Alex Steer

1288 words | ~6 min

Two-sentence version: Fakecharities.org thinks government funding makes charities mouthpieces of the state. It is wrong.

Long version...

Bad Science author Ben Goldacre brought the website fakecharities.org to the attention of a fairly wide readership the other day when he wrote this Twitter post:

FakeCharities.org: fun idea, nicely run site http://rly.cc/8qVXn

The link is to a blog post on the website of the free-market think-tank the Adam Smith Institute, who describe fakecharities.org as 'excellent'.

Without disrespect to Ben, the purpose of this post is to argue that fakecharities.org is not a fun idea, or a good one. Instead it demonstrates a serious misunderstanding of the charitable sector and (I think) a wilful attempt to change public perceptions of what charities are.

A bit of information first. Fakecharities.org says it is edited by The Devil's Kitchen, a libertarian-leaning UK political blog. The fakecharities.org domain is registered to Chris Mounsey, a freelance graphic designer who is also head of communications for the recently reformed UK Libertarian Party.

There site is very open about its intentions. It describes itself as:

A directory of those so-called charities that receive substantial funding from either the UK or EU governments. These charities are usually brought to our attention through interviews in the mainstream media (MSM) in which they support the position of the government that funds them. Further, there is nothing charitable about tax being taken, by force, from you and me: charity is about voluntary giving. These organisations thrive on theft. At fakecharities.org, we believe that these effective QUANGOs and state-lobbying agencies are not only undemocratic but, being funded through taxes rather than donations, are effectively stealing donations from real charities—those that do valuable community work.

Let's break down some of the assumptions that the site makes about charities.

1. There are 'fake charities' and 'real charities'.
2. 'Fake charities' are those who operate mostly on statutory income (money from public sources).
3. 'Real charities' are those who operate mostly on non-statutory income.
4. Charities who operate mostly on statutory income are government mouthpieces principally engaged in lobbying to make government policy look legitimate.
5. Charities who fall outside this group do 'valuable community work'.
6. By extension, these 'fake charities' do not do 'valuable community work'.

Here's why it's wrong.

Government is not throwing money at charities. Fakecharities.org drastically underestimates the extent and complexity of statutory funding. Income from government bodies does not come in the form of massive bungs to charities' central funds. One of the biggest problems charities face is that government money always comes with strings attached, and not in the way fakecharities.org thinks. More often than not it is 'restricted' income - money that can only be used for certain a very defined purpose.

Charities have a role in public services. Most of the time, this purpose is the delivery of public services. It is seldom, if ever, lobbying and campaigning. Historically, this money has tended to come in the form of grants. It is increasingly coming in the form of service-delivery contracts, which place even stronger conditions on how it can be used. Charities have to bid for contracts, often against private companies as well as other charities. This system (known as 'commissioning') is complex, expensive for charities and usually operated at the local authority level rather than by central government. The rather glamorous idea of a QUANGOesque demi-monde in which charities exist to talk up government policy is fantastical. More often than not, charities spend their time fighting for contracts from local councils.

Yes, there is a lot of money in this. We shouldn't underestimate the scale of this: according to the Charity Commission, 60% of medium-sized and large charities deliver public services, and so receive some sort of statutory income. One third of these, it's true, receive 80% or more of their income for service-delivery work.

But no, it doesn't come easy. However, this does not mean that all those charities are in some sort of financial wonderland. Charities that are heavily reliant on government money, far from being shills for government policy, are hugely vulnerable to it. If policy changes, their money goes. Over two-thirds of public-service contracts are for a single year or less, which makes financial planning a nightmare. Only 12% of charities manage to cover the full cost of their service-delivery work from the government, because these grants often don't cover basics like heating, lighting and office admin.

Charities are feeling the pressure. Barely more than a quarter of charities who deliver public services feel that they are free from pressure to conform to their funders' wishes. Charities who operate largely on government money find it very difficult to develop new areas of work because they simply cannot afford it. They are caught in a vicious circle: since they often cannot afford sophisticated fundraising operations, they cannot get the unrestricted income they need to avoid this pressure. They have a tendency to chase government contracts, a process which is itself costly and time-consuming. This is not a world in which charity chief executives are throwing wads of cash in the air while singing the praises of government initiatives.

Most charities do not lobby. The lobbying role of charities is not larger than it should be: it is not large enough. Uncertainties about how campaigning fits with charitable status, together with prohibitive costs of entry, discourage many charities from trying to influence policy. Yes, there are plenty of high-profile examples, but many simply do not know where to begin. They are left mopping up the outcomes of social problems which they believe could be more effectively tackled by early intervention from government. (This is not a view I expect libertarians to share, though of course many libertarians believe very sensibly in a market-orientated approach to early intervention which may be even more efficient. It's just that, bluntly, that market does not yet exist and will take time to be created. At the moment, the best hopes for early intervention lie with the state.) For the full picture on charities' campaigning activities and their many limitations, see New Philanthropy Capital's excellent report Critical Masses, written by some of my former colleagues.

Fakecharities.org's view of the sector is inaccurate. It is also, I think, corrosive. Of course waste in public services is not good, but the website's bold but wrong assertions, and its series of institutional character assassinations (see the A to Z listing), do nothing to improve the quality of public-service delivery or the lot of charities, and provide a very distorted image of the work charities do, completely ignoring the difficulties they face, and inviting the kind of unthinking condemnation of them that makes it harder for them to build independent funding for that work.

I am a former non-profit analyst turned strategy consultant. I know a good deal about the charitable sector and how it works, especially financially, and I'd invite questions in the comments section of this post if anything is unclear.