The Great Charity Scam

Most people when faced with the word charity attached to an institution are inclined to be well disposed to the organisation regardless of what the charity is supposed to do.  If it is a popular area of work, such as medical research or the provision of services to disabled children, rationality goes out of the window.  Hardly anyone questions how the money is spent or how much of it actually goes to the people the charity are supposedly helping. Even fewer ask where charities get their money from, the public commonly  subscribing to the  benign but erroneous assumption that it is collected largely from money put into collecting boxes or donations made by the living or the dead directly to charities. There is a further commonly believed  fantasy that those collecting for charities are  unpaid volunteers cheerfully giving their time out of  pure altruism, a fantasy which quite incredibly often extends to  that  persistent nuisance known as  “chuggers”  who aggressively buttonhole  people in the street.

The truth is a great deal more complex and murkier than the general public imagines.  The most dramatic subversion of charities comes in the form of national and local governments directing taxpayers’ money to charities to perform work which would otherwise be undertaken either directly by the public body or through the employment of a private enterprise contractor.  The charities who accept  public money – and the vast majority of the larger ones do – become no more than subcontractors  to  government.

The extent of  public funding is massive:  In 2010 the Charities Commission (which oversees charities in England and Wales) concluded  “that almost a quarter of the large charities consider public sector funding to be their most important source of income. (http://www.independent.co.uk/news/uk/politics/government-cutbacks-could-wipe-out-25-per-cent-of-charities-1926155.html). In February 2010 ‘ Cardiff University’s school of social sciences on behalf of the public services union Unison predicted that many charities will go bust” [because of coalition cuts in funding]’ and concluded  that ‘More than half of charities’ income now comes from government contracts to deliver public services.’  (ibid).

The use of charities to provide public services  fits in with the Coalition Government’s  drive to subcontract public provision. This means that all three major British political parties officially support the use of charities as government subcontractors, albeit  half-heartedly by the LibDems. Whoever is in power for the foreseeable future, it is a fair bet that the relationship between charities and the Government will broaden and deepen.

As for fundraising from the public, “chuggers”  are paid, a basic and sometimes  bonuses.   They work for fundraising firms who receive payments from a charity for every recruited donor. (http://www.pfra.org.uk/face-to-face_fundraising/do_you_object_to_chuggers/they_are_paid/).  Many of the larger charities run regular raffles. My experience of these is that once a raffle a raffle has been entered  they will not only send  details of all future raffles but in many cases send out second letters urging entry into the raffle if an entry has not been received a few weeks before the closing date. I  have also been positively bombarded with requests, both by letter and email, for  donations not only from charities to which  I have donated , but also from  charities to  which I have never contributed .   This can only mean charities sell on donors details to other charities and quite probably to private business.

The other prime problem with  charities, even large ones, is the fact that they are often very inefficient. The poorly run ones spend a great deal on administration.  They spend inordinate  amounts  on advertising. They hoard money rather than spend it. They manage their money poorly. They fail to modernise their services. Their accounts are inadequate. The idea that charities will be more efficient than direct public provision  is simply laughable. Not only do they suffer from the structural ills of public service they lack any proper  public accountability. Charities are audited each year, but that audit is much less demanding than the audit required of large public companies. Moreover, their frequent failure to keep adequate records makes  any audit of the use of public money very difficult. It would also be a very  expensive job to monitor their spending of public  money meaningfully.

Take the case of Scope, the charity previously known as the Spastics Society, which aids those with cerebral palsy.  It is a mainstream charity of just the sort to attract public sympathy in large measure. The first thing to note is that it changed its name in 1994 from something everyone could immediately understand – the Spastics Society- to something which most people would not have a clue about. The charity had allowed itself to be seduced by the marketing sirens.  It is difficult to imagine this confusion did not have some effect on fundraising.

In January 2006 Scope announced it was shutting 50 of its shops because it had a predicted £310 million deficit. (Daily Telegraph 13/01/2006). The Telegraph account went on to disclose that Scope’s last accounts showed that it was budgeting to spend £35.6 million more than it received in the financial year 2006/7, that there was a hole in its pension fund and that its buildings suffer widespread dilapidation through lack of investment.  I think most people who think about it would be somewhat disturbed by the idea that a charity had a pension fund of any size and that a substantial part of their donations are going to fund it. Charities in the public mind are thought of as institutions where people offer their services either free or at a discounted rate. The idea that their paid employees are just like any other employee does not fit comfortably with the public’s idea of charity.

One of the directors of Scope Jan Hildreth at that time  (he was also a former director-general of the Institute of Directors summed up the mentality of his and many other charities: “Like many charities, the concern of the society has always been its activity and not its finances.”(http://www.telegraph.co.uk/news/uknews/1507717/Scope-to-close-50-charity-shops-as-10m-loss-looms.html). Interestingly  Scope blamed part of its plight on ‘the Government for underfunding services it provides, such as residential and school places.  “It wants our services, but it doesn’t want to pay for them,” the spokesman said. “This is a drain on our coffers.” ‘ (ibid).

To inefficiency add fraud. The National Fraud Authority estimates  internal and external fraud against the charities costs £1.3 billion a year ( http://www.charity-commission.gov.uk/about_us/contacting_us/p_brief_charities_fraud.aspx).

The use of charities as government sub-contractors has other pernicious effects. It allows a government to evade responsibility even more effectively than the employment of private companies does because charities, especially popular ones,  throw up a moral shield. As mentioned above people feel that money spent by a charity is a good in itself. That applies even when it is taxpayers’ money.

Often the public is not even aware that public money has gone to a charity. This means that governments can support unpopular policies, such as those associated with political correctness, without the general public being aware that public money is being used to promote the policies. A  government can also make charitable donation part of their PR because they can  gain kudos from the public by publicising their donations of taxpayers’ money to popular charities.

As the Scope complaint quoted above suggests, governments may also see  charities as a cheap means of public provision. Whether it is or not is another matter – personally I would doubt it because of the widespread incompetence in the charity world.. There is a further objection to the use of charities as publicly funded providers. They have a moral and civic role. The whole point of a charity is that it is the product of the individual will, a conglomeration of the active decisions of those who choose to make a contribution.  It is part of what academics like to call civil society, those institutions which men naturally form in a free society and which fall outside the ambit of the state. Lose or even seriously diminish those institutions and the state determines all, for there is nothing to oppose it or offer an alternative.

Making a charity simply or largely a client of government undermines the very idea of charity. There is every chance that if charities are seen as arms of government, private donations to them will begin to dry up. That in turn would have spending implications for the taxpayer, because although often inefficient,  charities do fund a considerable amount of what would therwise be described as public provision. The taxpayer would end up footing the bill for extra public provision.

State funding also makes charities forget their original role. The  natural tendency for charities who become heavily dependent on public money is to  cease to view their organisation as a charity and see it simply as a business.  There was a good example in the news this week.  The St John’s Ambulance (SJA), a charity which provides medical services at most major public event in Britain and which is much admired by the public has decided to “rationalise” the charity by moving from a system of localism with money raised in an area being spent there to a centralised  treasury which will collect all the money raised throughout the UK  and distribute it as their  central management sees fit.  The volunteers fear that the change will make people less willing to volunteer for unpaid work.  As the SJA has 1,600 paid staff and 40,000 volunteers, the effect  of the change could be dramatic.  (http://www.telegraph.co.uk/health/healthnews/8684165/St-John-Ambulance-abandoning-volunteers-over-restructure-project.html).

The SJA also displays another unpretty trait of modern charities; the expansion of highly paid posts. The proposed SJA  reform will involve  the creation of “ eight regional directors will be created on salaries of £80,000 a year plus benefits to represent London, the south east, south west, East Midlands, West Midlands, East of England, North-West and North East.”  (Ibid).  Salaries exceeding £100.000 for chief executives are common (http://society.guardian.co.uk/salarysurvey/table/0,12406,1042677,00.html).  Sometimes the percentage of donations taken by senior staff is astonishing. Take PACT, a charity run by the wife of Sir Anthony Meyer, with Cherie Blair – a close friend of Lady Meyer – as patron. Here is the Mandrake column in the Telegraph reporting on 25 May 2011 “… all but £9,500 of the money received in donations by Pact, which stands for Parents & Abducted Children Together, was paid to the Chanel-clad Catherine Meyer, who is the chief executive, and to one member of staff.

“Lady Meyer, who is also its president, and her employee were paid a total of £49,586. Lady Meyer received almost 70 per cent of that sum. Pact’s income from donations was £59,056 and it received a further £38,234 in grants…

“We are doing a huge amount of work for very little salary,” she said. “I used to work in the City and earned much more.”

Her husband, and six of Pact’s 11 trustees, added in a letter: “We consider it to be at the low end of the pay scale for chief
executives of charities with a demanding brief. “(http://www.telegraph.co.uk/news/celebritynews/8534133/Cherie-Blair-is-in-no-hurry-to-speak-up-for-charity-boss-Lady-Meyer.html).
The example beautifully demonstrates the inability of those running charities to understand the difference between a business and a charity.

The danger for charities which lose their popular base and become dangerously dependent on public  funding is that they  run the risk of being left stranded when the economic tide goes out.  When, as is happening today, public funding is cut many will find that they cannot fill the gap because they have put too many of their campaigning eggs in one basket.

There is a further serious  problem, namely what is a  legitimate charity? Charity is big business. According to the Charity Commission, as at June 2001 there were 161,978 registered charities in England and Wales with a combined income of £56 billion (http://www.charity-commission.gov.uk/About_us/About_charities/factfigures.aspx).   Is it
really possible that such a vast number of good causes exist which deserve the considerable privileges granted to them by the state?

Take our private schools (many of them bewilderingly for foreigners called public schools).  They are overwhelmingly charities. They also have in most cases a history of one hundred years or more. This means that the profit motive is absent and a quasi public-service (civil society) ethos has had time to evolve. Yet public schools – which get around £100 million tax relief – have always subsidised the education of the poorer middle-class children rather than the education of the truly poor. Why should they have status of a charity?

There are also many questionable cases where the charity exists to fund something which is essentially, even in principle,  a private or sectional interest, for example the Royal Society for the Protection of Birds. Why should the taxpayer subsidise such institutions?

The biggest charitable status bone of contention is political action.  The Charities Commission permits political campaigning  “Yes – any charity can become involved in campaigning and in political activity which further or support its charitable purposes, unless its governing document prohibits it” but bans charities having a political purpose “A charity cannot have a political purpose. Nor can a charity undertake political activity that is not relevant to, and does not have a reasonable likelihood of, supporting the charity’s charitable purposes”  (http://www.charitycommission.gov.uk/publications/cc9.aspx#11).  This is completely impractical. For example, how can  a charity whose purpose is to support immigrants in applications for asylum, fight deportation and so forth not  have a political purpose?  There can also be the complication of  public funding which is a political matter in itself. Take the Immigration Advisory Service (IAS) which is currently insolvent,viz: .

” The Immigration Advisory Service (IAS), the largest provider of publically funded immigration and asylum legal advice,  advised today that it had been placed into administration. The IAS, a registered charity, has been in existence for 35 years, and employs 300 staff at 14 locations across England and Scotland. It is renowned for a large number of important legal precedent cases which have been taken through the Courts, including to the Court of Justice of the European Union and the European Court of Human Rights.

“The Governments reforms include the removal of immigration from the scope of legal aid, and a 10% cut in legal aid fees for refugees seeking asylum within the UK. Immigration accounts for around 60% of IAS’s income. There are few organisations that could cope with the compound effect of removal of immigration from the scope of legal aid and a cut in fees for asylum clients.

“The IAS has been in discussion with the Legal Services Commission (LSC) in an attempt to gain support for a solvent restructure of its operations. IAS had also tried to reach an agreement with LSC for an extended period to repay monies which (in common with many other firms) had been claimed in error, partly, in IAS’s view, due to the complex funding rules in place. The legal aid cuts put IAS in the position of needing to fund any repayment of these monies, from a much reduced income base, and as a result it has not proved possible to reach agreement on a way forward.” (http://www.iasuk.org/home.aspx).  How can that not be an organisation with a political purpose?

Charities epitomise the difficulties of mixing private and public. It is true that as non-profit making bodies they share some of the ethos of public service and the profit motive is absent, but their entanglement with government has utterly undermined their charitable status and moral stature.   How do we return them to  their proper purpose? Charitable status should only be granted to those who raise their own money. Paid fundraisers should be banned.  Limits should be put on the amounts spent on administration and advertising.  Charities should only be registered which undertake their entire work in the UK. Those currently registered which are inherently political should have their charitable status removed.  Only  those with a purpose which could potentially benefit anyone should be registered.  Examples would be those dealing with medical research or care of the old.

Impractical? A recipe for chaos? No. Much of what charities now do is what government should be doing. Governments would have to do their duty and either employ what are now charities as simple  subcontractors without charitable status or make other arrangements. A great deal of the rest is simple political action under the guise of charity or the subsidy of of particular  interests without any wider social benefit.  Some charities such as the IAS are directly opposed to the UK’s interests.  A radical review is required of what should constitute  a charity.

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Comments

  • Tony  On August 7, 2011 at 9:39 pm

    An erstwhile friend of mine used to manage the motor fleet for a charity for whom he worked. The fleet consisted of over 400 cars, which were bought, not leased and replaced every three years. Work out the cost of that lot. With an average cost of say £14,000, the purchase price alone would be in excess of £5.6 million, plus the annual servicing and repairs, not to mention road fund licencing and insurance. So more than a tidy sum in all. The actual number of vehicles could now be well towards 500 as the number was increasing with time. Charities are not poor, the managements doing very well, thank you.

  • Garry  On August 18, 2011 at 1:09 am

    The Australian branch of World Vision is headed by a Baptist minister named Tim Costello-brother of former Treasurer (1996-2007) Peter Costello. His salary package is a bit over $A250K, or about 160K pounds sterling. The hypocrisy of an organisation soliciting small donations from children, and pensioners to then enrich its leader and his cronies saddens me, but then perhaps it is time to read again Geo. Orwells’ classic “Animal Farm”. Thank you for well written essay.

  • n  On October 19, 2012 at 4:15 pm

    It is a sad fact that charities are simply -Big Business and their status used as a tax loophole. Very sad indeed. Thanks for the essay.

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