Incentivising regulatory participation: Examining the effectiveness of the Fundraising Levy in England and Wales

Dr Diarmuid McDonnell is Research Fellow at the University of Birmingham. His blog is based on a research paper co-authored by himself, Professor Alasdair Rutherford and Dr Eddy Hogg. The paper, entitled Incentivising Regulatory Participation: Examining the Effectiveness of the Fundraising Levy in England & Wales, was awarded the 2018 Campbell Adamson Memorial Prize at the NCVO/VSSN Voluntary Sector and Volunteering Research Conference in September.  

A key issue with the regulation of charities is how regulation is to be funded. In its first year of operation, the new Fundraising Regulator for England and Wales encountered this very dilemma and implemented an approach to incentivising charities to contribute to the cost of regulation.

One of its key strategies was to request – quite persuasively – a voluntary levy from charities that spent over £100,000 on fundraising. Charities meeting this threshold were expected to contribute on a sliding scale (shown in Figure 1), while charities spending below this figure were asked to pay a flat fee of £50.

In order to stimulate contributions, the Fundraising Regulator threatened to ‘name and shame’ charities who did not pay. In August 2017, at the end of the first year of the levy payment scheme, it named the charities who had made the contribution and those who had refused or not communicated with the regulator.

This revealed high participation rates, particularly amongst larger charities, but also significant numbers of organisations who had opted out. We therefore wanted to explore whether the reputational risk of ‘naming and shaming’ acted as an effective incentive for charities to pay the levy for fundraising regulation.

Figure 1: Payment Categories for Stepped Rate Charities

Source: Fundraising Regulator [*]

To do this we collected financial data from the Charity Commission and combined it with the information on who paid the levy, taken from the Fundraising Regulator’s website. We then estimated the effect of the ‘name and shame’ threat on the probability of a charity contributing to the cost of regulation, by using a quasi-experimental approach known as Regression Discontinuity Design (RDD). Here is what we found.

Key findings

Our results suggest that concern for reputational damage of being seen as not contributing to the fundraising regulation far outweighs the financial cost to the organisations. This has a number of clear implications:

1.

Fundraising charities place high value on their reputations, and the threat of being ‘named and shamed’ by the Regulator was a significant one (see Figure 2).

Figure 2. Regression Discontinuity Design Model

2.

The way the levy was implemented was necessary to secure the level of participation of charities observed. Those more susceptible to the effect of the ‘name and shame’ tactic were i.e. those around the £100k threshold. Very small charities were always unlikely to pay and the opposite for very large. In the first year that the regulator required charities with a qualifying fundraising spend to pay the levy, a total of 1,408 out of 1,865 had paid up by the year end.

3.

The size of the fee itself is not a significant barrier to participation for most charities, though we caution that altering the levy fee bands may not result in higher or lower numbers of paying charities.

4.

The estimated income for the regulator attributable to the ‘name and shame’ approach was significant (approximately £900,000), and without this it is likely that the level of resources available for fundraising regulation would be significantly lower.

Conclusion

Our analysis suggests that the ‘name and shame’ approach can be an effective strategy when the regulated organisations are concerned for their reputations. In the short term, it has the potential to compel organisations to contribute to the cost of regulation.

However, regulators need to be aware that this approach may come at the cost of building confidence in the new regime – payments are made out of reputational concern, rather than because of faith in the regulator. It remains to be seen whether this approach is effective in the medium to long term, and how the participation of charities evolves over time.

[*] https://www.fundraisingregulator.org.uk/registration/large-charities

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