Charity needs to begin at work

Due to a combination of pressures, raising income in the voluntary sector is tougher than ever. Roger Trapp reports

Britain's charities are caught in something of a bind. On the one hand, there is the growing acceptance - even by New Labour - that government cannot do everything and must therefore look to other organisations to fill in the gaps in such areas as health care. On the other, there is the fact that voluntary income, if not exactly falling, is failing to rise as fast as it has done in the past.

Some idea of this levelling-off is contained in the 1997 edition of Dimensions of the Voluntary Sector, published earlier this year by the Charities Aid Foundation. However, as is repeatedly pointed out in the book, this is a sector that is extremely difficult to pin down. It is "essentially pluralistic: its internal and external boundaries shift; different parts of the sector are subject to very different trends and concerns."

Accordingly, while income for the organisation's top 500 fund-raising charities generated by voluntary work grew by just 1 per cent last year, cash donations from the leading corporate donors increased by pounds 19.9m, or 9 per cent, the largest real increase for some years.

At the same time, there are difficulties in assessing some kinds of income. For example, charity shop income is reported as dropping, but the CAF says it has been difficult to assess this in any detail because there are accounting requirements that shop income be reported as gross rather than net of costs.

Similarly, the amount of private-sector involvement in the voluntary sector is difficult to measure because there are so many different ways in which companies can be involved. The CAF has carried out a survey which suggests that more formal reporting procedures are needed if companies are to value their gifts in kind to charities.

As part of an initiative to help all kinds of companies contribute more, a template has been produced to make it easier to work out the costs and benefits of setting up community programmes. As well as this, an index has been designed so that companies can compare their own efforts with the best corporate practice. This should also help companies prepare their submissions to the European Foundation for Quality.

But no matter how you count it, there is no avoiding the fact that charities are going to need more money just in order to stay in their current situation. The CAF finds no evidence that the National Lottery has had an adverse impact on the income of its leading charities. Fundraising by schools in particular has shown a marked increase over recent years. But it is clear that charity fundraisers are going to have their work cut out in the future.

Moreover, since this report appeared the Chancellor, Gordon Brown, has delivered his first Budget. Included in it were changes that at least one tax adviser has branded "very difficult" for charities.

Allan Taylor, a tax partner who specialises in charities for the accountants KPMG, says that Mr Brown's abolition of tax credits on dividends would immediately affect charities. The move hits pension funds' income, which means that pension costs are driven up, and also reduces the returns for charities that invest in such funds. As well as this, charities will lose the right to recover the tax credits from 1999. Although charities and their fund managers will look to mitigate such losses through adjusting portfolios, Mr Taylor says: "The change will result in a significant loss of income to the sector, running into many millions of pounds."

This is just one aspect of the problems associated with managing money once charities have got their hands on it. The CAF study reveals that only a quarter of charities have specialist financial staff. About the same proportion believe that charities lack access to appropriate help.

The disadvantages of this were pointed out only this week. Kidsons Impey, a firm of accountants, warned companies, "especially charities", of the potential effects of VAT "anti-avoidance" measures.

Patrick Walker, for the firm, said: "What Customs have now done is make it easier for organisations like charities to suffer potentially huge, unforeseen assessments which could result in drastic cash-flow difficulties"