Peer's amendment, supported by NCVO, falls in report stage, writes Stephen Cook.
The House of Lords has voted against an amendment to the Charities Bill that was intended to ensure fee-paying schools and hospitals could not avoid having to demonstrate public benefit to justify their charitable status.
Tabled by Lord Phillips and supported by the NCVO, it required the Charity Commission to "consider the effect on public benefit of the charging policy of any charity" when consulting in advance of issuing guidance to charities on public benefit.
At the Bill's report stage last week, Lord Phillips said the amendment had the support of other senior lawyers and the Charity Commission itself.
Without it, he said, "the central issue in this Bill is not seaworthy".
But Home Office spokesman Lord Bassam argued that the Bill already empowered the commission to take into account the effect of fee-charging on an organisation's ability to meet the public-benefit requirement. The amendment fell by 139 votes to 60.
Lord Bassam introduced Government amendments giving extra powers to the tribunal created by the Bill and changing its name from the Charity Appeal Tribunal to the Charity Tribunal.
The amendment, welcomed by peers, gives the tribunal the new function of deciding on points of charity law referred to it - before the Charity Commission has made any decision on the matter - by the Attorney-General or the commission. The commission will only be able to make such references with the consent of the Attorney-General.
However, the proposal to set up a 'suitors' fund', which would help to finance appeals to the tribunal from organisations with limited funds, was voted down by a majority of 102 to 54.
Lord Bassam also resisted an amendment requiring the commission to be "fair and reasonable" in its affairs, arguing that this duty already existed.
But he introduced an amendment that the Lords accepted, saying it "must have regard to the desirability of facilitating innovation by or on behalf of charities".
Another Government amendment added "the promotion of the efficiency of the armed forces" to the Bill's list of charitable purposes. Lord Bassam said he would introduce another at the Bill's third reading that would require commission staff to give charities under investigation written reasons for a decision to send in interim managers.
A proposal from Lord Swinfen to create a statutory system for making complaints against the Charity Commission was resisted by the Government with the support of Lord Phillips.
He said he had made inquiries since an earlier debate and concluded that anyone dissatisfied with the ruling of the current non-statutory complaints body could appeal to the Parliamentary Ombudsman more easily than he had thought. "We need to broadcast the availability of the ombudsman," Lord Phillips said.