The Observer view on charities and their role in society
Once considered beyond reproach, the charity sector last week faced a painful round of scrutiny. In the wake of controversy about unethical fundraising practices, the charity Age UK has been criticised for making millions in commission from co-branded energy tariffs and insurance products, with suggestions that its energy tariff may not be the cheapest on the market.
In the context of declining government funding – half of charity funding a decade ago, now less than a fifth – charities are under increasing pressure to find new sources of income. In principle, there is nothing wrong with charities generating income from selling services and products as long as this is done with transparency and in line with their values and charitable objectives.
But is it right for charities, particularly those providing independent advice and guidance, to generate commission from selling utility tariffs and financial products, even if they do represent good value in the market? When does this start to compromise a charity’s independence?
This is a judgment call for trustees, but there are too many instances of trustees failing to provide proper scrutiny. When this happens, the debate about standards in the charity sector often gets reduced to one about regulation. Regulation is important: charities are entitled to tax benefits and charity status is associated with higher levels of public trust. And the regulatory landscape has long been in sore need of reform.
But charities face a more existential question than how they should be regulated. Centuries ago, when the foundations of charity law were set, it was based on the principle of voluntary service. Today’s charity sector is much more diverse: it spans tiny grassroots organisations to professional, multimillion-pound organisations. The relationship between the state and many charities has fundamentally shifted as government funding of the sector has grown, initially through grant funding, now through contracting charities to provide public services on behalf of the state.
What’s the difference between a Serco, or a G4S, and a charity, providing services on behalf of the state? It ultimately comes down to values. But who is the guardian of those values? This is a profound question facing the modern charity sector that it has been slow to debate, relying too much on the respect once automatically bestowed on charities. This has left it vulnerable to attacks.
While regulation is important in ensuring minimum standards, even the most effective regulatory system cannot safeguard values: culture in the charitable sector is even more important. Yet it has not been honest enough about its weaknesses: governance and leadership are weak in some parts and there is too little peer scrutiny and whistleblowing when charities are run badly, particularly important when vulnerable beneficiaries may lack a voice. Too often, winning a grant or a contract comes as a result of heavy marketing rather than evidence of effective services or value for money.
But responsibility does not just sit with charities. Despite its big society rhetoric, the government has intentionally sought to compromise the independence of the sector, restricting the ability of charities to campaign through the Lobbying Act, inserting gagging clauses into government contracts, and, most recently, announcing a blanket ruling that charities cannot use government funding to provide advice and briefing on government policy, despite the fact that several Whitehall departments specifically fund voluntary sector forums in order to improve policymaking. Philanthropic funders themselves often undermine good governance: many only want to fund frontline services, not the governance, leadership development and HR functions that are required to produce them.
At heart there is a conflict: we want charities that provide professional services, but without necessarily wanting them to be professional organisations. As long as we continue to indulge the illusion that modern charity is based on sainthood, we are setting today’s charities up to meet a standard they cannot meet. There are better and worse charities, just as there are better and worse businesses.
A vibrant voluntary sector is critical to the health of our society. It needs to be held to account, but without being picked apart. Charities, government, funders and the media all have a responsibility to engender a more mature debate about what it means to be a charity.