The cost of living crisis has increased the strain on public sector organisations, particularly local authorities, resulting in a lack of funding for grass roots causes, for example youth clubs, foodbanks and sport. Pro Bono Economics’ recent report ‘Tethered Fortunes: the threat to charities from trouble in local government’[1] cited local government funding cuts hitting charities hard because their respective fortunes are connected. Local authority funding, including through the letting of buildings, provides a source of income to the charitable sector. As councils withdraw from providing services themselves, demand for charity services is inevitably increasing.
There has long been an issue with cost recovery for charities providing public services, where charities have complained that what they were required to deliver under public sector contracts was inadequately reimbursed by the grant funding provided.
Interestingly, many commentators are now flagging the importance of philanthropic support for grass roots causes. The 2024 CAF UK Giving report recommends that Government develop a strategy to support levelling up, with matching donation schemes, and act as an early-stage funder of place-based giving schemes bringing together residents, philanthropists, corporate donors, public sector organisations and civil society to address local priorities.
From a philanthropic perspective, matched or blended funding is likely to become more important in the short to medium term, with grant makers being asked to co-invest in community and other projects with public or private sector donors. Philanthropic collaboration in these arrangements is likely to be transformative as grassroots organisations tend to have a strong awareness of beneficiary needs and useful networks for achieving goals, but generally lack outside capital. Demand for blended projects of this nature, combining philanthropic and public sector funding, is likely to spiral.
Before giving thought to ways in which tax or other systems might be changed to facilitate more philanthropic giving, it is worth considering the nature, volume and quality of data around philanthropic giving as, without having a baseline position, it will be impossible to measure the impact of legislative change.
For we know in part, and we prophesy in part
There are a number of available statistics on philanthropy and charitable giving in the UK, almost all of which approach the issue from different angles. For example, the most recent data available from HMRC[2] relates to the tax year to April 2024, with HMRC stating that it paid £1.6 billion in Gift Aid to charities (reflecting the basic rate of income tax on donations), no change from the previous tax year. Higher rate relief on Gift Aid donations (paid to individuals who are higher rate tax payers allowing them to reclaim tax on the difference between the basic rate and the higher rate on their donations) was forecast to be £690 million, an increase of 1% on the previous year. Inheritance tax relief was estimated to be £750 million, no change from the previous year. The highest average amount per donor is donated by those over 65 years old. While helpful, HMRC’s statistics are necessarily partial as they reflect reliefs only (and so are proxies) and not philanthropic giving more widely. Consequently, they omit those individuals who neglected to claim relief, and situations where gifts were made but relief was not applicable (for example, gifts to UK charities from overseas foundations).
The Association of Charitable Foundations (ACF) publishes a yearly paper on trends in giving. The paper tracks the annual change in the finances of the Top 300 foundations, the Top 150 family foundations and the Top 50 corporate foundations. In May 2023, its paper entitled ‘Foundation Giving Trends 2022’[3] showed that grant making by the Top 300 grant making foundations reached £3.7 billion in 2020-2021, an increase of 13% in real terms. It appears that the increase in spending related in part to the need for grant makers to respond to requests for emergency funding arising from the Covid-19 pandemic.
The ACF report tells us that total net assets of foundations grew by 19% in 2020-2021 reaching a high of £87 billion as a result of markets rising dramatically in that period. However, total income in the same period fell by 10% in real terms to £3.8 billion. The report points out that income is not necessarily a reliable indicator of philanthropic giving, partly because the definition of income covers both gifts to foundations and the return on investments. The adoption of total return approaches to investment (where income and capital gains are both regarded as incoming resources) also skews the computation of income as an indicator of an organisation’s financial capacity. New gifts to foundations are recorded as income in the year of receipt, even if they are not available for immediate spending as they may be invested to generate a return over time.
Charities Aid Foundation’s UK Giving Report maps household giving behaviour. In March 2024[4] it found that the public donated an estimated £13.9 billion to charities in 2023, an increase of more than £1 billion since 2022. CAF found that the increase was due to some donors giving more, rather than to more people giving to charity. It also found that the typical donation to charity has not increased since 2017, with a donation of more than £500 putting a donor in the top 1% of donors in the country. CAF’s report is most relevant for mapping the behaviour of smaller donors who make gifts to operational, rather than grant-making, charities.
If one seeks to draw conclusions from these reports, the risk is that a skewed image is provided of a sector where tax relief is static (HMRC), yet the total income of foundations is falling (ACF) and donation sizes remain static (CAF). The patchwork nature of the data also means that philanthropic and charitable activity are insufficiently separated resulting in an unnecessary conflation of two distinct activities.
Towards a New Methodology
This view is supported by Beacon Collaborative, a philanthropist-led organisation aiming to grow philanthropic giving, which, in October 2023, published a detailed report entitled ‘Scoping the high net worth philanthropy market’[5]. Beacon Collaborative’s analysis, using a test model, estimated that giving by HNW and UHNW donors (being people with wealth over £1 million) in the UK was £7.76 billion for 2022. More important, however, is Beacon’s view that there is insufficient data on high net worth giving in the UK and that the current measurements and surveys present differing perspectives on philanthropy because data is measured against different time lines, and there is a lack of continuous data on giving across the population. As we have witnessed, this results in conflicting conclusions on trends. This lack of reliable data means that the philanthropic sector is hamstrung in its ability to develop and advocate with policy makers around tax incentives, regulatory change and strategic investment. The diversity of survey data and the lack of a common methodology also means that it is easy, in Beacon Collaborative’s view, for the media to seize on a narrative that the rich are not pulling their weight.
Beacon Collaborative’s recommendation is that, in the long term, the most effective way to get comprehensive data on levels of giving across the UK would be the future inclusion of a question on philanthropy in the Office for National Statistics Wealth and Assets Survey. In the short to medium term, it recommends designing a new survey which would incorporate a larger and more representative sample of HNW and UHNW donors by wealth (as opposed to income alone, which is not representative). The survey would contain details on both income and wealth as well as on types of giving, causes supported, social investment, number of charities supported and size and number of gifts made. Beacon Collaborative believes that a focus on income and wealth would be helpful as it would determine how the combination of income and assets affects philanthropic decision making through a lifetime and its impact on legacies.
But then shall we know
It is abundantly clear that the philanthropic and charitable sectors face increasing demand, particularly as a result of a loss of public sector funding. In a time of scarce resources, one does not need to have prophetic vision to see that philanthropic funds will need to be directed carefully to ensure maximum impact. One thing is also sure and that is that the importance of the philanthropic and charitable sectors will continue to grow, both as a proportion of the UK economy and as a means of providing aid, both nationally and internationally. Against that backdrop, a measure of insight will become increasingly relevant and it will be important for Government, regulators and sector bodies to be able to assess and analyse trends and developments. Adequate data will be a vital part of this trajectory particularly so as to show where philanthropy stops and charitable endeavour begins. Only then shall we know, or at least stand a better chance of knowing, the full picture.
[1] https://www.probonoeconomics.com/tethered-fortunes
[2] https://www.gov.uk/government/statistics/uk-charity-tax-relief-statistics
[3] https://acf.org.uk/acf/ACF/Research-and-resources/Research%20content/Research.aspx#example
[4] https://www.cafonline.org/docs/default-source/about-us-research/uk_giving_report_2024_final.pdf?sfvrsn=8ac35647_2
[5] https://www.beaconcollaborative.org.uk/scoping-the-high-net-worth-philanthropy-market/
