Memorandum from the Rayne Foundation (DCH
204)
1. We write as Directors of grant-making
trusts and foundations established over a period of more than
50 years by five individuals or families. In total there are 25
trusts or foundations. Around 2,300 grants are made to charities
in any given year, valued at in excess of £60 million each
year, and ranging in value from £200 towards school learning
resources to £1 million, and occasionally £10 million,
towards major research programmes. All the trusts have general
charitable objects and therefore work as funders with a very wide
range of UK charities, measured by such criteria as size, location,
geographical area of benefit and field of operation.
We are also members of an informal grouping
of chief executives of some 50 of the largest endowed UK grant
making trusts. Taken together, these roles give us a particular
perspective on the operational issues which challenge endowed
trusts in this country at present.
2. In our experience, endowed trusts use
their income and assets to support charitable work in a variety
of ways, principally including:
(i) Working with established charities to
trial new initiatives in specialist fields;
(ii) Responding to appeals from smaller,
often new, service-providing charities which lack the public profile
for direct fundraising;
(iii) Providing key grants for major projects
and initiatives in national and regional institutions, thus adding
credibility to wider fundraising efforts;
(iv) Sometimes providing continuing support
to local causes well known to individual trustees.
3. Figures presented in other evidence show
that grant making charities provided £2.2 billion worth of
funding in the latest year for which figures are available. This
is by no means the bulk of estimated overall funding but it is
a measurable share, especially when set against figures from which
the statutory sector's purchasing of services is excluded. The
diversity and innovation in charitable activity in this country
would decline without the kind of funding which can be provided
by trusts and foundations. We believe charities who receive our
funding find it of special value because it is provided as a much
more flexible resource than money raised from other sources.
4. We ask ourselves whether the draft Bill
and its consequences will serve to stimulate the flow of funds
into independent trusts and foundations, to reinforce this stream
of charitable funding. Our conclusion is that it will not. If
anything, it will inhibit that flow. If that conclusion is a matter
of concern to the Committee and the promoters of the Bill we need
to explain why we reach that conclusion and what changes in the
Bill might modify it.
5. In our work on behalf of grant making
trustees, the regulatory and compliance requirements have become
much more onerous and intrusive. Yet at nearly every point of
the enforcement of these processes, we have been assured that
the grant making trusts and foundations are not the target of
the changes. Despite that, the compliance costs and wasted effort
increase exponentially with each change in regulatory process.
We have seen no attempt by the Bill team to recognise or assess
the direct cost to charities—grant makers and others—of
such unproductive processes. Beyond those direct costs, the weight
of regulation is increasingly a significant disincentive to the
creation of new grant making charities, or further funding of
such existing charities by their settlors.
6. The present draft Bill envisages a much
more powerful Charity Commission. Evidence from other witnesses
raises real concerns about the practical implications of such
increases in powers and about the lack of clarity between the
regulatory and advisory roles in such a body. Some witnesses point
out that much greater resources will be required to fulfil the
roles effectively. In our judgement, it is unrealistic to expect
a small government department to be given a material increase
in resources in the current climate around machinery of government.
7. The implication of all this is that the
regulatory load on the medium sized and larger grant-makers will
continue to grow out of all proportion to the benefits—if
any—to be derived from such increase in regulation. Similarly,
there will be growing pressure to comply with "best practice",
which will in itself inhibit the risk taking and positive attitude
to the experiment which characterise the best decisions of grant-makers.
8. That "best practice" will be
developed around perceived weaknesses in processes within service-providing
charities, but will be applied without mitigation to independently-resourced
grant makers. It will become a compliance issue driven entirely
by bureaucratic convenience, in place of a real understanding
of the desirable relationship between different institutions in
the voluntary sector.
9. For these reasons, we believe the Bill
in its present form will add to the disincentives for wealthy
individuals to add funds to existing trusts and foundations or
to set up new ones. We believe that would be a highly unsatisfactory
by-product of the proposed legislation.
10. Some mitigation is possible if the draft
Bill recognises that the regulatory regime and compliance requirements
for this particular category of charity requires a light touch,
as is proposed elsewhere in the Bill for smaller charities. At
present, it is too easy for the Charity Commission to argue that
they have no mandate so to do.
11. We understand that others will be submitting
specific proposals as to how a suitable reference could be inserted
in the Bill. We will not duplicate on that point. We can, though,
offer a few illustrations to show examples of where the approach
to regulation by the Charity Commission might need to vary.
11.1 In current discussions around charity
governance, there is a growing consensus around size, responsibilities,
recruitment processes for trustee bodies. Yet the potential settlor
of a new grant-making charitable trust—whether a young person
handling newly-inherited wealth or an entrepreneur putting some
of the proceeds of his success into founding a trust—may
well be frightened off if compliance pressures suggest the new
charity will only be acceptable if it moves straight to the generally-advocated
governance model of the time. In the case of the young person,
he or she will almost certainly want the comfort of working initially
with a small group of known associates and advisers. Without this
option, the individual may well decide that this form of philanthropy
carries too much baggage to be contemplated so the resources may
well be lost to charity. As the trust matures, perhaps beyond
its settlor's life, requirements and appropriate practice will
change.
11.2 The current Statement of Recommended
Practice on accounting for charities started life as an advisory
document. Compliance is now a statutory requirement. A number
of grant-making charities continue to point out in their annual
reports that its format, designed with best of motives to improve
transparency of the accounts of fundraising and service-providing
charities, actually presents a distorted picture of the financial
position and stability of some grant-makers. It also tends to
discourage longer-term funding commitments by grant-makers, despite
beneficiary charities' frequent calls for greater certainty of
funding.
11.3 The proposals for a Standard Information
Return, as so far exposed for discussion, will similarly impose
on grant-makers benchmarks for reporting which many grant-making
charity trustees will regard as a distortion of their general
charitable purposes. They will no doubt find ways of complying,
but this will be an exercise with some costs and minimal if any
benefit.
12. We emphasise that we have listed merely
three examples of where we believe regulation needs to differentiate
at least those grant-makers with a solid asset base provided from
private sources. Such charities must of course continue to be
publicly accountable given their tax privileges—even if
those are now significantly diminished— by showing who receives
their grants and how they apply their resources, through the medium
of their annual reports or in special cases by confidential report
to the Charity Commission.
13. Thank you for considering this submission.
June 2004
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