Payroll giving: a relic of the 80s?

This year marks the 30th anniversary of payroll giving, but during that time it has struggled to fulfil its potential

Ringo Starr and his actress wife Barbara Bach (right) with the broadcaster Sue Cook at the launch of payroll giving in 1987
Ringo Starr and his actress wife Barbara Bach (right) with the broadcaster Sue Cook at the launch of payroll giving in 1987

Since payroll giving was first launched by the Conservatives in 1987, the workplace donation mechanism has generated more than £2bn for charity. It's not an insignificant figure, but it pales in comparison with the charity sector's total income of £73.1bn in 2016 alone.

On the face of it, the scheme should be an attractive and relatively hassle-free way for charities to raise money. It allows any UK taxpayer to make regular donations to charities of their choice, directly from their pay. The donations are tax-free, and employers can choose to match what employees give and can deduct these amounts from their profits. The administration is carried out by government-approved agencies.

But in the year to 31 March 2017, only about 1.1 million people were registered with the scheme out of a working population of 31.85 million, meaning just 3.5 per cent of those eligible were enrolled (the rate is 35 per cent in the US).

It would be unfair to dismiss payroll giving as a failure, but it certainly has not achieved its potential. So is it time for a radical overhaul of the scheme, or even to scrap it altogether?

"It's broadly right to say it works for some companies and donors, but, frustratingly, it hasn't lived up to expectations on the whole," says Rhodri Davies, programme leader of Giving Thought, the Charities Aid Foundation's think tank.

Part of the problem, Davies says, is that the scheme is a child of the 1980s. "It reflects a lot of factors that were particular to the time, such as the way that manual payrolls worked and the way people stayed in single jobs or with the same company for much longer than they do nowadays," he says.

One of the biggest challenges with the scheme is portability; the biggest drop-off in giving comes when people change employers.

"Unless they're pretty determined to hang on to their payroll giving, it's fairly difficult," Davies says. "What tends to happen is they just slip off the system because it doesn't automatically transfer to a new employer - and that employer might not even be registered."

Poor uptake

There's also the problem of needing to attract more donors in the first place.

According to Andrew O'Brien, head of policy and engagement at the Charity Finance Group, the scheme hasn't been promoted as well as it could have been.

"The name doesn't really tell you what it is," he says. "It doesn't explain the benefits, and it doesn't explain the value of it to you as an employee or an employer."

O'Brien says the poor uptake is not all down to branding but suggests a punchier communications message could encourage employees to see the benefits, adding that charities could probably do more to promote it themselves.

Ewan Imrey, chief operating officer at the payroll giving agency the Charities Trust, says that many charities prefer a more direct relationship with their donors. Compared with direct debit, for example, payroll giving can seem cumbersome, involving a larger number of parties in the giving relationship: the donor, the employer, the payroll-giving agency and the charity.

But he says: "I do think more and more charities now are looking to get behind payroll giving, particularly some of the smaller ones."

And Mervi Slade, a consultant and chair of the Institute of Fundraising's Payroll Giving Special Interest Group, says this is exactly what's needed.

"Charities have to be a bit more proactive when speaking to their corporate partners," she says. "They should suggest that they introduce payroll giving; that's one logical way - start where your networks are."

But charities aren't alone in being well placed to help payroll giving fulfil its potential. The report by the House of Lords Select Committee on Charities, Stronger Charities for a Stronger Society, published in March, called on the government to do more to promote the scheme, saying there was "no excuse" for government departments not to offer payroll giving to their employees. Slade agrees, adding that MPs should also be offering the scheme to their staff.

And Imrey wants the government to go further. "It needs to put some oomph behind payroll giving," he says. "Clearly it's up to employees to decide whether they wish to engage with it, but it is so easy for employers to set up that I think it ought to be mandatory."

Slade says ministers could also be instrumental to solving the portability problem. She recommends a simple change to the P45 form to indicate that someone leaving a job wishes to continue payroll giving with their new employer.

But Davies says a more radical change is needed to bring the scheme up to date. "We need to look at whether you could take its tax advantages and apply them to a system that looks more like direct debit," he says.

"Rather than getting people to specify a single charity up front and then making them go back to an employer and fill in another form, let's have something that looks more like a charitable giving account.

"The money from the donor goes into that so it's earmarked for charity, but it is up to the donor whether they set up a regular payment from it or give in the future in response to fundraising asks."

Linked to person

It will be easier to keep people on the scheme if it's linked to the person rather than the employer, he argues.

O'Brien predicts that, without a rethink, payroll giving will meander on in a "foggy haze of neither fulfilling expectations nor being a complete failure".

He warns that the gig economy, flexible working and squeezes on families' household income could deter the donors of the future from giving through payroll.

"Would we be better to focus all our guns on Gift Aid rather than worry about smaller things like payroll giving, which hasn't ever quite given the indication of delivering on its promise?" he asks.

"I don't think it's going to die a death, but there is an argument that it is sucking up time and resources that could go elsewhere."

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