Charities don't need a contracting role

As the lottery cash is handed out, the lines between private, voluntary and state services are becoming blurred

This week the National Lottery Charities Board opened its doors for business. It expects 200,000 applications for a slice of the estimated £150m in the first year. It is the biggest general grant-giver in Europe, though it is only 5.6 per cent of the lottery take. Already a blast from the Daily Mail has sent a warning shot across its bows, accusing it of "political correctness" in the criteria chosen for the first hand- outs: "To improve the quality of life of people who are disadvantaged by poverty."

However, that sounds reasonably clear, brave and admirable since the poor are not a cuddly cause, and they score badly in other charitable giving. The National Trust comes top, Oxfam second, the Royal National Lifeboat Institution third, followed by three children's charities, one for old people, the RSPCA and the Salvation Army (helping the poor but with discipline, uniforms and a Christian message).

As people scrutinise the winning projects, awkward questions may be raised. What exactly are charities? What is the difference between a charity, a private company and a state-run service? The lines have become so dangerously blurred that when peoplegrasp what is going on, they may feel less like putting their hands in their pockets.

Charities have been enticed into the market to compete for contracts to provide local authority and health services. Take the Family Welfare Association, for instance, one of the likely winners in the lottery stakes asit deals mainly with the poor. Seventy five per cent of its income now comes from contracts with local authorities, bid for in competition with the private sector. Many charities don't play fairly on a level playing field, as they use volunteer staff. And contracts for many services such as meals on wheels have gone to private operators, on the grounds of better quality.

Some contracts are so grotesque that they specify that the charity must recoup 20 per cent of the price from public donations (something private companies complain wryly they have yet to find a way of doing). That means that if you put money into the tin for Old Folk's Sundown Homes, you may find you are subsidising the local council which has a contract with Sundown Homes. I would not feel tremendously generous towards anyone in the local Tube station collecting money for my local council in Lambeth.

Contracting has forced charities to behave more like businesses, with managers brought from the private sector, lean and keen. The culture clash between them and the nice people running the charity shops has been curiously comic. A survey by the Joseph Rowntree Foundation last month found bemused ex-private sector managers complaining that the "myth" of niceness, decency and saintliness makes charities difficult to manage. "Consumers do not always come first in voluntary organisations," says the report.

There is no independent audit of what they do, beyond the cursory checking of accounts for gross misuse. The RNLI, for instance, says it saves four lives a day with its £56m income and £203m in assets. Do we know? If they didn't do it, would the coastguards and RAF helicopters which we already pay for? Do we know if Guide Dogs for the Blind gives value for money with its £25m income and £169m in assets? In those two cases it doesn't really matter. Except that charities command more than £9bn income and untold assets. The Audit Commission rigorously examines everything local authorities and the NHS do. Now that many charities are becoming scarcely more than an arm of government, we shall need to ask the same tough questions of them.

There is growing concern that in the contracting relationship charities have sold their souls, and silenced their voice of protest. The Royal College of Nursing this week said the community care policy was a "disaster". Though some have spoken out, protests from some charities which care for the old and the sick have been strangely muted. Would you expect to find whistle-blowers among charities contracted to provide services?

Contracts have torn away the flimsy veil that separated what charities do and what the government does. As the state has withdrawn, so increasingly charities have advanced, sometimes at their peril - the public gives in order to provide things not paid for by taxes. But the lottery grants will expose that question to the full glare of public scrutiny.

The Social Fund, that pittance the government offers to the poor in emergencies, is cash-limited and turns people away when the money has gone. Front-line charities have been inundated with desperate pleas for children's shoes, cookers or bedding for empty flats. Should charities fill the gaps left by government shortfalls? They have little choice but to step in where they see pressing need. However, if charities are independent of government, they are at least free to protest loudly about a policy not of their making.

The charity world is queasily aware of its dilemmas. The National Council for Voluntary Organisations is launching a commission to look into the future. It would be bold if it recommended withdrawal from contractual relationships with the state, but charities should be free-wheeling radical alternatives, small, local, dynamic and innovatory. Instead we have these leviathans, these respectable old monsters, fossilised, professionalised and deeply institutional. When Dr Barnardo stalked the East End collecting up street children, one man with a bold idea and a talent for self-publicity made a profound change in public attitudes. Not unlike him, Des Wilson launched Shelter and the plight of the homeless into the national conscience. But success and the years turn these outfits dull. Barnardos orphanages have closed, but the charity will go on for ever, seeking new roles for itself, simply because it exists, unstoppably. Shelter has long since stopped packing much punch, but it too will last for ever. There ought to be a sell-by date, otherwise they lie like elephants across the tracks, barring the way to funds foryoung, local organisations.

I was taken aback to meet a militant group of disabled people the other day who said they would abolish charity altogether; everything should be provided by the state. To be pitied is understandably insufferable, yet we could not do without charity. While people won't pay more taxes, they can be cajoled by charities or conned by the lottery. And would we want to live in a society with no place for spontaneous generosity?

Measuring charities by their outcomes misses part of their point, which is why they should get out of the contracting world. Volunteering is a good of itself, and so is the pleasurable act of giving freely. Crude measurement of effectiveness could never add in all that social value. But charities need to be an engine of change, a local community activity and a voice genuinely independent of government and establishment. The lottery board says it will give grants down to as small as £500. The more small local grants it gives, the better it will do its job.