Subsidising the public purse erodes public trust

Dame Suzi Leather's recent speech to the NCVO conference was indeed a wake-up call.

As chair of the Charity Commission, she has her hands on data we all need to understand. A significant 60 per cent of charities with incomes above £500,000 are involved in delivering public services, and Leather points out that more than two-thirds of all funding agreements for public service delivery are for one year only.

The Government recognises the difficulties this poses - only recently, Lord Hunt of King's Heath, debating Baroness Finlay's Palliative Care Bill, said: "I well understand that if a hospice does not know from the beginning of the financial year... what its allocation from the health service will be, that is a pretty poor position to be in. It is very desirable that hospices have long-term certainty of funding."

Even more worrying is that 43 per cent of charities are not achieving full cost recovery; only 12 per cent of charities delivering public services consistently achieve it. The implications of money collected from donors and charitable foundations being used to subsidise the public purse are considerable, and many donors would be horrified if they knew that was where their money was going.

However, Leather's greatest concern was independence. Twenty-six per cent of charities delivering public services say they feel free to make decisions without pressure to conform to their funders' wishes; just over half agree that their activities are determined by their charity's mission, rather than by funding priorities.

As Leather said, "these impacts are exacerbated by the heavy funding dependence of some charities on precisely the sources that may be threatening their independence"; this is because more than 30 per cent of charities that deliver public services get 80 per cent or more of their income from public service delivery.

What does this mean for the sector? First, there is a real difference between carrying out public services with full cost recovery and subsidising the public purse. Second, charities largely delivering public services should think about establishing a US-style not-for-profit body. Third, those that remain truly 'charitable' need to guard their independence like hawks. This is where Acevo's desire to sharpen up trusteeship comes into play. It is not so much about professionalising trustees, more about reminding them of their duty to ensure their charities' activities are in line with their objects.

Leather is right to say the sector needs to guard its independence. But even more than that, it needs to think hard about public trust. Can the regulator help protect independence? Is government serious about guarding charities' independence while making sure they get full cost recovery for the services they deliver? For me, this does not quite add up. I think trustees are going to have to pull their senior executives back from service delivery before the public loses trust and the charities spend their reserves to plug holes in the public purse - losing their reputation in the process.

• Julia Neuberger is a Liberal Democrat peer and chair of the Commission on the Future of Volunteering

And while we're on the subject...

• Baroness Finlay's Palliative Care Bill passed its second reading in the House of Lords on 23 February. It would place a duty on the Government to provide palliative care to "every person with a terminal illness to such an extent as is necessary to meet all such persons' reasonable requirements".


• In its 2005 General Election manifesto, the Labour Party promised to "double the investment going into palliative care services". The National Council for Palliative Care says that this promise has not been fulfilled and, according to a survey it has made of specialist units, the £50m investment made in 2003 is being eroded.


• Not-for-profit organisations in the United States are usually incorporated in the state in which they do business. Once they are established they are treated as corporations and are therefore allowed to carry out business deals, form contracts and own property, just like any other business.


• According to Acevo, under full cost recovery "organisers and their funders ensure that the price of contracts and grants reflects the full costs of delivery, including the legitimate portion of overhead costs". Acevo and Navca are running a three-year programme of education and training on full cost recovery.

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