On the surface this tradition remains remarkably strong. Charities have expanded their role as contractors to government in everything from community care to training, with surprisingly few hiccups. The decline of some of the older charities, such as the St John Ambulance or the Salvation Army, has been matched by the rise of others - Save the Children or the National Trust and an explosion of new charities. In political terms the voluntary sector has probably never had such cross-party support as it enjoys today.
But for all this strength, and the undoubted commitment of millions of givers and volunteers, there is a simmering sense of crisis, an unease about where charity is going and what its place in society is.
The first reason is money. Although the array of charity tax incentives has grown steadily, private giving has been stagnant since about 1988, and many smaller charities have lost out as larger ones with ever more sophisticated marketing and fundraising techniques have won a bigger share of a static pool. Attempts to find new sources have largely failed. Despite the best efforts of many charities, about seven-eighths of donations are still spontaneous rather than planned (and thus eligible for tax reliefs), and corporate giving remains firmly stuck at barely one-tenth of the levels in the US (about 0.1 to 0.2 per cent of profits compared to 1.8 per cent).
The second anxiety concerns independence. Government now provides one- third of the funding for the voluntary sector, and its power has been further enhanced by the National Lottery. Inevitably, such dependence has its price and many fear that missions to change society are being compromised by the need to keep government happy.
The third factor is the growing sense that the sector has no coherence. Although umbrella bodies, such as the National Council of Voluntary Organisations, speak in the name of a coherent voluntary sector, little really links a big service provider like Barnardo's and a neighbourhood community group.
The fourth factor has to do with governance. Charity law emerged before Britain became a democracy. Those who contribute to charities, or depend on them, have no say in how they are run. In the past this caused few problems. But it has been thrown into sharp relief recently as disabled activists in particular have demanded a say not only in the running of such organisations as Scope (formerly the Spastics Society) or the RNIB, but also over what images are projected to the outside world.
On their own, none of these problems would matter all that much. But each is being exacerbated by the widening cracks in the charity world's benign halo. As charities increasingly compete with business for public sector contracts, many smaller businesses are questioning why charities should have so many tax privileges, particularly in such fields as residential care, where research suggests that they may be less caring and responsive than private firms.
The public, too, has its doubts. A string of frauds and minor scandals have coincided with evidence that the public is at best confused, at worst fatigued by charity. Perhaps, some whisper, the same backlash that has afflicted both big government and big business may now be hitting big charity.
All of these anxieties boil down to a similar concern: that the charity world is out of step with the Nineties, and that the very idea of charity is no longer as self-evident and beyond reproach as it might once have seemed.
For while charity was formed in a Christian society, defined in terms of duty and sacrifice, the public now views it very differently. Such events as Live Aid have successfully discarded the hair shirt and turned charity into fun. Businesses now justify employee volunteering schemes (in which staff are encouraged to help local charities), not only because they do good but also because they develop people's skills and self-confidence. Many people become involved in charities to be helpful and for their own fulfilment.
Indeed, contrary to the old image of charity as a burden, in a new survey of ways in which the British find pleasure, charity and voluntary work actually come out ahead of activities like music and sports (see graph).
But if the old idea of charity is unsatisfactory for those giving, the same is true for those on the receiving end. Few feel comfortable being dependent on someone else's charity, and the phrase "cold as charity" long ago indicated how unpleasant it could be to be in a paternalistic, unequal relationship with a Lord or Lady Bountiful. As Raymond Williams put it: "It is not surprising that the word which was once the most general expression of love and care for others has become so compromised that modern governments have to advertise welfare benefits as 'not a charity but a right'."
This is surely why many of today's most successful initiatives place so much emphasis on the responsibility and self-respect of those in need - with enterprises like the Big Issue magazine turning the homeless from supplicants into sellers.
So in all of these ways the very nature of charity has changed. But it would be wrong to conclude that charity is therefore irrelevant. In important respects the original ideas of charity - care and help - remain no less valid today than they ever were. Although some of the older supports have fallen away - above all those of organised Christianity - the result has not been to create a society of mean-spirited, selfish individualists. Instead generosity has remained part of the everyday fabric of life, manifest in the huge scale of volunteering and the great success of such initiatives as Comic Relief.
We should not be surprised. For, far from being a product of imposed religious doctrines, the work of evolutionists and evolutionary psychology has shown that generosity is part of our nature. Humans are seen to be genetically predisposed towards sympathy, care and help, just as much as they are towards aggression or territoriality. But whether or not they act on these predispositions depends crucially on policy and institutions - on whether this other "invisible hand" of generosity that parallels Adam Smith's famous "invisible hand" of self-interest, is given support.
So how should we maximise the impact of people's underlying generosity? To do this we need nothing less than a new settlement to redefine the place of charity.
The starting point is tax. At present tax privileges go not just to Save the Children but also to Eton, not just to the RSPCA but also to Covent Garden Opera House. In other words, privileges are given to services for the rich as much as to services for the poor.
By contrast, Fair Trade Organisations (such as those producing the brand Cafe Direct), which help poor farmers by buying direct at fair prices, are excluded. The root of the problem is that tax incentives are aimed at a category of organisation rather than at activities that are deemed useful. A far saner approach would be to provide incentives for useful activities - perhaps help for the poor, drugs rehabilitation, small-scale arts - regardless of the type of organisation that provides them.
The second priority is the law. At the moment non-profit organisations are remarkably restricted in the ways they can operate. To benefit from charitable status, social entrepreneurs have to conjure up boards of trustees to govern them and there are tight limits on whether they in turn can be remunerated. Given the explosion of new non-profit organisations, it would be far more sensible to let organisations choose for themselves how they organise risk, remuneration and accountability.
Third, with a modernised legal and fiscal framework in place, attention could turn to the institutions that help charities to be effective. Although recent years have seen the growth of ethical investment funds that now manage more than pounds 900m, and a burgeoning sector of community enterprises, credit unions and the like, little has been done by government to make it easier for people to invest, lend, or guarantee, rather than simply giving money.
Despite interesting initiatives such as the Mercury Provident, which allows lenders to choose lower interest rates for lending to socially worthwhile projects, plans for a Charity Bank were actually blocked last year by the Bank of England. Removing these barriers and encouraging a new set of institutions to raise and manage funds has now become an urgent priority.
Fourth, it is absurd that charities are still restricted as to how much they can be involved in politics. It would surely be far better for the public to judge whether Oxfam should lobby for a boycott of an oppressive nation than for this to be the thankless task of a government-run Charity Commission.
Finally, perhaps the most radical step of all would be to open the very system of tax itself to voluntary organisations. At present, the Government raises money through income tax and VAT and then parcels it out to voluntary organisations, locking them into dependence on the state. The alternative would be voluntary taxation: enabling taxpayers to earmark an additional slice of funds - perhaps 2 or 5 per cent of their bill - to organisations of their choice, or to pooled funds in such fields as housing or the environment. Many might choose to opt out. But the likelihood is that people would be willing to pay if they were certain that their money was going to a good cause.
Shifts of this kind may be too radical for the current policy climate (although both Germany and Spain have similar schemes in operation already). Many vested interests in and around the charity world will argue that "if it ain't broke, don't fix it". But after more than a decade when so many British institutions have been subjected to intense scrutiny, it is high time that we looked through the benign aura and asked just how good charities really are and how relevant their laws and rules - many dating back 400 years - are to the closing years of the 20th century.
In the years ahead the worldwide shift away from big government and big business and towards smaller-scale, more values-based associations is bound to affect Britain. This is the virtue of the non-profit world: it reaches parts others cannot. But if it remains stuck in the past, in anachronistic and unjustifiable old forms, the fear must be that its great potential will not be realised.
'The Other Invisible Hand: Remaking charity for the 21st century', by Geoff Mulgan and Charles Landry, is published today at pounds 9.95 by Demos, 0171-353 4479.Reuse content