Why large charities need more scrutiny

‘Charities operate in a world in which there are too few constraints and checks’

Nigel Vinson

Charity remains one of the simplest yet most profound ways to help and improve the human lot — but many of our biggest charities have lost their way.

Giving is desirable — but nothing is costless. Every tax-free donation given to a charity erodes the national tax base — one person’s tax break is another person’s tax hike.  So we should all be concerned because millions of pounds are being spent in a manner that does not conform to the purpose for which the money was raised.

The behaviour that puts some big charities in the headlines is not confined to the voluntary sector. Its shortcomings have parallels in the worlds of business and professions, but the internal workings of charities are not exposed sufficiently to the public light. To a considerable extent, they operate in a world in which there are few constraints and checks. Many, such as Oxfam over its sex scandal, have lost the capacity for self-criticism, are immune to the criticism of others, and have become too cosy with their sponsoring government departments.

There are 165,000 registered charities in the UK. Some 27,000 of these have received state funding from central and local government — a total of some £7 billion a year. Extraordinarily, some of this money is spent criticising and seeking to shape the very policies of the sponsor department.

Consider the case of Client Earth, which employs 100 people. Over a three-year period the charity, with an income of around £11 million, receives £3 million from the Department of International Development. In 2017 its director, James Thornton, received a £50,000 pay increase plus a generous pensions perk, bringing his salary to £232,000 — £80,000 more than that of the Prime Minister. A perfect example of capture for their own ends by a charity’s administrators.

The distinction for being the biggest earner among charity bosses goes to Mike Betts, chief executive of Motability, which operates a government-backed scheme providing cars for disabled drivers. His behaviour — reported in the national press — is worth repeating. Last year he received £1.7 million. Around £2 billion a year is paid directly from the Department for Work and Pensions to Motability, whose chief patron is the Queen. The charity has more than 600,000 customers and generated a pre-tax profit of £258 million from revenues of £4.2 billion last year, mostly from the government. But while the organisation resembles a private company in some respects, its charitable status means that it enjoys VAT and tax exemption, protecting its work from competition.

The Charity Commission is at last becoming more active and recently sent out a document reminding some charities that they need to stick to their purpose if they wish to maintain their charitable status.

The National Trust, once a middle-classfavourite, is another example of a major charity which seems to suffer from periodic moments of forgetfulness about its raison d’etre. The purpose of the Trust is to protect Britain’s national heritage. Last year it staged an exhibition at Cragside in Northumberland at which male busts were covered up with sheets in order to demonstrate the historic marginalisation of women. Whatever the contribution to public life made by the men whose statues were hidden from public gaze, the busts are undeniably part of our national heritage — but it was evidently a past which the National Trust deemed unworthy of projection.

Several of Britain’s biggest registered charities claim that almost 90 pence in every pound given to them is spent on “charitable activities” — but often the real figure is likely to be closer to 50. The rest goes on management, administration, strategy development, political campaigning and, not least, fundraising.

The Royal Society for the Protection of Birds employs 685 staff in its fundraising directorate, along with 34 press officers. Its accounts show £57 million of its £134 million expenditure during its last financial year went on “fundraising, education and inspiring support”, compared with £36 million spent on its bird reserves. Something back-to-front here?

It is time there was a debate about the role and purpose of charities and whether their activities are in fact charitable in the first place — and a good look at the tax framework within which they operate would be useful. The Chief Executive of the Professional Footballers Association is paid over £2 million a year. Although it is a trade union, it has a linked charity, and the Charity Commission is investigating whether charitable funds are subsidising his salary. Tax deductibility is rightly given to encourage philanthropy, but neither the government nor the Charity Commission has any record of the tax foregone by the exemption on charities’ investment income.

Many of the major charities have billions invested, the income from which is all tax-free — exemplified by the Wellcome Trust’s announcement that in the last year it had added £1.3 billion to its £25 billion (untaxed) portfolio. This money has not been directly given; it is the consequence of original gifts. 

Isn’t it time that a Parliamentary Committee, or even a division of the Treasury, reported on the full extent of charities’ tax privilege? Untaxed, they grow ever larger as they salt away more and more reserves.

The cost of Gift Aid by individuals last year was £2.5 billion on some £10 billion worth of giving, according to the Treasury. Tax deduction is rightly given to encourage philanthropy — but it does not follow that the invested income should also be exempt. The tax foregone from the income of these unspent donations is massive — all of which has to be made up by general taxation.

Would it be unreasonable if this undonated income were taxed at, say, 5 per cent p.a. and thus contribute to the common wealth? Most charities do a lot of public good but should their endless empire-building be indefinitely at the public expense?

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