Charitable foundations the ‘key’ to ‘21st Century Philanthropy’, claims new report

Charitable foundations the ‘key’ to ‘21st Century Philanthropy’, claims new report

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Charitable foundations are an ‘untapped resource’ and hold ‘the key’ to making social investment a reality, according to a new report on how to encourage more effective philanthropic giving in the UK.

The report, Philanthropy in the 21st Century, prepared by the Centre for Charity Effectiveness at Cass Business School, for the Honorary Treasurers Forum, makes several major recommendations.

One of its most contentious points is that there should be an annual 5% payout rule in the UK for all endowed foundations. They say this could increase funding from endowed foundations by 31.5%, to around £1 bn.

However, David Emerson, chief executive of the Association of Charitable Foundations, of which Philanthropy UK is a project, said, “Our real concern about a mandatory payout is that it forces foundations to get a certain amount of grants ‘out the door’ each year, regardless of any other factors, and could take us back to a pattern of reactive and less considered grants from foundations trying to achieve annual payout figures - a world away from the effective and more outcome-based approach by foundations for which the authors are also arguing.

“The Forum’s figure of an additional £1bn per annum being made available to the charity sector as a result of a mandatory 5% payout figure is misleading.  A payout requirement will not bring any new money into the foundation sector, or miraculously generate higher investment returns. This additional billion would be a transfer to present beneficiaries of income that would have been made available to future beneficiaries, and the world of pensions provides an analogy of the validity of matching future needs against present ones,” he said.

Emerson said he feared that raising the concept of mandatory payouts “may only distract us, and perhaps government and regulators, from more critical issues about maintaining foundation (and wider charity) effectiveness.”

The Cass report raised several other points:

  • More work needs to be carried out to make significant social investment a reality. Foundation funding is especially valuable as it does not come with the same restrictions as government funding. 
  • A wider variety of umbrella charities with donor advised funds should be set up with government seed funding. A possible incentive for the creation of donor advised funds would be the introduction of an enhanced tax incentive for donations, it suggests.  
  • In the current economic climate with the incomes of vital charitable and voluntary organisations under extreme pressure, it is even more important that every avenue for additional resources is explored.

Peter Grant, co-author of the report and lecturer in Voluntary Sector Management at Cass, commented:  “We made these recommendations because we think there is plenty of room for endowed foundations to be more effective although there is a lot of good practice out there already.”