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Exercising caution

Councils have been keen to allow 'charitable' trusts to run leisure and culture services, but are some charities in name only?

Nick Seddon

Wednesday April 11, 2007

The Guardian

Aspects of the partnership between charities and the state are bewildering for all but the most expert of observers, but nowhere is this more marked than in the case of cultural and leisure trusts.


In 2004, the Charity Commission made the landmark decision to allow charities to deliver public services that public authorities have a statutory duty to provide. The precedent came in the shape of two local authority bodies that provide community leisure services: Trafford Community Leisure Centre and Wigan Leisure and Culture Trust. Previously, charities had been able to deliver discretionary responsibilities - museums, parks, community centres and the like - for councils, but the ruling meant statutory responsibilities - management of cemeteries, libraries and so on - could also be transferred to the third sector.


Since then, several charitable leisure trusts have been formed, though it is not easy to chart the scale of the change. Although the Charity Commission cites eight instances, the Sports and Recreation Trusts Association has a membership of more than 110 bodies, and the Audit Commission has calculated that management of sports and recreation facilities through a trust now represents 21% of all council provided facilities in England, nearly all registered as charities.


The Charity Commission's decision to open statutory services to the third sector relied on the proposition that it is a legitimate use of charitable funds to reduce the burden on local or national taxation. So rather than paying for the maintenance of, say, a cemetery out of the public purse, charitable donations can be used.


This has proved controversial, largely because some commentators do not believe that the relief of taxation is a bona fide charitable purpose. Yet as Francesca Quint, a senior barrister specialising in charities, points out, the relief of taxation has been on the statute books since Elizabethan times, albeit rarely invoked. The key caveat to bear in mind, however, according to Quint, is that even though this is a legitimate object for charities, "it is not permissible to use charitable funds to relieve public funds unless the charity in question is set up for that purpose". To put it another way: donors do not intend their gifts to be used to relieve public funds if they are being asked to contribute to a charity with some other purpose.


Although their main purpose was the provision of leisure and cultural facilities, both Wigan and Trafford avoided this problem since both had a backup purpose - they were also set up for any charitable purpose for the benefit of the local inhabitants - which was broad enough to include the relief of taxation.


What is really puzzling, however, is that many of these leisure trusts are not relieving the local area of the burden of taxation because they are not using funds generated from charitable donations to deliver their services. In addition to the user fees on which they have always relied, the money for running them still derives almost entirely from statutory sources, in the form of contracts and grants.


The Charity Commission's guidelines state that "a local authority could not expect simply to convert its leisure department into a charity. Nor could it create as a charity a body whose purpose was to carry out the local authority's leisure policies". In practice, it is hard to see how many of these bodies live up to that principle.


Partnership contracts


Financially, these trusts often remain part of the local authority. They do not own their own assets, but lease them from the council under partnership contracts, and they take on the existing staff. And the council's elected members can form up to 20% of the trust's management board. This has prompted the chair of one leisure trust, who wishes to remain anonymous, to venture that "the biggest risk is lack of independence in decision making by boards". Karl Wilding, head of research at the National Council for Voluntary Organisations (NCVO), points out that it looks as though councils have "simply changed the nameplate above the door".


It is not difficult to see why many charitable leisure trusts do not have the charitable funds to relieve the burden of taxation. Who would voluntarily donate their money for the relief of taxation to a body that they are already subsidising through taxation? All the same, for local authorities there are real benefits accruing from what some commentators are calling the "charitisation" of the public sector.


As a recent Audit Commission survey reported, the rapid growth of trusts has been mainly driven by councils seeking taxation savings. Local authorities have been provided with a way to cast off assets and liabilities from the government balance sheet by transferring them to the third sector. Now they get better bang for their buck. They continue to fund cultural and leisure services substantially, and exercise significant control over them, at the same time as levering in additional funding from lottery grants and enjoying tax advantages.


A crude test of the nameplate changing assertion would be to monitor how performance alters before and after the status change. As Cathy Pharoah, director of research consultancy Third Sector Prospect, stresses, charities delivering services need to be able to show they add value.


Here, too, there seems to be a spot of bother. To date, performance data is ropey. That said, the Audit Commission survey found that all too often "assessment is focused on providing a cheaper rather than better quality service". And while there are undoubtedly positive attempts in some trusts to engage difficult-to-reach beneficiary groups, such as obese children and ethnic minorities, the survey also concluded that there is generally little identifiable benefit or distinctive value for the community when the service is run by a charity as opposed to the council.


The nagging suspicion remains that while these bodies have the name and status of charities, they cannot bring the distinctive value associated with charities because they often do not behave or even look like charities.


It is about such identity and cultural issues that Wilding feels most uneasy. For apart from worries about the retention of power and the distancing of responsibility, "there are implications here for the good name and standing of charities", he says. Public confidence is a precarious thing, and disquiet about legitimacy has the potential to damage donations to deserving causes. It is also worth remembering that if leisure trusts can now receive lottery funding earmarked for charitable causes, genuinely independent organisations could lose out.


Speaking at last month's NCVO annual conference, Dame Suzi Leather, chair of the Charity Commission, voiced concerns that councils might believe that the impact of Trafford and Wigan means they can now expect charities to subsidise statutory services or fund gaps in provision. She asked her audience: "Can we really sustain the belief that this can be in the best interests of charities, beneficiaries or the sector as a whole?"


The 2006 Charities Act placed an emphasis, for bodies seeking to be registered as charities, on being able to prove that charitable purposes are for the public benefit. We need to ensure that public benefit does not get confused with benefiting the public sector.


̭ Nick Seddon is a writer and journalist

· Email your comments to [email protected]. If you are writing a comment for publication, please mark clearly "for publication"

When is a charity not a charity

Guardian Unlimited


Who Cares? How State Funding and Political Activism Change Charity,

by Nick Seddon,

Institute for the Study of Civil Society, £9.50

This publication is written by a research fellow at the Institute for the Study of Civil Society (Civitas), the right-leaning thinktank. Seddon, a former freelance journalist for the Spectator and Times Literary Supplement, argues that the levels of dependency of some charities on the state makes them part of the political process, rather than civil organisations.


The "bias" that government gives to bigger charities excludes smaller voluntary organisations from services and contracts, because the smaller the contract, the higher the transaction cost on government. In one chapter he takes issue with government departments funding research from government-funded charities. Independence, he argues, is a mainstay of charity. On this bugbear, he identifies several locally-based charities that are "in reality offshoots of local authorities", which he accuses of not practising the independence they preach. He also denounces the practice of transferring local authority leisure centres management to leisure trusts, and with the existence of charitable quangos "it's only a matter of time before central government departments are being granted charitible status". Hysteria aside, Seddon makes a number of very relevant points.


Charitable status affords various fiscal advantages (tax benefits for one) and Seddon sees "supercharities" as undeserving recipients who threaten the integrity of the sector. Big charities, he argues, have an unfair funding advantage over smaller siblings. His solution is to create three categories of status: charitable (those with less than 30% income derived from the state, who would receive benefits), state-funded charities (those between 30% and 70% of state funding, who would receive more modest benefits) and the last (with over 70%, who would be forced to choose either to reduce their claims to statutory spending or forfeit charity status and instead become 'statutory agencies').


Charities that receive less than 30% of their income from government are not automatically in the clear with Seddon. His other bete noire is lobbying - charities diverting money away from service provision into marketing and policy strategies. This, he says, pushes the spending guidelines set down by the Charity Commission. And he isn't afraid to name and shame. Although at times conspiratorial in tone, this book is invaluable for information about third sector organisations and funding and his enthusiasm for the autonomy of charity is clear.

Too close for comfort

Charities have to stop cosying up to the state, says Nick Seddon

Wednesday February 7, 2007

The Guardian

It used to be the case that a charity in need of some money turned to the public for support. But this is no longer so. Some of the biggest and most famous charity brands are now all but dependent on the state.


These include Barnardo's (78% of annual income), NCH (88%) and Leonard Cheshire (88%). Even conservative estimates show that the sector now derives 38% of its funding from statutory sources, compared with 35% from individuals, which means that the state is now the biggest "donor" to charities. When you include registered charities, such as the Arts Council and housing associations, the proportion is higher.


Does it matter if a charity's money is coming from the government? Well, for a start, government contracts don't cover the full costs of delivery of the projects, so charities end up having to reallocate resources earmarked for other projects to subsidise statutory work. Also worrying is the way charities suffer from "mission creep" - as they become more dependent on government money, they follow government agendas. One drug and alcohol charity has now moved into caring for people with long-term mental health problems, driven by the offer of contracts, rather than the founding principles of the organisation.


Politicians are beginning to define what charity is: it's what the government will pay for. And this relationship gets uncomfortably close when government departments use government-funded charities to carry out research that supports government policy. Thus the National Family and Parenting Institute (97% state funded) and NCH (88%) produced an inquiry into the relationship between the state and the family that reads just like an official government report. This little arrangement is convenient for the government because it carries all the authority associated with an "independent" charity.


As voluntary agencies come to look more like the statutory departments on which they depend for money, they end up being co-conspirators in destroying the very attributes of the sector that made them attractive partners for government in the first place, losing distinctiveness and becoming less innovative and diverse. All the evidence suggests that big, state-funded charity brands are drawing public donations away from genuinely independent charities.


One solution would be to seek greater differentiation and clarification in the sector. We could have three categories: charities receiving less than 30% of their income from the state would still benefit from full charitable status; those receiving between 30% and 70% would be called state-funded charities and would receive more modest benefits; and those receiving over 70% of their income from the state would be forced to choose either to reduce their dependency on statutory funding or lose their charitable status.


If we don't want to do away with the big charitable quangos, as much of what they do is important, we will have to make sure we don't do away with the charities that take not a penny from the state - the many small, local organisations that play a vital role in creating inclusive communities, and which are increasingly struggling to survive.