A big idea to support small charities

Imagine your charity had £500m in the bank, but couldn’t spend a penny of it. And it’s not just that you can’t spend it immediately, or this quarter, or even this year, but that there is almost no chance that the charity can spend it in your lifetime, the lifetime of your children, or even of their children. The money must remain untouched for centuries.

It would be particularly galling at a time when unrestricted funding seems ever harder to come by for many charities.

But for one charity, this isn’t a hypothetical scenario, it’s the very real situation they face. The trustees of the National Fund are required by their founding documents not to spend their money until it reaches a certain level. A prudent investment strategy, you may think. But the trigger they’re waiting for is that the level of their investments grows large enough to pay off the UK’s national debt.

The National Fund was established in 1928 with an anonymous £500,000 donation – around £30m in today’s terms – and its trustees were bound over to manage it until it grew large enough to pay off the debt. A notion that now seems whimsical but was in fact quite earnest.

Since then, diligent management has seen this sum grow and grow. Compound interest has been described as ‘the most powerful force in the universe’, and the National Fund is an example of what can become of an investment if you’re prepared to wait long enough. The fund’s assets today stand at over £480m.

But while it has grown, so has the national debt. To the extent that the chances of this fund ever becoming sufficient to satisfy it are vanishingly small. Economists would likely quibble the wisdom of paying off the debt in one fell swoop in any case. The trustees think it’s time to give up and have been exploring their options.

They have a tricky question. What can the fund do with the sum it has accrued? The legal advice is that if they cannot exactly satisfy the wishes of the founder as embedded in their governing documents, they must do the closest possible thing.

The charity is now set to donate its entire balance to the treasury, with the condition that it contribute to paying the national debt. The fact that this £480m will be a drop in the ocean of the £1.8tn the UK owes makes no legal difference.

The principle here of using charitable money for the closest possible purpose to what it was intended for is right, and one we must be careful to defend. But I believe this unique event gives the government a wonderful opportunity.

It is a half-billion-pound windfall which the treasury was not expecting and had not budgeted for. It is open to the government to take the saving it’s going to make on national debt repayments and use it to do some good elsewhere.

At NCVO, one idea we’d like to see the government explore is putting the saving towards the proposed new community wealth fund.

Community wealth fund: investing in communities for a generation

The government has been working out how to free up so-called dormant assets – long-forgotten stocks and shares – and put them to use for good causes (it’s similar to what they’re doing with dormant bank accounts already).

NCVO is among a number of charities calling for these assets to be used to create a new ‘community wealth fund’ that would be used to create community infrastructure, particularly in the areas that need it most. For example, buying a hall, library or community centre for a local charity to run.

Rather than funding a project, by paying for capital items like this, the charity has the security of an asset which it can use to generate income and sustain its services for decades to come.

By combining the £1–2bn of estimated dormant assets with an injection of funding from the government’s £500m saving on the national debt, we could create a truly transformative source of capital for local communities.

This is not an idea that will come to fruition overnight as the work involved in freeing up these assets is complex, but it has the potential to make a real difference. You can read more about the proposals here and, if like me you think this is an idea worth pursuing you can register your support here.

It’s time for action

NCVO has written to the attorney general (PDF, 120KB) to make the case for the government to use its windfall in this way. It is precisely this sort of intervention that we need to nourish local voluntary action for the future.

Despite shrinking local government spending, we’ve seen a willingness from communities to create and run their own creative, responsive services. But their ambition will always be limited unless it can be resourced. We know from our analyses of charity accounts that smaller charities have been struggling in recent years.

Giving local charities the capital they need to work from a sustainable base is our very best hope to make the most of the time and energy people give locally and truly improve our communities.

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

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