Donating to charity: Are we getting as good as we give?

The annual income of our charities is now worth more than the defence budget. But despite booming donations, many organisations are losing their political edge. Why? Paul Vallely reports

The Timperley Boneshakers rejoice in the description "a non-competitive social cycling group". They meet twice a week at the Hare & Hounds in a suburb of south Manchester. Later this month, they will set out on their annual charity ride. Their last four such events raised £24,000 for Parkinson's, stroke and prostate charities. This year, they have set themselves the challenge of smashing all previous targets by collecting £7,500 for a local charity called Faye's Wish. Faye Proudlove was a bright, outgoing 14-year-old girl who died in 2010 after suffering from a rare cancer. Over six years she had endured chemotherapy, radiotherapy and extensive major surgery involving the loss of both eyes. Her wish was that no other child should have to go through the same terrible experience, which she had faced with a spirit which was strong to the end.

Her family set up Faye's Wish to raise funds for researchers looking for a cure, control or vaccine for embryonal rhabdomyosarcoma, the disease that killed Faye. To date, they have raised almost half of their £250,000 target to support the Institute for Cancer Research. When the charity was launched four years ago, her father, Mark, told the local paper: "We just think, after everything Faye went through, we want her memory to live on as long as possible".

Thirty new charities are set up every day, on average, in England and Wales. Most of them begin around a family kitchen table. There are, today, 164,108 charities in this country. Almost half of them raise less than £10,000 a year. Three-quarters have an annual income of below £100,000. Only 1 per cent handle more than £5m annually.

Small charities are, according to the chair of the Charity Commissioners, William Shawcross, "the lifeblood" of a sector of the economy with a total annual income of £64bn. "Rather more than the defence budget," he wryly adds.

Other charity chiefs have, in the past, criticised the creation of new charities, suggesting that their founders should look first to existing charities working in the same field. I once said something similar to a friend who wanted to set up a charity digging wells in India, in memory of her son who had died. Her reaction taught me that there is more to charity than economic efficiency. That is something Shawcross understands. "I resist the idea that we should stop people setting up charities," he says. "The voluntary impulse is something important which should be cherished".

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William Beveridge, the father of Britain's welfare state, knew that, too. Many of his followers assumed that his great reform spelt the end of volunteering; an opinion poll in 1948 suggested 90 per cent of the public felt that there was no longer a role for charity in Britain. But Beveridge understood the limits of state activity and wanted charitable work to continue in parallel. Charities, he said, are "a golden thread in the living tapestry of our national history".

That thread goes back to England's first charity law – the Statute of Charitable Uses 1601 –which set out the areas in which Queen Elizabeth wanted to encourage private giving: religion, education, the relief of poverty and the care of the sick. They are still the main areas of our charitable focus, with the challenges of different eras adding others such as medical research, the environment and international aid.

Yet the charity world is not without its problems, and is changing in ways which worry many. Money is not the issue. UK giving increased by £1.1bn in 2012-13. The average amount donated is up by £2 to £29 a month, virtually back to pre-recession levels. Medical research overtook the 31,000 religious charities as our favourite cause. After them came hospitals and hospices, and children and young people. Aid agencies got twice as much from the public as animal charities. More than half the giving is in cash, with 31 per cent by direct debit.

Women give more than men and, intriguingly, the poor are more generous than the rich. The bottom fifth of society give 3 per cent of their income whereas the top fifth give just 1 per cent. That, apparently, is not new. The historian of philanthropy Frank Prochaska cites a London cleric who, around 100 years ago, said that "it is largely this kindness of the poor to the poor which stands between our present civilisation and revolution".

The nation is big-hearted with its time as well as its cash. A million of us are unpaid charity trustees. More than three million are registered volunteers. In 2012, volunteers gave £24bn-worth of time – the equivalent of 1.5 per cent of GDP. But volunteering is driven by tastes rather than need. "Donors choose causes with which they have a personal connection, that relate to their own life experiences and that help people with whom they feel some affinity," says Beth Breeze, director of the Centre for Philanthropy at the University of Kent. So only 10 per cent of us give to charities for people with disabilities and only 6 per cent to old people. Animal charities get twice as many donations as those for the homeless.

While most American charitable giving is planned, British donors are largely reactive, giving only when asked, Breeze says. Some are even more random. One donor told her that he always gave to charities on his birthday. Britons also find it hard to get their heads round the fact that some charity is now big business. That was demonstrated by the ambiguities thrown up last year when a right-wing newspaper launched a thinly-disguised attack on overseas aid by highlighting the salaries of 14 aid agency chief executives.

This meretricious piece of journalism omitted to list comparable salaries for CEOs in domestic charities, in public service and in the private sector. But it threw a spotlight on how massive some charities have become. Running Oxfam, it was disclosed, needed someone with the skills to multitask, managing a £367m budget across 90 countries, with 700 shops, 5,000 employees and 20,000 volunteers. Its then CEO, Barbara Stocking, had taken a 30 per cent pay cut to become a "fat cat" NGO boss.

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Shawcross ventured the comment that such high salaries risked bringing charities into disrepute – and received a broadside from Sir Stephen Bubb, the head of the Association of Chief Executives of Voluntary Organisations, pointing out that charity chief executives on average earn £58,000 a year, only slightly more than the £50,000 a year Shawcross was paid for his two-day-a-week role at the commission. "A strong sector needs strong leaders," said Bubb. "We must pay to get them. Not excessive salaries, but professional ones".

Since then, the National Council for Voluntary Organisations has produced guidelines for charity pay. They recommend that senior salaries are listed in full on charity websites to maintain public trust, but they reveal that senior staff in charities tend to earn 25-45 per cent less than their counterparts in private or public organisations.

Charities are changing in other ways, too. One trend is for charities to lose their individualism in their anxiety to attract wider support. The Royal Society for the Protection of Birds has morphed into a general environmental charity. Amnesty International has expanded from its particular focus on prisoners of conscience to human rights more generally – and now campaigns on abortion in a way that has alienated some former supporters. The chair of the Charity Commission raised concerns about such dilution last year in a speech to the Lord Mayor's Charity Leadership Programme. "We must not sacrifice charities' distinctiveness at the altar of their continued success," Shawcross said.

There has been another big shift. The money that charities get from the state has grown massively in recent years. Many big charities have become fingers on the Government's hand. Charities working with the elderly, for example, are delivering services extremely efficiently on behalf of local government.

But income from Whitehall, local government and the EU overtook donations from the public and charitable trusts five years ago, says Breeze. In 1980, only about 10 per cent of charitable revenue came from government sources and most of it was grants; by 2001, almost half of the money came in contracts and the latest figure was 81 per cent, though public spending cuts have trimmed that a little.

The danger is that the independence of charities will be compromised as they increasingly become government sub-contractors. Top charity figures, working as the panel on the Independence of the Voluntary Sector, recently warned of the risks of blurring these boundaries. Not least of the worries are the gagging clauses that require charities not to do anything that will "damage the reputation" of government or "attract adverse publicity". The charities' ability to speak out on behalf of the disadvantaged could be silenced by self-censorship.

Worse still, Government ministers have begun to make dangerous noises about the need to restrict the campaigning activities of charities where they get "too political". David Cameron's new minister for Civil Society, Brooks Newmark, raised hackles last week by saying that charities should keep out of politics and "stick to their knitting".

As the state withdraws from public service the potential for conflicts of interest can only grow. New developments in the charity world could exacerbate that. In another Lord Mayor's lecture this year, the venture capitalist Sir Ronald Cohen spoke about pioneering a kind of "social impact investment" to attract venture capital to philanthropic causes. There are both opportunities and dangers inherent in that idea.

The public will probably like Sir Ronald's idea that charities should stop focusing on the act of giving and focus instead on outcomes. But we are still so wedded to romantic notions about "the soul of charity" that a survey last revealed a third of people think charity chief executives should not be paid at all.

Yet even the media's fondness for stories about charity scandals do not dent the public's generous impulses. Shawcross is tightening up operations at the Charity Commission after politicians' suggestions that it was regulating charities poorly. And Comic Relief, after an outcry on Panorama, has instructed its investment managers to avoid firms majoring in arms, tobacco and alcohol. But issues that excite metropolitan insiders do not seem to dent public confidence. Sport Relief had its best year ever, despite the controversy, and the commercial sector is already getting behind next year's Red Nose Day.

That ought to be unsurprising. Polls show that negative media stories do impact on trust in charities. But research also shows that direct interaction between charities and the public increases it, and Comic Relief is the great exemplar of involving the public.

The rise of social media has only boosted that, enabling ordinary people to bypass the political and media elite. Charities have learnt how to turn likes and retweets on Facebook and Twitter into income. The speed with which the ice-bucket challenge went viral last month shows the potential this route may offer.

The emergence of new charitable initiatives such as food banks has harnessed all this in a common-sense response by ordinary people to the problems caused by their political masters. Charities have a unique talent for responding to social need with initiative and creativity. They are a part of the instinctive genius of British political character that needs to be treasured.