Why charities like Oxfam are backed by state money – and others avoid the funds

When a big charity gets in a mess, sometimes government has to handle the clean-up. Two big stories in the UK in recent years have seen this happen. First, the implosion of a prominent London children’s charity, Kids Company, in 2015 amid claims of mismanagement. And more recently, revelations about historical sexual misconduct in Haiti by staff at the British aid giant Oxfam.

Both highlight a crucial debate for government and the third sector: how beneficial for both sides is government spending on charities, and what are the drawbacks? In recent years, the British government’s relationship to the third sector has been shifting and changing. So where does it stand now?

The global picture

A look at the finances of major charities suggests there’s no clear consensus. In the UK, the Charity Commission regulator publishes a list of the largest charities by income. On it, you’ll find organisations like the Lloyd’s Register Foundation, an education charity which mostly gets its income from the activities of its private sector sister organisation.

But you’ll also find, say, the British Council, which promotes Britain and the English language overseas and raises a significant portion - 14.7% in its last accounts - of its income from a sizeable British government grant-in-aid. Oxfam in 2015-16 raised 24% of its funds from home and foreign governments and a further 12.2% from EU and UN sources.``

Internationally, the picture is similarly mixed. Among NGO Advisor’s top 20 global organisations, the medical charity Médecins Sans Frontières said that 95% of its income “came from private sources” in 2016. The charity puts a high price on its independence from the state.

Meanwhile, the Danish Refugee Council spent $340 million in grants that year, almost all of which came from government, EU, or UN-linked sources. But it also drew income from a range of other sources, including over $30 million from its own consultancy and interpreting services and over $19 million in other fundraising activities.

Changing conditions

Dan Corry, from the New Philanthropy Capital think tank, said the upsides to government funding - aside from access to large pots of money - include the potential to influence government. For example, sometimes government might take a charity's approach to a particular problem in one place and use it across a much wider area.

But, he said, increasingly more and more of this money has been given as part of contracts, which tend to have clearer and tougher conditions attached than the grants which used to be more common.

According to NCVO research, the UK voluntary sector took in income of between £11 billion and £13 billion annually in government contracts between 2007 and 2014, but took in less than £5 billion each year in government grants.

“It’s a very different approach,” Corry said, “and it’s had very profound consequences.” Corry gives the example of The Work Programme, the British government’s flagship welfare-to-work scheme between 2011 and 2017. Charities that worked on employment issues and wanted government funding had to essentially tailor their services to the requirements of the scheme.

“That was very difficult for them,” Corry said, “and in fact, of course, no charities were big enough to win the big contracts,” Instead, they became “sub- or sub-sub-contractors” to big outsourcing companies, he said, which many struggled with.

And whatever the funding arrangement, government and charities aren’t always natural partners.

Charities constantly have to weigh up whether government money is unduly influencing the nature of their work. “The voluntary sector, certainly in the UK and most Western countries, is very independent, that’s the point of it. So taking government money, does that start to compromise them?” Corry said. Government, meanwhile, can have difficulties working alongside organisations that, by their nature, will often implicitly or explicitly criticise policy.

What works

But government has found substantial benefits to working with the third sector.

The UK’s National Audit Office guidelines for working with the third sector spell out of some of the most important, in particular: “understanding of the needs of service users and communities that the public sector needs to address” and “closeness to the people that the public sector wants to reach".

“Often charities are used… because they create a different kind of relationship,” Corry said. In prisons, for example, he points out that charities are often used to run rehabilitation work because they can have a closer relationship with prisoners than guards and other staff.

As for the problems of due diligence raised by the Oxfam scandal, Corry said: “There are risks, just as there are in any outsourcing. On the other hand, it’s not as if when the public sector provides everything itself there aren’t scandals.”

The biggest problems on that score often aren’t the large, high-profile cases, he added: “Actually, I think you get more trouble, say, at local level where commissioners and even grantmakers are slightly reluctant to support a small charity because they think, 'Look, it seems like quite a good charity, but it’s basically being held together by a heroic chief exec or one of the trustees. Without that person, would this charity still be able to provide the service?'”

As budgets tighten in many countries and new problems arise around the world, it’s essential to probe the issue of when and how government should work with the third sector. We’ll be covering this issue intensively in the coming months - do let me know in the comments or by email if you have any burning questions.

(Picture credit: Pixabay)

Josh Lowe
josh.lowe@apolitical.co