Focus: Finance and Governance - Outlook - The hangover that's lasted a century

Paul Palmer is professor of voluntary sector management at the Centre for Charity Effectiveness in the Cass Business School.

The phenomenon of government grants to the voluntary sector was primarily an invention of the 20th century.

That does not mean 'financial transfer' relationships did not exist between charities and the state before that. In the 18th century, for example, the sea captain Thomas Coram persuaded Parliament to give him the finances to set up a hospital that would take babies who would otherwise be left to die. His successful argument was that survivors would be brought up to become future mariners. Another example is the lifeboat institute that received government finance throughout much of the 19th century.

Both the Coram Family and the RNLI subsequently broke off these funding relationships, and both survive today. Neither was dependent to the extent that the loss of income brought their closure. The latter actually built a financial reserve and profile that is the envy of the charity sector.

It now boasts a professional and credible relationship with the public that a company or government service department can only dream about.

The point about these pre-20th century financial relationships was that they were more akin to commercial contracts for services. In the 20th century, the ability to retain independence and negotiate seemed to have been lost for good. Instead, elaborate games and interdependency relationships took their place.

When the hegemony of the welfare state began to be challenged, the chance for the voluntary sector to have a mature business relationship with government occurred again. But like a child not wanting to leave its parents' side, many charities railed against the loss of dependency grants.

The Compact has tried to create an agreement on funding, but voluntary bodies regularly complain that it has little value and, as attempts at full cost recovery are rebuffed, we have the worst of both worlds - neither a contractual market-force competition, such as private sector suppliers have, nor the old feudal relationship, which at least offered crumbs from the table.

It is time for the voluntary sector to alleviate the hangover of grant dependency when dealing with government. The relationship with the state should be viewed in a new way - one that understands the changes that have occurred within British and global society.

Let us stop the fudge and instead re-engage with the business skills of the private sector. If these skills are combined with the unique cultural characteristics of voluntary agencies then, as with the lifeboats, there will be no looking back.

KEY POINTS

- Financial relationships between the state and charities have existed since at least the 18th century

- Those early deals were more like commercial contracts than 20th century dependency grants

- A more mature business relationship with government is needed.

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