Nick Hurd MP: We don't want charities to become dependent upon the state

Nick Hurd MP is Minister for Civil Society.

Tim Montgomerie kicked off the New Year with a call for a “revolution in how taxpayers money reaches voluntary organisations”. His concern is that too many charities have become dependent on income from the State and in that process have become bland and out of touch with what communities need. His call is for a switch from direct grant funding to matched funding incentives, whereby taxpayers money follows the choice of citizens.

Tim raises an important point although he fails to recognise that hundreds of thousands of charities and civil society groups do what they do with no help from the State at all. Nor do I detect a lot of “monochrome” in the amazingly diverse ecosystem that is our voluntary and community sector.  However It is true that the charitable sector has become more dependent on the State, as public sector income has grown from £8bn in 2000/01 to £12.8bn in 2007/08.

As a result, the state now represents 36% of the sector’s income – on a par with income from individuals, however levels of giving have effectively flatlined in real terms over the period.  It is also true that resources within the sector have become more concentrated with over 70% of total income to the sector now going to organisations already earning more than £1m in income. This combination of creeping dependence and growing concentration should concern those of us who believe that the value of civil society lies in its robust independence and diversity.

We should be clear that most of this growth in income from the State has not come in the form of grants, which have declined as a proportion of the total, but from contracts. This is not in itself a problem. The Coalition Government is explicitly committed to opening up the public service markets to more independent provision. We want to make it easier for charities and social enterprises to participate because we believe that they can be more effective in tackling some of the really stubborn and expensive social problems, such as getting people into jobs or keeping them out of jail. The problem comes when you do not recognise the risk of overdependence and manage the relationship badly. Under Labour, public money was chucked about with very little transparency and too little rigour in establishing exactly what was being bought. Instead of focusing on outcomes, refuge was taken in micromanagement of process - as a result the whole business of applying for, and reporting for, public money has become a bureaucratic nightmare which soaks up time and money that could be better spent. At the same time, there was no sustained effort to encourage a step change in our cultural attitudes to the giving of time and money. Labour talked about a social investment bank for ten years without delivering it. The result is a very inefficient funding environment for charities and a terrible vulnerability to the cuts in public spending that are an inevitable consequence of our overborrowing.

We now have to help the sector manage its way through a very painful transition.  They cannot be exempt from cuts but we have to minimise the risk of losing networks and support services that are really valuable. A £100m Transition Fund is available to provide short term relief.  However the aim must be to reduce long term dependency on the State. That is why I commissioned the Green Paper on Giving which we will take through to a White Paper in the Spring.

That is why we are attaching such a high priority to growing the social investment market and creating an independent Big Society Bank, (using dormant bank accounts).  Lord Hodgson’s Red Tape Task Force; our reviews of Health and Safety and the Vetting and Barring regime all present opportunities to  reduce the burden of regulation on charities and voluntary groups and save them time and money.

I agree with Tim on the value of matched funding incentives. That is reflected in the design of our Community First programme which will have two components.  The first is a neighbourhood grants programme focused on areas that face the biggest challenges. It will exist to put money in the hands of neighbourhood groups to help them implement their own plans. However it will be set up to incentivise wider community participation – grants will be linked to matched funding (delivered in cash or volunteering time) from the community. The second part of the programme is a matched local endowment challenge; which again is designed to incentivise bigger donors to set up local endowments which in turn will generate a sustainable source of grants for community projects.

Charities have been doing Big Society for a long time. Their value in terms of bringing people together and giving the vulnerable a voice or that extra level of support is immeasurable. We cannot afford to let them become semi attached agents of the State. We don't intend to.