Paul Palmer: How David Cameron could help boost philanthropy in the UK to the tune of £75 billion

Paul Palmer is Professor of Voluntary Sector Management at Cass Business School, City University London. He is author of A Step Change in UK Philanthropy, which is published by the Centre for Policy Studies and  is available to download here.

In the late 1940s prominent City Businessman Sir Robert Whaley Cohen was asked for a donation by Toynbee Hall, the University settlement in the East End of London. He replied expressing that giving to charity was a most noble act but that the Labour Government’s high taxation rates prevented him.

For what was a relatively short period – from the 1940s until 1979 – the UK had high rates of taxation for both modest and high earners, ostensibly to pay for a welfare state. There was a belief by Labour politicians that, despite the belief of Lord Beveridge, the architect of the welfare state, that there should be a role for philanthropy, charity would wither on the vine of the welfare state. 

That Labour belief was disproved (as were so many others) by Mrs Thatcher’s election in 1979. One of her ambitions was that, as in the US, if individuals were given freedom and choice to create wealth, so they would, if unburdened of high taxation, be generous supporters of charity. As she recognised in a speech to the Centre for Policy Studies in 1988:

“There is a great generosity in the British character, and that is why we have always had tremendous voluntary organisations. Equally, if you look at the rise of public spiritedness in this country as we got the great increase in industrial power in the last century, alongside that came a great burgeoning in public spiritedness. All of this is fundamental in the British character, but somehow it had all been pushed down and overlaid by years of Socialism which had not let it show itself to the greatest advantage.”

Today the British people are now the second most generous givers to charity in the world.

But today charities face many problems. Since the late 1970s, the income of charities has quadrupled – largely because of the growth in the amount of money channelled into charities by central government. That has caused problems with accountability and “capture”. But, given the state of the public finances, this source of income is now be under great pressure — while at the same time the demands made on charity services are only likely to increase. Two other possible sources of finance for the charity sector - income from investments and corporate donations are coming under similar pressure as well.

So where will charities get the money they need?

For the years ahead, the greatest potential source of new money for charities is likely to be donations from the public. And in my recent report for the Centre for Policy Studies, I outline two reforms which could increase giving by the reasonably well off by around £75 billion. That is twice the total income of public donations to the charitable sector.

The first reform would enable individuals to set up ‘Remainder Trusts’ in which sums of £50,000 or more could be donated to charity. Crucially, donors would retain control over the capital and could reclaim it if they wished during their lifetime. Charities using their tax exemption status would be able to use the income from these funds to fund activities or use them as security to borrow further funds. On the death of the donor the charity should have demonstrated good stewardship of the funds and created a relationship that would encourage the donor to leave the funds through a legacy to the charity. But, should the donor fall on hard times, then he or she would be allowed to reclaim part or all of the original donation.

The second reform would be the creation of a new type of charity – the ‘Personal Charitable Trust’ based on the Canadian and US models. These personal charitable trusts would enjoy the benefits of a light touch regulatory regime and anonymity for the donor in exchange for distributing a percentage each year of the capital.  Moderately wealth people could establish charitable trusts, which to date has been perceived as an option for only the most wealthy.

These reforms would help the British people, once again, to exercise their great generosity.  Rather than the state assuming that it has all the right answers, it is us, as individual citizens, who should be allowed as far as possible to address the problems around us. After all, as David Cameron has said, when organisations that have been dependent on the state are asked to go outside government for funding, they improve their record of engaging with the public and society. There would be no better way of achieving this than by encouraging the development of a new generation of publicly endowed small vibrant charities.