TRANSPARENTLY WRONG - THE (MANY) PROBLEMS WITH THE CPS REPORT ON CHARITY FUNDING

7 January 2015

Yesterday saw the publication of the Centre for Policy Studies new report Transparency Begins at Home: Why Charities Must State Who Funds Them. This is an odd and confusing report, full of non sequiturs and gargantuan logical leaps. I struggled a bit to get to the crux of it, but its central point seems to be that it is not possible to tell what proportion of the income of large charities comes from taxpayers (via central or local government). And that this is a problem.

The report focuses on the introduction of the revised accounting rules for charities (the Statement of Recommended Practice or SORP), and seems to be insinuating that charities are somehow acting dishonestly or in contravention of the rules by failing to provide the information the author thinks they should be providing.

But the odd thing, which is clear from the report itself, is that neither the old SORP nor the new SORP would make any difference to the problem in question. The real issue is that the way in which income is segmented on the financial return differentiates between types of income (i.e. voluntary, earned etc) but not very clearly between sources. I would agree that this can be annoying – anyone who has spent any time trying to get a clear picture of the level of individual charitable giving in the UK would tell you the same thing.

However, there is nothing in the rules that actually requires charities to list all their individual sources of income. The report suggests that the spirit of the new SORP implies that charities should clearly lists all sources of public funding in addition to meeting the accounting requirements, but this is a pretty wild leap. And one thing that becomes clear in the report is that in most cases you can actually get a reasonable idea of how much public money a charity is in receipt of, even if you can’t put an exact figure on it.

Perhaps the most amazing thing about this report is the methodology used to arrive at some of the numbers. In order to calculate the amount of “unquantifiable income”, the author has taken each of the existing SORP categories and, where there is an indication that some money is received from public sources but no exact figure is given, he has assumed that the whole of that category has come from public sources. This means that if a charity had, say, £10m of grant income, of which only £5000 had come from a taxpayer-funded source, if it mentioned that it had received “some public grant funding” in its annual report, but not the exact amount, then for the purposes of this CPS report the whole of the £10m would be classified as “unquantifiable”. It is hard to know what purpose this approach serves. Actually, that is not true: it is very easy to know what purpose it serves, but it is clearly one driven by a strong existing ideological bias rather than an interest in accurate analysis of data.

Aside from the difficulty of understanding what the report is actually saying and how it arrived at its conclusions, the other thing I want to touch on briefly is “why?” What is the point of all this supposed to be?

It is when you look at the “3 reasons this matters” section of the report that its true purpose becomes apparent. It is another version of the “charities are becoming too professionalised/arms of the state etc” argument that is often professed by small-state advocates who like the idea of charities, as long as the keep quiet and are entirely staffed by volunteers.

The first of the three reasons given is “democratic accountability”. As the report argues: “If charities are being supported to a considerable extent by public money, then taxpayers have a right to know that and to know it from the charities themselves. This is particularly relevant if there is opacity in declaring public support in politically contentious areas such as NHS services and Academy schools.” Perhaps there is something in this, but two points immediately occur to me.

One, as laboured already, is that charities are already doing all that is being asked of them in terms of reporting. The only thing the author is able to criticise them for is not providing some unspecified level of information that fits his wishes but which there is no legal or regulatory requirement to record (and quite possibly little public appetite for either).

The other thing is that you can only hold this view consistently if you are willing to substitute the word “business” for charity in the above quote. It is surely just as important for “democratic accountability” that private sector organisations receiving public money are clear about the amounts and exact sources of it? And I’m quite sure that Serco, Capita etc don’t provide the sort of information the author seems to want. The National Audit Office clearly doesn’t think so, as it concluded in a 2013 report on the four main private sector public service providers that “...all of the contractors publish comprehensive information on their overall profitability in their annual report and accounts. However, it is difficult to isolate the profit relating solely to their UK public sector work. They rarely separate out their public sector work as part of their segmental reporting.”

Of course the rejoinder might be that charities have privileged tax status. Well, yes they do, but this is only relevant to this argument if one conflates their “receipt of taxpayers’ money” in this sense with the “receipt of taxpayers’ money” that some charities receive in the form of direct grants or (more likely) contracts to deliver services. From the point of view of the latter, there isn’t any difference between the money going to a private sector company or a charity: it is going to a non-state provider, and the issue of “democratic accountability” is the same.

The second “reason this matters” is apparently because it is damaging to charities. We should, it is argued, be able to tell whether a charity is primarily dependent on public funding, because this will give us a better sense of its risk profile and resilience. Again, there is a grain of truth here, in that a diversified range of income streams is obviously a good thing for a charity to cultivate, and an over-reliance on any one source of income (public or otherwise) might be a cause for concern.

However, the suggestion that “If large charities are dependent for most of their income on public funds then ultimately they are dependent upon someone having made a political decision in their favour” doesn’t seem particularly accurate. It may be the case when it comes to grants that they are subject to political whim, but when it comes to contracts, the fact that a charity has managed to win a large volume of available contracts to deliver a particular service is surely just evidence that it has competed most effectively within a marketplace of suppliers. I would have thought the CPS would be all in favour of this…?

And the last “reason this matters” is the cherry on this particular ideological cake. Apparently the very concept of charity is under threat, because: “once a private charity has undertaken services for a long time while dependent upon receiving public funds, the line between the public and private sectors begins to blur. It blurs in two ways. At some point does the organisation cease to be a private body? More fundamentally does it cease to be a charity?” I would argue that the answer to both of these questions is “no”.

There are issues about the balance of power and the danger of mission drift when charities deliver public services within the commissioning environment. However, suggesting that the very act of delivering public services undermines the “true purpose of charity” ignores the fact that charities have been delivering such services since the birth of the modern state as we know it. Although the mechanisms for doing this have changed over the years, charities have continued to deliver public services without compromising their charitable role and status.

Perhaps the most bizarre part of the whole report, and the bit that makes you suspect that you might have been reading a masterpiece of gonzo satire all along, is the “evidence” given to back up this claim about the potential risk to the nature of charity presented by taking state funding. This consists of a paragraph mocking Marie Stopes International for its size, staff salaries and the language in its annual report, to make the case that charities have become “too corporate”. It is hard to know where to begin with this sort of thing, so in this case I will limit myself to asking. What the hell has this got to do with anything else in this report?!

And then comes the answer to my question: “When the distinction between charity and corporation has become so blurred, it is vital that complete transparency is maintained regarding the quantity of funds received and the sources from which those funds were acquired.” Because corporations are completely transparent about where their funding comes from…?

So it sounds like I was right, and the CPS believes that the same arguments hold for companies as well as charities? I look forward to the CPS next report on why every private sector organisation that receives public money should provide a full listing of all such sources, but I suspect I will be waiting some time.