The voluntary sector has changed beyond recognition in the past 10 years, but there's still much more to be done. On page 30 we examine the story so far, and below we look at the plans for the future and the challenges ahead.
SEIZE THE INITIATIVE
John Plummer learns how the sector must gain more public trust and sort out its relationship with government
The expected appearance of new charity legislation on the statute books in 2005 will be a culmination of a period of the most rapid change in voluntary sector history.
Less than a decade ago there was no Gift Aid or Compact, contact with the Government was minimal and phrases such as 'public service delivery' and 'social enterprise' were not yet part of the jargon.
Although the Labour Government, elected in 1997, can be credited with implementing these reforms, it was the Deakin Commission, established by the voluntary sector in 1995, that created the momentum for change.
But the sector is not sitting back marvelling at its achievements - it has already begun to think about the issues that will shape the next decade.
The National Council for Voluntary Organisations, which set up the Deakin Commission to develop a vision for the future of the sector, thinks the passage of a new Charities Act for England and Wales is the right time to identify a new agenda. "A lot of the major architecture the sector was looking for has been put in place," says Campbell Robb, director of public policy at the NCVO. "There is an opportunity to think about the issues that will matter most over the next Parliament and beyond."
The NCVO has commissioned four experts to do just that (see box, below). Their views are published this month in four papers that will form the basis of sector-wide consultation from February to April. By summer, an idea of the key public policy debates should emerge.
Robb suspects the changes ahead will be less dramatic than the ones just gone. "In 1996, it was possible to identify big, simple things the Government could do. I don't think you can now," he says.
Robb also suspects charities will have to look more to themselves rather than to politicians for the answers. "It's more about organisations facing up to what they can do rather than what the Government can do for them," he says. "Look at Gift Aid, for instance. It's fantastically generous of the Government, but thousands of charities still don't use it."
Nicholas Deakin, chairman of the 1995 Commission, agrees the years ahead will be "less dramatic" on the surface, but says the sector's relationship with the Government will remain critical - and things could get messy.
"What has been done in the seven years since Labour came to power is not going to be seriously challenged if there is a change of government," he says. The challenge now is about who controls the agenda. "The Labour Government has provided a large number of openings, but on its own terms. The danger now is of being hugged to death. The increase in campaigning can be seen as the sector arguing for this development to occur on its own terms."
Nick Pearce, director of think-tank the IPPR, agrees that the relationship with the state will remain crucial, but believes Deakin's vision is pessimistic. "The problem is that the voluntary sector sees the relationship with the state as a zero-sum gain," he says. "Relationships can be more productive than that; the two sectors can empower one another. Ultimately, decisions have to be made by elected politicians, but there are other important debates that take place in the media, the courts and in local communities, and charities can play an important part in those."
Where Deakin and Pearce do agree is that the civil renewal programme, driven by former Home Secretary David Blunkett, could have far-reaching consequences. In 2003, Blunkett announced that he intended to make civil renewal the centrepiece of the Government's reform agenda, a process that involved the state "strengthening" voluntary organisations. The cynical view, says Deakin, is that such interference amounts to "a systematic attempt at arm's-length social control". He adds: "Any civil renewal programme should be a joint enterprise between civil society and government, based on shared objectives identified through open discussion. But that is patently not always the case."
How the civil renewal programme develops, particularly now that Charles Clarke has taken over from Blunkett, could influence how the sector is moulded over the next 10 years.
While the impact of civil renewal could soon be felt, the signs are that the most contentious issue between state and voluntary sector - public service delivery - will continue to rage.
Stephen Bubb, chief executive of chief executives' body Acevo, sounded the bugle for change in December when he called for an end to "crappy contracting". His comments came in the wake of Acevo's Surer Funding report, which revealed that local authorities and health trusts were crippling charities with pitifully short-term and overly bureaucratic contracts.
John Low, chief executive of the RNID, predicts that as well as lobbying for fairer rules, service delivering charities could take advantage of community interest companies (CIC) to run services more effectively, both individually and collectively.
CICs, a new type of company for social enterprises that have the flexibility of the company form, are expected to be introduced in July. These bodies could free organisations from some of the limitations of the charitable form while opening up other, broader advantages.
"If 10 charities delivering the same service across the country each form a CIC, they could merge operations," says Low. "Each CIC would still be owned by its original charity, but together they could have professional management and create some kind of market." He argues that pooling resources this way could improve efficiency.
CICs could also change the way the sector is managed because they report to an independent regulator and bypass the Charity Commission. "CICs and other non-charitable forms might actually have a profound effect," says Low.
The success of not-for-profit groups, such as London-based Hackney Community Transport, in winning contracts over private companies such as Arriva has fuelled suggestions that the wider social enterprise agenda could take off. "We are on the threshold of moving into a much wider plain," says Jonathan Bland, chief executive of the Social Enterprise Coalition. "There is scope for a huge increase in the number of organisations that deliver social enterprises over the next five years."
Nevertheless, he is concerned that the public still doesn't know what social enterprise is. "There is still a misconception that social enterprises are projects, and not long-term, sustainable businesses,which is a real danger," says Bland. "It will no longer be enough to say 'we are achieving social aims'. We will need to prove it."
All not-for-profit groups are likely to have to pay greater heed to measuring their performance if they want to stay on the right side of funders and the public. "The sector has to be able to prove it offers value for money - that it is efficient and transparent," says Lord Joffe, who chaired the Giving Campaign, which encouraged people to give more to charity before it was wound up last year. "If they can, they will become incredibly effective as part of civil society, and that will facilitate fundraising."
Nick Aldridge, head of policy at Acevo, says trust and confidence are at the heart of the three biggest challenges facing the sector: relations with the public, service delivery and funding reviews.
"People trust charities because they think they are run by volunteers, they don't spend any money on overheads and they are separate from government," he says. "Unfortunately, none of these things is true. One of the biggest challenges will be finding a much more solid base for trust." He says a governance code would help to overcome the problem.
So much has changed since 1996 that it's questionable whether there is a shared agenda for charities. The gap between big and small has never been wider, as Cancer Research UK's £270m income in 2003 testifies. The new charitable forms, plus the fact the Government is now the sector's biggest funder, further complicates the picture by blurring the line between the public, private and charity sectors.
"It's hard to paint a single picture because the sector is increasingly far from homogeneous," says Low. "It looks like a range of ill-fitting things put together under one heading. There are organisations such Turning Point, which will happily tell you it gets 98 per cent of its income from government contracts, and those such as Greenpeace, which can't even be a charity because of its objectives."
The way to win
Yet Robb believes the concept of a third sector remains strong. "If you talk to people running the Red Cross and those in charge of tiny organisations, they want to be part of something similar," he says. "They all grapple with similar issues, such as Gift Aid and governance."
So who will be the winners and losers in the sector in the years ahead? George Hepburn, chief executive of the Community Foundation serving Tyne and Wear and Sunderland, believes those that don't successfully balance adopting more professional practices with trenchant campaigning are doomed. "The sector must not get caught up in providing public service to the exclusion of being innovative and critical, and of being advocates of the underprivileged. This will continue to cause creative tension."
More specifically, experts predict the super charities, such as Cancer Research UK, the NSPCC and the National Trust, will continue to flourish, as will small organisations that pick up contracts and support locally. "Charities with incomes between £100,000 and £1m will be hit hardest," says charity consultant David Carrington. "They tend to be over-dependent on lottery funding and don't receive so many legacies."
Carrington is nevertheless confident that the situation will improve and that most charities can look forward to increased income. "There are indications of the sector becoming much more canny about finance." he says. "This is partly because it has had its fingers burned chasing money that didn't relate to its mission and short-term contracts."
So the signs are good for a bigger sector, but what kind of sector it will be is more difficult to predict. Low thinks there is much room for improvement. "The sector is capable of much more than it's doing," he says. "Its potential is under-exploited. It needs to push for systemic change rather than concentrate on just picking up contracts." NCVO FUTURE PAPERS
Localism - new or old? by Professor Gerry Stoker, Manchester University
The Government is striving to give local communities responsibility for, and a say in, the delivery of local services, from foundation hospitals and community policing through to railway lines. This will require a more active citizenship that cannot be built without an important contribution from the voluntary sector. The challenge for the sector is to think through how this role can best be delivered.
Civil Renewal by Professor Nicholas Deakin, chairman of the 1995 Commission
Civil renewal, including partnerships between the state and voluntary organisations, is one of the Government's flagship policies. Most charities are aware of the potential threats to their independence that such partnerships can bring, and can take steps to safeguard it. However, the danger is that they reinforce divisions between large service-providing organisations and the rest of the sector.
Funding by David Carrington, consultant
If current trends continue, it is likely that the sector will grow, leading to greater competition. Large charities will get a bigger slice of donated funds and collaborations between voluntary organisations will increase. Government commitment to the sector will probably continue, but large cash injections such as Futurebuilders and ChangeUp are unlikely to be repeated. Use of Gift Aid is likely to increase. Corporate philanthropy and social responsibility are likely to grow.
Social Economy by Andrea Westall, deputy director, New Economics Foundation
The boundaries between the three sectors are increasingly blurred, and this is likely to continue with the introduction of the community interest company and charitable incorporated organisation. There needs to be more research into a third sector or social economy. All relevant umbrella bodies could be represented in a formal network. Where parts of the spectrum are unrepresented, this will have to be carefully managed.
CHALLENGES: WHAT THE EXPERTS THINK
Cathy Pharoah - research director, Charities Aid Foundation
A good pantomime for the voluntary sector this season would be Jack and the Beanstalk. The 'seeds' sown by Labour have seen the sector grow at a speed only likely to gather momentum.
Government funding now flows into most corners of the voluntary sector - from neighbourhood associations, major service providers, faith-based groups and new community enterprises, through to the sector's infrastructure, the incentivisation of donors, the definitions of charity and the demarcation of new fundraising areas such as education.
The growth is unstoppable, and the sector is climbing up the beanstalk as fast as it can. Like Jack, it never looks back, taking enormous risks to reach something, although it is unclear what that something is. The sector still has no agenda for the improvement of health and welfare, in the delivery of which it will have an increasing role. It has not set terms and conditions for balancing social mission with economic return.
The sector does not have its own vision for the infrastructure it will need in future, and apparently has no view on the increasing competition between causes for private donations, which has been partly government-fostered. Will the sector just steal a few crumbs from the giant's table over the next few years, or seize a major stake in shaping social change?
Luke FitzHerbert - researcher, Directory of Social Change
Unless we do something about it, the overall lack of openness about what large charities do and how they spend their money will become steadily more damaging.
This is not only my view. Look at three of Third Sector's own pieces in the past month: "An endemic culture of secrecy" (BASSAC); "A total lack of any accessible information ..." and "like getting blood from a stone" (The Good Giving Guide); and "Our research shows that people are in a rosy fog of ignorance about how modern charities work" (Nfpsynergy).
Basic questions go unanswered, repeatedly. For example, does the charity have its own activities, or does it fund those of other organisations? Is any, or perhaps all, of the work done by volunteers? Who pays how much for which of its activities?
The Charity Commission talks the talk, but where's the action? It should not just invite charities to explain what they do in public, it should require them to do so. For starters, it needs to take internal responsibility for annual reports away from its financial specialists and make it a central regulatory task.
Luke FitzHerbert resigned from the Charity Commission working group on annual reports last year
Sylvia Brown - chief executive of Action with Communities in Rural England
As the Government helps to equip the voluntary sector to support a larger role in public service delivery, rural areas find themselves in a quandary. Rural communities provide a living example of what the Government is trying to achieve. Here, you'll find plenty of self-help initiatives - often connecting voluntary, private and public sectors - that deliver transport, social care and access to everyday services. Such joined-up delivery can produce economies of scale, but they often operate without paid staff, with minimal access to IT systems and with smaller pools for recruiting trustees, so they struggle to match the concept of 'frontline' organisations envisaged in the ChangeUp investment programme.
For rural communities (and rural community councils that support their activities), the challenge is how to make visible something that is currently invisible because it doesn't get state funding. We have to demonstrate what small-scale community initiatives can deliver when the state can't afford to do so.
And the challenge for the Government is to recognise just how much disadvantaged rural areas rely on the community sector to improve their quality of life, and how its activities don't always fit the mould of mainstream policy. Perhaps then the state will begin to acknowledge cross-sector, joined-up delivery such as the alternative 'rural' model within the voluntary sector modernisation agenda.
CHALLENGES: WHAT THE EXPERTS THINK
Hilary Browne-Wilkinson - director, Institute for Philanthropy
One of the greatest challenges for this year will be to find new ways to encourage individuals and businesses to increase their support for good causes.
Individuals might be encouraged by further tax incentives and by developing a heightened sense of individual responsibility. In the next 12 months, 'lifetime legacies', which are so important to philanthropy in the US, could be introduced, offering exciting opportunities to people with wealth to invest in charity. However, emulation might turn out to be just as important: recent examples of 'conspicuous philanthropy' could inspire others to increase their own donations.
Companies can also do more. Businesses have skills to offer as well as money, but they need to be imaginative to be most effective. They can also encourage their employees to donate through payroll giving.
Voluntary organisations can be innovative too: the Heron Foundation in the US uses the power of its endowment to persuade the companies it invests in to put money into their local communities.
The role of information is vital. GuideStar.org, a US database of charities' activities, organisation and finances, has already been described as the most important thing to happen to the US non-profit sector. GuideStar UK will launch in April and could be the catalyst for greater philanthropy in 2005 and beyond.
Debbie Chay - chairwoman, Charter88
Charter88 started with an advertisement in The Guardian and the New Statesman in 1988 calling for a new constitutional settlement.
Since then there have been sporadic developments, such as the Human Rights Act, devolution and some proportional representation. But with little evidence of a political will and a limited sense of purpose, the reform programme has foundered on the very institutions of governance it was intended to democratise.
If reform is to mean more than the ink on the page, it cannot and must not be delivered to the people from on high.
This is where the voluntary sector can play such an important part - in mobilising the energy and enthusiasm of grass-roots activists.
This has been exemplified by 'democracy days', on which local groups enable constituents to question their candidates during local, national and European elections, and the "Democracy Talks Network", a team of volunteers who tailored constitutional reform issues to the national curriculum for citizenship education, encouraging hundreds of young people nationwide to run their own fringe meetings at the party conferences.
These projects can bring about changes that have an impact on people's daily lives and make the real connections between government and governed. Hopefully, the rest will follow. Mary Foley - director of resources, Acevo
In the next decade, the third sector will become increasingly professional and businesslike in its culture and operations. This will be due partly to the sector's increasing drive to secure real social change in partnership with government, and partly to the changing face of third-sector finance.
Over the next few years, the third sector's income from enterprise and sales is likely to overtake its income from voluntary donations, and funders will increasingly attempt to measure the impact of the organisations they support.
However, this funding model is holding the sector back in many ways. Funding streams routinely fail to support full-cost recovery, monitoring is usually cumbersome and bureaucratic, and contracts are so risky as to be unworkable. Over the next 10 years, the sector must use its collective strength to secure real reform.
As part of this reform, the sector must address the striking inconsistencies in the public's attitude to the sector. People expect charities to act with unimpeachable integrity, probity, and efficiency, while regarding expenditure on governance, leadership or infrastructure as extravagance. In an age of growing scrutiny and accountability, it won't be long before these inconsistencies are exposed.
The challenge for the sector is to ground the high public trust it enjoys in truth rather than mythology.