PARLIAMENTARY DEBATE
Small Charitable Donations and Childcare Payments Bill - 15 November 2016 (Commons/Commons Chamber)

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

With this it will be convenient to discuss the following:

New clause 2— Review of operation of gift aid matching rule—

‘(1) The Small Charitable Donations Act 2012 is amended as follows.

(2) After section 16, insert the following—

“16A Review of operation of gift aid matching rule

(1) The Chancellor of the Exchequer shall, no later than the end of the 2017-18 tax year, undertake a review of the operation of the gift aid matching rule.

(2) As part of the review of under subsection (1), the Chancellor of the Exchequer shall consult charities and other organisations that he considers relevant about—

(a) the role of the gift aid matching rule in preventing fraud and abuse, and

(b) the appropriateness of the Treasury exercising its order-making powers under section 14(2).

(3) A report of the review undertaken in accordance with this section must be laid before each House of Parliament by the Chancellor of the Exchequer.

(4) In this section, “the gift aid matching rule” has the same meaning as in section 14(3).”

This new clause requires the Chancellor of the Exchequer to review the gift aid matching rule and to consult charities and other organisations on the appropriateness of exercising the Treasury’s powers to amend or abolish that rule which limits the amount of top-up payments to which a charity is entitled by reference to the amount of gifts made to the charity in respect of which it has made successful gift aid exemption claims.

New clause 3—Regulations on local branches and groups—

‘(1) The Small Charitable Donations Act 2012 is amended as set out in subsections (2) and (3).

(2) After section 5(1) (general provisions on meaning of “connected”), insert—

“(1A) This section is subject to the provisions of regulations made under section 5A (regulations on local branches and groups).”

(3) After section 5, insert the following—

“5A Regulations on local branches and groups

(1) The Treasury shall by regulations prescribe organisations in which local or regional branches or groups may not be considered to be connected for the purposes of sections 4 and 5.

(2) The Treasury shall publish the first set of draft regulations made under subsection (1) no later than 31 October 2017.

(3) Before publishing draft regulations under this section, the Treasury shall consult—

(a) the Scout Association;

(b) the Guide Association;

(c) the Combined Cadet Force Association; and

(d) such other organisations as appear to the Treasury to be relevant.”

This new clause requires the Treasury to identify organisations with local or regional branch or group structures in order that those local and regional branches or groups can be separately eligible under the scheme, and to consult certain organisations about the regulations in draft.

New clause 4—Abolition of Gift Aid donations threshold—

‘(1) The Chancellor of the Exchequer must carry out an assessment of the impact on charities and Community Amateur Sports Clubs of amending the Gift Aid Small Donations Scheme so as to remove the 10% Gift Aid donations threshold that must be met in order to access the Gift Aid Small Donations Scheme, including an assessment of the differential impact on different sizes of charities and Community Amateur Sports Clubs concerned.

(2) The Chancellor of the Exchequer must lay a report of the assessment before the House of Commons within six months of the passing of this Act.”

Charities and CASCs must give gift aid exemption claims on donations received in order to make a claim under the Gift Aid Small Donations Scheme. The total gift aid donations must be at least 10% of the amount of the small donations on which top-up payments are claimed. This new clause would require the Chancellor to assess the impact of abolishing this requirement.

New clause 1 would require Her Majesty’s Revenue and Customs to publish in each tax year a report detailing the number of penalties imposed under the Small Charitable Donations Act 2012 and the circumstances giving rise to the imposition of such penalties; HMRC’s assessment of the extent to which charities have been established or have operated for the primary purpose of securing benefits from the small donations scheme; and an assessment of the evidence available on the role of the gift aid matching rule in preventing fraud and abuse. New clause 2 would require the Government to conduct a review of the operation of the gift aid matching rule, which is the rule that the total gift aid donations operation for a charity must be 10% or more of the amount of small donations on which top-up payments are made. The new clause stipulates that the Chancellor should consult charities and other relevant organisations about the role of the matching rule in preventing fraud and abuse, and the appropriateness of exercising the Treasury’s powers to amend or abolish the rule. New clause 4, which was tabled by the Scottish National party, would also require the Chancellor to assess the impact of abolishing the matching requirement.

During the Bill’s passage through the House, we have had extensive debates about the matching requirement—rightly so, because it is the biggest issue affecting the efficacy of the scheme, according to the charities that use it. The sector thinks broadly that the requirement is arbitrary and is a significant barrier to charities being eligible for the scheme. A consultation with members of the National Council for Voluntary Organisations showed that it is the most significant barrier to access for smaller organisations. The survey found that 50% of respondents with an income under £10,000 wanted the removal or reduction of the matching requirement.

Ahead of Second Reading, the NCVO argued that the Government have presented no evidence to demonstrate the extent to which the matching requirement is a necessary mechanism to prevent fraud and error, or that the matching ratio of 1:10 is the minimum necessary to achieve this objective. Despite considerable debate on this matter, we have got all the way to Report and the Government have still failed to provide any evidence that the matching requirement works. I would welcome the Minister’s comments on that today.

New clause 2 would force the Government to produce evidence in the form of a review and report on the operation of the gift aid matching rule, and whether it should be changed or removed entirely. New clause 4 would require a similar review, so we will be happy to support that measure. I would rather not have to press our new clauses 1 and 2 to a Division unless we have to. They call for a review of something that the charity sector says is hindering the scheme. I hope for some movement from the Minister on the issue today, but if the SNP’s new clause is pressed to a Division, we will support it wholeheartedly, as it reflects many of the principles that we have outlined in new clauses 1 and 2.

I am sure that the Minister will repeat her argument that the matching requirement is necessary to prevent fraud. I agree that we need measures to safeguard against such abuses. The Charity Commission has provided figures showing the extent of fraud in the charity sector. In 2014-15, 417 serious incidents involving fraud and/or theft or the misapplication of funds were reported by charities to the commission, and 255 operational compliance cases were completed. As Members are aware, just last week the commission announced in a press release that it was investigating the charity Our Local Heroes Foundation. According to the commission, it had received information about a proposed disposal of land owned by the charity, concerns regarding the founder of the charity receiving significant personal benefit through the charity, and a complaint that the charity was receiving only 20% of funds raised through a fundraising company.

This is just one case, but it is a sad example of charities being used as vehicles for tax avoidance and fraud. It is therefore incumbent on us to make it as hard as possible to abuse charitable status. That is why we have tabled new clause 1, which would require a review of the prevention of fraud and abuse in the small donations scheme. As I said, the review would need to address the number of penalties imposed under the Small Charitable Donations Act 2012 and the circumstances giving rise to the imposition of such penalties. It should include Her Majesty’s Revenue and Customs’ assessment of the extent to which charities have been established or have operated for the primary purpose of securing benefits from the small donations scheme, and HMRC’s assessment of the evidence available on the role of the gift aid matching rule in preventing fraud and abuse.

The Government’s guidance on the scheme explains that if a charity or community amateur sports club

“incurs a penalty in respect of an incorrect Gift Aid claim or GASDS”—

gift aid small donations scheme—

“claim, it won’t be eligible for the scheme both for the tax year in which the incorrect claim was made and in the following tax year.”

I would argue that the link between gift aid and the scheme is stronger than the matching requirement. Charities claiming gift aid can still be, and indeed have been, fraudulent organisations, so simply having a monetary link to the gift aid is not enough. This provision—that if a gift aid claim is wrong, a charity cannot claim through the scheme for that tax year and the following tax year—seems to be a stronger safeguard against fraudulent organisations than the matching requirement. Things might be more complex than that, but a review would clearly be beneficial, because we could assess where the matching requirement actually works effectively. In that way, the Government and the charities sector would be able to see clearly which anti-fraud measures were most effective.

New clause 3 deals with a different matter. Members and the Minister will remember that we made the case in Committee that certain groups—the girl guides, the scouts, and the Army, Navy and Air Force cadet groups—were not able to get the full benefit of the small donations scheme. That was after feedback from the respective charities’ representatives that, because of the structure of the groups, they were able to make only one claim for the entirety of the group, even though individual groups within them fund themselves.

The Minister responded that the measure proposed in Committee was unnecessary because the Bill allowed for what it proposed. She neatly illustrated why she would reject it—because, at the time, it carved out a few selected charities—but we want provisions to benefit a broad range of charities, some of which were not named in the original new clause tabled in Committee.

New clause 3 attempts to address the Minister’s points by allowing the Treasury to make regulations to exempt certain organisations from the connected charities rules. The Government would have to consult the Scout Association, the Guide Association and the Combined Cadet Force Association, in particular, before publishing those regulations. The Minister said she would reflect on the points raised in Committee, so I hope that she will accept the new clause today. It would not carve out a few selected charities, but give the Government the power to consult organisations that are mistakenly affected by the connected charities rules. It would, therefore, make the scheme run more smoothly, which is, after all, the point of the Bill.

I hope that the Minister has listened carefully to the rationale behind the new clauses and recognises that we are genuinely trying to achieve the same end: to make the gift aid small donations scheme work as well as possible for as many charities as possible. I hope that the new clauses will be accepted. We will not press new clauses 1 and 2 to a vote, but we will divide the House on new clause 3, and we will support new clause 4 should the SNP choose to press it to a Division.

I speak in support of the points made by our shadow Minister about new clauses 1 and 2, which deal practically with the issue of fraud and put the onus very simply on HMRC to establish the extent of the problem. The difficulty facing the voluntary sector is that even with the £15 million of additional support in the Bill, the gift aid small donations scheme will distribute roughly £40 million, which is only about a third of the £115 million that was, according to Government opinion, projected to be distributed next year. This scheme could and should be growing. It is important because it helps and develops the smallest charities, and that must continue.

I rise to speak to new clause 4, which stands in my name and that of my hon. Friend the Member for Kirkcaldy and Cowdenbeath (Roger Mullin), although I shall touch on the other new clauses in the group.

New clause 1, which would require HMRC to present an annual report, is reasonable and sensible. I was surprised by the amount of discussion we had in Committee and elsewhere about the possibility of charities using such a scheme for fraudulent purposes. Perhaps I was being naive as that had not crossed my mind a great deal, but apparently people are genuinely concerned about it. If the Government were to take on board Labour’s proposal in new clause 1, it would help to allay the fears of the general public about how charities are acting. I think that only a very small minority of charities are set up to act fraudulently, and the publication of such information would help to ensure that the public are aware of that.

New clause 2, not dissimilarly from a number of measures that we discussed in Committee, deals with the matching requirement. I will come on to that later. I understand why Labour Members have tabled new clause 3, which addresses local organisations that, unfortunately, are caught by some aspects of the way in which the Bill is written. I appreciate that that is an issue, so my colleagues and I will support Labour Members if they press it to a vote.

New clause 4 relates to the matching requirement and the associated threshold. When the first draft of the Bill was introduced in the previous Parliament, the Government supported a different matching requirement from what was eventually approved. During the consideration of that Bill, they also changed the proposals on the matching requirement so that they could edit it in the future, if necessary. That was a result of pressure by charities and organisations that had raised concerns about the arbitrary nature of the level that was chosen for the matching requirement.

I appreciate that the Government have moved on this in the past, but charities are now asking them to move further. As the hon. Member for Salford and Eccles (Rebecca Long Bailey) said, the National Council for Voluntary Organisations, the Charity Finance Group, the Institute of Fundraising and the Small Charities Coalition produced a paper saying that it was vital that the matching requirement was changed or removed. That is why we have brought the proposal before the House. Although we discussed this in Committee, we still feel that the Government need to look at it, while appreciating that they have the power to do so outwith this Bill.

If the Government do not accept the new clause, I would very much appreciate it if they considered the proposal in the future. This is not just about the SNP; our proposal is widely supported, including by the Labour party and by charities across the UK such as the Churches Legislation Advisory Service and the Charity Tax Group. If fears can be allayed about fraud, in particular, it would be reasonable for the Government to take some steps towards change. I do not want to talk for long, but I would appreciate it if the Government would seriously consider taking up this proposal. If they do not agree to the new clause, I hope that they will at least commit to looking at it at some point in the future.

I appreciate the spirit in which the new clauses have been spoken to, because we are all here for one purpose, which is to make sure that the Bill works as well as possible for the benefit of as many charities as possible. In responding to this short debate, I will try to offer evidence of the reasons why we cannot, or do not think that it is right to, accept the new clauses.

New clause 1 would require Her Majesty’s Revenue and Customs to publish every year an analysis of the number of penalties imposed; the circumstances giving rise to the imposition of those penalties; an assessment of the number of charities set up with the primary purpose of accessing the small donations scheme; and an assessment of the efficacy of the matching rule in preventing fraud. That relates to the general debate that we have had throughout the Bill’s progress about how we prevent fraud and a minority of people from exploiting the rules.

New clause 2 would require the Chancellor to undertake a review of the matching rule—the same is true, as we have just heard, of new clause 4—in consultation with the charity sector, and to lay a copy of the report by the end of the 2017-18 tax year.

New clause 3 seeks a power to prescribe by regulations an exemption for certain charities from the connected charities provision. The shadow Minister, the hon. Member for Salford and Eccles (Rebecca Long Bailey), is right to say that we debated that proposal in Committee and that I undertook to reflect on it. I will tell her where I have got to shortly. The new clause would require the Treasury to consult the scouts, guides, military cadet groups and other organisations before publishing draft regulations on or before 31 October 2017.

On consultation, the Minister has mentioned the scouts and a number of other organisations, but has she considered consulting the Brethren? I am sure that she will recall that, during the last Parliament, the Brethren lost its charity status for a while and there was a large number of debates on it.

Obviously, I was not in this post at the time, but I recall someone in my constituency drawing my attention to that. As I will come on to say, the consultation process leading up to the Bill was exhaustive, but I also hope to reassure the House that the ongoing consultation with people who have an interest in the issue is significant on the part of HMRC and the departmental team led by the Under-Secretary of State for Culture, Media and Sport, my hon. Friend the Member for Reading East (Mr Wilson), who has responsibility for civil society. It is fair to say that we have a good, constructive and ongoing dialogue with the charity sector and those affected by the provisions, but I acknowledge that there was a slightly different concern in relation to the group mentioned by the hon. Gentleman.

New clause 4 proposes that an assessment be put before the House within six months of the passing of the Bill, and it centres on the gift aid matching requirement and its impact on charities of different sizes. We debated similar amendments in Committee and, although I accepted that they were well intended, I decided that they were unnecessary, so it will probably not surprise the hon. Member for Salford and Eccles and the hon. Member for Aberdeen North (Kirsty Blackman), who spoke on behalf of the SNP, that I will make some of the same points again today, but I hope to build on what I said in Committee.

New clause 1 concerns fraud—a vital issue that we have discussed a number of times and that we take very seriously. I am grateful to Opposition Members for giving us the opportunity to return to this important subject. I welcome, as I did in Committee, the fact that we have a cross-party consensus on protecting the gift aid small donations scheme from fraudulent attack. Opposition Members have raised on several occasions the efficacy of the matching scheme as a deterrent against fraud, and they asked us on Second Reading and in Committee to prove that the matching rule prevents fraud. At each stage, particularly in the debate on the matter in Committee, I drew the House’s attention to a few examples of the shocking abuses of charitable status that have resulted in criminal convictions this year alone. Sadly, I have a reasonably extensive list of quite recent events, but I sense that I do not need to persuade people that fraud does happen in a minority of cases.

I am not sure exactly what further evidence Opposition Members would like me to provide. As I said in Committee, the Government are, in essence, being asked to prove a negative. That is a risky proposition, and I will illustrate why. If the suggestion is that the Government should adopt a wait-and-see approach, remove all the protections and then attempt to close the loopholes when fraudulent attacks take place, I cannot agree that that is the right approach. Opening up the scheme to abuse would be irresponsible, could waste a large amount of public money and—probably most importantly—could cause untold damage to the reputation of our fantastic charity sector. I cannot recommend that course of action to the House.

To be clear, we know that the majority of charities are honest. They are run by dedicated and trustworthy people—the sort of people whom we all know in our constituencies. For the fraudsters, however, nothing is sacred. It is a sad fact that if they are presented with an opportunity, they do not hesitate to exploit it. I gave examples on Second Reading and in Committee of fraudulent activity seen by HMRC, and I am sorry to say that, as I have mentioned, further examples are easily provided. It is not just HMRC and the Treasury that recognise that fraud in the charity sector is a problem; there is wide acknowledgment in the sector that fraud is a costly issue, particularly because of the reputational damage it causes. Some Members may be aware that last month saw Charity Fraud Awareness Week and the launch of a new “Charities against fraud” website, which is a joint initiative between the Charity Commission and the Fraud Advisory Panel to help trustees and volunteers to recognise the risks and take action to prevent fraud in charities.

There is also recognition from charity umbrella bodies that charity fraud can be incredibly damaging. The Charity Finance Group noted in its guide “Countering Fraud”, which was published during Fraud Awareness Week:

“Fraud is a problem that can affect any charity from the very large to the very small. Falling victim to fraud can undermine a charity’s reputation, damage donor confidence and reduce a charity’s ability to help its beneficiaries. On occasion fraud has even led to the forced closure of a charity.”

The Government will not tolerate the abuse of charitable status, for the reasons so eloquently expressed by the Charity Finance Group. The Government will continue to take action to tackle and disrupt the dishonest minority who attempt such fraud.

I am simply not convinced that it would be helpful to publish an annual report detailing the compliance activity that HMRC has undertaken. Indeed, I fear that doing so could have the unintended consequence of assisting the very people whom HMRC is attempting to weed out. HMRC’s operational performance in this and every other respect is, quite rightly, the subject of independent scrutiny by the National Audit Office and Parliament, through the Treasury Committee and the Public Accounts Committee. For that reason, I believe that new clause 1 is unnecessary, and I hope that the hon. Member for Salford and Eccles might consider withdrawing it.

None of us has suggested, at any stage of the proceedings on the Bill, removing all the anti-fraud measures. In fact, we were quite clear and measured in everything that we moved; it was about an assessment. New clause 1 is about responding to our concerns about the actual level of fraud and providing us with the relevant information to enable us to have a much more knowledgeable debate next time the matter comes up—specifically around the level, the percentage and the money that is involved—rather than about removing the measure entirely.

I understand that point, but my real concern is that the matching rule is the only remaining condition on this particular scheme. Obviously, there are other aspects to wider gift aid, but on the scheme that is the subject of this Bill, we are down to a simple last remaining condition that we believe helps to avoid the scheme being exploited fraudulently. I just do not accept the premise that it is sensible to remove it, to see what happens and then to come back to Parliament and say, “We removed it and, as we thought, it was exploited, so now we have to close that loophole again, but in the meantime we have lost public money and, more importantly, charities have lost their reputations.”

I accept that the Minister may want to keep the matching rule to some extent, but what is so sacred about 1:10?

I will say a little about that. As other hon. Members have said, there was movement on this during the passage of the original legislation. The figure is reasonable and strikes a sensible balance. A ratio of 1:10 is an easy one for those administering this to remember. If hon. Members accept that the matching rule is sensible in principle, I am prepared to say that it is something we would anyway keep under review in the normal course of events. The civil society Minister and I were saying to each other on the Front Bench a moment ago that, given hon. Members’ interest in this, we will keep an eye on it in particular and draw it out in the ongoing dialogue that we naturally have with charities. However, I cannot accept that removing it entirely is a good idea. These things are kept under constant review, and both the Treasury and the civil society parts of Government have a very good relationship with the charities sector, so we will have plenty of opportunities to continue to have such a dialogue with charities and to understand where this comes in. In a few moments, I will say a little more to demonstrate that it is not the barrier that some hon. Members have suggested it is.

Let me turn to new clauses 2 and 4. New clause 2 is a request for a review of the matching rule in consultation with the charity sector. As I have said, the Government have already undertaken a full review of all aspects of the gift aid small donations scheme, including the matching rule, and the Bill is a result of that review. However, I will always be happy to keep an eye on this issue. The Government’s review was comprehensive and open, and it was carried out in full consultation with the charities sector and, indeed, with anyone with an interest in the scheme or in charity tax reliefs more generally. Some hon. Members will recall that, as I have said, back in 2012, the Government committed to reviewing the operation of the scheme after three years, so the Government have made good on that promise.

We recognise how important the scheme and the promised review were to charities. We listened to the sector, and that is why we announced in the autumn statement last year that we would bring forward the review of the scheme to December 2015. To inform the review, HMRC published a call for evidence in December, seeking charities’ views about the operation of the scheme, including its eligibility rules and processes. The call for evidence asked five questions about the scheme’s eligibility criteria, including two questions specifically about the gift aid matching requirement. The call for evidence closed on 2 March. HMRC received 197 responses from charities, representative bodies and other interested parties. The Government reviewed all the submissions and published a response on 20 April.

In the responses document, which is available on the Government’s website, we explain that the vast majority of—indeed, almost all—the respondents to the call for evidence did not identify the matching rule as a major barrier to accessing the scheme. The Government recognise that many of the responses reflected the experience of charities already successfully using the scheme and may not therefore be representative of the sector as a whole. We take that point, so HMRC has supplemented the data provided by charities with an analysis of its own data. As I explained in Committee, the data showed that 92% of charities claiming gift aid for the tax year 2014-15 claimed on donations of £500 or more, entitling them to the maximum small donations allowance at that time of £5,000. HMRC’s analysis also showed that 98% of charities claiming gift aid in 2014-15 claimed sufficient amounts to receive a small donations allowance of at least £1,000.

The Government also considered data produced by the charity sector. A survey carried out by the National Council for Voluntary Organisations, the Charity Finance Group, the Institute of Fundraising, the Small Charities Coalition and the Association of Independent Museums found that just 5% of respondents claimed no gift aid at all, and only 10% did not feel that their charity claimed enough gift aid to make the small donations scheme worthwhile.

Following the call for evidence, HMRC published a further consultation on reform options on 20 April, which was yet another opportunity for stakeholders to put forward reform ideas for consideration. That consultation closed on 1 July this year. It received 46 responses. Again, interestingly, the matching rule was not raised as an issue by the vast majority of respondents.

Quite simply, none of the available data, whether produced by the Government or the sector itself, support the assertion that the gift aid matching rule is a significant barrier to accessing the small donations scheme. The Government have already collected data on the matching rule, carried out a full objective review of the whole scheme and consulted the charity sector. That is why we believe that repeating the consultation process again, so soon after the last consultation, would not produce a different outcome, and why, therefore, I urge the hon. Member for Salford and Eccles not to press new clause 2 to a Division.

As I have said, given the clear interest in the House, we will continue to take a keen interest in this matter, and will listen to the views of the charity sector. The civil society Minister and I are already talking about how we can do more to publicise some aspects of the scheme, and in particular how to get those that do not take advantage of the small donations scheme at the moment to do so. There is a charities day on 16 November, about which we will say a little more later; that will be an opportunity to say and do more to promote the scheme to that small minority not already using it.

I appreciate that in tabling new clause 4 the hon. Members for Aberdeen North and for Kirkcaldy and Cowdenbeath (Roger Mullin) are seeking to understand the differential impact that abolishing the matching rule would have on charities of different sizes. I have already set out why we do not support the removal of the gift aid matching rule, but I have to tell Opposition Members that it is simply not possible to provide them with the level of analysis that they are seeking. Although HMRC holds data on charitable tax reliefs, it quite rightly collects and retains only those data that are necessary to support its function of administering gift aid and other reliefs. Size and turnover are not relevant for gift aid purposes; HMRC therefore does not routinely collect data on the size or types of charities claiming gift aid or small donations top-ups.

As I explained in Committee, HMRC is transparent with the data it holds, and publishes a national statistics package every year that provides a wealth of information about the take-up and use of charitable tax reliefs, including the gift aid small donations scheme. Hon. Members may also be interested to know that HMRC makes many of its datasets, including those relating to charitable reliefs, available—suitably anonymised, of course—to academics and other individuals who approach it with a suitable research proposal. I can tell the House that a number of organisations have recently made use of HMRC’s charities data for research purposes. That is a good example of open government and open data being put to good use.

I hope I have reassured the hon. Member for Aberdeen North that where HMRC possesses data, those data are transparent and, where appropriate, open to outside scrutiny. New clause 4 is not appropriate, because it would require, in legislation, the Government to do something that we simply cannot do. On that basis, I hope the hon. Lady will consider not pressing the new clause to a Division.

Let me turn finally to new clause 3. As I have explained in previous debates, the connected charities rules are intended to protect the gift aid small donations scheme from abuse. They work in conjunction with the community buildings rules to deliver fair and broadly equal outcomes for charities structured in different ways. Without the connected charities rules, larger charities would be faced with a perverse incentive to splinter into artificial groups of smaller charities to increase their entitlement to small donations allowances. New clause 3 would grant the Treasury the power to exempt specific named charities from the connected charities rules. It would also require the Treasury to publish draft regulations, following consultation with the scouts, the guides and others.

The new clause is unnecessary. As we have heard, the Government have just concluded a full and open review of all aspects of the gift aid small donations scheme. That review included the gift aid matching rule and the connected charities rules. In that very open consultation, many representations included the scouts and other uniformed groups. The Government listened to the representations from the uniformed groups. They told us that they welcomed the gift aid small donations scheme, but were unable to benefit fully from the current community buildings rules because most of their fundraising, as Members will know, takes place outside in their local community. The Bill will therefore relax the community buildings rules to allow donations collected outside the building to be counted for community buildings purposes. As discussed on Second Reading and in Committee, this will help bob-a-job work and so on that is done outside the scout hut or other building.

The intention is to allow groups such as the scouts to benefit more fully from the scheme without the need to specifically exclude them from the connected charities provision. We debated a similar amendment in Committee and had a thorough and thoughtful debate on the implications of the Bill for the youth groups in question. The shadow Chief Secretary raised a number of good points and I undertook to reflect on them and look at them more closely. Having done so, I confirm to the House that a scout hut is an eligible community building and there is no requirement for the building to be rented out or for access to be granted to other community groups. That means that the scouts and other similar uniformed groups will benefit from the changes contained in the Bill. Whether it is bag-packing at the local supermarket or bucket collections at the local fete, donations in the local community will count for the small donations scheme. The Bill’s provisions already deliver the outcome Opposition Members seek. I therefore suggest that new clause 3 is unnecessary and I hope the hon. Lady will withdraw it.

With the leave of the House, I beg to ask leave to withdraw the clause.

Clause, by leave, withdrawn.

New Clause 3

Regulations on local branches and groups

‘(1) The Small Charitable Donations Act 2012 is amended as set out in subsections (2) and (3).

(2) After section 5(1) (general provisions on meaning of “connected”), insert—

“(1A) This section is subject to the provisions of regulations made under section 5A (regulations on local branches and groups).”

(3) After section 5, insert the following—

“5A Regulations on local branches and groups

(1) The Treasury shall by regulations prescribe organisations in which local or regional branches or groups may not be considered to be connected for the purposes of sections 4 and 5.

(2) The Treasury shall publish the first set of draft regulations made under subsection (1) no later than 31 October 2017.

(3) Before publishing draft regulations under this section, the Treasury shall consult—

(a) the Scout Association;

(b) the Guide Association;

(c) the Combined Cadet Force Association; and

(d) such other organisations as appear to the Treasury to be relevant.”—(Rebecca Long Bailey.)

This new clause requires the Treasury to identify organisations with local or regional branch or group structures in order that those local and regional branches or groups can be separately eligible under the scheme, and to consult certain organisations about the regulations in draft.

Brought up, and read the First time.

Question put, That the clause be read a Second time.

I beg to move amendment 1, page 2, leave out lines 1 to 6 and insert—

“(a) in the heading after “small”, delete “cash payment” and insert “donation”;

(b) in sub-paragraph (1) omit the words “in cash”;

(c) after that sub-paragraph insert—

“(1A) The gift must be made—

(b) by cheque;

(c) by electronic communication; or

(d) by a contactless payment.”

(d) in sub-paragraph (3) after the definition of “cash” insert—

“cheque” means a written order instructing a bank to pay upon its presentation to the person designated in it, or the to the person possessing it, a certain sum of money from the account of the person who draws it; “electronic communication” means a payment made via the internet or text message.”

This amendment would extend the range of methods by which payments can be made under the Gift Aid Small Donations Scheme.

With this it will be convenient to discuss amendment 2, page 2, line 6, at end insert—

“or

(c) by a comparable method prescribed by the Treasury by regulations.”

This amendment would give the Treasury a power to prescribe by regulations other methods of payment comparable to contactless payment in the future.

Opposition amendments 1 and 2 relate to the types of payment eligible for the gift aid small donations scheme. Amendment 1 would extend the range of payment methods to include cheques and electronic communications—that is, texts. The Bill itself extends the methods to include contactless payments. Amendment 2 would give the Treasury powers to prescribe by regulations other methods of payment comparable to contactless payments in the future. I will keep my remarks on these two amendments relatively brief as we had an extensive debate on this issue in Committee, although I did not push it to a vote.

Currently, cash donations under £20 are considered eligible for the scheme. The Bill brings contactless payments into the scheme, and we support that measure. However, the charity sector has said that it would be more beneficial for other types of payment, particularly cheques, to be eligible as well. When this was discussed in Committee, the Minister said that amending the Bill in such a way was

“contrary to the stated policy intention of the scheme.”––[Official Report, Small Charitable Donations and Childcare Payments Public Bill Committee, 18 October 2016; c. 10.]

I want to take this opportunity to disagree.

The intention of the scheme is to allow charities to get a gift aid-style top-up on donations made in situations where it is infeasible, but not impossible, to get a gift aid declaration. I would argue that donations made by text are a prime example of such a situation. The Minister has said that receiving gift aid declarations on donations via SMS is a straightforward process: the donor simply needs to reply to a follow-up text message giving their name and address and confirming that they are a taxpayer. It might be straightforward, but people tend to be wary of disclosing personal information. I certainly would not feel comfortable sending my address and other details to an unknown number.

The hon. Member for Amber Valley (Nigel Mills) helpfully alerted us to paragraph 1.8 of the Treasury consultation “Gift Aid and Digital Giving”. I am sure that the Minister has had time to check it out, but I can remind her that the document states:

“Individual donations online or by text are often small. In these cases for the donor it may not seem worthwhile to go to the trouble of filling out a Gift Aid declaration for a small additional amount to go to the recipient charity.”

It is therefore clear that getting a gift aid declaration via text is not as straightforward as the Minister would have us believe.

Similar situations can arise with cheques, as detailed in Committee by my hon. Friend the Member for Redcar (Anna Turley). Elderly people in particular often send cheques in the post, making it impossible for charities to track them down and get a gift aid declaration—it is probably not worth it if it is a small amount. Amendment 1 would simply allow such donations to be eligible for the scheme. I hope the Minister will offer some movement on this area as I simply cannot see the logic in saying that extending payments in that way would somehow encourage charities to move away from traditional gift aid claims.

Amendment 2 would allow the Treasury to make regulations to tweak the legislation to allow types of payments similar to contactless payment to come under the scope of the scheme. It was argued in Committee that technology is moving forward at an incredibly fast pace and that next year people might be using a new type of card or gadget to donate to charity. The Opposition are convinced by that line of reasoning and the amendment would simply give the Government the power to make changes to allow Oyster cards, for example, to come within the scope of the legislation without having to create a brand-new Bill. It is not often the Opposition’s desire to give the Government more powers, but it would be worthwhile in this scenario.

In conclusion, the Opposition strongly support the move to include contactless payment, but we do not see the logic in singling it out when the sector is saying that other payment methods would provide a greater boost to the scheme. I look forward to the Minister’s response. I will be pushing amendment 1 to a vote should she not see fit to accept it.

As we have just heard, amendment 1 would extend the gift aid small donations scheme to include donations made via cheque, online or SMS. Amendment 2 would give the Treasury the power to amend the Small Charitable Donations Act 2012 through secondary legislation to include other unspecified methods of payment in future. As the shadow Minister said, we debated this area in some detail both on Second Reading and in Committee, so I am afraid that I will be making many of the same points.

When I opened the Second Reading debate, I told the House that it is a Government priority to maximise the gift aid claimed by charities on eligible donations. It is worth reflecting on that because during the Bill’s passage through the House we have quite rightly focused on the gift aid small donations scheme, but the scheme—important though it is—forms just one part of the package of generous tax reliefs the Government use to support our charity sector. Gift aid was worth over £1.3 billion to the charity sector last year—a significant amount—but we want to see gift aid claimed on even more eligible donations, and we want charities to claim gift aid because it is a much more beneficial scheme and has many advantages for charities over the longer term. The shadow Minister said that she was not seeking to undermine gift aid, but it is worth reminding ourselves that it is the more beneficial scheme, so we want to encourage people to take it up.

One reason is that gift aid is not capped—relief can be claimed on individual donations worth hundreds or thousands of pounds. There is no annual limit—charities can claim on as many eligible donations as they are able to solicit. The act of obtaining a gift aid declaration provides charities with the opportunity to build a relationship with their donors, leading to a more sustainable and resilient funding stream.

Exactly.

As the Minister for civil society indicates from a sedentary position, that is absolutely key to the long-term health of many charities.

We fully accept that there are situations in which, with the best will in the world, charity fundraisers cannot stop donors to ask them to complete a gift aid declaration. The gift aid small donations scheme is therefore intended to be used for those small, low-value, spur of the moment donations when contact between donor and charity is fleeting and it is not practical or feasible to solicit a gift aid declaration. Those will primarily be the small cash donations that the small donations scheme was originally designed to cover, but we also accept, following discussions with the sector, that this should also apply to contactless donations. However, the Government are not persuaded that this is the case with other methods of donations such as those made by text, online or by cheque, and I set out reasons for that on Second Reading and in Committee.

I was about to rise to congratulate the Minister, as this seems like a really good initiative, but why apply this for only just that tax year? Given that someone is able to donate to an organisation and do it within a tax year, why not roll this over into future tax years to extend this provision? Perhaps I am being uncharitable to her, as this is a good provision, but it could be even better.

I strongly suspect that there are technical reasons why that would be difficult, but I am happy to take my hon. Friend’s suggestion away, look at it and respond properly to him. In the spirit of simplification, he seeks to make it ever easier to make these donations. As a result of the way Her Majesty’s Revenue and Customs operates—within tax years—I could foresee difficulties with this approach, but I will look at it and write to him with a bit more detail.

There are more things we can do to make things easier for charities, and the Government are constantly looking at ways of achieving that—we have just heard another suggestion from my hon. Friend. I am pleased to tell the House that we have a very good track record of simplifying gift aid processes for charities. For example, in 2013 we introduced Charities Online to help charities to claim gift aid even faster, and 95% of charities now use this service. Instead of having to fill in paper forms and post them back to HMRC, charities can claim their repayments online and have them paid directly into their bank account. Under the old paper system it could take up to three working weeks for charities to receive their repayments, whereas most claims are now paid within five working days. I am sure hon. Members would agree that that is a welcome boost for charities. Just last year, HMRC introduced a new, shorter model gift aid declaration to make it easier for donors to understand their obligations under the scheme, and it worked in close collaboration with the Charity Retail Association to simplify and clarify the Government’s guidance on the retail gift aid scheme. Earlier this summer, the Treasury published a consultation exploring ways of simplifying the gift aid donor benefits rules, and we looked carefully at the responses received before publishing a response.

Of course, we will keep looking for ways to simplify and improve gift aid, but these are questions about the wider gift aid scheme, not the gift aid small donations scheme. My hon. Friend might be pleased to note that one reason I foresaw difficulties with his proposal is that people’s tax status can change from year to year—for example, when they move from work into retirement—and this would make things difficult. I hope that that response is helpful, but I will follow up with him in more detail.

Amendment 2 would grant the Treasury the power to amend the Small Charitable Donations Act 2012 in the future in the event that new donation technology develops. Members who were present at the original Bill discussion reminded us in Committee that they had made points about future-proofing the scheme in terms of technology at that time. My hon. Friend the Member for Amber Valley and the hon. Member for Clwyd South (Susan Elan Jones) are nodding. It is an interesting point, which we have debated.

The Government have consulted fully on the changes to the scheme, and as part of the consultation that we have just undertaken, the extensive nature of which I outlined earlier, HMRC officials went out and met charities and other groups to discuss contactless donations and other technological developments. They considered methods of donation that are not currently in use but might be in the pipeline. I understand that there was no suggestion from the stakeholders that there are other imminent technological developments in the pipeline that would be suitable for the small donations scheme. In any event, we have deliberately drafted the definition of “contactless payment” quite widely.

As I explained to my hon. Friend the Member for Amber Valley in Committee, the definition in the Bill would cover donations from, for example, Oyster cards, as the shadow Minister mentioned, or other smart cards. It would also cover new payment services similar to Apple Pay and Android Pay. We believe that the definition in the Bill is sufficient to cover most of the technological developments that we are likely to see in the reasonably foreseeable future.

My hon. Friend will not be surprised that I expressed some degree of sympathy with amendment 2, given that I raised some of these points. I am reassured about the extension of contactless payments, particularly to Oyster cards, as was mentioned from the Opposition Front Bench. However, I do not support the amendment because of its wording. It refers to “comparable method”. The shadow Minister used the word “similar”, and my hon. Friend the Minister used the term “unspecified”. That is all unclear. There will be further technological changes and we will probably look back and say, “Wasn’t there a formulation that we could have used to include this new technology?” The wording of the amendment is not satisfactory and unfortunately I cannot offer a suggestion to improve it.

My hon. Friend makes a fair point. Learning, perhaps, from the time when the predecessor Bill was before the House, we have tried to look ahead, consult widely, and future-proof this Bill against forms of payment that are not yet widely used. It is sensible to try to provide a definition of those, rather than leaving the Bill overly vague. We have done a sound job of future-proofing the Bill as much as is reasonably possible.

I fully accept that at some future stage, perhaps some years from now, a new donation method could be developed which would not be covered by the current definition. We cannot know whether that future method might have implications for other parts of the Bill. That is why I am nervous about writing a woolly definition into the Bill. If and when there is a new donation method not foreseen or covered by the Bill, it is important that the Government come before the House with primary legislation, explain their decision and allow Parliament to scrutinise the proposed changes properly. As this Bill has proceeded relatively uncontroversially through the House, it would be hard to argue that the scrutiny of it and the attention that it has allowed us to focus on the scheme and on gift aid more widely have not been a good thing. The Bill demonstrates that we keep matters under review and that, when there is a case for change, we come back before Parliament and engage in a full and proper debate.

Gift aid is hugely beneficial for charities and we want as many charities as possible to benefit from gift aid on the eligible donations that they receive. I have given an undertaking that the Treasury will work with the Minister for civil society to publicise the charities day on 16 December and to look more widely at what we can do to make sure that take-up continues to grow. The small donations scheme is a separate scheme intended to bridge the gap caused by small, fleeting donations. It is not a replacement for or an alternative to gift aid, and if charities can obtain a gift aid declaration, they should do so because it is in their best interests, for reasons that I have touched on.

This Bill will improve the gift aid small donations scheme. Separately the Government are taking action to improve the wider scheme, and I hope that that action will address a number of the concerns raised in the debate by hon. Members. The small donations scheme is not the right vehicle to bring about the changes that have been suggested and that the shadow Minister is seeking. I hope that, having heard these reassurances, she will withdraw her amendments.

Question put, That the amendment be made.

I beg to move, That the Bill be now read the Third time.

It is a pleasure to move the Bill’s Third Reading. I thank all right hon. and hon. Members who have taken the time to scrutinise and engage with the Bill so constructively during its passage through this House. It is a short and technical Bill, but it is nevertheless important and it delivers real benefits to our vibrant charity sector and for working families.

I am very pleased that during its passage through this House, the Bill has received broad cross-party support and provided an opportunity for Members on both sides of the House to highlight and champion the wonderful work that local charities do right across the country. On Second Reading, we heard from the hon. Member for Aberdeen North (Kirsty Blackman) about the volunteers in her constituency shovelling snow to keep the pavements clear in winter. My hon. Friend the Member for Rochford and Southend East (James Duddridge) spoke of the work done by a charity in his constituency to help people living with HIV/AIDS. We heard about the work of animal welfare charities, including Waggy Tails Rescue in Mid Dorset and North Poole, and of course I took the opportunity to mention Battersea Dogs and Cats home in my constituency.

It is not just charities that will benefit from the reforms to the gift aid small donations scheme. As several hon. Members pointed out, community amateur sports clubs will also be able to access top-up payments sooner, and we heard examples of local sports clubs in Taunton Deane, Chippenham and Congleton that could benefit. The small donations scheme is a good thing for charities. It allows them to claim a gift aid-style top-up payment of 25p in the pound when it is not practical or feasible to obtain a gift aid declaration from a donor.

The Small Charitable Donations and Childcare Payments Bill will make it even easier for charities to access those top-up payments by removing entirely two of the existing eligibility criteria. The Bill will also simplify and clarify the rules, ensuring that the scheme remains fair and delivers broad parity of treatment for charities structured in different ways. We are reforming the community buildings rules to make the scheme much more generous for local charities that operate out of community buildings. I sought to reassure the shadow Chief Secretary to the Treasury, the hon. Member for Salford and Eccles (Rebecca Long Bailey) about organisations such as scouts and guides by confirming the eligibility in their case. In Committee and again on Report the Opposition Front-Bench team tabled probing amendments on that point and others, and we have had a couple of thorough debates. I reiterate what I said earlier to the House: a scout hut is an eligible community building, so scouts and other uniformed groups will benefit from the changes in the Bill. I hope that all Members here will join me in supporting this enabling reform. We have heard from some Members about their yesteryears in the scouts, and anything that helps scouts to continue with “bob a job” and all their other community fundraising schemes can only be a good thing.

We are also taking action through this Bill to future-proof the gift aid small donations scheme by extending eligibility to contactless donations, so that charities can continue to benefit from the scheme for many years to come. The message that the Bill sends is clear: the Government want a strong, vibrant and resilient charity sector and we will do all we can to support it through the tax system.

In addition to celebrating the work of our charities and sports clubs, the Bill’s passage through the House provoked an important wider debate about the threats that the sector faces, and particularly the importance of a robust regulatory regime to protect the reputation of charities from the dishonest minority who seek to abuse charitable status. It is not necessarily a pleasant issue to have to contemplate, but we have had an important debate. It is good that we are continually pushed to think about how we can protect our charities further. The sector is one of our great assets. It is very important, and we need to do all we can to protect it. I have argued consistently that the Bill strikes the right balance between simplifying the gift aid small donations scheme, making it easier for charities to claim top-up payments and protecting the Exchequer from abuse and charities from reputational damage.

During the Bill’s passage through this House, hon. and right hon. Members have expressed some concern about take-up of the gift aid small donations scheme. As my hon. Friend the Member for Reading East (Mr Wilson), the civil society Minister, told the House on Second Reading, last year 21,300 charities benefited from the small donations scheme, claiming a total of £26 million of Government support. That is a lot of charities, but we accept that it is fewer than forecast. That is why we are simplifying the scheme by removing two of the main eligibility criteria and relaxing the community buildings rules.

I can also tell the House today that once the new rules take effect, HMRC will undertake a broad communications exercise to promote greater awareness of the gift aid small donations scheme. I have also asked what targeted activity can be undertaken. I encourage charity sector bodies and representative groups to work with the Treasury and HMRC to make the reformed scheme a success. I thank them and the officials concerned for the constructive approach that they take and the work that is done to bring this legislation to the House.

Let me say a quick word about the tax-free childcare portion of the Bill, which makes a small number of minor and technical, but important, amendments to the tax-free childcare scheme. That fact has not limited the interest shown in the scheme during the debates, and tax-free childcare continues to enjoy cross-party support. A number of speakers have looked forward to being able to use the scheme for their own children, and such a prospect draws ever closer as the scheme is set to commence next year.

For many, this will be the first time they will be able to access Government support with childcare costs as tax-free childcare will be available to all working parents, regardless of whether they are employed or self-employed. HMRC is about to begin inviting parents to test the new service in trials. As in bringing forward these changes, HMRC will again listen to parents to ensure that it provides the best possible service. The responses made in the Bill, with the minor and technical changes, will help HMRC to ensure that it is quick and easy for working parents to access the support they need with their childcare costs.

The Small Charitable Donations and Childcare Payments Bill is a short and, it is fair to say, uncontroversial, yet important Bill. Its passage through the House has seen thoughtful and constructive challenge that has allowed us to debate a number of important principles, as well as to praise some of the vital charities that are forces for good in our communities and our wider society. The Bill is therefore a positive Bill. We are making life easier for small charities and for working parents, and I commend it to the House.

Hon. Members will be pleased to hear that I will keep my comments very brief in this stage in the proceedings. The Small Charitable Donations and Childcare Payments Bill as a whole makes positive changes to the gift aid small donations scheme and very minor changes to the tax-free childcare scheme.

The Opposition have welcomed the Government’s aim throughout the passage of the Bill to make sure that the gift aid small donations scheme is more accessible and to encourage charities to take part. The scheme has not been as successful as the Government had hoped, and the Bill certainly makes changes to improve that situation. In particular, the abolition of the two-year eligibility rule and the two-in-four years claims rule will open up the scheme to new charities, while bringing contactless payments into the definition of a small payment will bring the scheme into line with how donations can be made in the modern day.

However, as the Minister is aware, the Opposition think the Bill could have gone further, as do representatives of the charity sector. Indeed, the Charity Finance Group has said that the Government were “locking in future failure” by not introducing wider reforms. We have tried to improve the Bill after receiving feedback from the sector. Along with SNP Members, we have tried to address the key issue coming out of the feedback, which is the matching requirement. Our amendments in Committee and on Report would have forced the Government to conduct a specific review of the rule and of how the scheme fits within the framework of anti-fraud measures in the scheme. Unfortunately, the Government have not made any movement on this issue, which is a barrier to entry to the scheme, according to charity representatives. However, I note the comments that the Minister made earlier, and I look forward to receiving any further updates from her on this matter in due course.

We have also tried to widen the payment methods eligible for the scheme beyond cash and contactless payments. Our amendments would have included cheques and donations via text and online. Again, unfortunately, the Government have not seen fit to work with us on this part of the Bill, simply using flawed logic, as it were, to prevent the changes that the charity sector wants from happening. I hope that the Minister will reflect on the comments made during the passage of the Bill, and consider whether amendments can be made in due course to make the use of cheques and, in particular, of text messages more accessible to the gift aid sector.

Finally, we have tried to address what appeared to be a flaw in the original legislation, preventing the scouts, guides and cadet groups from gaining the full benefits of the scheme. For the benefit of hon. Members who are not aware of the issue, the connected charities rule means that the scouts, guides and cadet groups are each treated as one charity, despite the fact that local groups are individual and self-financing, and that means only one top-up payment can be received. As I highlighted when we discussed this amendment in the Public Bill Committee, the Charity Finance Group has suggested that such treatment means they receive only 17p per individual group a year.

The Minister had a few issues with our amendment, as drafted, and we listened to her concerns and modified it to reflect them. I particularly appreciate the comments she has made in relation to scout groups and their bases. However, she will recognise that the comments made in Committee related to the need for the scope of our amendment to go further to include groups beyond the scouts and girl guides. I hope she will consider that very carefully and see whether she can put in place any future amendments or provisions to deal with any other groups in a similar position that are not, as it were, mopped up by the Bill.

To conclude, perhaps once the Government have reviewed the scheme’s effectiveness in the light of the changes the Bill makes we may have an opportunity to come back to some of those changes, as I have said. Overall, however, the Opposition support the Bill and its aims. I hope it will succeed in making the small donations scheme more accessible and in supporting smaller and new charities. I look forward to an update on the impact of the revised legislation in due course.

It is nice to speak on Third Reading of a Bill when there has largely been agreement on many of the measures it contains.

The Government’s measures on the gift aid small donations scheme are sensible and logical steps forward, and it is good that more charities will be able to benefit from the scheme as a result. We were very clear that we would have liked the Government to go further, but we appreciate the steps they have taken, and the wide-ranging consultation they have undertaken.

We raised the matching requirement a number of times. My understanding is that the Government have the power to make changes to that requirement without the need for primary legislation anyway. It is useful to know that the Government can consider that if they receive future representations on the matter. Our concerns related in particular to volunteer-led charities—the very smallest charities, which perhaps do not have the administrative capacity to access some of these schemes. But I appreciate that the Government have committed to undertake a wider publicity effort on the gift aid small donations scheme and on how charities can access tax reliefs. I hope that charities across the UK will benefit from those changes.

The changes to the way that people will access childcare payments are sensible and seem more accessible than the current system. Having used the current system and struggled with some of its administrative impacts, I think the new scheme will iron out some of those flaws, and am pleased that even before the new scheme comes in the Government are re-evaluating it and looking to make it as accessible and as easy for parents to navigate as possible. I understand that a pilot will take place and that, by the end of next year, pretty much everyone should have moved over to the new scheme. I hope the Government will commit to re-evaluating the scheme as it goes forward, to ensure that it is as accessible as possible.

On that re-evaluation, in Scotland we are making changes to the early learning and childcare system, and are looking at a mass expansion so that as many families as possible can access free, good quality childcare that is easily accessible in local communities. In my local community, at Manor Park Primary School, 20 two-year-olds will take part in a trial that is taking place in my area and in a number of other places across Scotland. I am sure that the UK Government will be keen to learn from Scotland’s experience of the expansion of free childcare and will be looking at it for the future.

Thank you, Mr Speaker, for the opportunity to speak on Third Reading. As I have said, we are broadly supportive of the Bill but would have liked it to go further in some areas. However, we will not oppose its Third Reading.

Question put and agreed to.

Bill accordingly read the Third time and passed.