Minimum payouts by foundations 'would not guarantee billion-pound windfalls'

Centre for Charitable Giving and Philanthropy report says 5 per cent threshold for grant-making organisations needs careful research

Co-author of the report Cathy Pharoah
Co-author of the report Cathy Pharoah

The introduction of a 5 per cent minimum payout for grant-making foundations would not guarantee "billion-pound windfalls" for UK charities, according to a report by the Centre for Charitable Giving and Philanthropy.

Payout with an English accent: Exploring the case for a foundation ‘distribution quota’ in the UK analysed the payouts of the 50 largest family foundations, by asset value, in the UK between 2005 and 2009 and found the average payout was 4.9 per cent.  

Last year, economists Matthew Bishop and Michael Green said at a conference that the government should consider legislation to oblige grant-making foundations to pay out a minimum of 5 per cent of their total endowment every year, which they calculated could bring in an extra £600m a year for the sector.

But the centre’s report says: "There must be marked uncertainty that mandated policy change of this kind would achieve anything like billion-pound windfalls."  

It adds that the average rate would be higher if it included administrative and governance overhead costs, which can be included in calculations in the US, where foundations must pay out at least 5 per cent a year.

But it says that significant differences between the payouts of some organisations mean that a mandatory 5 per cent threshold would "appear to have the potential to release considerably more funds from particular foundations in particular years".  

Among the 50 foundations examined, payouts in 2008/09 ranged from 0.9 per cent by the Garfield Weston Foundation to 25.2 per cent by the Atlantic Charitable Trust.

Cathy Pharoah, co-author of the report and director of the Centre for Charitable Giving and Philanthropy, said much more research would be required into foundations’ payout policies for a minimum payout to be considered in the UK.  

"You can’t just take a policy and apply it here in a crude way," she said.

"It’s not just a simple payout rule in the US. Things such as expenditure, costs, timescales and how much tax a foundation pays are also applied.  

"You would need to take all of these things into consideration before you could possibly go ahead and recommend a policy."  

The government’s Giving Green Paper, published at the end of 2010, said it would like to explore the idea of a minimum payout for foundations.  

It said that some foundations believed it could generate extra income for charities, while others said it would not help them in the long term and could have unintended consequences.

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