Select Committee on Treasury Written Evidence


Memorandum submitted by the Institute of Fundraising

EXECUTIVE SUMMARY

  The Institute broadly welcomes a mechanism where unclaimed assets can be used to support the work and the benefit of good causes.

  The Institute believes that it is essential that the use of unclaimed assets is additional to the Government's agenda. The Government must also ensure that a full and open consultation is held with the public and with the charity and voluntary sector about how unclaimed assets are reinvested in society.

1.  About the Institute of Fundraising

  The Institute of Fundraising (registered charity number 1079573) represents fundraisers and fundraising throughout the United Kingdom. It is a membership organisation committed to the highest standards in fundraising management and practice. Members are supported through training, networking, the dissemination of best practice and representation on issues that affect the fundraising environment. The Institute of Fundraising is the largest individual representative body in the voluntary sector with over 4,000 individual members and more than 200 organisational members. Membership reflects income to the sector of some £5 billion per annum and delivers more than £12 billion service-output covering all areas of social activity. Members are drawn from all types of Voluntary and Community Organisation (VCO), from large international charities to very small voluntary and community groups.

2.  Introduction

  The Institute of Fundraising welcomes the opportunity to make a submission to the Treasury Select Committee Inquiry: Unclaimed assets within the financial system. We broadly welcome the introduction of a scheme where unclaimed assets can be used to benefit good causes. The Institute is however concerned that there is also a directive as to which good causes the money generated is likely to be spent upon. The Institute believes that it is essential that the use of unclaimed assets is additional to the Government's agenda. Government must also ensure that a full and open consultation is held with the public and with the charity and voluntary sector about how unclaimed assets are reinvested in society.

3.  An appropriate use for unclaimed assets?

  The Institute broadly welcomes a mechanism where unclaimed assets can be used to support the work and the benefit of good causes.

  The Institute believes that it is essential that the use of unclaimed assets is additional to the Government's agenda. The Government must also ensure that a full and open consultation is held with the public and with the charity and voluntary sector about how unclaimed assets are reinvested in society.

The Government has expressed its commitment to donate all funds from dormant bank accounts where the owners remain untraceable to charitable purposes and community projects. The Institute of Fundraising applauds this proposal, but urges the Government to ensure that a full public consultation is held on who should decide which causes and projects the money should benefit.

4.  Funding the Third Sector

  In order for the community and voluntary sector to remain healthy and vibrant, it is vital for any charity, to strike the right balance between restricted income and that it can earn from selling services.

  For the most part, fundraising is a key and fundamental ingredient to the sustainability of the UK voluntary and community sector. The majority of charities who fundraise rely on fundraising income to deliver and achieve some or all of their charitable aims and objectives. Research that maps trends in Third Sector funding and fundraising and evaluates the effectiveness of fundraising techniques is relatively scarce. Where it does exist, it is relatively small scale with small sample sizes. It is therefore difficult to draw substantive conclusions and make the strategic decisions necessary in order to secure the sustainability of the sector.

  While some charities also receive statutory funding and grants from charitable trusts and companies, for the most part, fundraised income from individual donors is the most important source of voluntary income for UK fundraising charities. Most voluntary organisations strive to hold a level of savings in reserve to make sure that they are sustainable and can continue to deliver the work of their charity in the event that projected fundraised income does not materialise. Other charities also seek to make investments as a measure to spread financial risk and avoid a situation where the charity is overly reliant and dependent on fundraised income.

  Latest research shows that the voluntary and community sector's total income in 2003-04 was £26.3 billion—an increase of £1 billion pounds from the previous year. Larger organisations account for a greater share of this income. More than two-thirds of the income generated is done so by approximately 2% of the sector[1].

  Voluntary income—such as grants and donations that are "given", distinguishes the voluntary sector from other sectors. Fundraised "earned" income is derived from selling goods and services, which often includes activities to generate funds for an organisation.

  The Voluntary and Community sector presently generates £12.5 billion of earned income and £11.8 billion of voluntary income. The balance £2 billion of income is made up by returns on investments, which includes dividends and interests payments. Fundraised "earned" income has increased from 33% in 1994-95 to 47% in 2003-04[2].

  The increasing role that some voluntary and community sector organisations are playing in the delivery of public services has resulted in an increasing amount of fundraised income from statutory sources into the voluntary and community sector. Taking into account income for lottery distributors and overseas governments, this is estimated to have been more than £10 billion in 2003-04, outstripping income from the public by more than £700 million.

  As a proportion of the total income that the voluntary and community sectors receives, the state now accounts for 38% of revenue—53% via fee or contract income and the remainder through statutory grants. While a still relatively even split, it does continue to reinforce the trend of a move away from statutory grants to statutory fee or contract funding. Individuals as a proportion contribute 35% while the private sector account for a tiny 1% of income source[3].

5.  Funding Barriers to Third Sector Organisations

  Although total income in the sector rose, the total amount generated by organisations with incomes between £10,000 and £100,000 decreased—despite the increase in the number of charities in this group. Overall, the evidence suggests a picture whereby individual organisations would appear to be doing less well as average incomes for all organisations in the sector were at best static, or falling. On the whole, individual organisations have struggled to increase their revenue streams beyond the rate of inflation. Levels of public "giving" in the last five years have plateaued to static growth point.[4]

  Together, 14 charities, most of which are household name brands, with an annual income of over £100 million, generate 10% of the sector's income. These organisations have been particularly successful because they have fundraised to secure voluntary or public donations and legacies or because they are delivering public services under contract to Government. Some, but not all, of these organisations do both. Increasingly, the experience of these charities is shaping public perception of fundraising in the sector as a whole. However, what public perception fails to comprehend is that the vast majority (87%) of organisations have incomes of less than £100,000 and generate less than 8% of the sector's income. Trends would suggest that the concentration of resources is becoming more acute over time[5].

  Evidence would suggest that the bigger organisations are accounting for a greater share of the revenues. By comparison, voluntary income has fallen slightly over time—from 47% in 1994-95 to 45% in 2003-04. However, the sharpest decline of income from fundraised sources has been from that of investment income. This has declined from 20% in 1994-95 to 8% in 2003-04—the result of lower stockmarket returns and lower interest rates[6].

6.  Changes to current funding structures

  The shift from grant giving to commissioning and procurement, and more generally the expanding role of the Voluntary and Community Sector in public service delivery, has led to a market environment in which voluntary and community sector organisations are required to "compete" for resources. For some voluntary and community sector organisations, the changing relationship that they have with Government at a central and local level where there is an emphasis on contracting with the voluntary sector, has been at the expense of "investing" in the sector.

  At a practical level, many Voluntary and Community Sector organisations do not have the infrastructure to respond to the commissioning processes of contracting and procurement or the resources to manage their delivery.

  Contracts and restricted funding can be prescriptive. Contracts are becoming increasingly standardised and offer less flexibility and freedom for the voluntary and community sector organisations in receipt of them. Consequently, there is an increasing risk that the hallmark innovation of voluntary and community sector organisations will become stifled.

There is also concern amongst some voluntary and community sector organisations that the current shift in the funding environment is compromising the independence of the sector. It is thought that activity undertaken by some in the sector such as advocacy, campaigning and the development of best practice will be threatened if the present funding trend continues.

  The sector is increasingly aware of the need to find and strike the right balance between funding through grants and contracts. There is a hope in the sector that a mechanism such as a Social Investment Bank whose income was generated through redistributed unclaimed assets could enable more funding autonomy to the sector.

7.  Working with and through specialist distributors

  The model of a Social Investment Bank that was suggested as a mechanism to distribute unclaimed assets in the recent Commission for Unclaimed Assets report would aim to provide technical support and financial expertise to the voluntary sector should build on and complement the existing intermediaries that already exist to support the sector. Umbrella organisations—such as the Institute of Fundraising as well as the government's Finance Hub, and entities such as Futurebuilders all provide aspects of financial and funding advice and support to the sector and it is important that their expertise is acknowledged and incorporated into any distribution mechanism. It is also important when establishing any other new distributor of unclaimed assets, to implement lessons learnt from the establishment of other distribution mechanisms (such as the Big Lottery Fund) to ensure that the same difficulties aren't encountered again.

8.  Organisation and structure of the "Social Investment Bank"

  The Institute believes that it is vital that any Social Investment Bank model strives to fund and support actual, rather than perceived need. The Commission, through the work of The Young Foundation, has identified that society has "experienced a rapid rise in prosperity and opportunity and is slowly getting over a long period when family structures weakened markedly ... .but amidst this picture there are many acute unmet needs some of which have clearly worsened."

  Need, actual or perceived, is potentially infinite and resources are limited: At present, ball park figures[7] suggest that the following is spent seeking to meet perceived or actual need:

    —  £400 billion spent by government;

    —  £7.3 billion from public charitable donations;

    —  £2 billion from foundations;

    —  £315 million from corporate CSR;

    —  £692 million committed by BLF.

  Consequently, the Institute strongly believes that any resources generated through Unclaimed Assets must be used very strategically in order to support the voluntary and community sector to meet actual need.

  The Institute believes that the resources of a Social Investment Bank might be used in some of the following ways to support the work of the voluntary and community sector:

    —  Campaigning to persuade government(s) to provide new services and funding to meet actual need.

    —  Innovation to develop new models to address actual need if existing models to meeting perceived need are failing.

    —  Investment to develop capacities so that the actual needs that voluntary and community sector organisations address can be met sustainable fashion.

9.  Other issues?

  The Institute of Fundraising are also members of the Unclaimed Assets Charity Coalition, which represents the interests of the charity sector in reuniting owners with their assets.

  It is possible that millions of pounds of funds could be being held by financial institutions in the UK that are in fact owed to charities as lost legacy income from unclaimed assets. Legacies are an extremely important source of voluntary income for the charity sector. Although other fundraising methods such as sponsored events and direct mail receive more publicity, legacy income is, for a great many charities, by far the largest single source of voluntary income. In total, legacies form 30% of all voluntary income in the UK.

  When a person dies leaving a will, the executor of that will and the person's next of kin may not have access to the relevant paperwork and other items relating to certain assets when arranging the person's affairs. As a result, assets such as old bank accounts and shareholdings belonging to the deceased person can go unclaimed. If a person dies leaving undiscovered assets in this way, and has left a percentage of their estate to charity in their will, then the chosen charities receive a percentage of an incomplete estate, and miss out on their percentage of the value of any unclaimed assets.

  This issue will affect a significant proportion of the existing unclaimed assets in the UK. Since efforts to release unclaimed assets in this country have remained limited for decades, we expect that the majority of them will have belonged to people who have now died. One in seven of all people that die leaving valid wills leave money to charity—on average 5% of their total estate. It is reasonable to assume that charities are owed a significant proportion of the total value of unclaimed assets in the UK. Although it is difficult to estimate an exact figure, we believe that UK charities are being deprived of hundreds of millions of pounds through this lost legacy income.

  The Government is working with the banking and building society sectors on ways to better ensure that owners are reunited with their lost income, but we believe more could be done to help charities gain access to the funds left to them by their supporters. This could include:

    —  Placing a mandatory obligation on financial institutions to surrender the unclaimed assets they hold.

    —  The creation of a comprehensive national register of unclaimed assets to ensure that both charities and individuals have full access to information to enable them to find the money they are owed.

  Reclaiming unclaimed assets is an important issue for individuals as well as charities. It is the primary aim of this coalition to fulfil the wishes of charity supporters by ensuring that money pledged to a charity reaches that charity. Ensuring that charities are given access to this "lost" money pledged to them as legacy donations is an affordable and practical way that Government can unlock funds for the UK charity sector, and put right an injustice in the way unclaimed financial assets are currently held.

February 2007



1   NCVO (2006). The UK Voluntary Sector Almanac 2006: The State of the Sector. Back

2   NCVO (2006). The UK Voluntary Sector Almanac 2006: The State of the Sector. Back

3   NCVO (2006). The UK Voluntary Sector Almanac 2006: The State of the Sector. Back

4   NCVO (2006). The UK Voluntary Sector Almanac 2006: The State of the Sector. Back

5   NCVO (2006). The UK Voluntary Sector Almanac 2006: The State of the Sector. Back

6   NCVO (2006). The UK Voluntary Sector Almanac 2006: The State of the Sector. Back

7   The Young Foundation (2006). Mapping Britain's Unmet Need: A report prepared for the Commission on Unclaimed AssetsBack


 
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