Can they still focus exclusively on their missions?  Or is a fourth sector emerging


The debate about public service provision continues apace.

It has matured and moved on though. It has left behind the private sector good, public sector bad (and vice versa) polarization to a more settled consensus, where many believe that a mixed economy of provision is probably the answer. Short hand for – go with what works best in the given circumstances. What is particularly striking though is the degree of consensus shared by the Government and the opposition parties in their belief that the not for profit sector should have a much greater say in public service delivery. In his Hugo Young memorial lecture, for instance, David Cameron said he wanted to give more power and money to the voluntary sector and “social entrepreneurs”. Indeed some Ministers at least, want to break public sector monopolies and harness the energy and idealism of charity workers. The Third Sector is close to the most disadvantaged in our communities and has collectively a wealth of experience in delivering effective programmes, at the sharp end, delivering clear public benefits. Charities are, by and large, also trusted more than central government although less so, ironically, it seems, if they are delivering public contracts. Trusted because their motives are perceived by some to be purer, more altruistic than those who pursue profits and shareholder value. They have a civic work ethos too. The way in which the voluntary sector works in communities is quite often seen as a model of best practice and innovation, in service delivery. It can reach parts of our communities the state can’t .And Charities tend to be better listeners, giving people the services they know they need, not what policy planners think they want. Politicians also worry that trust has been eroded between stakeholders in our society leading, to a dysfunctional society. Charities, some feel, with their bottom up approach, can help re-establish that Trust and with it foment societal cohesion. But isn’t the current view of charities far too idealistic, and all a bit too good to be true, given that some operate very similarly to large corporations in pursuit of new business and income? Indeed, isn’t the dividing line between profit makers and not for profits just becoming a little too blurred? And are charities in practice any more likely to succeed than other providers where the challenges are greatest? Certainly most politicians have few worries about harnessing charities strengths to help deliver public services and the government has opened up a closer dialogue with the Third Sector to try and make it easier for charities to position themselves to bid for contracts. However, there are tentative signs that not everyone agrees that it is always a good thing to involve the third sector.

 There are some worries too that the closeness to and reliance on the Government of some charities may ultimately damage the charity brand and erode the trust that people generally have in charities, either because they are perceived as losing their independence, drifting away from their core mission, or because they are associated with government policies that are perceived to have failed. Many Charities have long been involved in delivering large government contracts. Over 60% of charities with an income above £500,000 deliver public services. At the big end the sector is very significantly engaged in public sector delivery. But there are some developing concerns over the current trajectory and the effect it is having on the Third Sector and its independence.

The Union Unite has recently warned against Charities imitating the for profit companies worst habits. The Union believes that the excessive City pay culture is seeping into the remuneration packages of charity bosses and should be curbed. Unite, which has 60,000 members in the not for profit sector, is concerned that some chief executives are earning more than the prime minister’s annual salary of £197,000. And while chief executive pay soars at a rate of 6% per cent a year, many charity workers are struggling with wages just above the national minimum wage (NMW) of £5.80 an hour. Unite is calling for charities to look closely at the rates of pay of all their employees and to iron out inequalities. Unite favours flat pay increases for everyone, rather than percentage rises, as this would benefit the lower paid. Unite highlighted the pay of Anchor Trust’s chief executive, John Belcher, whose pay was £391,000 in 2008/09, while many of his employees, running homes for the elderly, are living on wages just above the NMW. Unite should perhaps be a little careful here as union leaders are hardly role models when it comes to modest salaries, expense accounts and pensions. Pots and kettles spring to mind.

 Nick Cohen writing in this weeks Observer expressed his concerns too, looking at charities from a slightly different angle. He believes that some of the third sectors work simply helps whitehalls command and control culture and over centralization. He has detected a creeping nationalization of the charity sector. Cohen remarked that the state does not wither or even shrink when it pays charities to do its work. It merely decentralises the provision of services while expanding the centre’s command and control into new areas of public life. Once ensnared, he believes charities find it hard to break free. When the government provides the bulk of their funds, former donors take their money elsewhere, reasoning that their generosity is no longer required. In extreme cases, charities go bankrupt when the government halts the flow of public funds and they no longer have private donors to turn to. More often, they just get caught up in the state’s debilitating compliance culture. “Government is obsessed with evidence-led, outcome-driven work,” sighed the director of Fairbridge which helps young people find work. “They demand statistics on every little detail of our operations, from the ethnicity of our clients to their postcodes.” But the real problem isn’t bureaucratic –it is can a charity that relies on the state remain a charity?

 A Charity Commission Survey in 2007 found that almost 50% of charities delivering public services can’t agree whole-heartedly that their activities are determined by the charity’s mission, rather than by funding priorities. These impacts are exacerbated by the heavy funding dependence of some charities on precisely the sources which may be threatening their independence. Over 30% of charities which deliver public services get 80% or more of their income from public service delivery. This rises to almost 67% for charities over £10 million. For example, the National Youth Agency receives 60% of its income from Government. Save the Children receives over £83 million from governments worldwide (51.8% of total income), Barnardo’s is 78% state funded. Action for Children 88%, while the National Family and Parenting Institute is almost a fully owned subsidiary of the government. And so on.

 The think tank Civitas, in 2007, suggested that if Charities derive over 70 per cent of their income from the state they have reached a level of dependency which makes them more part of the state than civil society and they in consequence should lose their charitable status in order to preserve the integrity of the sector. Civitas observed that as the government funds charities, and even turns statutory bodies into charities, the lines are becoming blurred. These charities come to resemble more and more the statutory departments on which they depend for money, whilst also competing with genuinely independent charities for donations, (and in the market?) and creating confusion about what a charity is and stands for.

If you take Government money then you have to lose some control.There has to be a trade-off though . If you don’t take any government funds then you may severely limit your resource base, your capacity to have much impact or to pursue your mission effectively.You also risk being seen as irrelevant. It isn’t easy for Charities. Funds are hard to come by, particularly in a prolonged recession and credit crunch. Governments demands can be costly. Regulatory requirements are burdensome in financial and bureaucratic terms .Frequently contracts are short, three years or less, and it is sometimes difficult to fully recover costs.Government departments can be late payers.Interference from civil servants is trying and the Government always holds the whip hand in contract negotiations. They have the added challenge that if they win a large government contract, recruiting additional expert staff to service that contract , they are under huge pressure to generate new income to sustain that investment and resource over the longer term, and after that contract has ended. Hiring and firing staff simply to deliver a particular contract is unsettling, inefficient, creates discontinuities, is expensive and curtails organic growth. There are no easy answers to the way forward .Trustees have difficult choices to make but if the Government ,and politicians more generally, want the third sector to partipate more in service delivery it should listen more closely to the challenges the sector faces and indded the dilemmas Trustees face. Particularly over the pressures to safeguard their charities independence and their core values and missions.

The Charity Commission’s regulatory framework, applies to charities and charity trustees. It’s the trustees who face the consequences if mission drift goes so far as to become a breach of trust. For it is for Trustees to ensure, in the Commissions words, that they “view independence as absolute, non-negotiable and sacrosanct.” Dame Suzi Leather the Commissions Chair has said that “ Charities have a distinctiveness they must not lose. We must not see a fourth sector emerge – charities delivering public services which are charities in name only.” She gave this warning in 2007 and with more expected from charities by government it is worth recalling.

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