to the 10th meeting in 2005 of the Subordinate Legislation Committee. I have received apologies from Christine May, but I expect Mike Pringle to attend the meeting later.

I note that I missed last week's meeting. However, I came in during the course of it to give my apologies to the clerk.

I think that that has been noted, but we will check.

Item 1 on our agenda is our on-going inquiry into the regulatory framework in Scotland. I welcome Jane Ryder, the chief executive of the Office of the Scottish Charity Regulator, and I invite her to give a brief introduction, before we move to questions.

I would be delighted to do that. Thank you for the invitation to give evidence today. I hope that what I say will assist the committee.

As I said in my written submission, OSCR is a new regulator, so we are in a relatively unusual position. We were established as an executive agency in December 2003, so we have been in operation for only about 15 months. We are in the unusual position of developing a new regulatory regime under current statutory powers at the same time as being closely involved in the development of new legislation, which has given us an interesting perspective.

We have aimed to build the principles of better regulation into our operations from the outset. It is much easier to start with a relatively clean sheet than to try to turn around a tanker. That has given the civil servants, especially the Charities and Trustee Investment (Scotland) Bill team, which is responsible for the policy framework, an increasing evidence base for policy development. However, because all the evidence was not available at the outset, I highlight the exceptional consultation process that the bill team led when developing the new legislation. The Communities Committee has commented on that process, which I regard as a critical element of regulation.

I understand that the Subordinate Legislation Committee has not received many submissions from the voluntary sector, so it may help if I give a one-minute profile of the regulated constituency as I currently understand it. There are about 20,000 active charities in Scotland. Over the past six months, we have dealt with almost 5,000 changes of detail to the information that the Inland Revenue holds. I say that there are about 20,000 active charities, because the information from the Inland Revenue that we currently publish is not as up to date as one might expect it to be. That is one of the key challenges that we face.

We will have an even better picture by the autumn, once we have rolled out our first annual return, which we plan to do in the last week of April. However, we are fairly clear that approximately two thirds of the 20,000 charities in Scotland have an income of less than £25,000—they are real microbusinesses, in the terms that the committee has discussed. OSCR is also a microbusiness. We have only 17 staff at the moment, although by the end of the year we should have about 30. The figures that I have provided give the committee some idea of the scale of the regulated constituency.

There is an extraordinary variety of charities, from large national cultural institutions such as universities, further education colleges and the National Trust for Scotland, through care providers and medical research organisations, to girl guides and scouts. The sector also includes churches, schools and animal welfare and human rights organisations.

The extraordinary variety of organisations means that an extraordinary variety of other regulators is involved. For example, Communities Scotland deals with registered social landlords. For business activity, charities also engage with the Scottish Further Education Funding Council and the Scottish Higher Education Funding Council. That is not to mention the wealth of regulation that accompanies charities' activities as employers. I know that one or two of your other witnesses have touched on the United Kingdom and European dimensions. Cross-border activity is certainly a concern, but I think that it is possibly less of a concern than people had thought it would be at the outset.

We have just made a freedom of information request to all 32 local authorities asking to whom they grant rates relief on the basis of charitable status. We have identified approximately 250 organisations that are English—foreign, as it were—charities that operate in Scotland. We also know, from the website of the Charity Commission for England and Wales, of around 400 other organisations that have a contact address in Scotland, although that may be no more than a correspondence address. We may be talking about only 250 organisations, although some of them will obviously be significant—the 13 largest operate across 10 or more local authority areas.

There is cross-border interest in dual regulation between OSCR and the Charity Commission for England and Wales. There is also considerable interest, not only among cross-border charities but among Scottish charities, in the interplay between reserved and devolved matters, because tax is a reserved matter. I do not think that the European dimension is yet a large factor, except in so far as the European convention on human rights gives rights to organisations, including charities, including rights within the regulatory process. However, there is not a great drive for European standards and European regulation in the same way as there has been with the Food Standards Agency Scotland and the Scottish Environment Protection Agency, from which you heard evidence. I hope that that is a useful introduction.

It is very useful. Thank you for outlining those linkages for us.

I was interested in something that you mentioned in your opening remarks and to which you refer in your submission. In paragraph 1.4, you state:

"We have come afresh to existing regulation and have been able to identify within a relatively short time what are the benefits and disadvantages of the current system."

It would be helpful if you could tell us what those are. In general, what do you believe can be done to improve the quality of regulation in Scotland, given that you have a fresh pair of eyes?

We have a fresh pair of eyes. In particular, we can see the advantages and disadvantages of the current statutory powers, which means that we have been able to feed into the new legislation what we hope will be improvements to the regime of charity regulation. If we take a step back and consider what would improve the regulatory process, we may think about the importance of resource impact assessments, an essential part of which—particularly where there is the information gap that a number of witnesses have identified—is the consultation process. The work that the bill team has done—and some of the operational work that we have done—on consultation and reaching out to the regulated constituency is probably the key.

You also said that regulation must be proportionate and that there must be a light touch. Do you believe that better regulation necessarily means less regulation, or did you mean something else by that comment?

In our context, better regulation means more regulation, because there has not been any hitherto. We must strike the right balance. For us, proportionate regulation means regulation in relation to legitimate and identified risk. In particular, it is about not bearing too heavily on smaller organisations, given that the profile of our sector is about microbusinesses.

We have just carried out extensive consultation on how we should introduce a monitoring programme. As a result—having made proposals, received responses to the consultation and piloted the scheme in 300 charities—we have pulled back from some of our original proposals. We are now asking the smaller charities—those with an income of under £25,000—to fill in only a very simple form and to send us a copy of their accounts. In essence, we then do the work. We are asking the larger charities—those with an income of more than £25,000—some questions, which means that they are doing some of the work for us.

In your comments on consultation, you touched on the need for improved regulation. In the 15 months that you have been around, what lessons—apart from those to do with the gap in consultation—have you learned from examining the existing regulations in the field?

I think that it is universally acknowledged that the existing regulations are overly detailed and prescriptive. Some of them are almost impossible to follow and some of them have quickly become out of date because of considerable advances in accounting, auditing and technical practices. Because of issues to do with parliamentary time before devolution, the regulations have not kept pace with those advances.

From a regulator's perspective—and you might expect me to say this—the more flexibility and the more legitimate discretion that the regulator can have, the better. Problems have arisen because the regulations are incredibly prescriptive of process—down to, for example, prescribing the style of advertisement that has to be published when one wants to reorganise a trust with an income of under £5,000 a year.

That is fairly detailed.

Yes.

Is there any particular reason for the difficulty of microbusinesses—if I may use that term—in following the regulations? You said that some of the regulations were out of date, but are there any other reasons for the difficulty? For example, is there no clear guide to the regulations in plain English?

There is no clear guide in plain English and that is a gap that we seek to address. Due to arrive from the printers tomorrow is a simple guide to accounting regulations. We regard the provision of general advice on compliance—in plain English, as far as we can—as a key role for the regulator.

Through the consultation on the bill, there has been interesting debate about the role of the regulator in giving advice. Does, for example, the giving of advice compromise the regulator's role as regulator? I do not think that it does; I think that the regulator has a spectrum of roles.

It is certainly not appropriate for the regulator to give one-to-one detailed advice from individual legal advisers, but it is the role of the regulator to give general advice and to offer signposts to other sources of advice, if available. However, not a huge amount of specialist advice on charity regulations is currently available. Such advice will build up over time and we are working on that with the sector—with umbrella groups such as the Scottish Council for Voluntary Organisations.

A good route to take—although it was originally by accident rather than design—has been the secondment of staff from the sector. We work with them on a commission basis; we get the benefit of their expertise and, in time, they take knowledge of OSCR and its processes back out to the sector.

It sounds as if you are making some important starts. That is to be welcomed. I will move on to the regulatory impact assessments. How can the RIAs be integrated into policy making and influence policy?

Because we were not the policy arm, our input into the RIA system was primarily about the resources that we needed to carry out our functions rather than the impact. That is an important element: Equitable Life and other cases show that it is counterproductive to set up a system of regulation if it is not resourced appropriately.

On how the RIA can best be integrated with policy, again we might be slightly unusual—I do not know—in that, because the bill team consists of only two or three people and OSCR is a small organisation, we have had an extremely good and close dialogue with the bill team. Another extremely good thing that the bill team did, which enabled it to integrate policy thinking and to evolve policy, was to set up a bill reference group of stakeholders and to have intensive discussions through the group. That enabled the bill team to develop policy in light of contributions from the sector, which were in a sense informal impact assessments as we went through the process. Again, that comes back to consultation. The process should be about the evolution of policy and dialogue between policy and evidence rather than, as several witnesses and members have mentioned, a one-off exercise in which an RIA simply sits there or is tagged on to a bill.

I think that your submission suggests that RIAs should be carried out for all regulations. Is that the frequency with which you think they should be done?

Now that I have read so much more information from other witnesses, I think that that suggestion is perhaps overly ambitious. An RIA does not necessarily need to be done for minor technical regulations, but the difficulty is that what one person may think of as a minor technical regulation may have a disproportionately large impact on someone else. The principle is right, but the difficulty lies in the practicalities.

Finally, should there be independent scrutiny of the RIAs and, if so, what might it examine?

I would have thought that such scrutiny was an essential part of the parliamentary process. If your question is about whether there should be an independent unit within, let us say, the Executive, I think that that would be quite a challenge; it would have quite a resource implication for the Executive, which is hard pressed even to provide draftsmen to produce the regulations. That scrutiny function probably lies within the parliamentary process.

Do you think that, within the parliamentary process, the Subordinate Legislation Committee and the lead committee should have a role?

Yes. Those committees should have a dialogue, as they do. The Finance Committee gave us a suitable grilling.

I welcome Mike Pringle to the committee. Murray Tosh will ask about consultation.

Good morning. I have a couple of questions. Paragraph 2.4 of OSCR's submission states

"that there should be a general requirement to consult the public".

Should that general requirement be put on a statutory basis or should it be covered by policy guidance?

To be honest, I do not have a particular view on that. In relation to charities, there is the compact with the voluntary sector, so the requirement is perhaps a bit more than policy, although it is obviously less than statutory. I think that that is a good interim position for the voluntary sector.

Given what you have just said about the charitable sector being very much in the voluntary sector and your earlier comments on charities as microbusinesses, what needs to be taken into account when there is consultation with charities about regulations? There is perhaps a lack of professional or other resources to engage fully in the way that some of the more substantive, perhaps UK-wide charities do.

The key to that is two-pronged consultation. One aspect is outreach work by those who are consulting; considerable effort has to be put into that. During the consultation on the Charities and Trustee Investment (Scotland) Bill, we and the bill team are organising information seminars throughout the country—indeed, the reason why I am alone today is that one of my senior colleagues is giving a presentation in Glasgow; another is in Dumfries and will be in Aberdeen tomorrow. The second aspect is the key role of intermediaries and umbrella bodies such as the SCVO and the sub-sector-specific bodies. Many microbusinesses are grouped together under umbrella bodies, which can be the most effective way of reaching businesses.

Do you think that the existing umbrella bodies are sufficiently broadly based to be able to capture the attention and awareness of the whole sector?

I cannot tell you that yet, but it is a good question.

Good morning. What steps is OSCR taking to ensure fairness and consistency of enforcement in the work that it undertakes?

We inherited the previous complaints-based regime and powers of the Scottish Charities Office. One of the first things that we did was to develop and publish an inquiry and intervention policy. When someone makes a complaint about a charity, they get a copy of the policy so that they know what OSCR can and cannot do. The charity that is being investigated also gets a copy, so that it knows what to expect from OSCR. That is our approach to what was our first function.

Secondly, on monitoring, I explained about the consultation on the proposals. We are at an early stage with that work, but we have tried to build in consistency. Another function is trust reorganisation. We have issued guidelines on that and we have a user panel to review them. The key is to ensure transparency and to give appropriate reasons for decisions without getting involved in detailed explanation, because there are huge resource implications for us in that. Essentially, we are conscious of the need to build in quality assurance.

What feedback have you had on your new regime?

We have had relatively little feedback on the inquiry and intervention policy, but I regard that as a good thing. Where a complainant is dissatisfied with our decision in relation to an investigation, one of the ways in which the quality of the decision—if not the consistency—is interrogated is through freedom of information inquiries; one or two complainants have been adept at using such inquiries as a formal appeals mechanism. Under the bill, a three-tier statutory review is built in. OSCR can be asked to review a decision and must do so. At that point, the matter can go to the new charity appeals panel and then to the Court of Session. Furthermore, as we are a public authority, any complaint can go to the ombudsman and is amenable to judicial review.

Could you say more about the idea of an external appeals mechanism that is not as formalised or resource intensive as the present situation?

The bill proposes having not a free-standing tribunal but a panel that can be drawn on. The idea behind that was that there should be something that is relatively cheap and quick and is not as intimidating or resource intensive as a formal tribunal. Time will tell, because we do not know how many appeals there will be. One of the main factors that will affect that is whether there are third-party rights and third-party costs. At the moment, only OSCR and the charity or the person against whom a decision is made can appeal. There is some discussion about whether any interested third-party should have a right of appeal. However, that would add considerably to time and cost.

One of the important areas that we have been examining is that of periodic review. Given what your submission says about the changes that have taken place over the years in the environment in which charities operate, I assume that that issue is important to you. Mike Pringle has a couple of questions to ask in that regard.

In your submission, you talk about the requirement that regulations be subject to review. I agree with you that the Scottish Parliament has not been good at looking back at the legislation that it has passed and I think that we should perhaps do more of that. How could we examine the legislation, post-implementation, and how would that be useful to the charities sector?

I confess that I have not thought through in detail quite how we might review the situation on an on-going basis. However, OSCR has started to think about how we measure our impact. The answer to your question relates to the objectives of the regulation and whether the outcome achieves those objectives. A number of your witnesses have been understandably concerned about the impact of the regulation in terms of the burden of compliance. However, as the regulator, I am interested in what the regulation has achieved, which is much more difficult to quantify and establish.

Who should be quantifying that? The Executive? OSCR? This committee? An entirely independent person? I agree that, once the legislation has been passed, someone must consider its effects.

To start with, the regulator should do so. All public authorities have a duty of providing best value and of ensuring continuous improvement, so we should be conducting our own on-going internal reviews. That duty is subject to scrutiny by the Parliament and the Executive. Therefore, you have a right and a duty to call each regulator to account. The regulators can contribute to the overview, but there must be assessement by somebody who sits outside the regulator. An analogy would be the supposedly quinquennial review of non-departmental public bodies, which is conducted by the sponsor departments. It might be worth looking at that process to find out how it works and whether it successfully assesses impacts and achievements.

Your submission refers to sunset clauses. When should sunset clauses be used?

The submission says that the use of sunset clauses would provide "some assistance", but the criteria are a difficulty. I support the principle of reviewing; indeed, I have thought of introducing such a principle for charities, under which they would justify their existence at the end of 10 or 15 years. However, that would be extremely difficult to frame in legislation. The issue is more to do with policy than one that involves a statutory requirement.

We will now consider consolidation. Obviously, we are keen to consolidate as much as is humanly possible, but resources are an issue. Stewart Maxwell will talk about something that might help.

We are clear about your views on consolidation from your submission, and there is a great deal of sympathy in the committee for those views. However, there is an issue beyond that. If we did what you have suggested and the Parliament consolidated to, effectively, the nth degree, there would be resource and cost implications. Your submission mentions the use of modern technology to allow website links and access to all the current and up-to-date regulations and amendments. Are you arguing that access for organisations to consolidated legislation should be publicly funded?

I am not sure that a huge amount of additional resources would be needed. Regulators should make available details of regulations on their websites—I think that most regulators do so.

I am sorry—I may have misled you. On access for those who are trying to—

Access is a broader policy issue. Digital Scotland is about access to digital facilities. That said, that so many microbusinesses have access to technology in our sector, for example, is surprising—indeed, perhaps the smaller businesses have such access, but the medium-sized businesses are not as geared up as we might expect. Investment is needed, which is a policy decision.

I will give members some background information on me. I come from the museums sector and I was the Scottish board member on Resource, the UK quango for museums, libraries and archives. A vast amount of lottery funding has just been put into digital access in public libraries and we are reaching a critical point at which the expectation is that people will have such access.

Where should the line be drawn between the Government's responsibility to provide information—obviously, the Government has a responsibility to do so—and ensuring that everybody who must work with the regulations has free and equal access to them? A balancing act is obviously involved.

A balancing act is involved, but that is a policy issue for the Scottish Executive rather than an issue for OSCR as the regulator. I would certainly welcome such access. One question that we threw out at the outset was whether we should expect or require electronic submissions of reports to OSCR. It was thought that such an expectation would be premature just now, but that it would become a reasonable expectation at some point in the future. That is one of my long-term aims.

My next question follows on from that. In your submission, you mention the importance of technology in providing access to

"simple and user-friendly explanation and guidance on the meaning … of regulation."

Earlier on, you mentioned an organisation that was to be giving you some information about a certain piece of legislation—I might have picked that up wrongly, so do not worry about it too much. Could guidance be provided in formats other than, and in addition to, those that are available through information technology? What are your general views about guidance? It is often an interpretation of regulation; do you perceive any difficulties with that?

There is a spectrum of approaches for regulators from simply pointing to the law and telling people that they must comply with it and should find out themselves how to do that, through to the approach of the McFadden committee's original proposal for an all-singing, all-dancing body—charityScotland—that would do everything, including the provision of detailed advice. The University of Strathclyde has just done a baseline survey of user expectations for us. That survey showed that the expectation of, and the appetite for, guidance from OSCR is somewhere in the middle: we must do more than merely point to the legislation, but we must be careful not to give detailed legal advice, which is for legal advisers to do.

You are right that we need to provide guidance through a variety of media, depending on the sector and sub-sector. So far, we have produced written material that is available in printed form and on our website—that is probably true of a number of regulators. I spend quite a lot of time talking to groups of charities—such events are often organised by an intermediary. If we talk to 50 or 60 charities at one time, that maximises our reach; we do not have the resources to talk to all 20,000 charities one to one.

Do you use examples or scenarios to explain legislation?

Yes. For example, the guide to accounting regulations that we are publishing gives an example of how a charity's accounts might look. However, the sector is not at all backward in coming forward with what-if questions. It is proactive and reactive.

Thank you very much. Murray Tosh will ask a few questions on overseeing the regulatory reform process.

I turn your attention to paragraph 4.1 of your submission, where you say that you

"are not clear there is a need for an independent advisory body in Scotland … to advise on matters relating to regulatory reform. … it might be more effective to extend and strengthen the UK remit of the BRTF."

Will you clarify whether you are saying that there should not be an independent advisory body and that it would be better to extend and strengthen the better regulation task force's remit? If that is what you are saying, will you explain why you think that?

I can speak only from OSCR's perspective; I am not sure how far my comments can be extended. I found the better regulation task force's work to be immensely helpful, but I note that the task force does not include a Scottish representative. I think that I am right in saying that it has a notionally UK-wide remit, although, as in so many situations—I speak as one who was the sole Scottish board member of a UK quango—it is quite difficult to put across the Scottish perspective in achieving an understanding of the UK dimension.

Is that an argument for a separate Scottish advisory body?

Well, yes, but—

I speak as a unionist—the question is to satisfy my nationalist colleagues.

If you had not asked the question, I would have.

The answer depends on whether regulation is purely domestic or is Europe driven, as it increasingly is.

I will stop to allow either of my SNP colleagues to ask a supplementary question.

Given your comments today and in your paper, including your comment about Europe, and the fact that Scotland has a separate legal system and a Parliament to deal with the issues, what is the argument for a UK body? Why do we not have a European body or a Scottish body? It is illogical to argue for a UK body.

I hear what you say.

You are correct not to be drawn.

Paragraph 4.2 of your submission mentions

"interesting challenges in the interface between devolved and reserved powers."

That is a bit Sir Humphreyesque for simple people such as MSPs. Will you give examples of how "interesting challenges" were addressed and say whether you can draw any lessons from that experience to suggest how the process could be improved?

I touched on a great feature throughout the consultation on the bill, which is the fact that tax is a reserved matter, but charity is devolved. Under the present system in Scotland, which will remain, being a charity is a feature of the tax regime and many benefits of being a charity, such as tax relief, gift aid and corporation tax and income tax benefits, are delivered through the UK tax system, whereas many other benefits are domestic, such as rates relief and the protection of the charity brand.

The relationship between the Office of the Scottish Charity Regulator and the Inland Revenue is interesting. Scottish legislation cannot bind the Inland Revenue, so we will have to agree an operational concordat with it. I am comfortable that we can do that. I think that framing in the bill requirements to co-operate has been difficult, but you would have to ask the bill team about that. I have described as one-handed clapping the fact that Scottish legislation cannot bind non-Scottish regulators.

Your submission does not mention the Executive's improving regulation in Scotland unit. Should it be given wider powers to support better regulation?

I confess that we have had no dialogue with IRIS. The bill team would have had dialogue with IRIS about policy, but we have had no dialogue about operations.

You obviously do not wish to comment until you have had that dialogue.

Do you have views on the Parliament's role in establishing recognised standards of regulation?

If that question is about whether standards should be statutory, I have not addressed it. If the question is whether Parliament should take cognisance of good standards, the answer is yes—of course it should.

What about ensuring that the Executive complies with standards?

As I said, the Parliament has the right and the duty to hold us all to account, to ensure that we apply standards.

Let us move on to co-operation with other regulators. You have mentioned the links with the rest of the UK and said that you will possibly have an operational concordat with the Inland Revenue and so on. How systematic will that be? Could that working relationship be more systematic?

Are you talking about a more systematic relationship between England and Scotland rather than just between OSCR and the Charity Commission? It is quite difficult to find a model that fits all regulators and all dimensions of regulation, especially given the detail that is involved in operational mode.

I am talking about the best working relationship. You seem to be saying that the operational concordat would be a way of moving forward. It would give you quite a bit of flexibility and establish certain key principles about how you work together and exchange information. I am trying to get a bit more information about the degree of flexibility that exists in that exchange.

Both sides have flexibility within the context of the legislative framework. The issue could be addressed on a case-by-case basis; I find it difficult to imagine how it could be more systematic beyond the principle that Scottish regulators should co-operate with English/UK regulators, when appropriate. I would like a mutual principle in the Scottish legislation—that is the suggestion that we made. At the moment, the statutory duty is not on other regulators to co-operate with OSCR; it is on OSCR to co-operate with other regulators to allow them to fulfil their functions. If a principle of mutuality could be introduced, that would be helpful.

Any further information that you could give us about how you work with other regulators and how that reduces the burden would be useful.

We are attempting to do such work. As you can imagine, at this early stage we are still discussing how the process might work. We are in discussions with Communities Scotland, which is the lead regulator of registered social landlords, and the Charity Commission, which regulates the English charities. The feeling is quite strong within the sector and—as you can imagine—within OSCR that, although the new legislation was intended to address a fragmented landscape, we would end up with a differently fragmented landscape if OSCR delegated its duties to other regulators. It is a matter more of co-operating than of delegating.

On the burden of regulation, there is a strong feeling in the charity/voluntary sector that there should not be dual regulation. I have made this point a few times. Of course there should not be burdensome regulation; however, often what looks like regulation, feels like regulation and involves filling in forms is not regulation but the funding relationship that bodies have with the multiplicity of funders. The application process for grants, the monitoring and the post-grant evaluation are just as burdensome as true regulation, and that is one of the key challenges for us in the regulation context.

That is helpful. Any further information that you can give us about how you are trying to make regulation as easy as possible for charities would be very welcome.

The principal ways in which we try to do that are by issuing simple guidance where that does not exist, ensuring accessibility and setting appropriate thresholds so that we do not bear too heavily on small businesses.

We are also attempting to make the transition from our current set-up to OSCR 2 as easy as possible. I describe that as leading people up a gentle incline rather than letting them face a steep cliff in April 2006. We are gradually phasing in the monitoring programme so that people become accustomed to, and more aware of, their current roles and responsibilities and how those will change. As I said, we are aiming for a gradual transition rather than a sudden scramble up a steep cliff-face.

I thank Jane Ryder both for her written submission and for the useful answers that she has given us today.