Across the pond
October 2008
Cathy Pharoah explores the similarities and differences between giving in the US and the UK...
A recurrent theme in thinking about how to increase private giving in the UK is the extent to which the US system of giving provides a model, as envious eyes are cast on the 2 per cent of GDP devoted to giving in the US, compared with the UK’s 1 per cent. Voluntary donations from individuals, companies and trusts, are a vital source of funding for UK charities, worth an estimated £15bn, which is equal to one-third of the income of all registered charities. Although the general public’s donations to charities have increased with growing wealth over the last two decades, giving as a share of all consumer spending has not increased. It may even have fallen slightly, and current economic trends give little hope that things are likely to change in the near future.
The US 2 per cent figure is often quoted as the gold standard of public generosity, a target for an aspiring civil society. But how do patterns of giving in the US and UK compare today? I have taken a broad-brush comparative look at current trends, drawing on recent published giving data in the UK and US. How meaningful is it to compare US and UK giving, and what lessons can be drawn?
Amounts and sources of donations
In some ways a comparison is presumptuous. It’s David and Goliath. Total US voluntary giving, at $295bn (about £166bn) in 2006, is 11 times that in the UK. There are seven to eight times as many charities registered for tax-exemption in the US as the UK (1.4m compared with 169,000). The contrasts of scale in the value of donations from individuals, trusts, companies and legacies are shown in Figure 1.
Figure 1 Comparison of voluntary cash donations in UK and US by source
|
|
£bn
|
US $bn
|
(£ equivalent )
|
|
Individual donations
|
9.5
|
222.9
|
125.0
|
|
Trust and foundation donations
|
3.0
|
36.5
|
20.1
|
|
Corporate donations
|
0.5
|
12.7
|
7.1
|
|
Legacies
|
1.6
|
22.9
|
12.8
|
|
Reclaimed Gift Aid tax
|
0.83
|
|
|
|
Total
|
15.4[i]
|
295.0[ii]
|
165.5
|
But the structure of voluntary donations varies in systematic ways (see figure 2). For example:
- Companies in the US contribute a higher share of giving (and the estimate would be even higher than shown if company giving through trusts and foundations were included);
- Individual giving contributes a higher proportion in the US
- Legacies contribute a lower proportion in the US (though a very much higher amount).
- Trusts and foundations contribute a much higher share in the UK.
Figure 2 Comparison of proportion of donations in UK and US by source
|
|
UK
|
US
|
|
Individual donations
|
61.7%
|
75.6%
|
|
Trust donations
|
19.5%
|
12.4%
|
|
Corporate donations
|
3.2%
|
4.3%
|
|
Legacies
|
10.4%
|
7.8%
|
|
Reclaimed Gift Aid tax
|
5.4%
|
|
|
Total
|
100
|
100
|
Corporate giving
Undoubtedly US companies make a stronger contribution to philanthropy in the US than in the UK, through direct giving and foundations[iii]. Global markets have led to huge capital accumulation, and Carnegie’s Victorian vision that companies have a moral obligation to give has been translated into concerns about corporate legitimacy and reputation. The UK has seen similar change, but there is little evidence of such strong corporate cultures and leadership in community investment.
Slowing growth in profits is currently indicating there may something of a downturn in US corporate giving, a potential harbinger of trends in the UK[iv]. (Giving USA, 2007)
Legacies – ‘lifetime’ and bequests
Although legacies are a huge part of major giving in the US, UK and most other countries, the development of ‘lifetime legacies’ may be shifting the donation pattern. These enable the very wealthy in the US to bequeath large gifts during the donor’s lifetime, and to gain a personal income tax break at the time of the gift, sometimes instead of and sometimes as well as on death.
Use of such vehicles for giving in the US, generally known as ‘planned giving’, has grown enormously since the late 1960s saw the introduction of a deduction limit for charitable contributions to 50 per cent of a taxpayer’s adjusted gross income. This paved the way for ‘split-interest’ charitable trusts. An imaginative range of unique US planned giving products has been developed, for example:
- A ‘Charitable Gift Annuity’ (CGA) is the most popular vehicle, and is a contract under which a charity, in return for a transfer of cash, marketable securities or other assets, pays out a fixed annual amount to one or two individuals for their lifetime. The donor receives a tax deduction on the initial gift. The US Association of Charitable Gift Annuities provides well-regarded benchmarks for pay-out rates.
- ‘Charitable remainder unitrusts’ (CRUT) and ‘charitable remainder annuity trusts’ (CRAT) involve a donor in transferring assets to a charitable trust which then makes annual payment throughout the donor’s lifetime (or for a set period), while also providing an income to the charity. The donor attracts charitable tax relief on the value of the asset placed in the trust. Assets placed in the trust are removed from the estate of the donor thus additionally avoiding estate tax and probate costs.
- ‘Charitable lead unitrusts’ (CLUT) and ‘charitable lead annuity trusts’ (CLAT) are the opposite of CRUT. They involve the donor in making an annual trust payment to a charity for a period of time at the end of which the assets return to the donor, while the annual distributions to the charity are immediately tax deductible for the donor.
- Through a ‘retained life estate gift’ a donor can transfer property (or life insurance policies, retirement plans and trust savings accounts to a charity), in return for a ‘retained life estate’ contract allowing the donor to remain in residence for life, with the charity gaining total control of the property on death. An immediate donor tax deduction can be claimed if the property is a personal residence.
Debate about the UK potential for such vehicles has rumbled on for a decade or so, but in the absence of systematic research on demand or impact, lobbying has been intermittent. Giving in such ways is not only a question of products. These products are used by the wealthiest in the US and involve personalised financial planning with much higher transaction costs. It is not possible to separate their success from the emergence of a sophisticated planned giving fundraising profession. This is what makes the issue of market scale so important. While there are sufficiently high numbers of wealthy people in the US to generate an attractive market, this may not be the case in the UK.
Trust and foundations
With lower corporate giving in the UK, private trusts and foundations have come to play a hugely important role in supporting charitable activity, representing almost one-fifth of voluntary income in the UK compared with just over one-tenth (12.4 per cent) in the US. This partly explains the active debate on strategy and impact which UK trusts have engaged in over the last few years, and their anxiety increasing demand. Although several new trusts have been set up in the UK in recent years, there is little evidence to suggest an exponential increase in numbers or grant making. The US, however, has seen huge growth in their numbers and grant making (12.6 per cent in 2006), particularly amongst family foundations, leading to a recent comment that ‘This vehicle may be replacing some individual giving’. (Giving USA, 2007)
Trends in individual giving
It is difficult to compare year-on-year trends in individual giving between the US and the UK. Estimates in the US are partly based on all giving records held by the Inland Revenue Services for the purposes of tax reclaim, a very substantial sample of giving indeed. The UK depends on small sample surveys of donors, self-reporting what they remember. Individual donations in the US were estimated to have risen by 1 per cent in 2005/06, after adjusting for inflation (Giving USA, 2007), while in the UK they were estimated to have risen substantially by 11 per cent in that year, and then fallen by 3 per cent in 2007[v]. The small US rise may be an indication of the recession taking its toll on consumer spending.
Much has been made of the difference in the UK and US systems of tax breaks as an incentive for giving, with the majority of the personal income tax deduction on charitable giving accruing to the donor in the US, while accruing to the charity in the UK. Several major donor fundraisers in the UK believe that the US system has more power to raise funds for charities. One UK challenge, however, is the relatively slow growth in uptake of the direct donor tax breaks currently available, through payroll giving and Gift Aid for higher-rate taxpayers. Lack of knowledge is likely to be one underlying problem, but it is also important that the heaviest use of the tax deduction in the US is among the very wealthy, who give away much higher proportions of their taxable wealth than the average ‘2 per cent’ for the country as a whole, and who pull up the figure for average giving. The idea that the average American donates 2 per cent of income is a myth.
Comparison of causes supported in US and UK
Finally, it is worth comparing the main charities and causes which charitable donations support in the UK and the US. Only a very indicative picture can be obtained because of the differences of survey approach. UK data on the combined value of voluntary support from individuals, trusts and companies is only available on the top fundraising charities, while such data in the US covers most of the sector, and is compiled by combining separate surveys. There are also classification differences.
In Figure 3, categories which could not obviously be compared have all been classed as ‘other’. The contrasts are quite striking.
Figure 3 Comparison of share of giving by cause, all US charities and UK top 300
|
|
2006/07
|
|
2005/06
|
|
2005/06
|
|
|
|
£m
|
%
|
£m
|
%
|
$m
|
%
|
|
|
|
|
|
|
|
|
|
Social care (total)
|
1,095
|
24
|
961
|
22
|
29,560
|
10
|
|
Health causes (total)
|
1,047
|
23
|
970
|
22
|
20,220
|
7
|
|
Religious/faith (total)
|
837
|
18
|
797
|
18
|
96,820
|
33
|
|
International
|
784
|
17
|
847
|
19
|
11,340
|
4
|
|
Environment and animals
|
565
|
12
|
523
|
12
|
6,600
|
2
|
|
Arts/ culture
|
168
|
4
|
130
|
3
|
12,510
|
4
|
|
Other
|
82
|
2
|
128
|
3
|
76,990
|
26
|
|
Education
|
40
|
0.9
|
36
|
0.8
|
40,980
|
14
|
|
Total
|
4,618
|
100
|
4392
|
100
|
295,020
|
100
|
Sources: Data compiled from Giving USA 2007 and Charity Market Monitor 2008.
Religious/faith-based organisations and education attract a much higher share of support in the US, while health, social care, international and the environment are more important in the UK. Such differences are unlikely to be explained solely by varying need or causal preference in the two countries. In giving to religious and educational causes, US donors are overwhelmingly supporting organisations with which they are likely to have strong personal, cultural and social links (now or in the past). In other words, much of their giving is deeply embedded in important aspects of their lives.
Figure 4, which lists the top fundraising charities in the two countries, shows both important similarities and differences. Major cancer and heart disease research charities, faith-based organisations and the Red Cross are shared concerns across the two donor populations. In the US, however, organisations such as the Boy Scouts, and the Boys and Girls Clubs, which depend heavily on strong local and community links also successfully compete for a top place, as do one or two individual institutions fundraising for themselves such as St Jude Children's Research Hospital. The fundraising of both these types of organisations depends on strong donor-charity links, and while such organisations are amongst the top fundraisers in the UK, (e.g. YHA (England and Wales) Ltd, Guys’ and St Thomas Charity), they do not reach such high positions.
Giving behaviours
The differences between giving in the US and the UK are often put down to different ‘cultures of giving’. Varying tax regimes are also often mentioned. But the evidence indicates further deep-rooted differences, which also need to be taken into account when considering how far the US provides a model which could raise future giving in the UK. The number of wealthy people in the US has enabled the development and marketing of a range of relatively expensive and sophisticated giving products which might not be cost effective in the UK – an advantage of being Goliath. Another is that so much giving is directly embedded in donors’ daily lives. In thinking about future UK giving, it is crucial not to focus on technical matters such as tax and products alone, but to promote ways of giving which are embedded in people’s local, social and personal lives.
[i] Charity Market Monitor 2008. CaritasData. Note figure for trust giving is adjusted to include all trusts.
[ii] Giving USA 2007. Giving USA Foundation, Center on Philanthropy at Indiana University.
[iii] Pharoah, C. (2008). Family Foundation Giving. Cass Centre for Charity Effectiveness.
[iv] The forthcoming Charity Market Monitor Volume 2 (November 2008), published by CaritasData, will update trends in corporate giving.
[v] NCVO/ CAF. (2007) UK Giving.
Author: Mark Pincher
Mark Pincher is data editor and development manager for Caritas Data.
Author: Cathy Pharoah
Cathy Pharoah is co-director of the ESRC Research Centre for Charitable Giving and Philanthropy (CGAP) at Cass Business School.
www.cass.city.ac.uk/philanthropy
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