Friday, June 22, 2007

Strangling The Third Sector

Scam free zone

Last night I was standing outside a central London pub plotting with a group of like-minded tax activists, when we were approached by a charming lady rattling a collection tin for some hospice charity I'd never heard of.

My companions were naturally suspicious and politely declined her offer of a lollipop, but given Mrs T's tales of long days spent rattling an NSPCC tin around Surrey, I'm always far more susceptible. Especially when lollipops are blandished.

Being on my second Adnams, I made bold, observed there were loads of scammers around and demanded to inspect her credentials. She immediately produced a thick book with thank-you letters from all the various charities she'd collected for. Were they genuine? No real way of telling, even though there were letters there from many big charities.

Tricky. But then it struck me that if we small staters are to get anywhere in rolling back Leviathan, we do need to encourage the charitable sector. And especailly the small innovative ones. I figured that had to be worth a couple of quid, even at the risk of being scammed.

The unappealing alternative is highlighted once again in today's National Audit Office report on strengthening the relationship between local authorities and the so-called Third Sector Organisations (TSOs)- charities, voluntary and community organisations and social enterprises. They want local authorities to make it easier for TSOs to bid for providing various outsourced services. In exchange, the TSOs would get paid by the LAs.

Despite our great respect for the NAO, in terms of taxpayer value, we think they've got this one wrong.

We've blogged government funding for TSOs before (see here and here). As we noted, the world and his wife now share the Big Idea that TSOs should take over the provision of many services currently provided, very badly, by the state. But the question is how do we get there?

Because making a charity or a voluntary organisation a paid supplier to government has very serious consequences. In particular, reliance on state funding:
  • Distorts priorities Charities are set up to pursue worthy objectives, which are most unlikely to square with those of our elected politicos. But once they take the Queen's shilling, they have to play the politicos' tune. The Charity Commission survey found that three-quarters of those doing so are put under pressure to do what the politicos want

  • Stifles vitality The closer relationship between charities and the state is still new, and neither side has a clue how to manage it. The inevitable result is that the government bureaucracy's instinct to impose huge new monitoring, reporting, and regulatory burdens runs unchecked. When they examined it, the PAC reckoned that government requires much more information- on for example costs- than they ever demand from private sector counterparties

  • Damages private funding People are already very sceptical about whether their charitable donations actually go to the underlying good cause: a recent MORI poll found that only 10% agree with the statement "when I give money to charity, I feel confident that most of it will go directly to the cause". More state funding is likely to reinforce the view that charities are not in reality what they pretend to be.

The state already provides £5bn pa of TSO funding. Some of our great national charities get so much that way, they are effectively quangos: Barnardos (78% state funded, and now run by an ex-civil servant), NCH (88%), and Leonard Cheshire (88%), are all quangos by any other name. Overall, according the Charities Commission, one-third of our biggest charities (turnover exceeding £500,000 pa) get at least 80% of their funding from the state.

It just won't work. As recounted so graphically in James Bartholomew's excellent book, over and over again we've seen government assume funding responsibility for previously privately financed organisations (eg universities) only to end up stifling the life out of them.

It must not be allowed to happen to our charities and voluntary organisations. Even if the alternative does involve Tyler sometimes getting scammed outside a London pub.

PS What to do instead? As we blogged before, we should switch the £5bn pa of public funds currently going into TSOs into vastly increasing the tax breaks for charitable giving.

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