Do we Value the Charitable Sector?


As the Coalition Government slips worryingly through its third year, the value given to the Third Sector (or the Civil Society) is more uncertain. The Big Society is being challenged as it has not been for many years through financial austerity in national and local government. This has had a dramatic impact on charities in the UK that have been set up to serve the community and who rely on government (national and local) income. In Osborne’s last budget, charitable giving has been hit hard by limiting that which is tax allowable to £50,000 in any one year for individuals.

The charitable sector is strong in the UK, but threatened by this reduced government spending, reduced spending by companies and potential reductions in individual giving as we tumble back into recession.

The variety of charities is vast – from those set up to further medical research, those working to improve health and welfare, those set up to do international development, social clubs and societies, sports clubs and a host of others. Even schools are charities under UK law. This makes it hard to understand the role they have in society.

However, they stand alongside the Governing sector (government) and the products and services sector (business) and the fourth sector or fourth estate – journalism. Maybe that’s also where many NGO’s lie these days – funded to do investigations into society as newspapers once were. The fourth estate now contains many NGO’s – the likes of ONE, Enough, Global Witness, parts of Greenpeace, Oxfam, Save the Children, Amnesty and many others – where charitable work continues alongside the investigations and journalism and lobbying.

The Charitable Sector – Filling the (Massive) Gap

The role of charities is therefore complex – even if in the minds of most funders it is primarily to provide help to those sectors of society that are left out by the State and by the remainder of civil society. Charities exist to drive funds and assistance locally, regionally, nationally and internationally where it is deemed that government does not, cannot or will not.

Whether it is DEC (Disasters Emergency Committee) or similar assisting in emergency international funding, or Oxfam or Save the Children, or local hospices, each has been set up by individuals who saw a gap in care and raced to fix the problem. The whole area of social business has also sprung up in between business and charities. The roles are evolving as niches appear where need is believed to occur – it is a complex and adaptive system that is constantly evolving.

Each society is developing its own way from the bottom up – very few governments are sufficiently totalitarian to impose its blueprint on its people. In North Korea, this may be so but elsewhere government and business leave gaps that the market cannot satisfy and that civil society attempts to fill.

If the role of the charity sector (outside of the fourth estate incumbents) is to fill the gaps that business and government leaves – because they identify the need first, provide funding that is otherwise unattainable, provide better expertise, more focused concern or whatever other motivation – then how should society be developing to maximize its positive effectiveness? While this note focuses on the UK, it is as relevant to the international community.

Valuing the Charitable Sector

 

It is now time that government in the UK (and elsewhere) took a long, hard look at the charity sector and saw it as a real sector of the economy. The last budget was a good example of how taxation and benefits were structured towards businesses and individuals and where civil society (or the Third Sector) was seen as a peripheral activity. This was a slight on that sector.

The seemingly thoughtless and throw-away issues such as the limit of £50,000 on tax-free giving was typical of government not seeing the organized part of civil society as being defined in any special way. It is surely time that civil society – the charitable sector – is defined as separate from the business and individual taxed community and that we establish a set of income and expenditure statements from government that shows clearly how well or badly we are doing in that sector – at least in money terms. This would then clearly show how well or badly governments are also doing.

At the time when the Natural Capital Committee under the newly appointed Dieter Helm is calling for an accounting for natural resources / natural capital, it is time for the charitable sector to be similarly “valued”.

Impact Valuations – What does this mean?

On a basic level, an understanding of the tax taken from the sector (mainly through VAT, plus income tax and national insurance – both company and individual – paid to staff) should be provided annually at least by Government – maybe the office for National Statistics. That can be set against the tax benefits that may arise through gift-aid benefits for those who provide funds to charities. At the very least, an Annual Report should be made by Government (almost a CSR report) but verified and commented on by Charities Commission and maybe more independently-minded organisations). This would be completely different to the current Charities Commission Annual Report – which is a micro-analysis of how it spends its £29.4m. The report has to be a macro-economic one.

Stage two would be an analysis of the sector’s public “goods” – a value of the huge and positive impact that charities have in the UK and internationally. This will be its “Impact” at a macro-economic level.

If natural assets can be “valued” (providing an accounting value as Dieter Helm wants), then so can charitable activities. This is being demanded by many funders before (certainly trusts and foundations) before they fund charities, while individual givers often want to know more about an individual charity beyond the “gut-feel” instinct that propels them to give.

This macro-economic valuing would give the charity sector an independence. It would mean that civil society could begin to understand just what contribution the charitable sector provides in terms that begin to be understandable.  Nick Hurd, the Minister for Civil Society, would have a far more meaningful brief. Currently, he sits in the Cabinet Office (under Francis Maude) – but, the brief is very wide and less economically focused than it should be. The key, of course, is how we go beyond pure economic modeling (our GDP of quantity not quality) to measure the benefits we receive from natural capital / assets (which the NCC is set up to assist with) and from civil society itself.

Just as the value of education is not the money that the government spends on education per head (based on the Academy where I am Chair, £9.35m of income is spent on 1450 students – a “value” of £6,448 per annum – although at least this has some calculative affect. Even here, of course, the cost is reduced by the government’s take of income tax from staff, National insurance from staff and schools), so the value of charities should be assessed and the (often adverse, sometimes positive) impact of government intervention should be made known.

This is not a simple task, but a critical one. As we enter a world of real austerity (especially in Europe), we are underestimating the cost of cost savings on society – at best, we ignore them.

We are well into the 21st Century – time we thought in 21st Century terms and valued those things that materially contribute. The NCC may be making a start with natural capital: it is a good time to start making real progress on valuing the macro-economic benefits of our charitable sector – before it is too late.

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