What MPs forgot to say about Kids Company

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Clearly something went tragically wrong with Kids Company.  But while the MPs on the Public Administration and Constitutional Affairs Committee have focused on the alleged culpability of the Trustees, the colourful character of the CEO, and the failure of regulation, it is the unchallenged assumptions about charity itself that are the most worrying.

As a society we have faced both ways over charity, sometimes seeing it as at best a necessary evil (to be replaced by state services as soon as possible) sometimes seeing it as a unifying  ("Big Society") force capable of bringing communities and nations together. We have gladly donated time and money to a plethora of good causes while recoiling in horror when we discover that bodies like Universities and Public (i.e. private) Schools are afforded charitable status for tax purposes.  We often refuse to donate money for "admin", then complain when charities are poorly managed.  And all the while, governments of all stripes insist on broadening the definition of charity beyond the point where the word has any sensible meaning.

Today the charitable sector is deformed and distorted; divided between the handful of super charities that pocket four-fifths of the sector’s annual pot of £69.5bn, and more than 300,000 small charities and community groups struggle for the crumbs. 

The sad truth is that the largest charities – including many household names – have morphed into Frankenstein’s Monsters comprised of the putrid limbs and organs of the least savoury practices of private and public sector organisations.  Like the worst private corporations, they have sought to maximise their income and drive up the salaries of CEOs and senior managers irrespective of the damage done to their reputations and their beneficiaries.  Meanwhile, by using their status to avoid the regulation and inspection regimes that provide a safeguard to vulnerable users of public services, they leave their users/clients at terrible risk of abuse and harm.  More often pursuing the private interests of senior employees, and often bending to the whims of their most generous donors, only the flimsy fig leaf of the “voluntarism” of their trustees hides the sordid truth that many have long since ceased to be a force for social good.

Although Kids Company received more than £42 million in public funds between 1996 and 2015, it was actually small by super charity standards.  And, paradoxically, those aspects of its behaviour that the MPs were most critical of were those that marked it out as different to the rest.  Kids Company was actually a growing charity that had the gall to continue behaving in the same way as the majority of small charities and community groups do.  That is, they put serving their beneficiaries ahead of concerns about where the money was coming from. Like most groups, they were driven by a powerful personality.  But without such people few charities would ever get off the ground.  Ask anyone who has ever run a small charity and they will tell you that they have two full time roles – one providing their service, the other raising the money to keep it afloat.  And this never ends... so only someone with drive and passion would every do it.  

Despite the MPs’ claim that Kids Company should have built up a large reserve, the sad truth is that most of the money charities raise is targeted at delivering their services. Few donors want to underwrite management and administration, and most refuse to fund groups that have large savings and investments (i.e. “reserves”).  The truth is that the vast majority of charities in the UK live hand to mouth, most often depending on the income from a round of coffee mornings, summer fetes and car boot sales.  A few enjoy support from grant-making trusts and private companies.  A tiny (and shrinking) fraction also gets support from the state.  But only the very largest charities – those big enough to act as, in effect, tax-exempt private sector businesses – get to build up the kind of reserves that MPs seem to think all charities should have.

Nor is there a large pool of skilled and experienced managers desperately seeking to become trustees.  On the contrary, most charities and community groups have to cajole (to some extent at least) the friends and relatives of the founder(s) into becoming trustees.  Hopefully these “trustees” will attend the training courses offered by local voluntary sector councils, or at the very least will read the Charity Commission guidance on being an effective trustee.  However, in practice, most trustees simply lack the time; preferring to rely on the founder(s) to keep their group on track.

The Charity Commission – always lacking resources and often lacking competence too – simply does not regulate the overwhelming majority of charities and community groups.  Indeed, the entirely voluntary majority – those with annual incomes below £5000 – are not even required to register.  Most of the rest – those with incomes below £25,000 – are not required to post accounts.  And those with incomes between £25,000 and £500,000 need only submit to “independent scrutiny” – which often means simply checking that the income and expenditure in the accounts matches the amounts in the charity’s bank statement (it is perhaps no surprise that most fraud and malpractice occurs among this group of charities).  In truth, it is only the honesty and altruism of the overwhelming majority of people who give their time to charity that prevents the sector collapsing into anarchy.  Nevertheless, honest malpractice – in which volunteers are simply unaware of their roles and responsibilities – is widespread. 

Were the majority of charities to be subjected to the same degree of scrutiny as Kids Company has been, it is likely that, albeit on a smaller scale, the same issues would arise.  Had (like Kids Company) any of the 300,000 or so small charities and community groups enjoyed the drive and skills of such a focussed founder, they too might just as easily have attracted the same kind of high-profile and connected trustees.  They too might just as easily have infiltrated the political sphere to the extent that Ministers felt obliged to support them.  But they would also bring with them all of the honest poor practice that is rife within the sector.  And the more institutionalised that poor practice became, the harder it would be to alter it; especially if (until now) the charity had always been able to find the money to cover its operating losses – something, incidentally, that the “too big to fail” banks and many giant corporations live by.

In practice, it is incredibly difficult for a charity to make the transition from a being a small voluntary body into a large regional or even national organisation.  Yet this was not given consideration by the MPs on the Public Administration and Constitutional Affairs Committee who unconsciously accepted the belief that charity can be scaled up.  That is, that an entirely voluntary organisation operating within a single community can develop into a multi-million pound national organisation while still practicing “charity”.   But the sad truth is that it is impossible to do charity at scale.  And the answer is not to be found in more professionalism; better regulation, improved (through payment) management, and being more “business like”.  Rather, the solution is in acknowledging the fact that when charities grow too big, they morph into something else.  They become quasi-public services, almost entirely dependent upon government grants to continue to exist, or they become de facto businesses dependent upon trading – especially through winning public service contracts – to stay afloat.  Only a handful can survive solely on private donations and legacies.

Given the extent of public sector cutbacks, calls for additional regulation are not going to work.  Being more “business like” is only going to further undermine public trust.  And given growing public dissatisfaction, allowing trustees to be paid in order to attract people with appropriate skills and experience (but without passion and commitment) is likely to be the last straw.  So here is a cost-neutral alternative:

1. Bring back Quangos!  If a charity depends on the state to stay afloat, it should convert to a quango whose paid council of management is put in place by the Public Appointments Committee, and whose Chair and CEO are appointed by the appropriate Minister.  Only in this way can we guarantee a reasonable degree of public accountability for public spending.
2. Convert organisations that depend upon trading – including delivering public services – into social enterprises regulated by Companies House, and subject to the same tax arrangements as any other private trading body.
3. Redefine “charity” so that charitable status is only available to entirely voluntary bodies that do not depend on trading or government largesse for their continued existence.

None of this will be done of course. 

The small number of super-charities and their umbrella bodies are too powerful a lobby, and the paid employees too vociferous.  Meanwhile, the overwhelming majority of charities and community groups are too busy delivering services and worrying about where the next donation is coming from to spend time lobbying MPs and Ministers about how best to regulate charities. 

Nor will Ministers want to give up the huge indirect influence over charities that comes from writing them large quarterly cheques; especially if the alternative is to be held directly responsible for the behaviour of newly created quangos. 

What will actually happen is that the Charity Commission will tighten its rules despite being unable to enforce the rules that already exist.  Accountancy standards will be tightened but little will actually change, because accountants are paid by the organisations they audit.  Management and fundraising standards will be tightened, but this will more often result in volunteer trustees resigning rather than in improvements in management... Then there will be another round of scandals which, in turn, will lead to the payment of the trustees of the biggest “charities”.  At the same time, what remains of the 300,000 or so small charities and community groups that give charity its legitimacy will continue to wither and die as the super charities hoover up what money is still available to the sector.  Then, finally, when the public wakes up to the fact that “charities” no longer practice “charity”, private donations will dry up and we will be left with quangos and trading companies in all but name.

Tim Watkins' book What's Wrong With Charity? is available on Amazon or from most bookshops.