Suspend your Scroogery – charities aren’t flush with cash, they pay for government failure

The unfortunate truth is that charities have become a victim of the government’s continued mania for outsourcing.

It’s the season of giving, and last week several newspapers decided to mark the occasion with a hatchet job on the charitable sector. “1,000 charities ‘spent less than half’ of funds on good works”, blared a front-page headline in the Telegraph, above the alarming news that household names such as Sue Ryder and the British Heart Foundation were ploughing less than 50 per cent of donations directly into charitable work.

Except, if you looked further down the story, it became obvious that the rest of their cash wasn’t going on a chauffeur for the chief executive and free caviar for all employees. In the case of the two organisations named above, they were simply running charity shops, which require upfront investment (heating, lighting, rent) to trade and generate revenue. In a pricelessly straight-faced blog, Heidi Travis of Sue Ryder gently explained this concept – and, indeed, the concept of capitalism – for the benefit of the hard-of-thinking: “Shops are . . . based on business principles where a customer buys something with a price attached to it, rather than making a cash donation.”

The media’s pre-Christmas Scroogery is alarming, because it might make the public think that the charity sector is flush with cash – so much so, that it struggles to find enough worthy causes to spend it on. And that’s very far from being the case. Even charities without shops might have a very good reason for hoarding donations: after all, in the wake of the Kids Company collapse, charities were sternly warned to build up big reserves so that they could weather any shocks to their funding. To which the obvious question is: from where? Rob Wilson, the charities minister, certainly seemed to have forgotten that idea when he told the Telegraph that charities have a duty to “eke out every last penny for good causes”.

Charities are in an impossible position, expected to build up reserves while spending all their money. They are also expected to pick up the pieces from failures of government policy without ever querying those policies. The unfortunate truth is that charities have become a victim of the government’s continued mania for outsourcing. The state might be shrinking in accordance with sound Thatcherite principles but people will insist on footling things like needing to eat or needing somewhere to sleep, the great big loafers that they are.

So a neat two-step has ensued: first, what would have once been council-run services have been put out to tender, and charities invited to bid for them. Then, when the cuts to council budgets begin to bite, it’s the charities that are forced to slash costs, lay off staff and, sometimes, shut down altogether. A minister can then do a sad face on television about how inefficient they must have been not to have been able to manage on these reduced funds. As in all outsourcing, the objective isn’t so much to increase efficiency as to stop politicians being held responsible for anything that goes wrong.

Kids Company is perhaps a bad reference point here, because its Byzantine structure and the, er, unorthodox management style of its founder, Camila Batmanghelidjh, are thankfully very rare in the sector. But if nothing else, its collapse should make us ask one big question: amid all the praise for how it supposedly helped young people who had been “failed by the system”, shouldn’t we at some point have tried to fix the system?

Food banks are a more representative example. Five years ago, they were almost unknown, but more than a million Britons used them in the year to April. Inconveniently for Iain Duncan Smith’s self-image as the Messiah, the Trussell Trust told the Commons work and pensions select committee recently that one in four of its clients had to resort to using a food bank because of benefit delays. The Royal British Legion told the same committee it gave out £133,000 in crisis grants to military veterans in the first six months of the year, and criticised the “inadequate and unpredictable” disability benefit system.

Both charities deserve commendation for their bravery in giving such evidence, because the general feeling in the sector is that speaking out against government policy is dangerous. In 2013, Duncan Smith wrote to the Trussell Trust to accuse it of “scaremongering” and engaging in “political messaging . . . despite claiming to be non-partisan”.

Luckily, the trust was able to ignore this implied threat: it receives no government funding, relying on grants and donations. In fact, it has made a policy decision not to seek local authority contracts, noting that “Trussell Trust food banks are there for those who slip through the welfare net in order to prevent a crisis turning into disaster, not [to be] a replacement for the welfare state”. Many other charities do not have that freedom: they are dependent on Whitehall, regional or local government money, and only a brave CEO would bite the hand that funds them. In a report published in February, Sir Roger Singleton, who ran Barnardo’s for 21 years, found that local authorities made “active threats” to troublesome charities; Women’s Aid told him that its contracts sometimes contained “gagging clauses”.

For smaller organisations, there is another threat: the encroachment of generic providers on to what was once specialist terrain. On paper, big beasts look more attractive: they can make lower bids for services by achieving efficiencies of scale in their central management structure. But at the ground level, important knowledge is lost, as is the sense of a charity being grounded in a specific community. For example, in the sector I know best, violence against women and girls, specialist services for minority women have been among the hardest hit.

So it won’t be a very merry Christmas for charities and, for some, it will be followed by an even unhappier New Year.

Helen Lewis is the chair of Nia. To donate, visit: justgiving.com/niaproject