Anthony Hilton: Time for the charity sector to win back some trust

The Wellcome Trust which announced its results today is one of the biggest charities in Europe and as such provides more funds for medical research than any other single organisation.

It has been able to do this year in and year out because of the performance of its investments which, over the past two decades, has been a stunning 407%. The return in the year to September was 16.9%, equating to £3.5 billion on an investment portfolio valued at £20.9 billion, of which £1.1 billion was donated to charity.

Returns have been 138% over 10 years largely thanks to the courage of Danny Truell — its long-time fund manager who sadly had to step aside to an advisory role this year for health reasons — whose policy was to buy when everyone else was selling in the turmoil after the collapse of Lehman Brothers in 2008. It allowed him to put together a portfolio of the world’s best companies at prices which come around just once in a generation and the charity has reaped the benefits since.

But the Wellcome prosperity is in stark contrast with the experiences elsewhere in the sector at this particularly important time of year.

A survey published yesterday under the sponsorship of the Cambridge and Counties Bank — an interesting organisation jointly owned by the local government pension fund and Trinity Hall, one of the university’s colleges — highlighted how financial pressures are making people re-think the amount they will give, and in a quarter of cases, cut back.

The reasons are obvious enough — people’s incomes are falling, or at least failing to keep up with the rise in the cost of living. When average real incomes are at the levels they were 15 years ago the effect is bound to show.

Charities are also suffering from poor investment income. The kind of payouts enjoyed by Wellcome are very much the exception: most of the smaller organisations lack the resources or the inclination to employ high-quality investment advisers and instead leave their money in one of the many charity deposit accounts, where they get the worst possible returns.

There are a handful of these accounts which pay 1% a year interest but there are very many more which pay 0.1% — and about one in seven pays even less than that. There was a time when investment income made a big difference to the charitable sector. For most, those times have long gone.

There is, however, another problem which too many charities refuse to acknowledge but which is fundamental — they are also suffering from a collapse of trust.

Surveys show public distrust focuses on executives who appear to be more interested in their own career than the aims of the charity; charities not knowing or not being open about where the money goes; media publicity about the collapse of high-profile organisations such as Kids Company a couple of years back; high-pressure fundraising which seems to exploit the elderly and other vulnerable groups with deals — for example for energy — which are not as good as they seem, and the perception that too much is spent on advertising and wages and not enough on the people or things the charity is meant to help.

But as with other sectors, it is dangerous to generalise. Trust in business is at an all-time low but in fact people are happy enough with their local shops, garages and employers and it is only the big remote utilities, banks and supermarkets which they think exploit their customers. There is a similar pattern in attitudes to charities: the small are favoured over the big; those that operate locally have a better reputation than those which work overseas.

They do, however, have other problems. Part of Government’s strategy in recent years has been to withdraw from providing frontline services and funnel some money to charities for them to do the work instead. In some cases, this works well but when it goes wrong and the money runs out or the service falls short it is the reputation of the charity rather than the Government which takes the hit.

Charities have also made enemies in Westminster. Legatum, a pro-Brexit think-tank is the latest to cause a stir by being in its critics’ eyes just too nakedly political, but quite a few of the biggest household names have for some time been spending substantial chunks of their money on lobbying Parliament to get various laws changed.

What would be good would be if the problems in the sector prompted the Government to take a long hard look at it with a view to updating the law and making it fit for this century. The True and Fair Foundation, run by Gina Miller, published a critical report last year to say that there were 165,000 charities in this country, with a collective annual income of £70 billion — of which £18 billion comes from Government either directly or via tax relief on donations. This income, combined with the efforts of 20-million part-time volunteers, equates to a £94 billion industry with the equivalent of 800,000 full-time employees.

The sector is big and not really accountable. Charities proliferate in affluent areas where they are not really needed but are thin on the ground in the depressed inner cities where they could do good. The designation of charitable status, and the tax advantages which go with it, seems too loose — Eton is a charity, as are most public schools and universities, and hundreds of think-tanks, arts organisations and third-sector bodies. Whether all deserve tax relief is a moot point, as is whether all have adequate levels of governance and also whether they are as efficient as they should be at raising money and channelling it to where it is needed.

These are all questions which have not been asked in a while but perhaps should be.