Cash for services?
February 2008
Cathy Pharoah and Mark Pincherfocus on the impact of state funding on the sector...
Government money is flowing into the sector fast through many routes: contracting, hiving off existing services, creating new agencies and new grant funds. The Office of the Third Sector (OTS) recently reported significant growth in funds to the sector from public sources. Such trends have seen the issue of the state funding of charities draw ever more serious attention. For example, the National Audit Office and the Charity Commission both published major reports on the topic last year. The former looked at the funding relationships between statutory agencies and the sector (Public Funding of Large National Charities), and the latter advised on the challenges of balancing multiple stakeholder interests against mission, and independence and innovation against contract obligation. (Stand and Deliver). New research from The Baring Foundation found contracting practice to be a major threat to charities’ independence (Sources of Strength), while Civitas’ new book (Who Cares?) claimed that large national charities were now de facto state bureaucracies, provoking a strong negative reaction from the sector.
But public sector contracting is a done deal. Concern now tends to focus on how, not whether, charities can best deal with the challenges of the new funding environment. But this debate increasingly needs to be informed by an accurate picture of the emerging role of statutory funders as shareholders in the sector. This article presents a detailed assessment of the current scale and shape of funds from statutory sources in the sector. For the first time it attempts to identify the highest-earning charities and ‘charity quangos’ by funding from statutory agencies, analyses trends in the top 500 by such funds and presents a new table of the top 100 (see Figure 4). Who are the new players, winners and losers, stakeholders and shareholders in the sector’s changing boundaries and landscape? How dominant a shareholder in the sector could the state become?
Definition of funding from statutory sources
For this analysis, charities were selected and ranked by their figure for total income from all statutory sources. This was derived by combining charities’ grant and fee income from central and local government, the NHS, and other public sources including the National Lottery. A few cautions need to be attached to the figures.
Firstly, there is a small element of double-counting because some Arts Council funds are distributed to arts and culture bodies who also appear in the table. Also a tiny proportion of the funds of other publicly-funded grant makers’ may have been double counted, although most fund smaller local organisations not in the table. Double counting due to on-granting is unlikely to account for more than £200m to £300m of the figures given.
Secondly, although every reasonable effort was made to compile comprehensive data on funding from statutory sources, lack of detail in accounts on sources of income (particularly re ‘charitable activities’), means there are some gaps.
Profile of the top charities by funding from statutory sources
The NCVO Almanac indicates that around 39 per cent of the sector’s funding is now derived from statutory agencies. Who is getting this money? Our analysis shows firstly that the top 500 charities by statutory funds are a small, economically dominant group within the sector. With a collective total income of around £11bn, they account for around one-quarter of the financial value of all registered charities.
At least £6bn of this income was derived from statutory sources, probably more.This figure actually represents three-fifths of all the money flowing from statutory sources into the sector as a whole. So a huge amount of state funding to the sector lies in the hands of less than 1 per cent of organisations. It is often implied that the major fundraising service-providing charities get the bulk of this funding, and that this is rocking the sector boat. But a closer looks at the data shows that this is not the full story.
The 500 largest publicly-funded organisations include the Arts Council at the top with its £370m DCMS grant-in-aid in 2006 and the development agency Forward Scotland Ltd at the bottom, set up in 1996 to support community regeneration projects and currently receiving £1.8m of grant-in-aid funding. The Arts Council received a further £164m from the National Lottery Distribution Fund, which some would regard as statutory funding.
The top 10 charities by funding from statutory sources, all of whom receive virtually all of their funding this way, are listed in figure 4. It is notable that this list is very different from common perceptions of the charity sector, containing few major household-name fundraising charities. Dominated by major funding distribution bodies, well-established national cultural/educational institutions and large central standards and training bodies, it probably includes only three organisations which the British public would recognise as household name charities – Leonard Cheshire, Barnardo’s and The National Autistic Society.
The Quality Improvement Agency and the Independent Living Fund are amongst the largest by amount of funding from statutory sources (and also and by proportion of such funding in its total income (see figure 2). Outside the top ten listed here, the longer list of 500 top charities by amount of funding from statutory sources shows a similar pattern in its composition, and includes the Museums, Libraries and Archives Council, major national museums such as the Natural History, British, Victoria and Albert and Science museums (some of which get part of their funding from the Arts Council), national industry and skills support bodies such as the British Educational Communications and Technology Agency, Skills for Care, the Specialist Schools and Academies Trust, and the National Youth Agency. It also includes some large specialist care providers such as Quarriers in Scotland, the MacFarlane Trust which distributes around £10m of government funding to haemophiliac victims of AIDS, and the Family Fund for Families with Severely Disabled Children a UK-wide charity funded by the national governments of England, Northern Ireland, Scotland and Wales, and distributing around £30m of public funds. There are a number of regeneration agencies such as Sheffield City Trust and city academies. Finally, there are the traditional fundraising charities including, for example, Turning Point, Rethink and the National Trust, who begin to appear in greater numbers the further down the table you go.
Charity quangos
The analysis reveals just how much of the sector’s funds from statutory sources flow through what are sometimes called ‘charity quangos’, former government agencies or new services transferred into charitable trusts. It is difficult to put an exact figure on the amount of public funds held within charity quangos alone, but it likely to be in the region of at least half of the £6bn held by the top 500 by funding from statutory sources. It is probably much more. The ‘charity quango’ territory is growing and evolving with its own fairly powerful momentum. While Glasgow has just, in the face of some opposition, transferred all of its culture and leisure services into a new private charitable trust, the government announced that it was getting rid of the Quality Improvement Agency (QIA), barely a year after it began operations, and the Centre for Excellence in Leadership (CEL), to be replaced by a single body.
Proportion of funding from statutory sources
About 85 charities receive more than 95 per cent of their funding from statutory sources, amounting to £1bn. Almost 200 charities receive more than 85 per cent of their funding from statutory sources. Overall, the top 500 by funding from statutory sources derive an average 55 per cent of income from these sources.
Different interests amongst state-funded charities
Charity quangos and other trusts funded largely through statutory agencies in many ways face different challenges from the major fundraising charities. Unlike the latter, publicly-funded quangos and trusts face few competitors for their services, have little direct relationship with the British public, and an existence highly dependent on the shifting sands of government policy. It is probably because of their very different origins and relationship with government agencies that, although they represent a huge amount of the sector’s financial value, their voice and presence in the sector’s mainstream support infrastructure has been small.
But although making little common public cause with traditional charities, many increasingly seek to share in – or compete for – voluntary funding and other charitable benefits. The Midlands Countryside and Access Benchmarking Group, representing 11 local authorities and agencies, summed up the potential benefits of using charitable trusts for countryside management as including charitable tax reliefs, the greater likelihood of attracting general public, charitable trust and corporate donations (if services were seen as at arms-length from the local authority), the ability to borrow money and trade, freedom from geographical constraints and greater financial management flexibility.
Few of these ‘advantages’ relate to the charitable mission of new trusts per se, but to the convenience of the charitable form. Traditionally their purposes and activities were local authority responsibilities. Relocated to the charity sector, new largely publicly-funded organisations have the potential to become major competitors for the limited pot of public donations, particularly in areas dear to the public heart such as the conservation of their local countryside. It is not clear yet what they bring to the sector’s table more generally, and how they might contribute to strengthening its position.
Costs and benefits of charity quangos
Moreover, there is still little definitive evidence on whether the benefits of such hiving-off are worth the costs. Disadvantages to statutory agencies include loss of management control and possible reprioritisation of the direction of the new trusts’ activities. To some extent statutory agencies deal with such issues through constitutional agreements covering conditions/targets required in the financial commitment to the trust. But the result is that, unlike traditional charities founded on a mission-driven and independent agenda, many of the new charity agencies and quangos are founded on a principle of compliance with the agendas of their statutory funders.
The efficiency of ‘quango-isation’ has been widely questioned, particularly following the Gershon Report recommending significant cuts in government bureaucracy, and Government has made successive commitments to reducing the number of quangos. A report by Adrian Babbidge (2006), which examined 22 local authorities in England and Wales that had handed over cultural assets to a trust in the past 15 years, showed that hiving-off services to charitable management was unlikely to bring substantial savings. Independent trusts for single institutions were much more likely to work well than umbrella management for leisure and culture organisations.
The new local trusts
Local charitable trusts providing local services, however, are emerging as amongst the largest charities, and figure 1 above sets out some examples of these. They are appearing particularly in the areas of leisure, transport, culture and regeneration, and illustrate well the changing face of the charity sector. It is unlikely that many of these organisations would yet be recognized as charities by the general public or their user/ charitable beneficiaries.
Figure 1: Examples of some major new local service-providing charitable trusts
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Income from statutory sources (£m)
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Date of accounts
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Sheffield City Trust
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59.9
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Aug 06
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|
Kirklees Active Leisure
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9.1
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Mar 06
|
|
Edinburgh Leisure
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21.3
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Mar 06
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S Lanarkshire Leisure Ltd
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18.8
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Mar 07
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Manchester 50 Pool Limited
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8.6
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Mar 06
|
|
Gt Manchester Accessible Transport Limited
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6.6
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Mar 06
|
|
Perth and Kinross Leisure
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8.2
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Mar 07
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|
Glasgow Cultural Enterprises Ltd
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9.0
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Mar 07
|
|
Newham Community Renewal Prog Limited
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2.8
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Mar 06
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Glasgow S W Regeneration Limited
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8.7
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Mar 07
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Balance of statutory income between grants and fees
The balance of funding between grants and fees for services is another potential indicator of the independence of organisations receiving large amounts of their funding from statutory agencies. The breakdown of income to the top 500 charities by statutory funding which is derived from different statutory sources is shown in figure 2 as well as its split between grants and fees. The results show:
- the vast majority (91 per cent) of statutory funds are seen as payment for services (even if technically reported as grants for primary purpose activities);
- more than half of this comes directly from central government, largely because this sample focuses on the largest national agencies (local authority funding is more likely to be distributed locally).
State agencies as sector shareholders
The heavy skew in statutory funding towards providing specific services shows how statutory agencies are now significant voluntary sector shareholders and stakeholders. What might this mean? Launching the Charity Commission’s report Stand and Deliver at the NCVO conference Suzi Leather, the Chief Charity Commissioner, commented ‘In the marketplace of ideas that is being advocated, we have yet to see whether this tension between being a service provider and being an imaginer, a campaigner, can really be resolved in practice’. Some examples of major service-providing charities at the front-line of addressing such challenges, ranked by proportion of income from statutory agencies, are shown in figure 3 below.
Figure 3: Top service-providing and fundraising charities by proportion of income from statutory sources
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% of total income recorded from statutory sources
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Total income
£m
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Date of accounts
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Victim Support
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97
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30.6
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Mar 06
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|
National Schizophrenia Fellowship (Scotland)
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94
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3.2
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Mar 06
|
|
Citizens Advice
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92
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37.6
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Mar 06
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Leonard Cheshire Disability
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91
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137.6
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Mar 06
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The National Autistic Society
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89
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74.4
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Mar 07
|
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Capability Scotland
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86
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27.7
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Mar 07
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Rethink Severe Mental Illness
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79
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43.2
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Mar 06
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Turning Point
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79
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60.2
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Mar 06
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Alzheimer Scotland
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79
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10.0
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Mar 07
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Family Welfare Association
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78
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14.1
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Mar 06
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The examples in this table particularly reveal the significant amount of welfare for children and youth, mental health, disability, cancer, special needs and housing being providing through major charities in receipt of statutory funds. One of the largest is Leonard Cheshire. It has thousands of contracts with more than 100 local authorities and primary care trusts, and strongly believes that it is able to determine the service agenda. When Civitas launched its polemic on the major charities as government bureaucracies, Bryan Dutton, Director General of Leonard Cheshire wrote, ‘There is no "mission creep" - if it is not a core part of our purpose then we will not do it. And we are not influenced or swayed by government targets or agendas. Unless, of course, they are the agendas we have persuaded the government to take on’. Similarly, Turning Point chief executive Lord Victor Adebowale wrote in a letter to the Guardian in February 2007,, ‘[we have] evolved in order to meet gaps in service delivery and respond more effectively to our service users' complex needs. The claim that delivering bespoke local services on a national scale somehow morphs us into a government satellite displays a narrow view of the third sector. It's precisely our values as a charitable, social enterprise, unencumbered by shareholder interest that makes us so responsive and engaging for those who need us’
The public benefit issue
More generally, however, the jury is still out on the role of charities in delivering public services. The Charity Commission is increasingly facing significant challenges as to the boundaries of the sector, what constitutes ‘public benefit’ and is an appropriate charitable object. Its recent decision that a private health care organisation in Salisbury could not be registered as a charity because people on low incomes would not be able to afford its services is being reviewed in the courts (see News Review, Commission declines registration). One of the problems is that the CC decision might mean that any practical barrier to the poor benefiting would prevent an entity from being a charity. The Commission’s updated guidance (CC37) acknowledges that there is no clear definition of what is a public service. It states, ‘By “public services” we mean services that public authorities normally provide or commission. Not all public services are provided under a legal duty; some are provided under discretionary powers (in other words, they are optional). Even when there is a legal duty, the law does not always specify exactly what level of service must be provided’. See also Jonathan Burchfield’s article, Public benefit? in this issue of Caritas).
As more organisations are likely to seek charitable status because of the benefits it can offer, these sorts of challenges are bound to increase. More public and private sector agencies are likely to see the currently fluid boundaries of the sector as offering opportunities.
An emerging sector
As the evidence presented in this article has shown, the sector’s income base now rests on a multitude of diverse organisations, differently founded, constituted and funded. Uncomfortable tensions lie ahead in balancing increasing competition for independent charitable donations, more complex challenges to the notion of public benefit and growing government involvement in the sector’s governance and direction. The Charity Commission has backed off from an opinion of the future shape of the sector. Its view is that, ‘As the independent regulator of charities, it is not for the Commission either to encourage or discourage the delivery of public services by charities’. Contracting out is bringing many opportunities for new forms of service delivery, but is this translating into a voluntary sector empowered to provide better user services? The sector will need to develop its own clear voice on its role and values, but it is difficult for a consensus to emerge where the stakes in public funding are as diverse as those identified above. The lack of sector voice has been little noticed because the sector’s many different statutory funders are equally fragmented and diverse. The ‘state’ does not speak with one voice to the sector. If it ever did so, then the evidence of this article suggests it would have considerable shareholder power.
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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