The seven deadly charity myths

Charities and voluntary organisations have been highlighting the impact that cuts in government funding are having on the most vulnerable people in society. We’ve done it too today with the launch of this report, which we think is the most robust set of estimates yet.

Not everybody likes it when they do this. In response, some bloggers, politicians and columnists have made statements about charities that are wrong. They’re what you might call myths. Partly inspired too by Toby Blume’s excellent blog on independence, we wanted to put the record straight. Why? These myths also can lead to poor decision making, as the perception grows that the sector can or should simply fundraise more, or that it is refusing to take responsibility for its own future. Inevitably we’ll be accused of protecting our own jobs, or those of our colleagues. That comes with the territory. In the meantime, get in touch with us if you’d like us to correct more myths and misinformation. But in the meantime, here’s ours:

Myth #1:  Charities live off Government handouts

This is simply not true. In fact, almost eight out of every ten charities have absolutely no financial relationship with the state. In reality, it’s more likely that the opposite is true as the state heavily depends on charities to provide services that it can’t deliver itself.  Charities play an essential role in identifying need and providing relevant services. They are uniquely positioned to do so through their work with people and ensuring their voices are represented.

Charities get funding from a wide range of sources and only 36% (£12.8 billion) of their total income comes from the state. Another third 37% (£13.1 billion) comes from individuals through donations and membership fees. The rest is made up from a wide range of other sources – including trusts and foundations, trading subsidiaries, the national lottery, private businesses and investments.

Nearly three-quarters (£9.1 billion) of the £12.8 billion that the voluntary and community sector does receive from the state each year is payment for the delivery of contracts for both central and local government. In these cases charities have been selected through a procurement process as the best group to provide a statutory service (this is often in competition with private sector organisations).[1]

The Charity sector receives £3.7 billion a year in grants from government, but these grants are not “handouts”. Grant funding allows the sector to be innovative and experimental, which gives charities the space to tackle the root of social problems, rather than just fixing the symptoms. This is a preventative measure, which, in the long run, saves the country money.

Myth #2: Charities funded by government aren’t ‘real’ charities

Again, this is not true. A charity is a charity regardless of its funding arrangements with the Government. Does anybody say that businesses that have contracts with the Government aren’t ‘real’ businesses?  Charities need to meet two requirements – they must have a purpose which is charitable (which fits a strict set of legal criteria) and it must operate for the public benefit. A charity’s source of income is not stipulated by these criteria.[2]  Independence is crucial for charities and even if an organisation has a financial relationship with the state, they must make autonomous decisions in the interests of their beneficiaries.  Also, even charities that receive funding by government will have volunteers to support their frontline work or to act as trustees.

Myth #3: Charities don’t pay any tax

Simply not true – charities contribute a large amount of tax and are significant economic contributors. Confusion seems to occur on this because registered charities do qualify for some tax exemptions, such as corporation tax, local business rates, stamp duty and capital gains tax.  The purpose of tax reliefs is largely to provide incentives to donors, without which charities could not function.

Charities can also claim gift aid on donations they receive, but this is a recovered from income tax already paid by donors, so technically is not an exception at all. In 2007/8 charities received a total £2.2 billion in tax relief.  Officials estimate that charities paid around £1.35 billion through taxes in 2007/08.[3]  This is because charities can’t recover the majority of VAT payments (so they pay 20% tax on everything the buy). And, of course, most also have to pay employers National Insurance contributions.

Myth #4: Charities aren’t playing their part in dealing with the deficit

Charities have been hit hard by the recession. Most have been working efficiently and creatively to reduce the impact of cuts to their often vulnerable beneficiaries. The recession had a huge impact on charities. Charitable giving fell during the recession, with donations from individuals falling by nearly £1 billion between 2008 and 2009.[4] Worryingly this has not yet recovered. It also comes at a time when demand for services has increased by over 17%.[5]

Some people comment that there are too many charities. They fear that this increases bureaucracy and reduces efficiency. This is an ongoing debate within the sector.  Again, would anyone comment that there are too many businesses? Or go as far to discourage new enterprise? In fact, internally, most charities are working as efficiently as possible through collaboration, joint projects and, in some cases, mergers. Charities have also proactively worked with the Government to cut costs in public service delivery.

Myth #5 Charities can just fundraise their way out of trouble

In theory yes, many charities can fundraise but others face a very different reality. According to our figures, charities would need each current donor to give an extra £32 every year to balance the books. Alternatively, charities could try and get an additional 6.6million donors to give the typical monthly gift of £11 to make up for the loss. This is a pretty big ask when everyone is feeling the effect of the ever rising cost of living.

There’s also another reality for charities; people tend not to give to causes that are paid for by statutory bodies, such as women’s refuges or advice services. It will be a long, and possibly futile, exercise for these vital organisations to substitute state funding with donations. What happens to those who need these services in the meantime?

Myth #6 Some charities are just sitting on massive piles of cash

Yes some charities have reserves. But most live hand to mouth. It is true, some charities do have cash reserves but these tend to be very small.  Our research shows that one in three charities have no funding in reserve and that the median funding level is just one months’ worth of expenditure. [6]  Cash reserves are mainly held by grant-making foundations, which tend to fund the same charities, or fund things like medical research. Essentially, most charities live hand to mouth.

Myth #7 You all work for free, so what do you need our money for?

The Charity sector doesn’t work for profit but they do employ over three quarters of a million people. This vibrant sector needs the skills, expertise and full-time commitment of paid staff to keep it efficient and innovative.  It is an accepted standard to pay people for their work, so they can pay the rent and support their families, regardless of an organisation’s overall purpose.

Of course, volunteering is the mainstay of the charity sector. An incredible 11 million people volunteer in the UK each month.[7]  But volunteering isn’t free for charities because volunteers need support and management, which of course, costs money. Yet the use of volunteers does offer exceptional value for money. A recent study of 8 charities across Europe (including three in the UK) showed that for every £1 spent on supporting volunteers, the charities received an average financial return worth between £3 and £8.[8]

What do we mean by charities?  People use a number of interchangeable terms to describe our sector ranging from voluntary sector, to voluntary and community sector, to third sector, to not for profits. So, we’ve used the term charities here to because it is short and simple.

And finally – if you fancy seeing an all-singing, all-dancing version of our myths have a look at this:

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Karl Wilding Karl Wilding served as NCVO's chief executive from September 2019 to February 2021.

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