Funding of the arts and heritage

Written evidence submitted by Iain More Associates Ltd (arts 143)

Executive Summary

1. This document is submitted by Iain More Associates Ltd, one of the UK’s leading fundraising consultancies with a particular specialism in major gifts and large campaigns. We have restricted our comments to addressing the questions of:

a) Whether businesses and philanthropists can play a long-term role in funding arts at a national and local level and

b) Whether there need to be more Government incentives to encourage private donations.

2. We argue, with the important caveats in paragraph 3 below, that:

· there is plenty of scope to increase the funding that the arts receives from businesses and from private philanthropy, and

· that there are actions Government could take which would encourage this.

3. Despite this, we believe that relying on such sources simply to replace former Government funding is an extremely risky strategy. This especially so in the short to medium term, and for operational, as opposed to capital or development, funding.

4. Specifically, we recommend that:

a) DCMS is realistic about its expectations from the sector in respect of increased short term revenue from fundraising, especially any revenue raised explicitly to replace lost government or other statutory funding.

b) DCMS studies the two recent matched funding schemes in Higher Education which aimed first to build fundraising capacity and second to build awareness of the need for philanthropy amongst the public.

c) We recommend that those who appoint Trustees and Chief Executives regard willingness to be involved with fundraising high on the list of essential attributes of new Trustees and Chief Executives. We do not mean that these appointees must necessarily be deeply experienced in fundraising; rather they should be unafraid to learn and unafraid to promote the vision and aspiration for their organisations to potential donors. They must also be willing to give at a level commensurate with their ability so to do.

d) We recommend that opportunities are created for Trustees, Chief Executives, operational boards and leading participants in the Arts, whether actors, museum or gallery curators, librarians etc to learn about fundraising from those who are already successful, whether in the UK or abroad.

e) DCMS offers its support to specific sub-sector focussed benchmarking activity which, as with the Oxford Colleges Benchmarking Study which our firm has run for seven years, should enable leading arts organisations to understand better their own fundraising performance, to learn and share effective practice more fully, and to be able to present a thorough understanding of this across the sector to funders, not least DCMS itself.

f) The review being conducted by the Treasury into Gift Aid resists the pressure from some quarters to redirect Higher Rate Tax relief away from the donor. The current arrangements are a critical and successful part of the process of raising very large gifts, and its abolition would be harmful to the sector.

g) DCMS, together with the Office for Civil Society (on behalf of the conventional "charity" sector) and the Department for Business, Innovation and Skills (on behalf of the University sector) enter into discussion with HM Treasury about the possibility of introducing into the UK the American concept of "Charitable Remainder Trusts" in order to boost capital donations to the Arts, and to consider extending tax relief to wider classes of assets than the current restriction only to quoted shares and real property.

Our Expertise in this area

5. Iain More Associates Ltd is one of the UK’s leading firms advising not-for-profit organisations on Major Gift fundraising. Drawing inspiration from the US, but not constrained by that experience, we have worked with some of the largest fundraising campaigns in the UK and mainland Europe. We therefore have a keen idea of what is necessary to effect large scale giving, both by those who can give the very largest gifts, and those who support arts organisations with gifts of a few pounds each month.

6. Current and recent clients in the Arts and Culture sector include the Royal Shakespeare Company on their £100m campaign, the National Gallery, the National Museums of Scotland, the Imperial War Museum, the Chichester Festival Theatre, the Rose Theatre Kingston, the National Youth Orchestra, the Theatre Royal Plymouth, RADA and many others. In other sectors we are advising the University of Oxford on their £1,250 million (£1.25bn) fundraising campaign "Oxford Thinking" which has nearly 75% of its target raised, and Kew Gardens on its fundraising plans. Outside the UK we have worked with Fondation Alliance Française, Audencia Nantes, Camerata Ireland in addition to a large number of education institutions.

7. Our practice takes us to the heart of the philanthropic process. In addition to our work with fundraisers, we have trained many Chief Executives and Trustees in fundraising, and interviewed thousands of major donors about their philanthropy and potential philanthropy.

Requirements for Successful Major Gift Fundraising

8. Successful Major Gift fundraising requires Vision, Leadership and Relationships.

a) Vision is necessary because donors almost always give the largest gifts in order to effect change. They want to do something new or different, something which will help the organisation to develop and to be transformed. Such gifts are rarely given for "maintenance" and therefore require the organisation to have a keen sense of its intended destiny. This is why institutional Vision and the Leadership’s ability to communicate it is so important.

b) Relationships are important because donors of all kinds give to organisations they believe in. They give most to those they feel most strongly about. At a ‘mass’ level, the quality of the Membership or Friends programme is critical in developing these relationships. At a Major Gift level, the organisation’s ability to articulate its vision in a way which is personal and relevant to the potential donor is vital if the fundraising is to be successful. Major Donors tend to be leaders in their own organisations, and they therefore expect to interact with the leaders of the organisations they may support. This is why Leadership is critical to this process.

A broad brush view of Arts and Cultural Fundraising in the UK

9. A very broad view of fundraising in the Arts sector might characterise it as follows:

10. The table above is a gross over-simplification, and there are examples of arts organisations – Tate for example – whose major gift fundraising activity rivals that of the best in the United States. Nevertheless, as a rule, UK arts organisations’ fundraising resources are aimed more prominently at the funders in the top section of the table rather than those at the bottom.

11. For some organisations, their Friends or Membership schemes are a source of visitors, ticket buyers and financial support. For others they are a source of administrative strife. In the worst independent Friends’ schemes (and by no means all independent ones fall into this trap), the Friends feel they can run the parent organisation better than its paid staff, and the result is a breakdown in communication and enmity.

12. Whether poorly or well run, in our experience many Arts organisations do not think of their Members or Friends as a source of potential major donors. Yet this is the foundation of much major gift work in the United States.

13. Because little resource is dedicated to the identification and development of relationships which could lead to major gifts, few such relationships are developed. Many of our clients have a significant pool of as yet uncontacted (and in many cases unidentified) potential high-level supporters. Yet when we have visited such people to ask about their philanthropic potential for an organisation of which they are frequently a paying member, their knowledge of its aspirations is frequently very limited, and they have rarely been afforded a serious opportunity to get closer to those at the heart of the operation. Yet it is just this opportunity which needs to be developed if major gifts are to follow.

14. Recent work for an important regional orchestra provides an excellent example. Here we found that whereas basic members’ schemes, corporate sponsorship and trust fundraising were reasonably well done, almost no attention had been given to high level major gift fundraising. Such work as had happened had been in the context of a fundraising campaign some years earlier, and after the end of the campaign all contact with the donors had been lost. It is self-evident that this is not the way to build a long term sustainable high level supporter base. This lack of attention is ironic because private gifts of this nature are the most flexible, and sometimes the largest, gifts available to an Arts organisation. They are unconstrained by Trust guidelines, statutory funding requirements &c. Instead they are constrained only by the extent to which the organisation’s vision and that of the donor coincide.

Within Arts Organisations the following actions are needed:

15. The appointment of Chief Executives and Trustees who have a clear vision for their organisations, who are willing to champion that vision and be involved with fundraising. In addition, both senior staff and Trustees must given in a way which is commensurate with their ability to do so. There are plenty of examples of such individuals, but there are more for whom all of this is profoundly uncomfortable, or at the very least unfamiliar.

16. The development of bold visions which are not just about the health of the individual organisation, but concentrate instead on the benefits which accrue to the organisation’s audiences and participants, and the nation more broadly. For example, it may be very important to refurbish a theatre, but that is not an end in itself (apart, perhaps, for heritage or historical reasons). Instead the visions need to concentrate on the outcomes of such a refurbishment – what can be achieved in the refurbished theatre.

17. The practice of short term fundraising campaigns, followed by silence until the next fundraising campaign needs to cease. Arts organisations need to be building long term sustainable fundraising operations which engage and nurture relationships over a long period of time.

18. An increase in resource, both staff and non-staff, dedicated to the identification, cultivation and solicitation of major gift prospects. Practice in the US and the UK shows that one fundraiser can realistically be an "account manager" for around 100 potential major gift donors at any one time. For major fundraising campaigns, many thousands of people need asking personally. This means that if major gift fundraising is to succeed, appropriate resource should be dedicated to the process.

19. Arts organisations need to understand how well they are doing in their fundraising. We understand that there is some activity to measure performance already taking place, but are led to believe that it is not of the intensity or detail of the study in which we have been privileged to take part for some years at the University of Oxford. Almost all colleges now participate in an annual benchmarking process (funded by a donor) whereby colleges share with each other information on fundraising costs and returns. After ten years’ collection of data the result is a significant increase in fundraising investment and return at Oxford, driven partly by increased knowledge of what has and has not worked, the sharing of best practice and incentive either to catch up or to stay ahead. Measured by return on investment, it is arguable that Collegiate Oxford is now as effective at fundraising at Harvard. We believe that some similar study in the Arts sector could be very productive. It would only work if divided into sub-sectors, for example regional theatres, free-to-enter museums or other similar groups of organisations where inter-organisation comparison would be meaningful.

20. Realism is needed about the extent to which permanent endowment can be sought. The University experience is directly relevant here. It is only after a decade or more of active fundraising that University donors are gaining sufficient confidence in the organisations they support to be comfortable endowing them with permanent capital. To start with it is far better first to build confidence by raising gifts for definable, and often, visible out-turns.

Within Government, the following is needed to encourage Major Donors to give:

21. While recognising the very great difficulty that we all face in the light of the current public finances, it is naïve to think that private donors will simply step into the breach. As the UK university sector has moved towards a US-influenced fundraising model, fundraisers in Higher Education have spent 20 years encountering the argument from donors that "I pay my taxes." This attitude is slowly changing, but it is a long term process, and donors are extremely sensitive to the idea that in giving they may be absolving the government of its responsibilities, even in straightened times. Thus fundraising messages for the Arts sector need to concentrate on the positive, on development and on the future. They must not concentrate on what the government used to do, and can no longer afford to fund. DCMS needs to be careful to encourage philanthropy, but not to give the impression that such philanthropy is simply displacing the government’s now unaffordable previous support.

22. We recognise the difficulty of arguing for increased resource at present. In 2005 the then Department for Education, through the Higher Education Funding Council for England, ran a scheme which matched pound for pound for three years increased resource committed by Universities themselves for fundraising. This was successful in increasing overall fundraising activity in Higher Education, not least because those funded had to commit to continued investment. The success of this initial scheme laid the foundations for the current scheme, running from 2008 – 2011 which is matching actual donations. This scheme has resulted in considerable further investment in fundraising capacity. DCMS might consider something similar for the Arts.

23. There is a review of Gift Aid currently being undertaken by HM Treasury under the auspices of the Gift Aid forum. The Arts sector’s opposition to the idea of a Composite Rate of reclaim is well known, and we share that opposition, on the grounds that there is an intimate link between the gift of taxed income to a tax exempt organisation, and the rate at which tax was paid by the donor. Gift Aid gifts are given net of basic rate tax, and it is at that rate that tax should be reclaimed.

24. Higher Rate Tax relief on Gift Aid should be maintained in its present form. Our long experience of discussing very large gifts with donors (in excess of £10,000, but with considerable numbers in excess of £1 million) tells us that there are only two figures that a donor at this level is interested in. The first is "how much will the charity get?" and the second is "how much of my after-tax income with this gift cost me?" To a 50% tax payer, the message is simple, s/he can fund a £1 million project at a cost of £500,000 of their taxed income. Thus the fundraiser is asking for a £500,000 gift. If Higher / Additional Rate Relief were abolished or reduced, then the amount that the fundraiser will need to ask for will rise in order to fund the same project. This would not be a constructive development.

25. Research in the UK and elsewhere has shown that while the tax regime rarely influences the decision as to whether to give, it has profound influence on how much, when and by what means gifts are made. Gift Aid gives the UK one of the world’s most generous (if somewhat arcane) systems of tax relief on income. Yet the UK lags behind not only the United States, but large parts of Western Europe on its tax relief on gifts of assets. Two specific measures could change this significantly.

a) Increasing the asset classes eligible for tax relief when given to a charity. Currently quoted shares and real property are eligible, but, with the exception of certain gifts of arts, other assets are excluded. We understand that this is largely because of HMRC’s resistance to the principle of having to establish a value such a gift. Yet the Capital Taxes Office of HMRC does this frequently for probate purposes. We propose that additional classes of asset should be included, with, initially, a minimum value eligible for tax relief in order to limit the administrative burden for HMRC. In this respect this would mirror the introduction of Gift Aid in 1990, with the floor for donations steadily lowered until Gordon Brown abolished the floor in 2000.

b) The introduction of a system of "lifetime legacies." There is not space here to explain fully the technical details, but there are significant advantages for both donor and charity which have been shown in the US and Canada to be an important vehicle for encouraging larger and earlier gifts. The European Association for Planned Giving, the Charity Tax Group and the Council for Advancement and Support of Education amongst others have both been arguing for this provision for some time. The Select Committee and DCMS should add their voices to the call for this giving vehicle. The Director of the British Museum wrote on this subject in the Times in November 2008. Referring to this type of arrangement e said "Tax relief for lifetime giving will encourage donations by benefiting the donor, but crucially it will also benefit the public, giving them access to examples of human cultural achievement. If we do not encourage a national culture of giving to all British institutions, collections will remain static and lose contact with the modern world. For 250 years, government has been a generous supporter of acquisitions by public collections, but it can no longer do so alone. As part of its drive to foster wider philanthropy it must now move to encourage private individuals to play a bigger part in enriching our collections, so that our generation can make its gift to the future."

September 2010