EDITORIAL: Time to end this double taxation of giving public

Mathew Little

The news that care charity Leonard Cheshire has succeeded in reducing the amount it subsidises public sector contracts from a staggering £6.7 million two years ago to £1.5 million today is a welcome sign of progress on an issue that has plagued relations between the sector and government for years.

Work by ACEVO suggests that charities regularly underestimate their costs by 3 to 5 per cent when negotiating contracts - no small sum when you consider that earned income from government sources is worth at least £2.5 billion.

Leonard Cheshire's success in renegotiating its contracts with local authorities raises a banner for other charities in a similar plight. But it also raises some interesting issues. First, the cost of diverting staff from other work to calculate the true cost of contracts has to be brought into the equation. Second, there is the response from statutory funders - many local authorities have been amenable, but a sizeable minority still cling to the master-slave mind-set.

The Treasury, in last year's review of the voluntary sector's role in public services, promised to enforce "full cost recovery" for all contracts with the state. But whether this new approach will filter down to local government remains in doubt.

For both the Government and voluntary sector there are pressing reasons to hope that it will. A government committed to improving services to the socially excluded should not be comfortable with the covert subsidy of those services from charitable donations when giving to charity is inherently regressive with the poor giving proportionately more than the rich.

And questions of honesty arise for charities, which ask the public for funds only to siphon off a proportion of that money to support public services, essentially perpetrating a 'double tax' on unsuspecting donors.

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