Hamish McRae: Could charities come to our rescue?

A public-service revolution looms – and the voluntary sector does wonderful things

It is Christian Aid Week. Some 300,000 volunteers are distributing 13 million red envelopes, and according to the director of Christian Aid, Daleep Mukarji, the charity hopes to beat last year's total of £14.7m. As he pointed out in these pages yesterday, it needs everything it can get, not least because the fall in sterling means pounds raised here buy less development assistance abroad then they did a year ago.

It is a wonderful effort, mobilising a huge number of people. But it is in no way minimising that effort or achievement to note that the £15m the week raises, however helpful, however well-spent, is in public-finance terms tiny compared to the £6,800m of overseas development assistance spent by our Government last year.

This country will face a severe squeeze on public spending in the years ahead, probably even more severe than in the late 1970s. Even on this Government's own projections, once the present peak in spending is over, the clamp will come down. Inevitably, the focus will shift to philanthropy. To what extent can the various charitable institutions fill the gap left by cuts in public spending? You can already see this in university funding, with both Cambridge and Oxford seeking to increase their endowments by around £1bn, so they take over more of the burden of funding themselves as and when the Government retreats. Other universities are seeking to raise more money, albeit on a smaller scale, driven by similar concerns.

But there is a problem: the numbers involved in charitable giving are of a completely different order of magnitude from those of public spending.

Look at philanthropy as a proportion of national income or gross domestic product (GDP). In the US, it is about 2 per cent of GDP. Americans are the most generous people on earth. In the UK, depending a bit on how you measure it, it is between 0.75 per cent and 1 per cent. If you think that makes us sound cheapskate, in France they give just 0.15 per cent of national income and in Italy about 0.1 per cent. In philanthropy, as in so many other things, Britain is in the middle of the Atlantic, half way between Europe and America.

But note that 1 per cent figure. Just suppose, in an extraordinary burst of generosity, we managed to double it, getting up to US levels over the next few years, the number would still be tiny when set alongside the 40 per cent or so of GDP that we can sustain in public spending. It is even smaller when set against the present projections for spending to reach 48 per cent of GDP, a level that will push borrowing up to 12 per cent of GDP and clearly is not sustainable. In other words, even if we were to double our contributions to charities and other philanthropic organisations, we can do not more fill a tiny portion of the public spending gap. So expecting charities to step in where the Government steps out is utterly unrealistic.

There are however several encouraging messages that one can take from all this. For a start, the effectiveness of many charities operating on limited budgets give a clue as to how government can improve its own performance. Already a lot of government services are in effect subcontracted to charities, usually because the charities can deliver much better value. That creates a problem for the charity: to what extent should it accept taxpayers' funds, with all the proper controls and scrutiny that involves? Without wanting to over-glamorise the sector, for it has its share of rogues and time-servers too, at its best it does wonderful things on tight resources.

They are particularly effective at the sharp end of disaster relief, with professionals that will listen to what people actually need, then figure out the swiftest and most efficient way of getting help to them. But there must be more general lessons that governments can learn in their day-to-day routine operations, in particular how to be lean and effective at the same time.

The second set of lessons come from the involvement of volunteers, including the 300,000 helping Christian Aid this week. If a mass of people are involved in fundraising, there is a natural body that will examine carefully and if necessary police the way funds are used. If you stomp the streets raising money for a charity you want to know that money is well spent. I am not trying to suggest there is a moral superiority that charities have over government agencies, or that government agencies are invariably more casual as to how they spend money. It is just that there is a direct corrective mechanism in charities that does not operate as effectively in government.

There is a third set of lessons from charities. Philanthropists frequently give time and skills as a well as money. That happens at every level from Bill Gates to the stallholders at the bring-and-buy. It works both ways. Young people in troubled inner-city locations in Britain benefit from mentoring. Young volunteers who take part in projects abroad benefit hugely from experience. There are some examples of public service where similar two-way benefits accrue: the revival of special constables in the police force, for example. But, in general, it is harder to volunteer for public service than it is to volunteer for a charity.

The big point here is that we are on the cusp of a public-service revolution, and the next government will inevitably look to charities and other voluntary organisations for help. But they in return will need more support from government. One of the really important relationships of the next decade will be on that soft frontier between government and what we call the third sector. To what extent and on what terms will the third sector become the main delivery mechanism for what at the moment are public-sector services? And if the taxpayer is footing the bill, what controls should the Government properly impose?

We don't have a model for this but we do have a model for what not to do. We have managed that other frontier, the one between the private and public sectors, pretty badly, with the PFI and PPP initiatives. Taxpayers feel they have been ripped off; many companies now won't bid because they fear they will damage their reputations. Figuring out what doesn't work is not a bad place to start.