If all your money comes from government, should you be called a charity?

If all your money comes from government, should you be called a charity?
Civil Society Finance, by David Ainsworth


Delegates at the Conservative Party conference heard that organisations funded by government should not be called charities. David Ainsworth examines the arguments.

Earlier this week Frances Crook, chief executive of the Howard League for Penal Reform, advocated that organisations which exist to deliver public services should not be called charities.

In several corners of the sector our article was greeted with eye-rolling and sighs, and I understand why. The government and the media have spent a lot of time recently saying what charities ought to do, and the sector is tired of being told how to behave.

But actually, it’s not as simple as that. There is at least part of the sector which agrees with Crook. These people feel as if voluntary endeavour is being badly damaged by the contracting culture, and would love to see the back of organisations set up to deliver government services.

Some of them say that delivering public services is bad for beneficiaries, because government should do it. When the sector takes it on, they say, it encourages government to cut prices and absolve itself of responsibility. There are also people (mostly outside the sector) who feel that public money should not be channelled to unaccountable private providers.

The counter-argument is that charities can spend government money better, because they are more efficient, effective and skilled than government, as well as being more compassionate and closer to beneficiaries. They say services should be provided by the best provider, no matter the sector.

This is a very complex question, and would require more than a whole blog of its own to answer.

But fortunately we can sidestep it, for now. Crook’s argument, as I understand it, was not that sector bodies shouldn’t deliver public services, or that government shouldn’t fund social sector bodies. What she was advocating was that the pure service delivery organisation is a very different thing to a voluntary organisation. It isn’t better or worse, it’s just different, and it should be called something else.

This, then, is really a question about the identity of charity, and it comes about because everyone seems to feel strongly about what charities ought to be doing.

“Charity” has powerful instinctive connotations. It means something immediate and absolute, both in the minds of sector specialists and people who barely give our modern institutions a moment’s thought. To many it speaks of voluntarism, donations, and service to those in poverty.

This instinctive understanding is quite separate from the legal definition, which is essentially about having objects which are exclusively for the public benefit. And it’s totally separate from the actuality of funding and activity.

To many people, the actuality and the instinct should be made to match. If something walks like a duck and quacks like a duck, it’s a duck. If it doesn’t, it isn’t. And if something doesn’t sound like a charity and act like a charity, it isn’t.

There are plenty of charity workers who feel that charities should be separate from and additional to the state. If you don’t follow this rule, you’re not a proper charity. You fail the duck test.

This argument about what a “proper” charity is doesn’t just affect service delivery charities. There are those who feel that charitable organisations should not be allowed to campaign, because it’s just not what charities are supposed to do. And there are those who feel that “big charity” also fails the test, because it pays its executives too much and has got too far from the people. Many people feels that public schools do not meet either definition of charity – either the instinctive one or the legal.

One part of the problem is that the legal definition is both broad and vague. I wouldn’t presume to try to nail it down, but basically if an organisation is a not-for-profit body and its objects are primarily for the public benefit, it’s a charity. Whether it wants to be or not, actually.

The case law is vague and inconclusive, and the Charity Commission has been embroiled in several damaging and expensive legal wrangles as a result.

You could argue that basing the law on what a charity says it will do, and paying relatively little attention to what it does, isn’t the best idea.

So perhaps we should tighten the definition. If everyone has a view of what charity should be, maybe we should make charity look like that?


How would you decide who to throw out?


So say we accept that when you get a sufficient amount of income from government, you should be out on your ear. The next question is how much.

Crook applies a simple line. She says “If all your funding comes from local or national government you are not a charity”. Many others would go further and say that no charity should get more than half its income from government. Some would say none at all.

There are problems, inevitably. First, what counts as government income? Government funding comes from contracts and grants. Would both qualify? Would the Big Lottery Fund and the Arts Council count? What about PBR contracts, where you don’t even know how much income you’re going to get? What if you’re a heritage charity and you get a grant? What if the government buys tickets for employees to visit your building or go on your training course?

In addition, “all” is a harsh definition. What if a quid comes from other sources? Or a tenner?

But perhaps this is quibbling. Maybe it would be possible to say “all but a de minimis amount” and get around it that way. Or maybe it would be possible to apply the motive test – if the Charity Commission believes the primary purpose of your organisation is to deliver government contracts, you’re out.

I suspect there are problems here, but we can at least work from that definition and ask whether it would be a good idea.
Would service delivery bodies want to go?
Crook also asks why service delivery organisations would care if they weren’t called charities any more. After all, they don’t get much by way of tax breaks. They’d be free of cumbersome dual regulation, able to take on external financing which would help them grow, and people would stop telling them not to campaign.

Well, two reasons. One is that the word charity is so powerful, so filled with virtue, than few people would voluntarily surrender it.

The second is that charitable status, with its incumbent regulation and scrutiny, acts as a purpose lock for the organisation. Even if their legal rights remained unchanged, and they remained regulated by the Charity Commission, the loss of the label would damage their social purpose.


What would you do instead?


If you did say they weren’t charities any more, what would you do? Force them to become community interest companies instead? Or create a new legal form?

If you try the former, I suspect it would be buried in legerdemain by those who opposed it. If you try the latter, you’d end up creating something identical to a charity, not called a charity. Or you’d end up with another form of social enterprise. I’m not sure the social enterprise sector needs more questions over definitions. And I suspect the taxpayer would question the usefulness of spending Parliamentary time on that one.


Where does this leave us?


The sector has always been a “loose and baggy monster” – to quote Henry James by way of a number of sector academics – and when you try to pin down exactly what it is, you run into trouble.

If you threw out all the charities doing something that someone thinks a charity shouldn’t do, you would be left with a very small sector indeed. There are a lot of big candidates on the Commission register – the British Council, universities and housing associations, Construction Skills, a training body for the construction sector.

So I feel as if Crook’s message has a certain technical merit, and she certainly voices an opinion which is instinctive to many in the sector. But actually doing something about it would involve a lot of work and legal wrangling, and it’s likely to be most popular with those who are least engaged in the issue. So the service delivery charity is likely to exist for many years yet.


One final thing


While we’re on the subject of organisations which should be thrown off the register, there’s a strong argument for creating a separate legal form for another type of charity – the independent school.

This lot don’t really meet the current legal definition of a charity – they don’t benefit a sufficient section of the public – nor do they walk or quack anything like a duck. But they were charities, back in the days before universal education, and they’ve been kept in the tent because it’s problematic to know what to do with them. You can’t strip them of charitable status because that would mean they would lose all the assets they hold in charitable trust – everything, basically.

So why not create a new form – you could call it an education trust – and transfer them out of the sector? Unlike service delivery organisations, schools find charitable status quite a difficult balancing act, and would probably jump freely if they lost the public benefit requirements.


Okay, two final things


One of the reasons people dislike government funding so much is because it’s perceived to damage the independence of the sector.

I’m not sure the funding itself is so serious a problem. Government funding does distort the sector’s objectives and activities, and charities do end up self-censoring. But evidently they feel the money is still more useful than the right to criticise. Larger organisations such as the Shaw Trust and Turning Point can take the funding, remain independent of government, and seem happy to criticise it.

The real problem is when government exercises control, whether or not it also provides the funding.

This is an issue in thousands of charities, up and down the land, ranging from leisure trusts to national museums to hospital charities. When a public body either is the trustee or can sack the trustees, it can damage the governance beyond repair.