Memorandum submitted by the National Council
for Voluntary Organisations|
1.1 NCVO is the largest general membership
body for charities and voluntary organisations in England. NCVO
has sister councils in Wales, Scotland and Northern Ireland. Established
in 1919, NCVO gives voice to over 1,600 organisations ranging
from large "household name" charities to small self-help
groups involved in all areas of voluntary and social action at
the local level. NCVO champions the cause of the voluntary sector.
It believes that the voluntary sector enriches society and should
be promoted and supported. It works to increase the effectiveness
of the sector, to identify unmet needs and to encourage initiatives
to meet those needs.
1.2 This submission:
summarises NCVO's research into the
voluntary sector funding environment and the impact of the National
Lottery on charitable incomes;
provides more detail on the arguments
behind NCVO's recommendations in relation to:
NCVO's expertise in relation to this inquiry
1.3 NCVO welcomes the opportunity to submit
written evidence to the Culture, Media and Sport Committee's inquiry
into the operation of the National Lottery. The National Lottery
provides a significant income stream for charities and voluntary
organisations. Its operation is therefore of particular importance
to the voluntary sector. Our submission has been informed by consultation
with our members.
1.4 NCVO has always been supportive of the
National Lottery provided that it generates additional money for
charities while minimising any potentially adverse effects on
their income and fundraising activities. Indeed in 1993 NCVO's
then President, Sir Campbell Adamson, argued that a successful
Lottery would be a Lottery which generates additional money for
good causes but which also balances the desire to maximise revenues
with social concern.
1.5 NCVO's guiding principles for the distribution
of Lottery proceeds are:
independence from government;
credibility and legitimacy;
awareness of the voluntary sector
and its needs;
use of established expertise in grant
accessibility for the full range
of voluntary organisations;
transparency of decision making;
1.6 NCVO has undertaken work on the National
Lottery since 1991, when a Private Member's Bill was introduced
proposing a National Lottery for the arts, sport and heritage.
NCVO has devoted considerable effort to try to ensure that the
National Lottery works for charities. We lobbied hard on the National
Lottery Bill and secured many important concessions for the benefit
of charities. These included a commitment from the Government
that it would monitor the impact of the Lottery on charitable
income. NCVO has closely monitored the National Lottery, both
before and after its launch in 1994, and has undertaken an extensive
programme of research and policy work of its own.
1.7 NCVO's programme of work since 1991
has included the following:
monitoring and assessing the impact
of the National Lottery on individual giving and the financial
situation of charities and voluntary organisations;
assessing the impact of the National
Lottery on the wider funding environment;
supporting the development of a sustainable
funding environment for the voluntary sector and protecting that
environment whenever necessary;
influencing the policies and practices
of the boards distributing Lottery funding to the voluntary sector;
disseminating information to promote
understanding of the funding priorities of the Lottery distributors.
1.8 Key achievements include:
submission of written and oral evidence
to the National Heritage Committee's 1996 inquiry into the operation
of the National Lottery;
publication of the report Charity
and the Lottery: the competition for loose change in 1996, comparing
pre and post Lottery data on public donations to charities;
an outgoing programme of research
tracking individual giving since 1994. By demonstrating a decline
in individual giving the research was influential in the outcome
of the Government's review of Charity Taxation; and
working with the Lottery distributors,
and particularly the National Lottery Charities Board and the
New Opportunities Fund, to ensure they have full access to voluntary
sector views on their programme development by running consultation
and briefing meetings.
2. SUMMARY OF
Research into the voluntary sector funding environmenthas
the Lottery had an impact?
2.1 While a causal relationship cannot be established,
and a complex set of factors was almost certainly at play, the
National Lottery could certainly have been one factor which had
an impact on individual giving. NCVO strongly recommend that the
Committee take this into account when considering the operation
of the National Lottery and its impact upon charities and charitable
Monitoring the impact of the Lottery on charities
and charitable income in the future
2.2 Given that NCVO's research does not
rule out a link between the National Lottery and the decline in
giving to charities, NCVO recommends that the Committee seek a
continued commitment from the Government to ongoing research to
monitor the impact of the Lottery on charities and charitable
giving. NCVO also believes that the Lottery Commission should
take some responsibility for monitoring the impact of the Lottery
on charities and charitable income.
2.3 We strongly recommend that the Committee
examines the issue of additionality. We do not believe that the
additionality principle should be sacrificed. Lottery initiatives
must be additional to what should properly be Government spending
and not a substitute for itnow or in the future. A clear
distinction needs to be maintained between Lottery programmes
and any mainstream Government initiatives they complement.
2.4 The perception remains that the substantive
content of New Opportunity Fund programmes had already been decided
by the Government before the Department for Culture Media and
Sport offered the first full consultation opportunity. In relation
to the choice of new funding programmes, effective and meaningful
consultation needs to take place with all relevant stakeholders
on the principles involved as well as the detail. While adequate
consultation has taken place on the detail, there has been (grossly)
inadequate consultation on the principles involved. We recommend
that this is one important area that the Committee should examine
in the course of its inquiry.
2.5 NCVO recommends that the Committee examines
the division of Lottery money between the Lottery distributors
with a view to making recommendations to Government. In particular
we suggest that the Committee should carefully consider the argument
for each of the Good Causes to receive an equal share of Lottery
2.6 We recommend that the Committee examines
the case for Lottery funding to become more focused on the local
level, in preference to national or regional grant funding.
2.7 We would encourage the Committee to
examine the scope for further delegation of decision making to
the local level.
2.8 We recommend that the Committee revisit
the "community chest" model of local grant giving and
the delegation of Lottery grant making to other specialist grant
givers at the local level.
2.9 We ask the Committee to recommend that
Lottery funders must be prepared to meet the overhead costs associated
with managing a piece of work. Their funding should also support
the development of the management of voluntary organisations.
Lottery funders should therefore see their funding as part of
a programme of long term investment.
2.10 The Committee should examine strategies
for creating a more sustainable Lottery funding environment with
the Government and the Lottery distributors. Strategies which
should be examined include a greater use of endowment funds to
"grow the cake" and the provision of cheap loan finance
to help voluntary organisations overcome the three year funding
2.11 NCVO recommends that the Committee
examines the assumptions behind the Lottery tax and consider the
case for a proportion of the tax revenues generated to be devoted
to creating a more sustainable funding environment for voluntary
organisations and charities. For example, a proportion of the
Lottery tax revenue could be used to fund a strategic, cross-sectoral
campaign to promote the Government's new tax-effective giving
The Lottery Operator
2.12 We recommend that the Committee endorse
our view that the distribution of Lottery money is not the concern
of the Lottery operator.
2.13 The Committee should seek assurances
from the Government and the National Lottery Commission that whatever
happens there will be no disruption to the continuation of Lottery
funding for charities. This remains a welcome stream of income
3. OTHER RECOMMENDATIONS
Monitoring the impact of the Lottery on charities
and charitable income in the future
3.1 The Government could achieve added value
from research into the impact of the National Lottery on charities'
incomes if, at the same time, it were to monitor the impact of
the Government's recent changes to charity taxation.
3.2 We believe that the Lottery distribution
bodies need to collaborate more closely and consider the scope
for further rationalisation of their activities.
3.3 It is crucial that the Lottery's potential
to develop and support voluntary sector activity, particularly
at the local level, is fully exploited.
3.4 Even though they are not bound by the
Compact, NCVO wish to see the Lottery distributor's sponsoring
government departments encouraging them to consider, in a more
strategic way, how they could implement the Compact and its Codes
of Practice, on the basis that they represent good practice.
3.5 NCVO would welcome the opportunity for
the voluntary sector to work with the Lottery Distributors, and
the NLCB in particular, to explore the potential for creating
a more sustainable funding environment.
3.6 Lottery distributors should consider
the relationship between grant-maker and grant-recipient. They
should consider how to develop their role towards one of supporter
and promoter of best practice, rather than policeman, by providing
advice and support throughout the life of a grant and beyond.
The Lottery Operator
3.7 We have argued in the past that the
licence to run the National Lottery should include a requirement
that advertisements should state clearly and/or visibly that the
most effective way of giving to charity is to give direct. This
should have currency given the Government's recent attempts to
simplify and modernise the ways in which individuals can give
to charity tax effectively.
3.8 We particularly wish to draw the Committee's
attention to the fact that giving tax effectively is undoubtedly
the best way to give to charity to maximise their returns. A sector-led
campaign to encourage giving to charity, and tax effective giving
in particular, is currently being planned with the support of
the Chancellor of the Exchequer. It would, therefore, not be advisable
for the National Lottery operator to compete with this by taking
steps to encourage the public to give to charity through the Lottery.
4. RESEARCH INTO
Current overall size and contribution of the UK
4.1 The overall current expenditure of UK general
charities is £13.4 billion.
Gross current income stands at £14.2 billion. Voluntary income
(grants and donations) is the largest type of income (46.1 per
cent) with almost one-fifth of gross income coming from donations
given by the general public. Sales of goods and services account
for a third of UK voluntary sector income and relate almost entirely
to purchases by government (15.3 per cent) and the general public
(14.6 per cent). When considering both sales and voluntary sector
income, the general public are the single largest source of income
(34.8 percent). In addition the voluntary sector receives 4.8
per cent of its total income from businesses in the form of direct
financial support while returns on investments account for over
a fifth of UK voluntary sector income.
4.2 There are 136,000 active general charities
in the UK although almost 90 per cent of gross income is accounted
for by fewer than 10 per cent of organisations.
4.3 NCVO carries out an extensive programme
of research into:
financial trends among general charities;
charitable giving by the general
4.4 The research is based on:
Office for National Statistics Survey
of Charities undertaken in 1990-91 and in 1994-95;
Detailed analysis of organisations'
NCVO/NOP consumer research undertaken
since October 1994; and
Charities Aid Foundation surveys
of individual giving from 1990-91 to October 1994.
4.5 The aim of the research is to develop
our understanding of the UK voluntary sector economy and the trends
within it. Through the research we can identify factors which
may have contributed to these trends. We can also explore the
impacts various political, social and economic factors have on
the voluntary sector economy to help organisations plan future
activities. The research presented here assesses the contribution
made by various sources of income (or funding) to UK voluntary
organisations between 1994 and 1997. The three main sources of
income considered are:
voluntary income (grants and donations);
earned income (sales of goods and
returns on investments.
4.6 From the research we can conclude that
changes in charities' incomes in the period 1994 to 1997 are attributable
to a complex interaction of factors rather than a single cause.
Although there has been a decline in individual giving between
1994 and 1997, the National Lottery is only one factor which may
have had an impact on this income stream.
Income trends 1990 to 1997
4.7 It is estimated that the gross income
of the UK voluntary sector
for 1997 was £13.1 billion.
During the early 1990s gross income of the UK voluntary sector
increased in nominal terms by over 50 per cent (55.8 per cent
or £4.7 billion) and by a quarter (25.4 per cent) in real
terms. This period of rapid growth was followed by a slow down
in growth from 1994 onwards (Figure 1).
4.8 Analysis of two ONS Surveys of Charitable
Organisations for 1990-91 and 1994-95 showed a growth rate in
nominal terms of 9 per cent per annum. This was considerably above
the prevailing rate of inflation (except for 1991 which was the
last year of "high" inflation, when the retail price
index was running at almost 6 per cent). The analysis for 1995-96
and 1996-97 identified growth rates of 4 per cent or less, which
was barely above inflation. This pattern of growth is supported
by evidence from other sources, most notably for the very largest
organisations by the Barclays/NGO Finance Charities 100 Index,
Charities Aid Foundation Top 500 fundraising charities and the
Baring Asset Management Top 3,000 UK Charities.
4.9 For income to be classified as earned
income there has to be some form of sale of a good or service
(ie the recipient or their agent has paid a fee). This category
of income is akin to the operating income of businesses. For charities
these sales activities also have to fall within the stated charitable
objects of the organisation. Sales which fall outside an organisation's
charitable objects are usually undertaken through a trading subsidiary.
The complexity of this category of income is compounded by the
immensely diverse nature of the goods or services "sold"
by voluntary organisations.
4.10 In 1997 earned income, or sales of
goods and services, constituted just over one third (£4.4
billion) of the total income of general charities. Government
and the general public each contributed £2 billion, the remainder
coming from businesses (£311 million) and other voluntary
organisations (£188 million).
4.11 In total, earned income increased from
£3.9 billion in 1994 to £4.4 billion in 1997. This constituted
a real increase of 3.1 per cent over that period. While the very
largest organisations with incomes over £10 million showed
a significant increase in earned income (9.7 per cent), organisations
with an income between £1 million and £10 million saw
a real decrease (-2.8 per cent) in earned income.
|Sales of Goods & Services
1994 to 1997
| overseas agencies
4.12 The growth in contract income from government was
the most significant, building on the largest income stream to
begin with (3.5 per cent growth in real terms) and there was a
modest real increase in sales of goods and services to the general
public (although this relates entirely to the growth in subscription
income and reflects the greater emphasis placed on this by larger
organisations). The other changes show higher levels of real change
but relate to relatively small amounts of income, although there
was a strong rise in earned income from businesses reflecting
the sponsorship and other commercial relationships being established
between business and voluntary organisations.
Voluntary income/grants and donations
4.13 Voluntary income is defined as that given freely
with no commercial consideration and is usually in the form of
grants or donations. This category of income is of particular
importance to the voluntary sector and allows organisations to
provide goods and services at no cost or with subsidy. Individual
giving by the general public is therefore of fundamental importance
to the voluntary sector economy.
Patterns of voluntary income
4.14 In 1997 voluntary income to UK general charities
stood at almost £6 billion (£5.9 billion) representing
almost 45 per cent of the total (including legacies). Donations
from the general public were the single largest source of voluntary
income (£1.8 billion). This was almost matched by grants
made by government (£1.7 billion). However, if legacies are
included with donations from the general public then their contribution
increases to £2.6 billion. The next largest source is from
other charities, most notably grant-making trusts and foundations.
In 1997 this stood at over £1 billion, and was likely to
increase even further as National Lottery grants started appearing
more frequently in the accounts of general charities. Donations
and grants from business stood at £255 million, although
corporate financial support may increasingly be classified as
earned income (sponsorship/cause related marketing) and corporate
support to voluntary organisations may come in a non financial
form (for example gifts in kind, eg donated goods, and gifts in
time, eg secondments). Finally, the covenanted profits of trading
subsidiaries are classified as voluntary income and currently
contribute £163 million to voluntary sector income.
4.15 Voluntary income is most significant for smaller
voluntary organisations where it constitutes over half (52.7 per
cent) of the total income. The contribution of voluntary income
to total income decreases with size of organisation and the very
largest organisations receive less than a third (29.2 per cent)
of their total income from grants and donations. However, three
quarters of the very largest receive some voluntary income and
legacies are most significant for these organisations (12.3 per
cent) compared with less than 3 per cent for organisations with
incomes less than £1 million. Overall over two-thirds of
all general charities receive some voluntary income. Indeed, to
some the receipt of voluntary income is one way of defining a
voluntary organisation or charity.
4.16 The contribution of voluntary income to the overall
income of general charities increased substantially between 1991
and 1994, (from 42.9 per cent to 46.2 per cent). From 1994, however,
the contribution fell back to 44.7 per cent. Whilst voluntary
income increased in nominal terms from £5.4 billion in 1994
to £5.9 billion in 1997, in real terms this represented a
small decline (0.7 per cent). The very largest organisations saw
a real increase of almost 2 per cent whilst organisations with
incomes between £1 million and £10 million saw a decline
of almost 5 per cent in real terms. Smaller organisations saw
little change in real terms between 1994 and 1997.
|Voluntary income||Real change|
1994 to 1997
| Grants and donations
| trading subsidiaries
| overseas agencies
4.17 Legacies showed the most significant decline in
real terms (-5.6 per cent) although legacy income for the very
largest organisations, where it is most significant, remained
in line with inflation. The decline was concentrated in smaller
organisations. When legacies are separated out, voluntary income
as a whole remained stable but this hides a number of significant
a real decline was recorded for donations from
the general public with the decline concentrated in smaller organisations;
a modest real increase in grants from government;
a larger real increase in grants from other charities
(grant-making trusts and foundations); and
profits covenanted from trading subsidiaries increased
substantially in real terms although their overall contribution
to income was small.
Returns on investments
4.18 Income received in the form of returns on investments
includes dividend payments from stocks and shares, interest payments
from bank and building societies and rental income from property
investments. The realised gains and losses on the disposal of
investments are also included in this category. Whilst many businesses
also benefit from income from such non-operating activities, it
is particularly important to the voluntary sector because many
charities are endowed (established with a capital fund that generates
income which they can apply for charitable purposes), and for
some charities they only have that one source of income.
Patterns of returns on investment income
4.19 General charities receive almost £2.4 billion
(£2,360 million) in returns on investments in the form of
rents, dividend and interest payments but this rises by over £400
million to £2.8 billion if the aggregate gains on the disposal
of investments is added. Together they represent over a fifth
(21.1 per cent) of voluntary sector income. The largest component
is dividend income at £1.5 billion, interest payments at
£498 million and rental income at £319 million.
4.20 Returns on investments increased significantly (10.5
per cent) in real terms between 1994 and 1997 with spectacular
growth (22.8 per cent) recorded for the very largest organisations.
The real increase for organisations with incomes between £1
million and £10 million has also been substantial (7.6 per
cent) but the growth for smaller organisations has been modest
(2 per cent). The real increase in dividend income (15 per cent)
explains the spectacular growth in returns on investments between
1994 and 1997 although the real increase in interest payments
is also significant (7.8 per cent). Rental income decreased in
real terms by 3 per cent.
| ||Real change|
1994 to 1997
| dividend income
| interest income
|Gains (losses) on disposal of investments/adjustments
Consumer expenditure surveys
4.21 Surveys of the expenditure behaviour of the general
public provide the most direct approach to understanding whether
people's individual giving has changed following the introduction
of the National Lottery. In terms of consumer-based research the
Individual Giving Surveys (IGS), originally commissioned by the
Charities Aid Foundation and conducted by Public Attitude Surveys
Ltd and since 1994 commissioned by NCVO and undertaken by NOP,
are the most robust source of data on individual giving and in
particular small scale expenditure.
The Family Expenditure survey is seen as a reliable source of
information on larger and planned donations to charity but may
under-represent smaller, more spontaneous giving.
4.22 The IGS provides statistically significant evidence
to conclude that the proportion of people donating to charity
in Great Britain, which had changed very little from 1987 to 1994,
fell in 1995 and continued to fall in 1996 and 1997 (Figure 2).
This finding masks significant variations among different methods
of individual giving. The proportion donating through purchase
methods (raffle tickets, jumble sales, charity shops etc) showed
a marked fall following the Lottery's launch, from 46 per cent
in 1993 to 24 per cent in 1997. It halved between 1992 (48 per
cent) and 1997 (24 per cent). This fall is statistically significant
as are the falls in giving by philanthropic or planned methods
(although the falls in these two methods of giving are less marked
than in purchases).
4.23 In respect of mean average donations, there is evidence
that overall individual giving fell between 1992 and 1997. However
the patterns among the sub-components are more complex, with philanthropic
donations falling, and planned donations increasingthough
neither change was statistically significant. The decrease in
purchase was statistically significant.
4.24 Plotting year-on-year changes illustrates the complex
pattern of individual giving from 1992 to 1997. Overall the IGS
survey show a trend of growth in the early 1990s then a steady
decline from the end of 1994. The growth from 1992 to 1994 is
not statistically significant, but the change from 1994 to 1995
is. The only other statistically significant change occurred between
1996 and 1997. Looking at the three sub-components of individual
giving, all three showed statistically significant changes between
1994 and 1995. The most marked fall was for purchases, which fell
from 46 per cent in 1994 to 28 per cent in 1995. While there was
another statistically significant fall between 1995 and 1996,
the figures levelled out in 1997.
4.25 In 1998 more than half of respondents gave less
than £1 per month. This has fallen from £2.50 in 1993,
to £1.50 in 1995 and £1.00 in 1996. In contrast 3 per
cent of the population are elite givers, donation over £50
per month. They contributed almost half of total donations in
4.26 The IGS is also able to provide an overall (grossed
up) estimate of individual giving in Great Britain in 1992 compared
with 1997. In 1997 the figure was £4.51 billion, compared
with £5.7 billion in 1992. There was a real term fall of
31 per cent from 1993 and 1996.
4.27 The monthly analysis provided by the NOP/NCVO consumer
research has identified a seasonal trenda peak in November,
declining through December and January, recovering through February
to a peak in April/May and falling away again through the summer.
However, in 1997 this seasonal trend was broken when the recovery
process in the early part of the year halted. This coincided with
the introduction of the mid-week National Lottery draw.
4.28. Whether or not the Lottery has had any impact on
charities' income it should be clear that different charities
will be affected in different ways by changes in the voluntary
sector funding environment. For example a decline in individual
giving will hit fundraising charities the hardest and will hit
harder still those charities unable to invest in fundraising to
offset that decline (eg smaller fundraising charities).
Income to charities from National Lottery funding
4.29 While relatively insignificant in terms of total
voluntary sector revenue, Lottery funding has represented a new
source of income for many general charities. The National Lottery
Charities Board in particular has attempted to target smaller
organisations. Other Lottery boards are still largely devoted
to capital funding and many of the organisations they fund are
outside the definition of general charities adopted by organisation-based
research undertaken by NCVO. Figures for Lottery funding, given
here, therefore focus on the NLCB as an indicator.
4.30 The total grants allocated by the NLCB across the
UK in 1998-99 were £247.3 million.
Of this, 6.3 per cent was allocated UK-wide, 6.3 per cent England-wide,
7.4 per cent in Northern Ireland, 11.9 per cent in Scotland, and
5.7 per cent in Wales. The balance was made up by regional grants
in England, the small grants scheme, Awards for All, and international
Charities Income Research
4.31 In 1994 the Government made a commitment to monitor
charities' incomes following the introduction of the National
Lottery in November 1994. A study into trends in charities' incomes
was announced by the Home Office in October 1995. The research
set out to analyse trends in charities' incomes in the period
1991 to 1997 based on data derived from the published accounts
of voluntary sector organisations of all sizes and activities.
The research findings have yet to be published.
4.32 The type of data presented in the organisation-based
and consumer-based surveys is unable to demonstrate definite cause
and effect relationships. It was beyond the scope of any of the
studies to collect a wider array of economic data that would help
us to determine such relationships. However, it is clear from
the data presented here that there were some changes in some of
the income streams at around the time the Lottery was introduced,
not least a widely recognised decline in individual giving. While
a causal relationship cannot be established, and a complex set
of factors was almost certainly at play, the National Lottery
could certainly have been one factor which had an impact on individual
giving. NCVO strongly recommend that the Committee take this into
account when considering the operation of the National Lottery
and its impact upon charities and charitable giving.
5. MONITORING THE
5.1 Despite the current uncertainty over the appointment
of the next Lottery operator both prospective bidders have pledged
to raise £15 billion for the Good Causes. This compares with
the £10 billion pledged by the current operator under the
existing licence. Even given the not-for-profit nature of The
People's Lottery bid, the eventual operator will need to increase
ticket sales in order to reach this target. It remains to be seen
whether playing the National Lottery can be stimulated beyond
the existing demand, despite the claims of the rival bidders for
the Lottery Operator. Nevertheless if the Lottery Commission is
willing to appoint an operator who is pledging to raise more money
for the Good Causes than under the current licence, and accepts
the need for increased ticket sales to achieve that target, then
NCVO believes that the Lottery Commission should take some responsibility
for monitoring the impact of the Lottery on charities and charitable
5.2 Given that NCVO's organisation and consumer based
research does not rule out a link between the National Lottery
and the decline in giving, NCVO would also like to see a continued
commitment from the Government to ongoing research to monitor
the impact of the Lottery on charities and charitable giving.
There should be an early assessment of the appropriateness and
effectiveness of the original research and of what more could
be done to disentangle the complex factors involved. NCVO believes
that this should include an early assessment of the appropriate
level of resources required to undertake this work. The Government
could also achieve added value from the research if, at the same
time, it were to make an assessment of the impact of the Government's
recent changes to charity taxation, including the modernisation
and simplification of Gift Aid and the boost to Payroll Giving.
6.1 NCVO is concerned that the Policy Directions given
to the New Opportunities Fund by the Government represent a potentially
dangerous erosion of the principle of additionality and could
set a new precedent for the way decisions on the choice of Lottery
funding programmes are made. While NCVO has no objection to Lottery
money being spent on health, education and environment projects
per se, we wholeheartedly believe that Lottery initiatives
must be additional to what should properly be Government spending
and not a substitute for itnow or in the future. We do
not believe that this principle should be sacrificed. The Lottery
should provide additional funding for good causesas was
always the intentionit should not be used to fund essential
services or Government-inspired programmes. A clear distinction
needs to be maintained between Lottery programmes and any mainstream
initiatives they complement.
6.2 When the Rothschild Royal Commission on Gambling
in 1978 recommended a UK national lottery for good causes it was
on the basis that a government of any party, subject to day to
day political pressures, finds it impossible to devote more than
meagre resources to good causes of the kind that are desirable
rather than essential. The paradox which the Commission identified
was that while each individual cause may not be essential, it
is essential for the health of our community that some resources
are devoted to such purposes.
6.3 We suggest that in these two statements the 1978
Royal Commission identified what should be among the defining
features of the additionality principle. The underlying reason
why the principle has now been so dangerously eroded is related
to the poor definition of these features from the outset. Therefore,
in order to define the principle of additionality there are two
how we define the difference between "desirable"
what is a "good cause"?
6.4 Research studies have, in the past, shown that the
public identifies the term "good cause" with charities.
NCVO research suggests that the public consider that they have
made a contribution to charity when they buy a National Lottery
ticket, rather than a contribution to national health or education
spending. For example Lottery players view the Lottery as a good
way of helping charity or sports and the arts.
In a 1996 survey for NCVO, respondents overestimated the amount
of Lottery money specifically earmarked for charities by over
300 per centsuggesting a figure of 18 pence in the pound
compared with the actual 5.6 pence allocation. In an ICM poll
conducted in September 2000 for NCVO,
95 per cent of respondents thought that education should be funded
by the Government rather than the Lottery, while 89 per cent of
respondents thought that the health service should be funded by
the Government rather than the Lottery. In contrast 61 per cent
of respondents thought that charities should be funded by the
Lottery and only 32 per cent thought they should be funded by
6.5 These results give us an insight into "the people's"
definition of "essential" and "desirable",
with health services and education services being classed as essential
while the work of charities is perhaps classed as a mixture of
essential (and therefore funded by Government) and desirable.
Our poll overwhelmingly suggests that people believe health and
education are the Government's responsibility.
6.6 The Government set up the New Opportunities Fund
(NOF) as a new "good cause" to fund health, education
and environment initiatives that "are additional to programmes
funded from taxation". However, a consultation paper issued
by the Department for Culture, Media and Sport on NOF, issued
in November 1998,
stated that projects funded under the cancer prevention, detection,
treatment and care programme "will be in addition to those
currently planned by the Government" (our emphasis).
This could be seen to represent a re-interpretation of additionality
to mean `additional to spending which is not already there or
proposed'. Using this interpretation, the Government would be
free to plan the use of Lottery funds into future programme areas
that could potentially be core government responsibilities.
6.7 The Policy Directions issued by the Secretary of
State for Culture, Media and Sport to NOF provide further evidence
of a potential re-interpretation of additionality, particularly
when compared to those Directions issued to the NLCB. Although
NOF is required to draw up a strategic plan containing an assessment
of needs and its priorities in dealing with them, the Directions
point out that each of the initiatives funded by NOF "complement
wider policies intended to improve the health, education and environment
of the United Kingdom". The Government has also directed
that NOF initiatives are to be "delivered by a combination
of public, private and voluntary organisations, in collaboration
with existing providers and programmes" (our emphasis).
The Directions therefore draw attention to the Government's strategies
and targets in each of the three areas and highlight how the NOF
funded programmes must fit in with them. In effect, NOF programmes
will assist the Government in carrying out its strategies and
programmes and meeting its targets, which in some cases would
not otherwise be met. For example, the Directions state that:
"The Government has set the target of ensuring that all
public libraries are connected to the National Grid for Learning,
and that public library staff are trained to use it, by 2002.
The Fund's (NOF) support for the training of public library staff
and content creation is intended to provide vital support in these
two areas which will be critical to the successful development
and roll out of the Public Libraries IT Network."
6.8 The role played by the Government in deciding NOF's
funding programmes should be considered in this context. In direct
contrast to, for example, the National Lottery Charities Board
(NLCB) and most other Lottery distributors, NOF initiatives are
by the Government, to be developed and administered by NOF. Proposed
NOF initiatives are subject to consultation and Parliamentary
scrutiny, but they have not been subject to the same degree of
consultation as the programmes run by, for example NLCB. In particular,
the Government undertook little apparent consultation with the
voluntary and community sector over the choice of funding programmes.
To NOF's credit they undertook extensive briefing and consultation
with the voluntary sector in setting up the programmes. However,
the perception remains that the substantive content of the programmes
had already been decided by the Government before the Department
for Culture Media and Sport offered the first full consultation
opportunity. In effect while adequate consultation took place
on the detail, there was (grossly) inadequate consultation on
the principles involved. This concern should certainly be addressed
in future and we therefore recommend that this is one important
area that the Committee should examine on the course of its inquiry.
6.9 NCVO has grave concerns at the precedent the overall
approach, outlined here, sets in the way decisions on the application
of Lottery money are made. NCVO's view is that decisions on the
choice and design of funding programmes should be taken by an
independently appointed body based on a thorough assessment of
needs and priorities and in consultation with all relevant stakeholders
(as is the case for the NLCB, for example). If decisions are not
taken by the distributors themselves, then independence, trust
and transparency will be threatened and the principle of additionality
will be weakened.
6.10 In a recent ICM poll carried out for NCVO 72 per
cent of respondents felt that an independently appointed body
should decide how Lottery money should be spent, while only 12
per cent of respondents felt that the Government should decide.
7.1 NCVO were very disappointed at the Government's decision
to divert the majority of the Millennium stream of funding to
the New Opportunities Fund. The aim of the Lottery was to raise
additional money for all of the good causes. On balance this has
not been achieved. Even taking into account Lottery grants, voluntary
sector income has declined in real terms. This has come at a time
when the Government is increasingly recognising the contribution
that the sector can make. We were also concerned about how the
decision was reached.
7.2 The NLCB receives more than four times as many applications
as all of the other Lottery grant makers put together. To date
the total amount requested from NLCB is £10.6 billion while
the total amount awarded is £1.8 billion (ie nearly six times
greater). There is a strong argument for Lottery money to be more
fairly divided among the Lottery distributors. NCVO recommend
that the Committee should examine the division of Lottery money
between the Lottery distributors with a view to making recommendations
to Government. In particular we suggest that the Committee should
carefully consider the argument for each of the Good Causes to
receive an equal share of Lottery funding.
8. SUSTAINABILITY AND
8.1 An analysis of the sector's funding trends by NCVO
and the Charities Aid Foundation suggests that action is required
to create a more sustainable funding environment, and where possible,
to "grow the market". Strategies identified by the analysis
to achieve these twin, but linked, aims include:
stopping the decline in the proportion of individuals
giving to charity;
assessing the potential for greater loan finance;
developing strategies to encourage the sector
to make best use of available resources by working in alliances
and partnerships where appropriate;
facilitating the development of local fundraising
mechanisms or alliances; and
encouraging good practice in grant giving, particularly
in relation to the availability of "core" or strategic
8.2 The Government has acknowledged its responsibility
for developing an environment in which charities and the voluntary
sector can flourish. In particular they have taken valuable and
welcome steps to help stop the decline in individual giving, following
the recent review of charity taxation.
8.3 The Government's moves to improve the way the Lottery
distributors distribute Lottery grants have generally been very
by the distributors themselves, such as the Awards for All scheme,
and the Millennium Awards scheme have also been warmly welcomed.
The Government should now do more, together with the Lottery distributors,
to consider the part they can play in further developing the sustainability
of the sector.
National versus local funding
8.4 We would argue that there is an increasingly strong
case for Lottery funding to become more focused on the local level,
in preference to national or regional grant funding. The improvements
made to the distribution system for Lottery funding following
the 1997 White Paper have been welcome, for example allowing greater
delegation of decision making to officers at the local level.
The Millennium Awards scheme has also proved that it can be effective
and successful to delegate grant making to established charitable/grant
making organisations, with over 81 Award Partners taking on this
role. We would therefore encourage the Committee to examine the
scope for further delegation of decision making to local level.
We also recommend that the Committee revisit the "community
chest" model of local grant giving and the delegation of
Lottery grant making to other specialist grant givers at the local
level. Any such delegation should, however, be based on a recognition
of the importance of the Lottery as an independent source of funding.
The priorities of other funding organisations should not be adopted
8.5 NCVO have in the past expressed concerns relating
to the apparent overlap between NOF's programmes and those of
the other Lottery distributors; in particular to those of the
NLCB. NCVO argued that NOF would need to work closely with the
other distributors, and particularly the NLCB, to ensure that
potential applicants received clear guidance on where to target
their applications to avoid wasted effort and disillusionment.
We also argued that the Lottery distributors needed to take responsibility
to avoid applications "falling between two stools".
In this respect NCVO particularly supported close collaborative
working between NOF and NLCB.
8.6 We remain concerned at the degree of confusion and
apparent overlap which continue to exist between the programmes
of the Lottery operators, and NOF and NLCB in particular. Recent
attempts to clarify the differences between the two distributors,
to help applicants, appear to have done little to help. Indeed
one report claimed it had served to create more confusion.
8.7 The Awards for All scheme has been widely welcomed
by the voluntary sector and is a good example of how the Lottery
distributors can work together to deliver a better service. However,
NCVO is concerned at the large industry that appears to have grown
up around distribution of Lottery money. We consider that the
distribution bodies need to collaborate more closely and consider
the scope for further rationalisation of their activities.
Short term funding
8.8 The time-limited nature of Lottery grants often creates
considerable problems for voluntary organisations. The belief
amongst Lottery funders appears to be that there are considerable
amounts of untapped funds within local communities which voluntary
organisations can draw on to sustain Lottery funded projects beyond
the life of the grant. In many cases it is not feasible to expect
a project to become self-sufficient within the three-year limit
of Lottery funding, particularly in an environment in which funders
constantly demand new, innovative projects. There are examples
of charities having to close services after three years when their
Lottery funding ends, despite a continuing demand and a need for
those services. This short-term financial environment hampers
the sector's ability to run and develop services to meet the needs
of disadvantaged communities. It is therefore crucial that the
Lottery's potential to develop and support voluntary sector activity,
particularly at the local level, is fully exploited.
The compact on relations between government and the voluntary
and community sector
8.9 The NLCB's support in developing the Compact on relations
between government and the voluntary and community sector has
been very welcome, as has their involvement in the development
of the accompanying Codes of Practice.
8.10 NCVO would now wish to see the Lottery distributors'
sponsoring government departments encouraging them to consider,
in a more strategic way, how they could implement the Compact
and its Codes. While they are not bound by the Compact, we would
still wish to see sponsoring government departments encouraging
the Lottery distributors to consider the Compact and its Codes
in terms of good practice guidelines. The Codes of Practice on
funding and on consultation have particular relevance to the Lottery
distributors since they provide funding to the voluntary sector
and consult with them on matters of policy and design.
Availability of "core" or strategic funding
8.11 The Compact contained an undertaking by Government
to take account of the recommendations of the Better Regulation
Task Force report, Access to Government Funding for the Voluntary
Sector, and to pay particular regard to the concept of strategic
funding. Lottery distributors do not help to create a conducive
environment for good funding relationships where they refuse to
contribute to "core" or "strategic" funding.
8.12 A recent report commissioned by the Association
of Chief Executives of Voluntary Organisations (ACEVO),
summarised the problems created by this funding environment. The
does not allow for the creation of mature and
stable voluntary organisations able to take opportunities and
make a full contribution;
does not encourage transparency, but rather encourages
complex renaming of activities, and restructuring of organisations
in pursuit of funding;
does nor facilitate a creative or mature relationship
between funders and funded;
is extremely expensive. Voluntary organisations
lose staff as projects come to an end, and then need to re-recruit;
funders receive applications for activities that have just come
to an end of a period of funding; and
risks public sympathy and support for voluntary
organisations. At a time when donations by members of the public
are seen as having reached a plateau, it is dangerous to run a
funding regime that assumes that backroom costs can be met by
individual donations, while front line costs are met by the statutory
8.13 We also argue, along with the ACEVO report. That
management effectiveness bears a cost and therefore funders must
be prepared to meet the overhead costs associated with managing
a piece of work. Their funding should also support the development
of the management of voluntary organisations. Funders should therefore
see this funding as part of a programme of long term investment.
This is one tangible way in which Lottery distributors can play
their part in further developing the sustainability of the sector.
Potential future strategies and solutions
8.14 NCVO would now welcome the opportunity for the voluntary
sector to work with the Lottery distributors, and the NLCB in
particular, to explore the potential for creating a more sustainable
funding environment. We believe it will be important for the Lottery
distributors to work together, and to work with charity managers,
to help them to develop a sustainable funding base. Crucially,
Lottery distributors will need to consider the distinction between
the sustainability of projects and the sustainability of benefits
8.15 Both methods and advice systems will need to be
developed alongside existing models. For example, the Arts Council
Stabilisation Fund is one model, which could be considered. The
Millennium Awards Scheme Endowment, to enable the scheme to run
in perpetuity, is another model which the Government, together
with the other Lottery distributors, could usefully consider as
one way of tackling the issue of sustainability. Links can also
be made to NCVO's Sustainable Funding project, which aims to increase
the quality and extent of good practice in sustainable funding
in the voluntary sector.
8.16 Lottery distributors should consider the relationship
between grant-maker and grant-recipient . They should consider
how to develop their role towards one supporter and promoter of
best practice, rather than policeman, by providing advice and
support throughout the life of a grant and even beyond.
8.17 Among strategies we believe should be considered
are a greater use of endowment funds to "grow the cake"
and the provision of cheap loan finance, in addition to grants,
to help voluntary organisations overcome the three year funding
trap, while preventing Lottery grant-making from becoming "silted
8.18 NCVO have always been concerned at the 12 per cent
tax on the total turnover of the Lottery, which is higher than
most other countries operating state lotteries. When the National
Lottery was launched the Government justified taxation of its
proceeds on the basis that spending would be diverted from purchase
of other taxable items to purchase Lottery tickets. The tax was
designed to compensate for this loss.
8.19 NCVO recommend that the Committee examine the assumptions
behind this tax and consider the case for a proportion of the
tax revenues generated to be devoted to creating a more sustainable
funding environment for voluntary organisations and charities.
For example, the sector has called for strategic, cross-sectoral
promotion of the new giving measures announced by the Chancellor
in the 1999 Pre-Budget and 2000 Budget reports in order that their
potential can be realised. A proportion of the Lottery tax revenue
could be used to fund such an initiative.
9. THE LOTTERY
9.1 NCVO hope that whoever is finally awarded the contract
will ensure the National Lottery is run in an efficient and effective
manner which enables the maximum amount possible to be distributed
to the good causes but with due regard for social impact. We have
already expressed concern in this submission at the increased
amounts of money both bidders have pledged to the good causes
over the period of the new licence and the potential impact increased
ticket sales may have on charitable giving (see paragraph 5.1).
9.2 The process of selecting the new Lottery operator
must be seen by the public, and other stakeholders, to be of the
highest integrity. We will be looking to the Government and the
National Lottery Commission to ensure that whatever happens there
is no disruption to the continuation of this welcome stream of
income for charities. This is especially important in light of
the decline in individual giving which many charities have experienced
since the early 1990s.
9.3 NCVO would also like to express concern at recent
reports that The People's Lottery has pledged to establish more
of a connection between playing the Lottery and giving to charity.
If the reports are correct, their intention appears to be to make
people more aware of what Lottery money is doing. We are particularly
concerned that this intention is apparently based on their belief
that it is important to establish a much greater correlation between
playing and giving. We are also concerned at the suggestion that
The People's Lottery will want more influence over how Lottery
money is spent.
9.4 The Government opted for a commercially run Lottery
because, it argued this would be most likely to produce the biggest
Lottery turnover. Moreover, the Government thought it was important
to separate raising and distributing money to good causes as the
roles require different expertise. We can see no reason to believe
that this is not still the case. We believe that, given appropriate
Policy Directions and strategic planning based and adequate consultation
with stakeholders, the existing Lottery distributors are best
placed to make decisions on the choice and design of Lottery funding
programmes and where Lottery grants are given. In a recent survey
carried out for NCVO, 72 per cent of respondents thought that
an independently and publicly appointed body should decide how
Lottery money is spent. Only 11 per cent thought that the Lottery
operator should decide. NCVO strongly believes that distribution
of Lottery money should not be the concern of the Lottery operator.
We recommend that the Committee endorse this view.
9.5 Some of the original requirements placed on the National
Lottery operator, such as the restriction on ticket sales in pubs,
door-to-door or in the street, were partly designed to ensure
that charities did not lose donation income as a result of the
National Lottery. However the Government at the time also accepted
the argument that the way in which the Lottery is promoted is
of particular concern to charities. The Government therefore agreed
that the code of practice on Lottery advertising could cover,
if the need arose, how charities are used in this advertising.
This commitment was important not only because of the potential
impact of decisions about Lottery advertising on charitable income,
but also because many charities are concerned to ensure that their
work is presented to the public in a way which is sensitive and
does not patronise or offend the people with whom they work.
9.6 NCVO lobbied for the code of practice on Lottery
advertising to cover the use of charities in Lottery marketing.
In our 1996 submission to the National Heritage Select Committee
we highlighted the fact that many of the advertisements for the
National Lottery had not made clear to the public the most effective
way of giving to charities. We argued that this should be considered,
firstly because of public confusion over the amount of money that
goes to the good causes in general and charities in particular
(see para 6.4); secondly because of the decline in individual
giving. Indeed we argued that the licence to run the National
Lottery should include a requirement that advertisements should
state clearly and/or visibly that the most effective way of giving
to charity is to give direct. This should have currency given
the Government's recent attempts to simplify and modernise the
ways in which individuals can give to charity tax effectively.
9.7 Giving tax effectively is undoubtedly the best way
to give to charity to maximise their returns. NCVO and the Charities
Aid Foundation are currently discussing with the Government the
best way to promote the new tax measures for giving to charity.
As a result of the tax measures the Chancellor's stated target
is to see millions more giving to charity so that by the end of
the year 2002 £1 billion more will have been given to charity.
It would not, therefore, seem advisable for the National Lottery
to take steps to encourage the public to give to charity through
the Lottery, effectively competing with a sector-led campaign
to encourage giving to charity, and tax effective giving in particular.
If an individual gives £1 direct to a charity through the
Gift Aid scheme (which is now possible) the total value of the
gift will be £1.28. If an individual purchases a Lottery
ticket, only 28 pence goes to the good causes, of which less than
6 pence is allocated to charities via the NCLB.
10.1 NCVO continues to support the National Lottery,
provided that it generates additional money for voluntary organisations
while minimising any potential impact on their income and fundraising
activities. While a casual relationship is not proven, we believe
that the National Lottery could certainly have been one factor
which had an impact on individual giving over recent years. In
addition we believe that the principle of additionality should
be preserved and strengthened in order to protect the interests
of the good causes. Lottery funding is a welcome stream of income
for charities. We will therefore be looking to the Government
and the Lottery Commission to ensure that whatever happens there
is no disruption to this stream of income.
10.2 That the Government has acknowledged its responsibility
for developing an environment in which charities and the voluntary
sector can flourish is very welcome. The valuable and welcome
steps they have taken to halt the decline in individual giving
through the review of charity taxation are particularly welcome,
as are their improvements to the way Lottery distributors distribute
grants. We also welcome developments by the distributors themselves
in response. We now look forward to working with the Government
and the Lottery distributors to explore their potential for creating
a more sustainable Lottery funding environment for charities and
the voluntary sector.
NCVO has been involved in long term research, conducted by the
Home Office in collaboration with other government departments
and voluntary sector organisations, to monitor charities' incomes
following the introduction of the National Lottery in November
Passey, A. Hems, L. and Jas P. (2,000) The UK Voluntary Sector
Almanac 2,000. London: NCVO. Back
The definition of the "voluntary sector" used here refers
to general charities. Back
Hems, L and Passey, A (1998) The UK Voluntary Sector Almanac
1998-99, London: NCVO. Back
Each data set has been compiled using different bases and requires
interpretation before direct comparisons can be made (eg the Charities
100 Index includes a number of organisations, such as museums,
which fall outside the general charity definition because they
are allocated to general government for national accounts purposes). Back
Trends in these data need to be treated with some caution since
the methodology changed in 1994. However, the 1994 NOP data are
consistent with the 1993 patterns (both records 81 per cent of
the population donating to charity). Back
Lee N, Halfpenny P, Jones A, and Elliot H (1995) "Data sources
and estimates of charitable giving to Britain", Voluntas
6(1) pp 39-66. Back
NLCB (1999) Annual Report 1998-99, London: NLCB. Back
National Council for Voluntary Organisations (NCVO) (1992) The
Likely Impact of the National Lottery on Charitable Donative Income:
Summary of the findings from an NOP survey with NCVO analysis,
London NCVO. Back
National Council for Voluntary Organisations (NCVO) (1996) Charity
and the Lottery: The competition for loose change (based on
research commissioned by NCVO from NOP), London: NCVO. Back
The poll was carried out by ICM for NCVO between 15 and 17 September
2000. Telephone interviews were conducted with a representative
sample of 1,055 adults aged 18 plus from across the UK. Back
DCMS (November 1998) New Links for the Lottery: Proposals for
the New Opportunities Fund, Cm 4166, London: HMSO. Back
Directions to the New Opportunities Fund under Section 26 (1)
of the National Lottery Etc Act 1993. Back
A review of charity taxation was announced in the July 1997 Budget.
On 9 March 1999 the Government published the long-awaited consultation
document on its review of charity taxation. The 1999 Pre-Budget
report and the 2000 Budget included the Government's response
to the review. Back
The 1998 National Lottery Act implemented proposals designed to
ensure that Lottery money is spent according to strategies that
take account of need, that Lottery funding builds local communities
and is more accessible to the full range of voluntary organisations-particularly
smaller, community-based projects. The Act also allows distribution
bodies to solicit bids, delegate decision making, pool resources
and make non-cash awards. Back
Funding Digest Issue 112: August 2000. Back
Unwin, J (1999) Who pays for core costs? Neither rhetoric nor
complaint-a proposal for modernisation. ACENVO. Back
Formerly the Association of Chief Executives of National Voluntary
Third Sector magazine, 7 September 2000, Issue 191. Back
NCVO's Annual Conference, 9 February 2000. Back