Chapter 1: Introduction
The changing role of charities
1.With a history dating back to the pre-modern era, charities form a vital part of civil society in the United Kingdom. From small local organisations run entirely by volunteers to major global organisations with turnover in the hundreds of millions, their work touches almost every facet of British society. No understanding of the country can be complete without an understanding of how charities operate and the challenges and opportunities they are likely to face now and in the future.
2.The environment in which charities work has changed dramatically in recent years, particularly for those which are in receipt of public funding. There has been a significant shift in funding of charities, with many grants replaced by contracts, alongside a reduction in the overall level of public money available. The growth of contracts has brought with it new challenges for charities, particularly those bidding for and delivering commissioned work, along with greater expectations of professionalism and the ability to demonstrate measurable outcomes from their work.
3.Small- and medium-sized charities have arguably faced greater difficulties adapting to this new environment, particularly in terms of their financial skills and resources. These charities are the lifeblood of the sector, with major capacity for innovation and the ability to form strong bonds with local communities and people in need. It is important that, as charities’ roles change and develop, we prepare and support the sector to meet the challenges ahead and thrive into the future.
4.At the same time, there have been some high-profile failures in the charity sector. In August 2015, the youth charity Kids Company closed shortly after receiving a £3 million Government grant to facilitate an emergency restructure, following years of weak finances and questions about their work. Critical reports followed from the National Audit Office1 and from the House of Commons Public Administration and Constitutional Affairs Select Committee2 (PACAC). PACAC concluded that the charity’s trustee board “failed to protect the interests of the charity and its beneficiaries” and that “successive Governments failed to carry out adequate due diligence.”3
5.Also in summer 2015, newspapers published a series of reports alleging that some of the best known charities in the UK—including Oxfam, Save the Children, the NSPCC and the RSPCA—had used exploitative and unethical fundraising methods. Particular attention focused on the case of 92-year-old poppy seller Olive Cooke, who took her own life in May 2015, who was found by a report of the Fundraising Standards Board to have been “distressed and overwhelmed” by the huge number of requests for donations she received from charities.4 It should be noted that her family said that, while the charity requests had been “intrusive”, they were not to blame for her death.5
6.These events cast a negative light on the sector, including, regrettably, on the vast majority of charities which were uninvolved.6 As a result, there are greater expectations on charities in terms of their governance, accountability, transparency and demonstration of impact. There are also questions about levels of public trust in charities, though trust in the sector overall remains high, and above that of many other sectors.7
7.Charities are also facing change as a result of the ways that digital technologies have reshaped society, particularly in terms of how people give their time and their money. These changes bring challenges but also considerable opportunities for charities, with new ways to raise money, to mobilise support and to communicate more effectively.
8.At the same time as these fundamental changes are happening, the support available to the sector has been under considerable pressure. Many of the infrastructure bodies and umbrella organisations in the charity sector have faced funding challenges of their own and their capacity to support charities has been stretched. At a national level the budget of the Charity Commission has reduced and they have had to focus primarily on their regulatory role and do less supporting and enabling work.
9.We are living through a time of profound economic, social and technological change and the environment in which charities are working is altering dramatically. We do not believe that this is a temporary aberration: such disruptive changes are likely to become the norm.
10.However, charities have always helped society through periods of upheaval. We are confident they will do so again. It is our intention that the recommendations in this report will go some way to ensuring that they do.
The focus of the Committee
11.In this context, on 25 May 2016 this Committee was appointed “to consider issues related to sustaining the charity sector and the challenges of charity governance, and to make recommendations.”
12.Our report focuses on charities in England and Wales, as the regulation of charities is devolved in Scotland and Northern Ireland. However we took evidence from charity regulators and umbrella bodies from both devolved nations, to examine potential lessons which may be applied in England and Wales. Many of the issues we consider in this report are relevant to charities across the United Kingdom.
13.The charity sector is far from homogeneous. Charities vary considerably in their size, the issues they work on and the types of work they undertake. We are mindful that while we heard from many charities in the course of our work, there were more operating in the welfare and support space than from other sectors, such as those involved in culture and sport. This in part reflects the fact that more charities are primarily involved in social services (18% of registered charities) than any other activity (see Figure 1). Much of our report and recommendations will apply equally across all parts of the charity sector, but we are conscious that circumstances differ and, for example, discussions on contracts and services may be less relevant for some charities than for others. Charities based in the UK that are involved in delivering overseas aid face a range of specific challenges that we do not seek to address through this report.
Figure 1: Voluntary organisations by area of activity (2013/14)
Source: NCVO, UK Civil Society Almanac 2016
14.We took the decision from the outset to focus primarily on the interests of small- and medium-sized charities, as they comprise the overwhelming majority of the charity sector, and because recent inquiries have tended to focus on issues that are more relevant to larger charities.8 While some of the issues we discuss in this report are pertinent to larger charities, we have attempted, where possible, to frame our arguments and cite evidence in such a way as to emphasise smaller organisations.
15.With this in mind, and having sought evidence on the key challenges and opportunities facing the charity sector, we decided to focus in particular on issues of charity governance, funding and sustainability, as well as looking at the potential of new forms of charity finance such as social investment, and the role of local and national government in supporting the sector.
16.We have a firm desire not to increase the bureaucratic burden on charities—either directly or indirectly—as a result of our recommendations. Our intention is that our recommendations will help to make charities more efficient, effective and resilient, while decreasing the bureaucratic burden upon them wherever possible.
17.In preparing our report and formulating our recommendations, we chose to bear in mind the words of two of our witnesses. Dawn Austwick, Chief Executive of the Big Lottery Fund, told us that:
“The sector should be confident and lead, and in so doing we should all celebrate the many successes that there are in the charitable world. I fear there is lack of confidence and a slight sense of being battered. You cannot run the Big Lottery Fund without, every morning, being overwhelmed by what people in this country achieve in the charity sector. It is glorious and a wonder. I guess we would really want to encourage both ourselves and others to note that, mark it and celebrate it; hence for the sector to be more confident.”9
18.In a similar vein, Philippa Charles from the Garfield Weston Foundation said:
“While we appreciate that the charity sector has had quite a tough time recently, we are struck every day by extraordinary people, of very great quality, who come and inspire our trustees with their stories and their plans for their organisations. In many ways, it is a very strong sector and something we can have confidence in.”10
19.There is much to celebrate in the charity sector and we want to encourage charities to have greater confidence in themselves.
The work of the Committee
20.Over the course of our inquiry we received 184 submissions of written evidence and took oral evidence from 52 witnesses during 22 evidence sessions. In order to hear from a wider range of smaller charities, we convened three roundtable events—in London, Manchester and Cardiff—to discuss the issues that they were facing.11 In Manchester we met with representatives of the Greater Manchester Combined Authority and the Greater Manchester Centre for Voluntary Organisation. In London we also visited the HIV support charity Body & Soul and met with the Charity Commission at their offices. We are grateful to all those who gave up their time to make the visits and roundtables worthwhile, and to all who gave evidence to us. Notes of all our visits and roundtables are contained in Appendices 4–8.
21.We are also grateful to Rosie Chapman, who served as the Committee’s specialist adviser, for her advice and insight.
22.Our report concentrates on:
- The history and the shape of the charity sector (Chapter 2)
- How to improve the governance of charities, in particular the skills and support for trustees, and how to make them more accountable and transparent (Chapter 3)
- The funding challenges for charities as a result of the move from grants to contracts, and how to support charities accessing public funds (Chapter 4)
- Issues relating to the sustainability of the sector, including fundraising, volunteering, infrastructure bodies and support, and mergers (Chapter 5)
- The challenges and potential for charities as a result of developments in digital technologies (Chapter 6)
- Alternative forms of charity finance, such as social investment (Chapter 7)
- The role of government and the Charity Commission (Chapter 8)
We make 100 conclusions and recommendations, which are summarised at the end of this report.
1 National Audit Office, Investigation: the Government’s funding of Kids Company (October 2015): https://www.nao.org.uk/report/investigation-the-governments-funding-of-kids-company [accessed 14 March 2017]
2 Public Administration and Constitutional Affairs Committee, The Collapse of Kids Company: lessons for charity trustees, professional firms, the Charity Commission, and Whitehall (Fourth Report, Session 2015–16, HC 433)
3 Ibid.
4 Fundraising Standards Board, FRSB Investigation into Charity Fundraising Practices instigated by Mrs Olive Cooke’s case (January 2016): https://www.fundraisingregulator.org.uk/wp-content/uploads/2016/09/FRSB-Investigation-Report-Into-Charity-Fundraising-Practices-Instigated-by-the-Mrs-Cooke-Case1.pdf [accessed 14 March 2017]
5 ‘Olive Cooke death: Poppy seller had depression, inquest hears’, BBC News (20 May 2015): http://www.bbc.co.uk/news/uk-england-bristol-32810487 [accessed 14 March 2017]
7 Trust in the charity sector is discussed further in Chapter 5.
8 Such as the House of Commons Public Administration and Constitutional Affairs Committee inquiries, The collapse of Kids Company and The 2015 charity fundraising controversy, and the independent review of charity fundraising regulation led by Sir Stuart Etherington. We note with approval that the forthcoming Inquiry into the Future of Civil Society, to be chaired by Julia Unwin, will consider the “preponderance of small and medium sized charities”. https://www.civilsociety.co.uk/news/foundations-back-inquiry-into-the-future-of-civil-society.html [accessed 14 March 2017]
11 We are grateful to the Small Charities Coalition, the Greater Manchester Centre for Voluntary Organisation and Levenshulme Inspire, and the Wales Council for Voluntary Action for their help in arranging these events.