The Charity Mess

W.G. Runciman

It may be too soon to be passing judgment on the Cameron government. But it does sometimes look as if we are back with the impatient legislation of the Blair era, along with the facile soundbites, the eye-catching initiatives, the whitewashed sleaze, the fawning towards the tabloids (in Blairspeak, ‘managing the relationship’), and the unwillingness or inability to think through the implications of under-researched policy decisions – tendencies which in the end came to be deplored by many of Blair’s one-time supporters as well as his opponents. The U-turn over Osborne’s attempt to cap the amounts that rich taxpayers can save by donations to registered charities is, as U-turns go, a little one. But it is symptomatic of a disposition to tinker for a short-term reason with an issue that cries out for long-term thought. A veteran Conservative stalwart, Lord Hodgson, has been appointed to conduct a review of the 2006 Charities Act, and he is on record as having announced that ‘nothing is ruled in, and nothing is ruled out.’ But it requires no supernatural gift of prophecy to predict that the opportunity missed in 2006 will be missed again.

Charity law is a mess. The relief of poverty, which you might think is what it’s all about, remains the first criterion, as it has been ever since the 1601 Statute of Charitable Uses. But it’s always been supplemented by religion, education and a catch-all category covering whatever case law may decide. In a survey conducted by the National Council for Voluntary Organisations in 1998, 89 per cent of respondents agreed that ‘charities are about raising money to help the needy’ and 91 per cent with the statement ‘I respect what charities are trying to do.’ But how many of them knew what it is that charities do try to do? Or how they set about doing it? Osborne was foolish to try to justify his proposal as a punitive crackdown on unscrupulous tax-dodgers. But he was right both that tax breaks for givers to charity are in effect a charge on other taxpayers and that many rich donors use their ‘charitable’ donations not to help the needy in any recognisable sense but to buy themselves publicity and status.

Far from clearing the decks, the 2006 Act (which a 2011 Act has clarified but not tampered with) started from the status quo as set out by Lord McNaughten in 1891, extended the list of charitable purposes to 13, including ‘other purposes currently recognised as charitable’, and added the proviso that a charity must ‘provide a public benefit’. This could, and did, only make matters worse. It introduced a criterion which is impossible to define clearly in law, and can be argued to conflict directly with several of the items on the extended list. What benefit does the public derive from a donkey sanctuary which qualifies under ‘advancement of animal welfare’, or a rowing club which qualifies under ‘advancement of amateur sport’? The proviso can be, and has been, invoked to put pressure on public schools to establish more bursaries for children whose parents couldn’t hope to afford the fees. But however much that may help a small number of children to pursue more rewarding careers than they would otherwise have been able to do, there would be a more readily demonstrable public benefit in withdrawing charitable status from fee-paying schools in order to allow them by their continued existence to pay tax for the Exchequer to spend on improving state schools. Parents with the means to enhance their children’s prospects always have, and always will, do it. But that is ‘charity’ of the kind that not merely begins at home but stays there.

Come to that, what is the public benefit in donations made for the advancement of religion? You don’t have to be Richard Dawkins to query how much of what religious organisations do in the name of a chosen deity or charismatic spiritual leader is of benefit to the rest of us, or to wonder why the beliefs of the members of the British Humanist Association should deny it the charitable status accorded to bodies whose members believe (if they do) that an all-powerful, all-knowing male God who created the universe decided to father a son on a Palestinian carpenter’s wife in the reign of the Emperor Augustus. Besides, donors to religious causes typically give to their own church, chapel, synagogue or mosque, not to other people’s. If what some of them do is directed – as it undoubtedly is – to the relief of need, isn’t that the heading under which donations explicitly directed to that aim should qualify for tax relief?

Still more curious is the use of language which makes advancement of ‘the arts’ a ‘charitable’ activity. When a successful financier or entrepreneur or entertainer who has spent a small part of a very large fortune on patronage of the arts is described in the newspapers as a ‘philanthropist’, what should that be taken to mean? Some seriously rich people may be as keen as anybody else to enhance the wellbeing of their less fortunate fellow human beings. But helping a museum or gallery to buy a masterpiece isn’t exactly almsgiving. Likewise, as often remarked, opera: what needs of whom are being met by this extravagantly expensive art-form? Anyone who has paid their taxes and then wants to give financial support to a museum, an opera house or a donkey sanctuary has every right to do so, and the beneficiaries every reason to be grateful. But let’s not pretend that the donors are being ‘philanthropic’ and therefore entitled for that reason to pay less tax than they otherwise would.

Politicians can if they wish encourage their citizens by whatever means they choose to behave in ways that further the national interest as they define it. If the country’s prestige is enhanced by having a superlative collection of priceless paintings in the National Gallery and a world-class opera company at Covent Garden, the government in power can subsidise them however it likes, including requiring them to match the taxpayers’ contributions from other sources. But it’s not of ‘public benefit’ in the same way as the ‘advancement of health or the saving of lives’, in the wording of the 2006 Act. Even if endowing a hospital or funding a medical research laboratory is going to save only a small number of lives and relieve only a small number of sufferers from a small number of rare diseases, it would be perverse to deny that a need is being met which it is of public benefit that it should be met. But when our rulers want to motivate rich people to give large sums to the arts, the cost-effective way to do it is to reward them with a slot on the Honours List. You might think that people who get there by paying for it rather than through any personal distinction or merit should be ridiculed rather than admired. But if it turns them on, it’s Pareto-optimal. It does no harm to anybody else.

Even more cost-effective are donations whose motive is not prestige but penitence. The story is told of a North Country businessman of the interwar period who, after he came out of prison, paid for the building of a church which the locals immediately dubbed ‘Old So-and-So’s fire insurance’: some tangible expiation of lucrative misdeeds can never come amiss. Less unusually, quite a lot of people who find themselves with more money than they feel they need or deserve are disposed, as they sometimes put it, to ‘give something back’, and there is no reason to discourage them. But if their donations to their selected recipients are to be subsidised by the general body of taxpayers, should that not be restricted to where they are relieving poverty, hardship or distress in some way that the state either isn’t doing, can’t do, or isn’t doing well?

However much stricter than at present the definition of ‘charity’ either might or ought to be, there will always be a need to police the inevitable abuses: cronyism, inflated overheads, dodgy accounting practices, driving the proverbial coach and horses through the statutory criteria, and the occasional fingers in the till. But the Charity Commissioners are much preoccupied with preventing charities from engaging in political activity, even though you might think that a good way to help the needy was by means of outspoken lobbying on their behalf. Alongside the Charity Commission is HMRC, ever on the lookout to recover unpaid tax. But this can mean in practice that inspectors whose bonuses and prospects depend on how much tax they recover switch from the bad guys who are too difficult to roll to charities, which can be caught out on technicalities. If you think I’m exaggerating, let me tell you about a small charitable trust that I set up with £10k in 1960s money which was presented some years ago with a demand for £500k in unpaid tax on the grounds of having made a ‘non-qualifying investment’ in convertible loan notes in breach of a clause we’d never heard of in a Finance Act we knew nothing about. We fought it off in the end with the help of a majestic opinion from leading counsel, but not before Hector (he really did look a bit like that) had descended on us in person to tell us that the accountant advising us (who had, we discovered, absconded into the void) had conceded the claim. Hector departed with a smirk and the remark ‘nothing personal’, which made me, as the Australians say, want to bust him on the snoot. It was months before the Revenue gave up, and then not by conceding our case but by notifying our solicitor that the delay had been such that their obligation to maintain good relations with taxpayers required that their unanswerable case should be dropped.

Behind all this lies the long tradition of paternalism which by many on both the right and the left is viewed as an embarrassing anachronism. To the left, the relief of need through private benefaction is arbitrary, meddlesome, patronising and manipulative. To the right, it is unnecessary, debilitating, inefficient and wasteful. Once the state has assumed responsibility for the welfare of its citizens from cradle to grave, its agencies are the conduits through which the relief of need should be channelled and information fed back to the policymakers about how well it is being done. But however different today’s material and ideological environment may be from that of Mrs Bosanquet and the 19th-century Charity Organisation Society, the expanded role of the state and its constituent bureaucracies has given rise to a proliferation of voluntary organisations directed to meeting, or pressing the case for meeting, or researching into the case for meeting needs which the state is palpably failing to meet. That this provides grounds for charitable donations to attract tax relief follows from considerations of efficiency as well as benevolence. There is no lack of good but unpopular causes which politicians see no votes in, civil servants know little if anything about, and the media ignore. The left may be correct in saying that much of what voluntary organisations do is manipulative and the right that much of it is wasteful. But the same can be said of much of what is done by the institutions which comprise the welfare state. That something worthwhile is not being done as well as it might be isn’t a reason for not doing it at all, or for refusing authentically charitable organisations tax relief which encourages donors large and small to support them to an extent that they might not otherwise do.

There will always need to be a statute and a non-political body empowered to see that its provisions are complied with. A new Charities Act which embraced all genuinely philanthropic objectives while excluding the rest would be formidably difficult to draft and correspondingly difficult to enforce without frequent and burdensome appeals to the courts. But a less imperfect regime is preferable to a still more imperfect one. In saying this, I have particularly in mind the 1986 Financial Services Act, of whose many imperfections I had direct experience as a lay member of the Securities and Investments Board. To recount those imperfections, and our unsuccessful attempt to persuade the government of the day to introduce primary legislation to amend them, would call for another article. But at least statute-backed regulation with direct practitioner involvement made it possible for the investing public to be protected or compensated to an extent that they had not been before and would not be by either informal self-regulation or regulation by a civil service department. Even if no engineer can design a heat engine capable of reaching more than 40 per cent of its maximum theoretical efficiency, 40 per cent is a lot more than nothing.