Monday, July 03, 2006

UK voluntary sector: Where is the money going to come from in the years ahead?

The Economist and The Sunday Times have each published articles about philanthropy during the past week, specifically reporting on the decision by Warren Buffett to join Bill and Melinda Gates in creating the world’s biggest charitable foundation.

Mr Buffett’s gift of $37 billion exceeds the $31 billion Mr Gates gave to his own foundation, but even so, both men are quoted as having global aims in making a difference in eradicating disease and poverty in developing countries, highlighting the need for investment in the areas of research and education to overcome malaria, tuberculosis and HIV Aids. Mr Gates has stepped down from his day job at Microsoft to focus his talents on running the Bill and Melinda Gates Foundation, where he is joined as a trustee by his wife and Mr Buffett.

The new Gates Foundation has overnight become the world’s biggest charitable foundation. Already though, Mssrs Gates and Buffett have cited concerns that many billions of dollars have been squandered over the years by well-intentioned philanthropists which is why their new foundation is being run along much vaunted businesslike lines with an emphasis on beneficary organisations achieving outcomes from the money given to them. The Economist describes Bill Gates as one of the leading practitioners of the new “philanthrocapitalism”, an approach that draws on modern business practices and an entrepreneurial spirit to get more for its money.

To its credit, the Gates Foundation has built performance measurements into all its projects and is reported as being prepared to axe those that fail to deliver.

This trend for more businesslike approaches to philanthropy is apparent to New Philanthropy Capital (NPC), which advises donors and charities on how to be more effective.The Sunday Times cites NPC’s chief executive, Nigel Harris, who says, “What we’re seeing is potential and actual donors becoming more and more concerned with the effectiveness of the charities they support, how the money is used, and what difference the charities actually make on the lives of the people they work with.”

In other words, NPC and the new breed of philanthrocapitalist are talking about the importance of outcomes and not merely outputs.

One definition of the difference between the two terms is that the outcome is the result of the intervention by the charity, or the direct result of having received a particular service. The output may well be the number of interventions (even if they are not all successful). Another simple way of defining the difference is that a charity may produce 10,000 information leaflets to support a specific awareness raising campaign (the output). However, the outcome would be a measurement of the number of people who read the leaflet and took action accordingly.

The point about understanding the difference between measuring outputs or outcomes, as well as noting the news about the rise of philanthrocapitalism, should be taken seriously by charity trustees and managers the world over, as both issues have a potential impact on future funding.

First and foremost, it is very easy for financially hard pressed charities to get very excited about the news that the Gates Foundation has been established, and it is not hard to imagine lots of fundraisers preparing well-crafted emails and letters to highlight why their particular cause is worthy of support by Mr Gates and Mr Buffett. This writer’s advice is this: don’t waste your time!

To fully appreciate the impact on the world of an organisation like the Gates Foundation, let us consider for a moment what exactly is meant by ‘the voluntary sector.'

What is the ‘voluntary sector’?

There is often talk about ‘the voluntary sector’ as though it is one homogenised mass of similar organisations when in fact nothing could be further from the truth. The focus for the Gates Foundation is either worldwide activities on a par with those led by non governmental organisations (NGO’s) such as the various United Nations agencies as UNAIDS or The World Health Organisation, or projects in the United States such as the $1 billion reported in The Economist poured into school districts from San Diego to Cincinnati to raise graduation rates. So, in this context, the voluntary sector focus for the Gates Foundation is either those organisations with a global remit, and/or NGO’s as well as projects that mirror the aims of the foundation in one specific country eg the United States. In the case of projects supported by the Gates Foundation, it is also important to note that many philanthropists (or philanthrocapitalists) are the ones who decide on the beneficiaries for their money and are not easily swayed from their own aims and objectives.

Incidentally, just as it is equally important for charities to make their aims and objectives clear in their own governing document and not be swayed in order to ‘chase the money’. It is also noteworthy that ‘the voluntary sector’ is a term that is more clearly defined and understood in some countries than others.

For example, there is an established voluntary sector in the United States, United Kingdom, Australia, and Canada, but even within the European Union, the concept of the voluntary sector, and indeed, volunteering is not part of the culture of all member states eg in France and the newer member states, the concept of volunteering is not widely recognised.

In the UK, there is a well established voluntary sector made up of over 190,000 registered charities with total revenue of £26.3 billion. The UK voluntary sector is also a major employer with a paid workforce estimated to be 608,000, equivalent to 2.2% of the working population. Also, employment growth in the UK sector has been rapid: 45,000 more people were working in the sector in 2004 than in 2000. According to Cass Business School’s Centre for Charity Effectiveness, it is estimated that 1.1 million people would be needed to replace volunteer input on behalf of UK charities at a cost of £25.4 billion.

However, when considering the size of all those charities, it becomes clearer that the term ‘voluntary sector’ means different things to different people.

Only 2% of the registered charities in the UK receive two thirds of the total income. In other words, there are only 3,800 organisations that really matter in financial terms. As 56% of UK charities have annual revenues of less than £10,000, it can be misleading to apply the same definition to the big players in the sector. As the term ‘third sector’ is sometimes used inter-changeably with the phrase, ‘voluntary sector’, perhaps the bigger UK charities should be described as the ‘fourth sector’? After all, it is these organisations with the revenues and staff structures that enable them to operate on a scale and in some cases, demonstrate a culture more akin to big business than the local self-help group working in the local community.

So, when talking about the ‘voluntary sector’, and using the UK model as a point of reference, we can already see that there are at least three tiers based on size alone eg NGO’s (including organisations with a global remit); the ‘fourth sector’ organisations, and finally the small (less than £10,000 revenue) organisations that make up the majority of UK charities.

It is when considering financial issues (not always the first thing that charity people like to talk about) that the differences between organisations grouped together in the ‘voluntary sector’ become even more pronounced.

According to Cass Business School, 38% of the £26.3 billion going in to the UK voluntary sector comes from statutory sources. Given the analysis that the bulk of total revenue is being received by the ‘fourth sector’ organisations, it is not unreasonable to assume that the bigger organisations are also the principle recipients of statutory incomes.

This figure should be viewed alongside a reported 10% drop in income for charities in the revenue bracket £10,000 - £100,000 between the years 2002/2003 – 2003/2004, and the on-going commitment of the UK government to partnerships with the voluntary sector as part of its reform of the delivery of public services.

In his speech to the Future Services Network conference on 22 June, the Prime Minister Tony Blair once again highlighted government plans to reform public service delivery with greater collaboration between the public, private and third sector.

The Prime Minister said: “It seems clear to me that partnerships between commercial companies, third sector organisations and the public sector will, more and more, be the way we deliver better focused and more cost effective public services.“A great deal has happened in the sector since 1997. It is the same sector in name only. Its scope, capacity and skills have been transformed. Of course the major credit for that goes to the people who have done it. But I like to think that a supportive government has played its role too.”

Meanwhile, the National Council for Voluntary Organisations (NCVO) has released new research which highlights “systematic failing in the government’s approach to the delivery of public services by voluntary and community organisations”. The survey demonstrated how funding bodies were largely failing to provide contracts for longer than one year, while failure to agree payments in advance, or to pay on time, were commonplace.

Of those surveyed, 55% have not had funding negotiated and agreed promptly for this financial year, while 41% who had their funding agreed had not been paid on time. Also, 46% had not had their funding agreed for a period longer than one year, while 47% had not had funding agreed for payment in advance.

So, what does all this mean for the future funding of the UK voluntary sector?

The UK government talks about placing public services in the hands of the voluntary sector, but does it really mean those registered charities that are big enough to be described as the ‘fourth sector’? Or will future government initiatives be open to even the smallest of those charities that make up the vast majority of registered UK charities?

Phil Woolas MP, minister for local government and community cohesion told the Future Services Network conference that a cross-government action plan is due to be launched this autumn, which will hopefully allow for greater inter-government collaboration at a time when it is calling for greater collaboration between sectors. The action plan was originally muted for May this year, though the cabinet reshuffle caused this to be pushed back.

Given the complexity of what is meant by ‘the voluntary sector’ does the UK government need to show a greater understanding of how the sector operates? If this does not happen, a real concern will be that voluntary and community organisations cannot take on a greater role in public service delivery as envisaged.

Even worse from a funding perspective is a concern that funding for bigger charities will become increasingly linked to the political agenda in support of public services, leaving smaller charities increasingly cut off from those funding streams.

Long term, it could have the net effect that the big get bigger, just so long as they understand the politics involved, and the small get smaller (or disappear altogether).

Given that this is the scenario being faced by the UK voluntary sector, is it any wonder that the voluntary sector viewed on a global scale by philanthrocapitalists is even more complex?And finally, what about the difference between outputs and outcomes? Outputs are often easier to measure than outcomes, yet the focus on outcomes rather than outputs is precisely what charity trustees should be looking at to ensure a sustainable future for their organisation.

It probably comes as no surprise to find that 53% of formal volunteers are involved in fundraising, but for the sake of the longevity of many charities let us hope that those fundraisers are looking at longer term funding issues and not just the next project.

Tony Gibbs is Director of

Sources: The Economist 1st July 2006, The Sunday Times 2nd July 2006, Charity Times 22nd June 2006, The Centre for Charity Effectiveness at Cass Business School, and The UK Voluntary Sector Almanac: The State of the Sector 2006.


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