Impacting investing: trends, issues and capabilities
In the face of recent cutbacks I have often heard it said that philanthropy will have to work harder to fill the gaps. This implies that it might actually be possible for philanthropy to fill that gap. It is a dangerous route to go down. The gap isn’t going to be filled by passing the hat around the usual suspects.
In the UK, the state spends about £400 billion a year on welfare, education and health. Charities involved in these areas attract about £8billion a year in voluntary donations, reduced to £6 billion a year after fundraising costs. It follows that a 1% cut in state spending requires a 66% increase in giving. Since all charities are already doing everything possible simply to maintain the current level of giving, this seems unlikely. We need to be realistic. The charity sector isn’t going to raise any more money, the state sector isn’t going to find any more money to spend either in the form of grants or tax incentives for giving.
The most valuable role of the philanthropic pound is the independence it gives to organisations which enables them to speak out and influence the way issues are dealt with. Since it is not possible for charities to simply fill the funding gap, it would be far better to close the gap by helping the state find ways to achieve the same results on the reduced budget. Put another way; helping the state sector achieve 1% better efficiency is the equivalent of increasing giving by 66%.
Charities have the sector expertise to give a legitimate and valuable input into the debate and in most sectors the interface between state and voluntary sector exists, but if the government is serious about Big Society it should see the role of the voluntary sector as more than merely filling in the gaps, pound for pound, and instead embrace the contribution that the combined experience of the sector can make in improving the efficiency of state spending through innovation and fighting waste. In turn the voluntary sector needs to embrace the notion that its interaction with state should be about more than just financial support for its own programmes.
Charity programme staff work at the coal face, often side by side with the state sector, particularly those charities with large state funded programmes. They are in the best position to see and shed light on the inefficiencies. Rather than sit back in silent bemusement watching government departments squander sums of money representing several years expenditure for their own charity, they should see that they have a responsibility to speak out to improve their sector on both sides of the fence. Some people can be remarkably territorial in their concerns, the rest of us would just like to see the issues addressed effectively and it really doesn’t matter who takes the credit.
There are formal and informal channels of influence, from policy committees involving both state and voluntary sector through to the informal and indirect influence of the press. Charities should always have a role in yapping at the heels of the state to drive change for good; it is quite right that this should incorporate the war on waste. The Peterborough Social Impact Bond, launched by Social Finance in 2010, is probably one of the best examples of how this could work. It looked at the issue of reoffending as a whole and offers the Ministry of Justice a more effective way to spend the existing budget.
As a donor I prefer the idea of my money being used to influence the efficiency of the whole budget, state and voluntary, rather than just topping it up. It is rather depressing to make a donation to a cause, only to hear of examples of waste in the very same sector that completely dwarf the efforts of the charity. I like to know that my donation has been well spent but I am equally keen that my taxes are well spent too.
Perhaps the government should embrace the idea that, wherever charities identify public sector waste which can be addressed, half of the money saved should be given to the charity as an incentive. If the government agreed to that, I would be delighted to fund a unit within a charity responsible for prospecting for public sector waste. In the meantime I hope we will see an increasing range of Social Impact Bonds offering more efficient solutions to social problems.
In the meantime, it is hard to imagine that charities could ever increase annual voluntary fundraising by 66% but it is not hard to imagine that the state sector wastes 2% of its budget.
The Secret Philanthropist is a successful British entrepreneur.