Richard Smith: Save our charities from the government

The founders of some of our best-known charities would not recognise them today

Ten years ago, I set up a charity in Hereford that provides lifelong respite and care for profoundly disabled young people. I knew, from my own experience as the father of a daughter with these difficulties, that it would be a huge challenge. I knew I would meet parents and children who were on the point of despair, that I would hear many stories of extraordinary courage, and that the charity I was setting up would never be able to help all those who deserved a better chance in life.

Every week we are called by parents desperate for help. But with only 14 beds, we have limited capacity and have to turn too many young people away. But if I were starting out again today, the task would be substantially harder. Not because the needs of disabled young children have changed, but because the world of charities and the way in which the state regulates them, has changed. For the worse.

And the Charities Bill, shortly to become law, will make things still worse. The Charity Commission already imposes a one-size-fits-all regulatory framework. This can be a great burden for the 140,000 small charities that have an income of less than £100,000 a year. It cannot be right that a charity with an annual income of £50,000 has almost the same amount of regulation as one raising £1m a year.

The Charity Commission's Statement of Recommended Practice has doubled in size over the past 10 years, from 240 to 451 paragraphs. All the indications are that it will increase further; and this additional regulation can only act as a strong disincentive to people wishing to establish new charities.

There are also concerns that the public is losing confidence in our biggest charities. Now that the state is the largest paymaster of the sector - and is calling the tune to which too many of our largest charities are dancing - the founders of some of our best-known charities would not recognise them today.

Many large charities are, partly, in response to the demands of the state, developing an increasingly corporate style. When we make a donation, how many of us are aware and happy that the average top salary at a large charity is now £83,000? Take this example: the charity Scope recently appointed a firm of headhunters to find a new executive director of external affairs at a salary of £90,000 - equal to its subsidy of a horse-riding school for the disabled in Hertfordshire, which it has decided to withdraw.

The corporate style of many large charities and their reliance on government funding goes hand in hand. And as the charities become more and more dependent on the state, their independence and the voluntary nature of their work is obscured.

In the last four years for which data is available, large charities increased their fundraising and publicity expenditure by £474m a year. Yet their income from the general public over the same period increased by only £248m. In other words, it is costing large charities nearly £2 to raise an extra £1. Is this how we want charities to spend our money? Surely we want our money to be spent on the beneficiaries, not highly-paid executives and marketing campaigns.

It is getting worse. Some large charities are now facing significant pension deficits. NCH, the National Trust, the Children's Society and Barnardo's all had pension shortfalls of more than 25 per cent of their income. Some charities may have to reduce the money spent on beneficiaries to refinance their pension schemes. This will only increase public concerns over whether its generosity will benefit the charities' beneficiaries or go into employee benefits and marketing campaigns.

And it appears that, despite the public's concerns over large charities, the Charity Commission is far more active in investigating smaller rather than larger charities - larger charities take 45 per cent of all charitable revenues but attract only 1 per cent of inquiries by the commission.

The voluntary nature of much charitable work means that the impact of regulations, and of inquiries by the regulator, are likely to be severe, particularly for smaller charities. Are there really many volunteers out there who prefer to spend their time complying with endless regulations as opposed to helping the less fortunate?

The public must recapture its influence over how charities behave. Charities should accept that public scrutiny could have a positive effect on the public's willingness to give in the future. But first, we need transparency over how charities spend their money. Strict accounting rules should be set for large charities so that we can see how much each individual charity spends on itself, and how much it spends on its beneficiaries.

In addition, the direct financial link between the state and a charity should be broken, wherever possible: the intended beneficiaries - the disabled, the needy, the sick - should be given the chance to control which charity they use for a particular government-funded service.

The creative spirit that so enriches our civic society and the altruistic ambitions of our wealthiest citizens must be admired and treasured. There will always be a need for charity. So unless we want to hand over all responsibility to the state, we must defend our charities from the heavy-handed embrace of Government.

Richard Smith is co-author with Philip Whittington of 'Charity: the spectre of overregulation and state dependency', published today by the Centre for Policy Studies