Large donations to charities fall a lot

I believe the UK would benefit from more charitable giving by the wealthy. To this end, I think we need more debate about, more discussion of, and more research into charitable giving.

The University of Kent’s ‘The Coutts Million Pound Donors Report 2009’, published earlier this week, is therefore a welcome addition to the literature and to our knowledge. Unfortunately, the presentation of this worthwhile effort leaves something to be desired. In short, it underplays the decline in the value of large gifts by wealthy donors. This undermines the sensible and useful analysis in the report.

The report shows a 13% decline in the value of donations of £1 million or more during 2007-08 compared with 2006-07. The report says this indicates philanthropy has been ‘remarkably robust’ so far during the recession. Such a line has been repeated in press coverage by the (London) Times, the Financial Times, Charity Times and Chronicle of Philanthropy.

Author of the report, academic Beth Breeze is quoted as saying this shows ‘UK philanthropy is far more resilient than many people have suggested’. Who? I am not aware of credible, quantitative estimates of the impact of the financial crisis and recession on charitable giving. The most credible analysis, led by the National Council for Voluntary Organisations, said giving might not decline at all. While a reasonable prediction based on the evidence, this proved sadly way off the mark as the most recent survey of giving indicates an 11% fall in the value of donations by the public during 2008/09.

That 11% fall in overall giving is similar to the 13% decline in donations of £1 million or more. But that is not comparing like with like as the periods covered by the two studies differ. Figures for total donations for the two overlapping periods of 2006-07 and 2007-08 can be compiled from publications 'UK Giving 2009' and 'UK Giving 2008' from NCVO and Charities Aid Foundation. These are almost exactly comparable to the period covered by the Million Pound Donors report. They show a fall of 2.0% for 2007-08 versus 2006-07 in total giving in real terms.

A fall of 2% is far better than a 13% decline in very large donations (and adjusting for inflation would make the difference even greater). This reinforces the impression that there is nothing ‘remarkably robust’ about the value of donations over £1 million compared with the total of all charitable giving. Rich people making large donations seem to be cutting back more than the population as a whole.

During this period, wealthy donors saw a considerable fall in their wealth. One might have expected donations to fall in line with wealth. But that ignores the way people smooth their consumption. Economist have long argued—and evidence has long agreed—that people smooth spending in line with some notion of ‘permanent income’. No sensible analysis of charitable giving would have predicted a decline in large value donations in line with the fall in wealth.

The plain truth is that large value gifts have fallen more than donations by the mass public. This is not better than expected, it is simply disappointing.

We need to celebrate giving, encouraging rich people to give more and to be increasingly open about this. As part of this we need sensible debate, which requires good quality data. It also requires objective analysis. There can be a tendency to talk up rich giving, and this does the quality of debate no good at all.

Beth Breeze is a real asset to such debate in the UK. And Coutts deserves a pat on the back for their continued efforts in this field. I hope the Million Pound Donors Report continues for many years to come; it already is proving a valuable data resource. I also hope that next time the presentation of the data is better.


(Note that the time periods covered by the CAF/NCVO surveys of giving run from April to March each year, whereas the Million Pound Donors data runs from January to December over a two year period. Given the depth of the recession in the first quarter of this year, when giving might be expected to be particularly low, that should reinforce the point made here about the relative changes in the value of donations.)

Moving forwards, not backwards

I was depressed to read a new survey from the charity Leonard Cheshire Disability, which says that disabled people still face alarming levels of poverty and prejudice in the UK, despite the government’s efforts to promote equality. And the situation is only getting worse. Almost half of the disabled people who answered the survey were struggling to live on their current income, nearly 10% more than two years ago.

Although the recession may be partly to blame, there are much more deep seated causes. Discrimination in the classroom and the workplace remains a serious problem, as the survey notes. But for many disabled people, finding a place at college or university, or getting a job, may not even be an option. All too often this isn’t because of a lack of interest or ability—it is because they are not receiving the support they need as they make the difficult transition to adult life.

Later this week, we’re going to be publishing a new report, Rights of passage, which explores disabled young people’s experiences of transition. Our research shows that if they do not get adequate advice and support, they may find themselves shut out of education or employment, living in unsuitable housing, or totally reliant on their parents for everyday activities.

While preparing to launch the report, we've spoken to a few individuals whose experiences really highlight the issues we researched. Anna, whose son Jamie was born with a life-limiting metabolic condition, told us that because he wasn’t expected to live beyond the age of 12, no-one thought to plan ahead. Now 18, Jamie, like any other teenager, wants to leave school and move out of the family home. But Anna has discovered that there are very limited options for people like Jamie who need a lot of care. She says staff in social services ‘looked blank’ when she asked what was going to happen next, and the best they could offer him was a place in a nursing home with elderly people.

Stories like this are far too common. Disabled young people often talk about facing a ‘cliff edge’ in support as they approach 18. Services are patchy and many turn to charities for help—Anna told us it is charities that have provided the ‘greatest offer of hope and opportunity’ for Jamie, who is now living with friends his own age in a house run by the charity Scope.

Anna feels she has had to ‘fight all the way’ to get the right support for her son. By raising awareness of the problems and improving services for disabled people, charities like Scope and Leonard Cheshire Disability can make the fight that bit easier.

Visit our website on Thursday to download a copy of the report, or feel free to respond to this blog post with any questions or comments.

Public benefit = maximising value for beneficaries

NPC has long observed that charities don’t put enough emphasis on thinking and talking about what they achieve.

Earlier this week I saw a presentation given by Dai Powell, CEO of the HCT Group, a £15m social enterprise that provides public transport and training services across England. Speaking from the position as half way between business and charity, he made a startling point about what the law requires of each type of organisation.

Managers of companies have a legal duty to maximise benefits for their shareholders. This means that is written into law that businesses must strive to produce the best results they can. In contrast, charity legislation requires little more than that trustees and managers ensure money is not wasted. There is barely any emphasis on creating value for beneficiaries, and nothing that relates to the results of organisations’ work.

Over the past few years, the debate on public benefit has given charities a chance to define ourselves more by the value we create. We have not taken it. We have got hung up on what we mean by doing good (for example, the question of whether independent schools and hospitals should be charities), and missed the more fundamental question: whether we succeed in doing good.

Akin to what the law demands of companies, if properly considered, I think that public benefit implies a duty of charities to maximise value for their beneficiaries. After all that is why we exist.

The debate on public benefit needs to be moved beyond the narrow concerns of who should and shouldn't be a charity. At present, the charitable sector lags behind in the emphasis we give to creating value – which is something we should not be proud of.

(Early next year NPC plans to run an event debating the way forward for public benefit in partnership with Farrer & Co)

The Ambassador for Philanthropy on challenges facing the charity sector

On Monday evening I went to a talk at the offices of Withers LLP by Dame Stephanie Shirley, a seasoned philanthropist and, since May 2009, the UK’s first Ambassador for Philanthropy. The talk was entitled “Facilitating Giving”, but the main thing I took away from the talk were Dame Stephanie’s inspiring words about her own motivations for giving – and her views on the challenges facing the charity sector.

Dame Stephanie’s life offers enough material for several talks, and is closely linked to her commitment to philanthropy. She experienced the kindness of strangers herself early, when in 1939 she arrived at Liverpool Street station as an unaccompanied five year old. She had travelled to the UK on Kindertransport with thousands of other Jewish children fleeing the Nazis. She was taken in by foster parents in the West Midlands. After schooling and university, she eventually started her own software company. Faced with a male dominated sector, she adopted the name “Steve” and decided to only employ women with dependants. (You can read more about Dame Stephanie’s life in her interview in our Giving Insights magazine.)

The enormous success of Dame Steve’s business made her a wealthy woman. She was fully aware of how fortunate she had been and wanted to give back to the society that had taken her in as a child. Today, the Shirley Foundation is a large grant-maker in two areas close to Dame Steve’s heart: autism – her late and only son’s disorder – and the promotion of better use of IT in the charity sector. (To find out more about Dame Steve Shirley’s philanthropy visit her website .)

In May 2009, Dame Steve’s dedication to philanthropy was recognised when the prime minister named her the UK’s firs Ambassador for Philanthropy. Her aims for the role are to increase the levels of giving in the UK and to change the culture of giving. After almost six months on the job, it was particularly interesting to hear her views on the challenges facing the charity sector. Dame Steve identified three of them:

1) the need for philanthropists to become more public – which she is trying to address in her new IT platform “Ambassador(s) for Philanthropy”

2) the need for trusted advisors to speak to their clients about philanthropy; and

3) the need for the sector to professionalise and as part of this focus more on results, instead of being preoccupied with things like charity admin costs.

I fully agree with Dame Steve’s observations. The challenges she identifies are problems that we at NPC are working to address through our advisory work for philanthropists starting out in their giving, our training for trusted advisors on how to raise the issue of philanthropy with their clients and our promotion of effectiveness and results amongst charities and funders in the sector. I was heartened to discover that we’re all pulling in the same direction.

Find out more about Dame Stephanie’s role as Ambassador for Philanthropy here.

SROI not enough

Recently we wrote a post about how the UK homelessness charity, Crisis, is using SROI analysis to publicise and put a financial value on the benefits of its ‘Skylight’ schemes. While Crisis should be applauded for this effort—not enough big charities measure their results, and even fewer share the results and the details of their attempts to do this—in this post I want to sanction caution about the use of social return on investment (SROI) as a sole means of capturing charitable impact.

SROI is an approach which allows the user to capture the economic and, potentially, other benefits of charitable activity. Originally developed in the US by the Roberts Enterprise Development Fund, and now being widely promoted in the UK, it has close ties to cost-benefit analysis within economics.

Crisis’ efforts, supported by Oxford Economics which calculated the SROI, are a positive step. The very existence of the SROI and both organisations’ openness to debate and discussion is welcome. It also highlights a significant point about the importance of data for the analysis of charities and their work. While there are some gaps in Crisis’ SROI and Oxford Economics had to make a number of assumptions to fill the holes in the calculation, this calculation wasn’t possible at all a while ago. Until recently, Crisis did not have outcomes data on the people it helped get a job (or not) through Skylight. As I said before, a positive step.

In their SROI, Crisis and Oxford Economics concentrate on the financial returns from the tangible outcomes of the charity’s activities. In this way, like many other charities, the temptation has been to focus on what can be easily monetised. And this is where I think we need to exercise a note of caution when using SROI.

While SROI was envisioned as being flexible enough to capture non-pecuniary benefits, and indeed it can, it does not tell you how to do this. This is where many charities are stuck. As a result it is easy to overlook the more intangible, harder to quantify social benefits—often exactly the sorts of reasons for which charities exist in the first place. Omitting these intangible benefits from an SROI calculation can actually result in negative social returns for work which is socially valuable.

NPC’s investment in well-being is partly a response to this problem with SROI. We are close to the end of a considerable project developing a questionnaire for charities to help them measure and track their impact on adolescent children’s well-being—‘happiness’, as most of us think about it. It has enormous potential to help charities capture, measure and demonstrate their impact and is attracting a lot of interest. You can read more about it here.

I think it is safe to say that if adequate progress is going to be made in understanding and measuring charities’ impact, then SROI alone is not likely to deliver. Measuring well-being, and teaching charities how to capture these results is also vital. SROI is attractive and should be developed further, as should efforts to produce data with which to populate calculations of return. But, also, more people should join NPC’s efforts to design practical tools that capture the impact of charities’ work on well-being.

In short, SROI plus well-being is a more attractive future than SROI alone.

£3.1bn? - what the downturn might cost charities

Over the last year we have got used to hearing big numbers. There have been no shortage of descriptions of how much the financial crisis has cost the economy. Overall, UK GDP is down 4.5% from last year and some say the bank bail out will cost us as much as £200bn.

Like virtually every other part of the UK economy, the charitable sector has felt the pinch. But little has been said about what the total financial cost to charities from recession might be. What indications do we have about how income is being affected?

According to the 2009 NCVO almanac – the bible of charity analysts in the UK – the four main sources of charitable income are: individual giving (38% of total income), government grants and contracts (36%), grants from trusts and foundations (9%) and investments (8%). Together they account for 91% of income.

Each of these has taken a hit over the last twelve months. Although the exact cost is yet to be counted, we know a little of what has happened to each of these sources.

Individuals: There is some evidence that the downturn has caused the public to be less generous. A recent survey by the Charities Aid Foundation shows that income from the public declined by 11.4% last year. And there is a case to say that this will continue in 2010 as unemployment continues to rise.

Government: State spending has remained steady through the recession but is certain to fall next year. The depths of cuts depend on the outcome of the election but, whoever is in power, spending will be significantly down. The Tories have talked about 10% cuts, and it is clear that a Labour government would seek to make similar savings.

Trusts and foundations: The lag in grant-giving means that the dip in grant-makers income is only just starting to hit. 2010 is likely to be a lean year, with many foundations cutting back. An analysis of the largest 300 charitable trusts by Cass Business School suggests that the value of assets have fallen by 10%. Similar patterns of a likely decline have also been noted by the Association of Charitable Foundations and the Charity Commission.

Investments: With billions wiped of the value of stocks, real estate and other assets, the value of investments has plummeted. One expert estimates that the value of charity's assets has lost 6% of its value in the last year.

Overall, these figures allow us to do some very crude calculations. Working with the headline figures we can calculate an overall figure for the potential cost of the downturn to charities.

The most recent estimate for the income of the charitable sector is NCVO’s figure of £33.2bn (in 2006/2007). Roughly speaking, this equates to £12.6bn from individuals, £12.0bn from government, £3.0bn from trusts and foundations, and £2.6bn from investments.

Applying the estimates above, the losses are £1.4bn, £1.2bn, £0.3bn, and £0.2bn respectively – making a total of £3.1bn. Overall this amounts to a fall in income of just under 10%. (This calculation is very ‘back of the envelope’ and relies on 2006/2007 income figures, but it gives at least a sense of the cost of the recession.)

Setting this in context, over the last decade the charitable sector has experience annual growth of 4-5%. Being aware of this gives perspective on the current downturn. Whilst there is sure to be further pain to come, a fall in income of £3.1bn suggests that the charitable sector will return to levels experienced less than two years before – perhaps not as bad as it first seems.

JC & Sarah Hedley