8 July 2010
A view from the Charity Commission
Good morning and thank-you for inviting me to speak at your Summer Conference.
I am delighted to be here during what is proving an eventful time for charities, the Charity Commission and all who are interested in this important sector.
We witnessed, two months ago today, one of the most interesting general elections in a generation.
The third sector – and charities in particular – were championed by all parties as a force for social cohesion and a key ally in delivering services.
This is for very good reasons. Charities can reach parts of society that the state can never reach, they impact on all of our lives and all of our communities, and they provide strikingly good value for money.
When we went to the polls we were aware that the economy was in difficulty.
Since then, however, the depth of the economic crisis has become even more apparent, as has the Coalition Government’s resolve to cut public spending.
The sector faces what will no doubt be the most serious funding crisis many of us have ever known.
It all reminds me of that apocryphal Chinese curse:
“May you live in interesting times!”
So are charities cursed with interesting times – will the public spending cuts being announced on an almost daily basis leave a depleted and diminished charitable sector in their wake?
Or should we see the current climate positively - as an opportunity for the sector to shape up and step up, entering areas of service delivery previously often reserved for the state?
These are some of the questions I’ll seek to answer today from the perspective of the Charity Commission.
First, then, the case for the prosecution; the argument for saying that these are indeed dangerous times.
It’s all about economics, of course.
Many of you will be familiar with our Economic Survey of Charities. We have been talking to charities every six months to find out how the recession is affecting them and how they’re responding.
The data we’re gathering suggests that the sector is feeling the impact of the downturn.
When we conducted the first survey in September 2008, only 38% percent of charities told us they were affected by what was then known as the ‘credit crunch’.
By March this year, when we carried out the fourth survey, the number of those saying they’ve been impacted had risen to nearly sixty percent.
Large charities, like Action for Blind People, have been hit hardest – more than 80% of charities with incomes of over a million pounds a year say they’ve been affected.
Having looked at your annual report before coming here, I note that Action for Blind People is among the many charities reporting a lower than expected income in 2009.
Larger charities are also more likely to rely on public grants for at least part of their income.
With average departmental budget cuts of 25% announced in the Chancellor’s emergency budget last month, the situation for them is likely to get even tougher.
Many charities will no doubt find themselves facing significant shortfalls when their three-year funding cycle comes to an end next year.
And demand isn’t going to decline just because the funding is.
We already know that many charities are beginning to feel the impact of a double whammy – increasing demands for services alongside reductions in funding and income.
The Charity Commission is often asked how we think charities should respond to these challenges.
Of course, sadly, we don’t have any easy answers.
The recommendations we are making to charities involve painful decisions and hard work.
But your charity has already taken a step which we believe will stand you in good stead during the coming crisis.
You’ve decided to collaborate closely with another charity working with blind and visually impaired people.
This demonstrates that you put the interests of your beneficiaries first.
It should also, I hope, lead to a more effective use of your money.
The Commission is urging more charities to follow your example and work together.
That doesn’t always have to mean making the kind of close, structural alliance you have entered with RNIB.
Charities can work together on specific projects and campaigns, by combining back office functions, or by lending and borrowing resources.
We think all of these forms of cooperation can be hugely beneficial.
Beneficial to the charities – because they can result in efficiencies of scale, they can spark creative friction.
But more importantly, beneficial to those the charity was set up to support. To your beneficiaries.
Close collaborations and mergers are of course never easy.
I’m sure you don’t need me to tell you about the challenges of logistics, organisational culture, differing systems and personality that arise when well-established charities come together.
But, from the point of view of the public and of policy makers, seeing charities working in apparent competition with one another can be a source of confusion and frustration.
Clearly, that’s something Action for Blind People and its partners have recognised.
We would like to see more partnerships, like UK Vision Strategy, that focus on shared aims and outcomes.
The Charity Commission’s Mergers Unit exists to help charities consider ways in which they can work together to improve their services and save money.
We advise charities on the legal, financial and commercial issues they need to consider when deciding to work with another organisation.
The Unit has been busy recently. Last year, we helped Age Concern and Help the Aged with their high-profile merger.
The unit also worked with charities as diverse as the Bristol Old Vic, the Manchester Jewish Federation and the London Mathematical Society.
But we’re still not seeing as much collaboration as you might expect given the bleak economic prospects.
Only 9% of charities we spoke to during the last Economic Survey say they’ve considered collaborating or merging as a response to the downturn.
When asked why they haven’t done so, many charities say that they simply don’t have the resources to look into it. Often smaller charities simply don’t know where to start. This can be a particular problem for smaller charities that rely more heavily on volunteers.
The Commission also encourages people who are thinking about setting up new charities to think collaboratively.
Our Registration team say that they think every morning 75 people wake up and say ‘I’m going to start a charity today’
On one level that’s great, but it’s often not the most effective way to achieve the change or impact they want.
Often, people find that another charity is already working in a very similar area, with very similar groups of beneficiaries.
It’s not our aim to dampen people’s civic enthusiasm or philanthropic urges. Freedom of association is a fundamental civil right and the diversity, size, and colour of the sector is part of its charm, its energy, its very essence.
But we do consider it part of our role to help people put their good intentions to the best possible use – and often that’s done by helping an existing charity rather than setting up a new one.
There’s only so much the Charity Commission can do to facilitate co-operation. The impetus, the drive, has to come from charities themselves.
It’s my hope that, by banging the drum for collaboration, and by providing targeted advice, the Commission will encourage more charities to consider the advantages of working in partnership with others.
Here’s another tip for surviving the crisis:
Go back to basics.
Even the most effective and well-governed charities can find themselves veering away from their original aims and intentions.
When times are tight there can be an irresistible urge to chase new funding opportunities and new income sources.
There can be particular difficulty in getting core funding and sometimes the only way is to start new programs and initiatives and chase grants and contracts for these.
During economically benign times, slight mission drift may not be a problem.
But charities facing a significant fall in income need to be clear about their core aims.
To survive, they’ll need to know what their primary aim is, and who their beneficiaries are – and then focus their resources accordingly.
Again, I know this isn’t easy. It might mean sacrificing activities or services you have come to cherish, that you’re proud of.
But if it’s a question of survival, you owe it to your beneficiaries to summon the courage to make the difficult choices.
Charities are not alone in this respect.
The Charity Commission itself has been adapting, painfully, to a tighter funding regime. By March next year, we will have lost 176 members of staff in six years.
That’s a loss of a third of our workforce.
This has seen us having to scale back much of our outreach work with charities.
We’re now spending much less time visiting charities, finding out about the issues they face, explaining our role to them.
We’ve tried to make cuts in a way that doesn’t impact on the quality of the services we provide.
For instance, we’ve invested heavily in making more services available online.
Charities can now register online – and over 65% do so;
Submit their annual returns and accounts online – and over 80% of them do;
And all our guidance is available online
We have a fantastic contact centre in Charity Commission Direct that helps 300,000 charities and members of the public who contact us through different communications channels each year.
We do, of course, make sure all our services and publications are accessible, for instance by making materials available in large print and Braille.
But to reduce costs while maintaining quality, we’ve stopped sending out hard copies of our publications and newsletters as a matter of course.
I’ve painted a fairly bleak picture so far. And I think that is justified to an extent. We are living through a recession and recessions are ugly, scary and brutish.
But, as I mentioned earlier, it isn’t all bad. There are some silver linings.
Such as the current political consensus about the value of charities and voluntary organisations in cementing society.
Charities, especially the smaller, local charities, don’t impose upon communities – they are part of them.
Politicians now realise that charities can therefore deliver services in a targeted, focused, efficient way.
And as the state retreats from territory it has inhabited for decades, charities and voluntary organisations will be called upon to fill the gaps.
The fear of course is that politicians are looking to charities to provide services on the cheap. To do for free what the state once did with tax-payers money.
That would be a concern, and I am encouraged that Nick Hurd, the minister for Civil Society, has made clear that he understands that charities need to cover their costs.
I also hope that, with a stated commitment to smaller charities will come a recognition that they may be less able to offer economies of scale when bidding for contracts.
Taking advantages of the local expertise of community charities may come with a premium.
The government has also said it wants to reduce the regulatory burden on voluntary organisations and charities.
We warmly welcome and echo that. The Charity Commission itself has been working to make sure the smallest charities do not face disproportionate burdens.
The 2006 Charities Act introduced a new threshold for registration. Now, charities with incomes of less than £5000 do not have to register.
And we’ve recently changed reporting requirements meaning charities with incomes of less than £25,000 don’t have to send us their accounts.
But we’re not the only regulator working with charities, and it’s important for the government to reassess the overall regulatory burden.
There’s a balance to be achieved and it’s important to bear in mind, though, that charities must be accountable and transparent. Charities benefit from enormous public generosity.
We must ensure that the trust that underpins that generosity is not put at risk - people have a right to know how charities take decisions.
Especially when those decisions concern money they have donated.
The likely surge in volunteering is another positive prospect.
Many highly qualified, highly motivated people are finding their entry into the job market delayed due to the recession.
That may not be great news for them, but it can benefit charities able to offer these people a chance to put their skills, energy and ideas to good use – in return for valuable experience.
And I think it’s important for me to stress that the sector is by its nature optimistic – it is all about change and action.
The last Economic Survey of Charities revealed that, despite declining income, 81% are positive about their future prospects.
That’s a testament, perhaps, to the spirit and tenacity of those working in the charitable sector.
So back to the question I started with – Are these ‘interesting’, and in other words, dangerous times for charities?
I think the answer has to be: Yes, but.
Yes, but, charities willing to join forces with others may find it easier to weather the storm;
Charities that are clear about their objectives will be able to cut costs while staying true to their mission.
And charities that take advantage of technology may find they can provide services more cheaply and more efficiently.
I can’t promise that the recession will pass without casualties.
There will, inevitably, be charities that fold because they can’t make ends meet. These, I am sure, will include large charities as well as small.
But the Charity Commission has a dual role, as many of you know.
We are here not just to regulate, but to also to enable charities to work at the heart of society.
And we take that role very seriously.
So I can assure you that we will continue to do what we can to help charities through the economic crisis.
- By providing advice and guidance to charities,
- By upholding the reputation of the sector
- And by using every opportunity to remind policy makers, parliamentarians and the media about the key role you play in society.
Thank-you.